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2017 ANNUAL REPORT
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 29,
2017 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
Executive Officer,
FMC Corporation
Daelim Industrial Co. Ltd.
Abhijit Y. Talwalkar
Former Chief Executive Officer,
Former President and Chief
BOARD OF DIRECTORS
Thomas J. Lynch ‡
Executive Chairman
TE Connectivity Ltd.
Dr. William A. Jeffrey
Chief Executive Officer,
SRI International
Dr. Pierre R. Brondeau*
Yong Nam
President, Chairman, and Chief
Advisor to the CEO,
Terrence R. Curtin
Director and
Chief Executive Officer,
TE Connectivity Ltd.
LG Electronics Inc.
Daniel J. Phelan
Retired Chief of Staff,
GlaxoSmithKline plc
Carol A. “John” Davidson
Mark C. Trudeau
Retired Senior Vice President,
President and Chief Executive
Controller and Chief Accounting
Officer,
Officer,
Tyco International Ltd.
Mallinckrodt plc
*Lead Independent Director of the TE Connectivity Ltd. Board of Directors
Paula A. Sneed
Chair and Chief Executive Officer,
Phelps Prescott Group, LLC
Retired Executive Vice President,
Kraft Foods Inc.
Executive Officer,
LSI Corporation
John C. Van Scoter
Former President and Chief
Executive Officer,
eSolar, Inc.
Laura H. Wright
Founder, GSB Advisors
Retired Chief Financial Officer,
Southwest Airlines Co.
LEADERSHIP TEAM AND OFFICERS
Senior Vice President, Treasurer
Transportation Solutions
Senior Vice President,
Terrence R. Curtin
Chief Executive Officer
and Director
Mario Calastri
Thomas J. Lynch‡
Executive Chairman
Steven T. Merkt
President,
Joel Dubs
Heath A. Mitts
Senior Vice President, Operations
Executive Vice President,
Joseph F. Eckroth, Jr.
Senior Vice President,
Chief Information Officer
John S. Jenkins, Jr.
Executive Vice President,
General Counsel
Shad W. Kroeger
President,
Communications Solutions
Chief Financial Officer
Timothy J. Murphy
Senior Vice President,
Robert J. Ott
Senior Vice President,
Corporate Controller
Sameer Pagnis
Senior Vice President,
Corporate Strategy
Jeanne Quirk
Senior Vice President,
Mergers and Acquisitions
Eric J. Resch
Chief Tax Officer
Kevin N. Rock
President,
Industrial Solutions
Amy Summy
Chief Human Resources Officer
Senior Vice President,
Chief Marketing Officer
Joan E. Wainwright
President,
Channel and Customer Experience
© 2018 TE Connectivity Ltd. All Rights Reserved.
001-AR-FY2017
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.
‡ On December 14, 2017, Mr. Lynch announced his retirement as Executive Chairman of TE Connectivity effective March 14, 2018.
Mr. Lynch has been nominated for, and will continue to serve on, the Board of Directors of TE Connectivity and as the Non-Executive
Chairman of the Board of Directors, if elected at the Annual General Meeting of Shareholders on March 14, 2018.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this Annual Report 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. Investors should not place undue
reliance on any forward-looking statements. We do not have any intention or obligation to update
forward-looking statements after we file this report except as required by law.
The risk factors identified in this Annual Report and those discussed in our Annual Report on
Form 10-K for the fiscal year ended September 29, 2017 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.
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General
BUSINESS
TE Connectivity Ltd. (‘‘TE Connectivity’’ or the ‘‘Company,’’ which may be referred to as ‘‘we,’’
‘‘us,’’ or ‘‘our’’) is a global technology and manufacturing leader creating a safer, sustainable,
productive, and connected future. Our connectivity and sensor solutions, proven in the harshest
environments, have enabled advancements in transportation, industrial applications, medical technology,
energy, data communications, and the home.
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. For fiscal years in
which there are 53 weeks, the fourth quarter reporting period includes 14 weeks. Fiscal 2017, 2016, and
2015 ended on September 29, 2017, September 30, 2016, and September 25, 2015, respectively.
Fiscal 2017 and 2015 were 52 weeks in length. Fiscal 2016 was a 53-week year.
Segments
We operate through three reportable segments: Transportation Solutions, Industrial Solutions, and
Communications Solutions. We believe our segments serve a combined market of approximately
$180 billion.
Our net sales by segment as a percentage of our total net sales were as follows:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53% 53% 52%
26
27
21
20
26
22
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
Fiscal
2017
2016
2015
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:
• Automotive (74% 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.
1
1
• Commercial transportation (14% 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 heavy trucks, construction, agriculture, buses, and other
vehicles.
• 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:
• Industrial equipment (50% 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. 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 industry. The medical industry uses our products in
imaging, diagnostic, therapeutic, surgical, tubing, and minimally invasive interventional
applications.
• Aerospace, defense, oil, and gas (31% 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.
• Energy (19% 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, Belden, Hubbell, Carlisle
Companies, 3M, Integer Holdings, Esterline, Molex, and Phoenix Contact.
Communications Solutions
The Communications Solutions segment is a leading supplier of electronic components for the data
and devices and the 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:
• Data and devices (38% 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,
2
2
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.
• Subsea communications (36% 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.
• Appliances (26% 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, 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 can 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.
No single customer accounted for a significant amount of our net sales in fiscal 2017, 2016, or
2015.
3
3
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:
Americas(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe/Middle East/Africa (‘‘EMEA’’) . . . . . . . . . . . . . . . . . . . .
Asia–Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34% 34% 34%
34
34
32
32
33
33
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
Fiscal
2017
2016
2015
(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.
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 our products indirectly via third-party distributors. In fiscal 2017, our direct
sales represented approximately 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, products are 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 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.
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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:
Fiscal Year End
2017
2016
(in millions)
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,681
1,032
1,157
$1,343
875
1,387
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,870
$3,605
(1)
Includes our Subsea Communications business’ backlog of $739 million and $1,047 million at fiscal
year end 2017 and 2016, respectively. Subsea Communications is a project-based business; its backlog
may fluctuate as a result of program timing.
We expect that the majority of our backlog at fiscal year end 2017 will be filled during fiscal 2018.
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 based on breadth of product offering, product innovation, price, quality, delivery, and service.
Our markets have generally been growing but with downward pressure on prices.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2016
2017
(in millions)
$312
136
118
$344
137
114
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$595
$566
2015
$262
128
150
$540
5
5
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 2017, 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:2) 2017 TE Connectivity Ltd. All
Rights Reserved.
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 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 2017, we employed
approximately 78,000 people worldwide, of whom 24,000 were in the Americas region, 29,000 were in
the EMEA region, and 25,000 were in the Asia–Pacific region. Of our total employees, approximately
49,000 were employed in manufacturing.
Government Regulation and Supervision
The import and export of products are subject to regulation by the various jurisdictions where we
conduct business. 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.
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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 may increase our costs for energy and certain materials and products. We
also have projects underway at a number of current and former manufacturing sites to investigate and
remediate environmental contamination resulting from past operations. Based upon our experience,
available information, and applicable laws, as of fiscal year end 2017, we concluded that it was probable
that we would incur investigation and remediation costs at these sites in the range of $15 million to
$43 million, and that the best estimate within this range was $19 million. We do not anticipate any
material capital expenditures during fiscal 2018 for environmental control facilities or other costs of
compliance with laws or regulations relating to greenhouse gas emissions.
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.
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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 2017 and 2016:
Market Price Range
Fiscal
2017
2016
High
Low
High
Low
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$71.60
76.53
80.03
83.22
$61.03
67.31
71.93
77.61
$67.61
65.75
63.69
64.54
$56.85
52.27
57.32
54.83
The number of registered holders of our common shares at November 9, 2017 was 21,658.
Dividends
The following table sets forth the dividends paid on our common shares during the quarterly
periods of fiscal 2017 and 2016:
Fiscal
2017
2016
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.37
0.37
0.40
0.40
$0.33
0.33
0.37
0.37
Future dividends on our common shares, if any, must be approved by our shareholders. In
exercising their discretion to recommend to the shareholders that such dividends 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.
8
8
Performance Graph
The following graph compares 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 2012 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 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
$50
2012
2013
2014
2015
2016
2017
Fiscal Year End
TE Connectivity Ltd.
S&P 500 Index
Dow Jones Electrical Components and Equipment Index
21DEC201700315135
TE Connectivity Ltd. . . . . . . . . . . . . . . . .
S&P 500 Index . . . . . . . . . . . . . . . . . . . .
Dow Jones Electrical Components and
Fiscal Year End
2012(1)
2013
2014
2015
2016
2017
$100.00
100.00
$156.17
120.06
$180.06
143.64
$182.33
142.79
$205.56
163.93
$270.74
194.44
Equipment Index . . . . . . . . . . . . . . . . .
100.00
137.38
153.26
140.75
167.09
215.47
(1) $100 invested on September 28, 2012 in TE Connectivity Ltd.’s common shares and in indexes. Indexes
calculated on month-end basis.
9
9
Issuer Purchases of Equity Securities
The following table presents information about our purchases of our common shares during the
quarter ended September 29, 2017:
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)
July 1–July 28, 2017 . . . . . . . . . . . . . .
July 29–September 1, 2017 . . . . . . . . .
September 2–September 29, 2017 . . . . .
798,930
1,396,676
760,955
Total . . . . . . . . . . . . . . . . . . . . . . . .
2,956,561
$80.67
79.06
81.11
$80.02
796,800
1,396,371
745,037
2,938,208
Maximum
Approximate
Dollar Value
of Shares that May
Yet Be Purchased
Under the Plans
or Programs(2)
$651,293,669
540,894,749
480,479,256
(1) These columns include the following transactions which occurred during the quarter ended September 29,
2017:
(i) the acquisition of 18,353 common shares from individuals in order to satisfy tax withholding
requirements in connection with the vesting of restricted share awards issued under equity compensation
plans; and
(ii) open market purchases totaling 2,938,208 common shares, summarized on a trade-date basis, in
conjunction with the share repurchase program announced in September 2007.
(2) 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
10
SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data. The data presented 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.
Statement of Operations Data
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition and integration costs . . . . . . . . . . . . . . .
Restructuring and other charges, net(2) . . . . . . . . . . .
Other income (expense), net(3)
. . . . . . . . . . . . . . . .
Income tax (expense) benefit(3)
. . . . . . . . . . . . . . . .
Amounts attributable to TE Connectivity Ltd.:
Income from continuing operations . . . . . . . . . . .
Income from discontinued operations, net of
income taxes(4) . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Share Data
Basic earnings per share attributable to TE
Connectivity Ltd.:
Income from continuing operations . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share attributable to TE
Connectivity Ltd.:
Income from continuing operations . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends and cash distributions paid per common
As of or for Fiscal
2017
2016(1)
2015
2014
2013
(in millions, except per share data)
$13,113
6
148
(9)
(255)
$12,238
22
2
(632)
779
$12,233
55
152
(55)
(337)
$11,973
31
19
63
(146)
$11,390
14
222
(183)
75
1,673
1,941
1,238
1,614
1,154
10
$ 1,683
68
$ 2,009
1,182
$ 2,420
167
$ 1,781
122
$ 1,276
$
$
4.71
4.74
4.67
4.70
$
$
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
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.54
$
1.40
$
1.24
$
1.08
$
0.92
Balance Sheet Data
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . .
$19,403
5,805
$ 9,751
$17,608
6,057
$ 8,485
$20,589
7,429
$ 9,585
$20,132
7,128
$ 9,007
$18,446
6,000
$ 8,380
(1) Fiscal 2016 was a 53-week year.
(2) Fiscal 2016 included a pre-tax gain of $144 million on the sale of our Circuit Protection Devices business. See
Note 3 to the Consolidated Financial Statements for additional information.
(3) For fiscal 2017, 2016, and 2015, see Notes 15 and 16 to the Consolidated Financial Statements for additional
information. Fiscal 2014 income tax (expense) benefit 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. Fiscal 2013 income tax (expense) benefit and net other income
(expense) 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 plc and Covidien plc, respectively.
(4) Fiscal 2015 included the gain on the sale of our Broadband Network Solutions business. See Note 4 to the
Consolidated Financial Statements for additional information.
11
11
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 29, 2017 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 which is a non-GAAP financial
measure. See ‘‘Non-GAAP Financial Measure’’ for additional information regarding this measure.
Overview
We are a global technology and manufacturing leader creating a safer, sustainable, productive, and
connected future. For more than 75 years, our connectivity and sensor solutions, proven in the harshest
environments, have enabled advancements in transportation, industrial applications, medical technology,
energy, data communications, and the home.
Fiscal 2017 highlights included the following:
• Our fiscal 2017 net sales increased 7.1% over fiscal 2016 levels due to growth in the
Transportation Solutions and Industrial Solutions segments and, to a lesser degree, the
Communications Solutions segment. On an organic basis, our net sales increased 6.0% in fiscal
2017 as compared to fiscal 2016.
• Our net sales by segment were as follows:
• Transportation Solutions—Our net sales increased 8.2% as a result of increased sales in the
automotive and commercial transportation end markets and, to a lesser degree, the sensors
end market.
• Industrial Solutions—Our net sales increased 9.1% due to increased sales in the industrial
equipment end market where we benefitted from sales contributions from recent
acquisitions, partially offset by decreased sales in the aerospace, defense, oil, and gas and
the energy end markets.
• Communications Solutions—Our net sales increased 1.9% due primarily to sales increases in
the appliances and subsea communications end markets, partially offset by sales declines in
the data and devices end market resulting from the divestiture of our Circuit Protection
Devices (‘‘CPD’’) business in fiscal 2016.
• During fiscal 2017, our shareholders approved a dividend payment to shareholders of $1.60 per
share, payable in four equal quarterly installments of $0.40 beginning in the third quarter of
fiscal 2017 and ending in the second quarter of fiscal 2018.
• Net cash provided by continuing operating activities was $2,322 million in fiscal 2017.
12
12
Outlook
In the first quarter of fiscal 2018, we expect our net sales to be between $3.35 billion and
$3.45 billion as compared to $3,063 million in the first quarter of fiscal 2017. We expect our net sales
to be between $13.7 billion and $14.1 billion in fiscal 2018 as compared to $13,113 million in fiscal
2017. These increases reflect sales growth in the Transportation Solutions and Industrial Solutions
segments, and to a lesser degree, the Communications Solutions segment relative to the same periods
of fiscal 2017.
Additional information regarding expectations for our reportable segments for the first quarter of
fiscal 2018 as compared to the same period of fiscal 2017 and for fiscal 2018 compared to fiscal 2017 is
as follows:
• Transportation Solutions—We expect our net sales to increase in the automotive end market due
primarily to increased content per vehicle and sales contributions from a recent acquisition. We
expect global automotive production to be flat in the first quarter of fiscal 2018 and to increase
approximately 1% in fiscal 2018. We also expect continued growth in the commercial
transportation and sensors end markets.
• Industrial Solutions—We expect our net sales to increase in the industrial equipment end market
due primarily to continued growth in the factory automation and controls market and the
medical market.
• Communications Solutions—We expect our net sales growth in the appliances and the data and
devices end markets to be partially offset by sales declines in the subsea communications end
market.
In the first quarter of fiscal 2018, we expect diluted earnings per share from continuing operations
to be in the range of $1.12 to $1.16 per share. We expect diluted earnings per share from continuing
operations to be in the range of $4.78 to $4.98 per share in fiscal 2018.
The above outlook is based on foreign currency exchange rates and commodity prices that are
consistent with current levels.
We are monitoring the current macroeconomic environment and its potential effects on our
customers and the end markets we serve. We continue to closely manage our costs in line with
economic conditions. Additionally, we are managing our capital resources and monitoring capital
availability to ensure that we have sufficient resources to fund future capital needs. See further
discussion in ‘‘Liquidity and Capital Resources.’’
Acquisitions
During fiscal 2017, we acquired two businesses for a combined cash purchase price of $250 million,
net of cash acquired.
We acquired four businesses, including the Creganna Medical group (‘‘Creganna’’), for a combined
cash purchase price of $1.3 billion, net of cash acquired, during fiscal 2016.
During fiscal 2015, we acquired Measurement Specialties, Inc. (‘‘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.
See Note 5 to the Consolidated Financial Statements for additional information regarding
acquisitions.
13
13
Divestiture
During fiscal 2016, we sold our CPD business for net cash proceeds of $333 million. We
recognized a pre-tax gain of $144 million on the transaction. The CPD business was reported as part of
the Data and Devices business within our Communications Solutions segment.
Net Sales
Results of Operations
The following table presents our net sales and the percentage of total net sales by segment:
2017
Fiscal
2016
($ in millions)
2015
Transportation Solutions . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . .
$ 7,039
3,507
2,567
53% $ 6,503
3,215
27
2,520
20
53% $ 6,351
3,179
26
2,703
21
52%
26
22
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,113
100% $12,238
100% $12,233
100%
The following table provides an analysis of the change in our net sales compared to the prior fiscal
year by segment:
2017
2016
Fiscal
Change in Net Sales versus Prior Fiscal Year
Change in Net Sales versus Prior Fiscal Year
Net
Sales Growth
Organic Net
Sales Growth
Translation
Acquisitions
(Divestiture)
Net
Sales Growth
Organic Net
Sales Growth
Translation
Acquisitions
(Divestiture)
($ in millions)
.
.
.
.
$536
292
47
$875
8.2% $553
8.5%
$(47)
$ 30
$ 152
2.4% $310
4.9%
$(174)
$ 16
9.1
1.9
50
133
1.6
5.4
7.1% $736
6.0%
(20)
(16)
$(83)
262
(70)
$222
36
1.1
(89)
(2.8)
(183)
(6.8)
(43)
(1.6)
(63)
(17)
$
5
—% $178
1.5%
$(254)
188
(123)
$ 81
Transportation
.
Solutions .
.
Industrial
.
Solutions .
.
Communications
.
Solutions .
.
Total
.
.
.
.
.
Net sales increased $875 million, or 7.1%, in fiscal 2017 as compared to fiscal 2016. The increase
in net sales resulted from organic net sales growth of 6.0% and net sales contributions from
acquisitions and a divestiture of 1.8%, partially offset by the negative impact of foreign currency
translation of 0.7% due to the weakening of certain foreign currencies. Organic net sales were
adversely affected by price erosion of $218 million in fiscal 2017. 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 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. As discussed above, the
additional week contributed $238 million in net sales in fiscal 2016.
See further discussion of net sales below under ‘‘Segment Results.’’
14
14
Net Sales by Geographic Region. Our business operates in three geographic regions—the Americas,
EMEA, and Asia–Pacific—and our results of operations are influenced by changes in foreign currency
exchange rates. Increases or decreases in the value of the U.S. dollar, compared to other currencies,
will directly affect our reported results as we translate those currencies into U.S. dollars at the end of
each fiscal period. We sell our products into approximately 150 countries, and approximately 55% of
our net sales were invoiced in currencies other than the U.S. dollar in fiscal 2017. The percentage of
net sales in fiscal 2017 by major currencies invoiced was as follows:
Currencies
U.S. dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chinese renminbi
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japanese yen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage
45%
28
12
6
9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
The following table presents our net sales and the percentage of total net sales by geographic
region:
2017
Fiscal
2016
($ in millions)
2015
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia–Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,401
4,401
4,311
34% $ 4,199
4,116
34
3,923
32
34% $ 4,138
3,992
34
4,103
32
34%
33
33
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,113
100% $12,238
100% $12,233
100%
The following table provides an analysis of the change in our net sales compared to the prior fiscal
year by geographic region:
2017
2016
Fiscal
Change in Net Sales versus Prior Fiscal Year
Change in Net Sales versus Prior Fiscal Year
Net
Acquisitions
Sales Growth Sales Growth Translation (Divestiture)
Organic Net
Net
Sales Growth
Organic Net
Acquisitions
Sales Growth Translation (Divestiture)
Americas
. . . .
EMEA . . . . . .
Asia–Pacific . . .
$202
285
388
4.8% $100
139
6.9
497
9.9
2.4% $ 6
(23)
3.4
(66)
12.7
($ in millions)
$ 61
124
(180)
$ 96
169
(43)
1.5% $ 15
194
3.1
(31)
(4.4)
0.4% $ (58)
(141)
4.9
(55)
(0.7)
Total . . . . . .
$875
7.1% $736
6.0% $(83)
$222
$
5
—% $178
1.5% $(254)
$104
71
(94)
$ 81
15
15
Cost of Sales and Gross Margin
The following table presents cost of sales and gross margin information:
2017
Fiscal
2016
2015
($ in millions)
Fiscal
2017
versus
2016
Fiscal
2016
versus
2015
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percentage of net sales . . . . . . . . . . . . . . . . . . . .
$8,663
$8,205
$8,146
66.1% 67.0% 66.6% (0.9)% 0.4%
$ 458
$ 59
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percentage of net sales . . . . . . . . . . . . . . . . . . . .
$4,450
$4,033(1) $4,087
$ 417
$ (54)
33.9% 33.0% 33.4% 0.9% (0.4)%
(1) Fiscal 2016 included an additional week which contributed $89 million in gross margin.
Gross margin increased $417 million in fiscal 2017 as compared to fiscal 2016 due primarily to
higher volume and lower material costs, partially offset by price erosion. 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, gross margin decreased in fiscal 2016 due primarily to unfavorable product mix and price
erosion, partially offset by lower material costs.
Cost of sales and gross margin are subject to variability in raw material prices which continue to
fluctuate for many of the raw materials used in the manufacture of our products. In fiscal 2017, we
purchased approximately 188 million pounds of copper, 122,000 troy ounces of gold, and 2.6 million
troy ounces of silver. The following table presents the average prices incurred related to copper, gold,
and silver.
Copper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lb.
Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Troy oz.
Silver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Troy oz.
$ 2.44
1,229
16.75
Measure
2017
Fiscal
2016
$ 2.49
1,212
16.08
2015
$ 3.06
1,267
18.51
In fiscal 2018, we expect to purchase approximately 200 million pounds of copper, 130,000 troy
ounces of gold, and 2.6 million troy ounces of silver.
Operating Expenses
The following table presents operating expense information:
2017
Fiscal
2016
2015
($ in millions)
Fiscal
2017
versus
2016
Fiscal
2016
versus
2015
Selling, general, and administrative expenses . . . . . . . . . . . .
As a percentage of net sales . . . . . . . . . . . . . . . . . . . . . .
$1,591
$1,463
$1,504
$128
$ (41)
12.1% 12.0% 12.3% 0.1% (0.3)%
Research, development, and engineering expenses . . . . . . . .
Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges, net . . . . . . . . . . . . . . . . . .
$ 658
6
148
$ 644
22
2
$ 627
55
152
$ 14
(16)
146
$ 17
(33)
(150)
16
16
Selling, General, and Administrative Expenses. Selling, general, and administrative expenses
increased $128 million in fiscal 2017 as compared to fiscal 2016 primarily as a result of increased
incentive compensation costs, increased selling expenses to support higher sales levels, and increased
costs associated with long-term expense reduction initiatives. 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.
Acquisition and Integration Costs. We incurred acquisition and integration costs of $6 million,
$22 million, and $55 million during fiscal 2017, 2016, and 2015, respectively. In fiscal 2016, acquisition
and integration costs related primarily to the acquisitions of Creganna and Measurement Specialties. In
fiscal 2015, acquisition and integration costs related primarily to the acquisitions of Measurement
Specialties and the SEACON Group.
Restructuring and Other Charges, Net. We are committed to continuous productivity improvements,
and we 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 2017, we initiated a restructuring program associated with footprint consolidation
related to recent acquisitions and structural improvements impacting all segments. 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 closures, primarily
impacting the Communications Solutions and Industrial Solutions segments.
In connection with these initiatives, we recorded net restructuring charges of $147 million,
$125 million, and $93 million in fiscal 2017, 2016, and 2015, respectively. Annualized cost savings
related to actions initiated in fiscal 2017 are expected to be approximately $125 million and are
expected to be realized by the end of fiscal 2019. Cost savings will be reflected primarily in cost of sales
and selling, general, and administrative expenses. During fiscal 2018, we expect net restructuring
charges to be similar to fiscal 2017 levels, and we expect total spending, which will be funded with cash
from operations, to be approximately $130 million.
During fiscal 2016, we recognized a pre-tax gain of $144 million on the sale of our CPD business.
During fiscal 2017, 2016, and 2015, we incurred net other charges of $1 million, $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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,047
$1,902(1) $1,749
$145
$153
15.6% 15.5% 14.3% 0.1% 1.2%
(1) Fiscal 2016 included an additional week which contributed $55 million in operating income.
2017
Fiscal
2016
2015
($ in millions)
Fiscal
2017
versus
2016
Fiscal
2016
versus
2015
17
17
Operating income included the following:
Acquisition related charges:
Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges associated with the amortization of acquisition-related fair value
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2017
2016
2015
(in millions)
$
6
$22
$ 55
5
10
— —
11
148
32
2
36
3
94
149
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$159
$34
$243
See discussion of operating income below under ‘‘Segment Results.’’
Non-Operating Items
The following table presents select non-operating information:
2017
Fiscal
2016
2015
Fiscal
2017
versus
2016
Fiscal
2016
versus
2015
Other expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9
$ 632
($ in millions)
55
$
$ (623) $
577
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
255
13.2% (67.0)% 21.4% 80.2% (88.4)%
(1,116)
(779)
1,034
337
Income from discontinued operations, net of income taxes .
$ 10
$
68
$1,182
$ (58) $(1,114)
Other Expense, Net.
In fiscal 2017, 2016, and 2015, we recorded net other expense primarily
pursuant to the Tax Sharing Agreement with Tyco International plc (‘‘Tyco International’’) and
Covidien plc (‘‘Covidien’’). See Note 16 to the Consolidated Financial Statements for further
information regarding net other expense.
Income Taxes. See Note 15 to the Consolidated Financial Statements for information regarding
items impacting income tax expense (benefit) and the effective tax rate for fiscal 2017, 2016, and 2015.
The valuation allowance for deferred tax assets was $3,627 million and $3,096 million at fiscal year
end 2017 and 2016, 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 2017, certain subsidiaries had approximately $22 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
Broadband Network Solutions (‘‘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.
18
18
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
$30 million, representing a release of excess reserves. These amounts were reflected in income from
discontinued operations on the Consolidated Statements of Operations as the Com-Net case was
associated with our former Wireless Systems business which was sold in fiscal 2009.
The BNS and Wireless Systems businesses met the discontinued operations criteria and were
reported as such in all periods presented on the Consolidated Financial Statements. Prior to
reclassification to discontinued operations, the BNS and Wireless Systems businesses were included in
the former Network Solutions and Wireless Systems segments, respectively. See Note 4 to the
Consolidated Financial Statements for additional information regarding discontinued operations.
Transportation Solutions
Segment Results
Net Sales. The following table presents the Transportation Solutions segment’s net sales and the
percentage of total net sales by primary industry end market(1):
2017
Fiscal
2016
($ in millions)
2015
Automotive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial transportation . . . . . . . . . . . . . . . . . . . . .
Sensors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,228
997
814
74% $4,912
825
14
766
12
75% $4,780
820
13
751
12
75%
13
12
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,039
100% $6,503
100% $6,351
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:
Fiscal
2017
2016
Change in Net Sales versus Prior Fiscal Year
Change in Net Sales versus Prior Fiscal Year
Net
Sales Growth
Organic Net
Sales Growth
Translation
Acquisition
Net
Sales Growth
Organic Net
Sales Growth
Translation
Acquisition
$316
172
48
$536
6.4%
$349
7.1%
$(33)
($ in millions)
$—
$132
2.8%
$266
5.6% $(134)
20.8
6.3
181
23
21.9
3.0
(9)
(5)
8.2%
$553
8.5%
$(47)
—
30
$30
5
15
0.6
2.0
21
23
2.6
3.1
(16)
(24)
$152
2.4%
$310
4.9% $(174)
$—
—
16
$16
Automotive .
Commercial
.
.
.
transportation .
.
.
Sensors .
.
.
.
Total
.
.
.
.
.
.
Net sales in the Transportation Solutions segment increased $536 million, or 8.2%, in fiscal 2017
from fiscal 2016 primarily as a result of organic net sales growth of 8.5%. 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:
• Automotive—Our organic net sales increased 7.1% in fiscal 2017. The increase resulted from
growth of 11.1% in the Asia–Pacific region, 5.6% in the EMEA region, and 1.4% in the
Americas region. Our growth in the Asia–Pacific region was driven by increased demand in
China resulting from a tax incentive program, market share gains, and increased
electronification. In the EMEA region, our organic net sales growth was driven by market
19
19
growth, electronification, and new model launches. Our growth in the Americas region resulted
from continued market recovery in South America.
• Commercial transportation—Our organic net sales increased 21.9% in fiscal 2017 primarily as a
result of growth in the heavy truck market in all regions and content gains in China.
• Sensors—Our organic net sales increased 3.0% in fiscal 2017 due primarily to growth in the
industrial equipment and commercial transportation markets, partially offset by declines in the
data and devices market.
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%. As discussed above, the additional week contributed
$130 million in net sales in fiscal 2016. Our organic net sales by primary industry end market were as
follows:
• Automotive—Our organic net sales increased 5.6% in fiscal 2016. The increase was due primarily
to growth of 8.4% in the Asia–Pacific region and 5.9% in the EMEA region, partially offset by a
decrease of 0.9% in the Americas region. In the Asia–Pacific region, our growth was driven by
increased electronification and market share gains in China. In the EMEA region, our organic
net sales increased due to electronification and new model launches. The Americas region was
adversely impacted by market weakness in North America and macroeconomic conditions in
South America.
• Commercial transportation—Our organic net sales increased 2.6% in fiscal 2016 due primarily to
growth in the heavy truck market in the EMEA region and China.
• Sensors—Our organic net sales increased 3.1% in fiscal 2016 primarily as a result of increased
sales in the automotive, aerospace and defense, and industrial equipment markets.
Operating Income. The following table presents the Transportation Solutions segment’s operating
income and operating margin information:
2017
Fiscal
2016
2015
($ in millions)
Fiscal
2017
versus
2016
Fiscal
2016
versus
2015
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,299
$1,191
$1,193
$108
$ (2)
18.5% 18.3% 18.8% 0.2% (0.5)%
In fiscal 2017, operating income in the Transportation Solutions segment increased $108 million
from fiscal 2016. Operating income in the Transportation Solutions segment was flat in fiscal 2016 as
20
20
compared to fiscal 2015. The Transportation Solutions segment’s operating income included the
following:
Fiscal
2017
2016
2015
(in millions)
Acquisition related charges:
Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges associated with the amortization of acquisition-related fair value
$ 3
$ 9
$ 28
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
Restructuring charges related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
Restructuring and other charges, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
67
9
46
30
3
61
39
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$70
$55
$100
Excluding these items, operating income increased in fiscal 2017 primarily as a result of higher volume,
partially offset by price erosion. In fiscal 2016, excluding these items, operating income decreased
primarily as a result of price erosion and the negative impact of changes in foreign currency exchange
rates, partially offset by lower material costs.
Industrial Solutions
Net Sales. The following table presents the Industrial Solutions segment’s net sales and the
percentage of total net sales by primary industry end market(1):
2017
Fiscal
2016
($ in millions)
2015
Industrial equipment
. . . . . . . . . . . . . . . . . . . . . . . . .
Aerospace, defense, oil, and gas . . . . . . . . . . . . . . . . .
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,747
1,075
685
50% $1,419
1,100
31
696
19
44% $1,323
1,151
34
705
22
42%
36
22
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,507
100% $3,215
100% $3,179
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:
2017
2016
Fiscal
Change in Net Sales versus Prior Fiscal Year
Change in Net Sales versus Prior Fiscal Year
Net
Sales Growth
Organic Net
Sales Growth
Translation Acquisitions
Net
Sales Growth
Organic Net
Sales Growth
Translation Acquisitions
$328
23.1%
$ 77
5.5% $(10)
$261
$ 96
7.3%
$(69)
(5.2)% $(14)
($ in millions)
(25)
(11)
(2.3)
(1.6)
(19)
(8)
(1.7)
(1.0)
(7)
(3)
1
—
$292
9.1%
$ 50
1.6% $(20)
$262
(51)
(9)
$ 36
(4.4)
(1.3)
(45)
25
(3.8)
3.6
(15)
(34)
1.1%
$(89)
(2.8)% $(63)
.
.
.
.
$179
9
—
$188
Industrial equipment .
.
Aerospace, defense, oil, and
.
.
.
.
.
.
gas .
.
Energy .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total
.
.
.
.
.
.
.
.
.
.
.
In the Industrial Solutions segment, net sales increased $292 million, or 9.1%, in fiscal 2017 from
fiscal 2016 due to sales contributions from acquisitions of 8.1% and organic net sales growth of 1.6%,
partially offset by the negative impact of foreign currency translation of 0.6%. Fiscal 2016 included an
21
21
additional week which contributed $65 million in net sales. Our organic net sales by primary industry
end market were as follows:
• Industrial equipment—Our organic net sales increased 5.5% in fiscal 2017 due primarily to
growth in the factory automation and controls market and the medical market.
• Aerospace, defense, oil, and gas—Our organic net sales decreased 1.7% in fiscal 2017 due to
continued weakness in the oil and gas market and declines in our sales into the commercial
aerospace market, partially offset by growth in the defense market.
• Energy—Our organic net sales decreased 1.0% in fiscal 2017 due to declines in the EMEA and
Americas regions, partially offset by growth in the Asia–Pacific region.
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%. As discussed
above, the additional week contributed $65 million in net sales in fiscal 2016. Our organic net sales by
primary industry end market were as follows:
• Industrial equipment—Our organic net sales decreased 5.2% in fiscal 2016 as a result of
weakness in industrial markets, particularly in the Americas and Asia–Pacific regions.
• Aerospace, defense, oil, and gas—Our organic net sales decreased 3.8% in fiscal 2016. The
decrease was attributable to declines in the oil and gas market, partially offset by growth in the
commercial aerospace market and, to a lesser degree, the defense market. In the oil and gas
market, our organic net sales decrease was due to continued market weakness resulting from
declines in oil prices. In the commercial aerospace market, our organic net sales increased due
primarily to customer growth and market share gains.
• Energy—Our organic net sales increased 3.6% in fiscal 2016 primarily as a result of growth in
the Americas and EMEA regions.
Operating Income. The following table presents the Industrial Solutions segment’s operating
income and operating margin information:
Fiscal
2016
2015
2017
Fiscal
2017
versus
2016
Fiscal
2016
versus
2015
($ in millions)
$ 352
$ 364
10.4% 10.7% 11.1% (0.3)% (0.4)%
$ (9)
$ 343
$ 21
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
22
Operating income in the Industrial Solutions segment increased $21 million in fiscal 2017 as
compared to fiscal 2016 and decreased $9 million in fiscal 2016 as compared to fiscal 2015. 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
2017
2016
2015
(in millions)
$ 3
$13
$27
5
8
73
10
23
31
6
33
44
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$81
$54
$77
Excluding these items, operating income increased in fiscal 2017 primarily as a result of higher volume,
partially offset by price erosion. In fiscal 2016, excluding these items, operating income decreased due
primarily to unfavorable product mix and price erosion, partially offset by lower material costs.
Communications Solutions
Net Sales. The following table presents the Communications Solutions segment’s net sales and the
percentage of total net sales by primary industry end market(1):
2017
Fiscal
2016
($ in millions)
2015
Data and devices . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsea communications . . . . . . . . . . . . . . . . . . . . . . .
Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 963
928
676
38% $1,020
885
36
615
26
40% $1,357
709
35
637
25
50%
26
24
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,567
100% $2,520
100% $2,703
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:
2017
2016
Fiscal
Change in Net Sales versus Prior Fiscal Year
Change in Net Sales versus Prior Fiscal Year
Net
Sales Growth
Organic Net
Sales Growth
Translation Divestiture
Net
Sales Growth
Organic Net
Sales Growth
Translation Divestiture
.
.
.
.
.
.
.
.
.
.
.
.
$(57)
43
61
$ 47
(5.6)% $ 23
43
4.9
67
9.9
2.3% $(10)
—
4.9
(6)
10.8
1.9%
$133
5.4% $(16)
$(70)
—
—
$(70)
$(337)
176
(22)
$(183)
(24.8)% $(208)
176
24.8
(11)
(3.5)
(17.8)% $ (6)
—
24.8
(11)
(1.8)
(6.8)% $ (43)
(1.6)% $(17)
$(123)
—
—
$(123)
($ in millions)
.
Data and devices .
Subsea communications .
.
.
Appliances
.
.
.
.
.
.
.
Total
.
.
.
.
.
.
.
.
.
Net sales in the Communications Solutions segment increased $47 million, or 1.9%, in fiscal 2017
as compared to fiscal 2016 as a result of organic net sales growth of 5.4%, partially offset by sales
declines resulting from a divestiture of 2.8% and the negative impact of foreign currency translation of
23
23
0.7%. 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:
• Data and devices—Our organic net sales increased 2.3% in fiscal 2017 primarily as a result of
increased sales to cloud infrastructure customers, partially offset by sales declines resulting from
weakness in the wireless market.
• Subsea communications—Our organic net sales increased 4.9% in fiscal 2017 as a result of
increased project activity.
• Appliances—Our organic net sales increased 10.8% in fiscal 2017 due primarily to growth in the
Asia–Pacific region as a result of increased market demand and share gains.
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%. As discussed above,
the additional week contributed $43 million in net sales in fiscal 2016. Our organic net sales by primary
industry end market were as follows:
• Data and devices—Our organic net sales decreased 17.8% in fiscal 2016 as a result of the
strategic exit of certain low margin product lines and market weakness in all regions.
• Subsea communications—Our organic net sales increased 24.8% in fiscal 2016 due to increased
project activity.
• Appliances—Our organic net sales decreased 1.8% in fiscal 2016 due primarily to high inventory
levels at distributors in the first half of the year and lower demand in the Asia–Pacific and
Americas regions, partially offset by growth in the EMEA region.
Operating Income. The following table presents the Communications Solutions segment’s
operating income and operating margin information:
Fiscal
2016
2017
2015
Fiscal
2017
versus
2016
Fiscal
2016
versus
2015
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
($ in millions)
$204
$ 368
$ 384
15.0% 14.6% 7.5% 0.4% 7.1%
$164
$ 16
In the Communications Solutions segment, operating income increased $16 million in fiscal 2017 as
compared to fiscal 2016 and increased $164 million in fiscal 2016 as compared to fiscal 2015. The
Communications Solutions segment’s operating income included the following:
Fiscal
2017
2016
2015
Restructuring and other charges (credits), net . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8
(in millions)
$(75)(1) $66
(1)
Includes pre-tax gain of $144 million on the sale of our CPD business during fiscal 2016.
Excluding these items, operating income increased in fiscal 2017 due primarily to higher volume and
improved manufacturing productivity, partially offset by price erosion. In fiscal 2016, excluding these
items, operating income increased 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.
24
24
Liquidity and Capital Resources
Our ability to fund our future capital needs will be affected by our ability to continue to generate
cash from operations and may be affected by our ability to access the capital markets, money markets,
or other sources of funding, as well as the capacity and terms of our financing arrangements. We
believe that cash generated from operations and, to the extent necessary, these other sources of
potential funding will be sufficient to meet our anticipated capital needs for the foreseeable future. We
may use excess cash to purchase a portion of our common shares pursuant to our authorized share
repurchase program, to acquire strategic businesses or product lines, to pay dividends on our common
shares, or to reduce our outstanding debt, including through the possible repurchase of our debt in
accordance with applicable law. Payment of our $708 million of 6.55% senior notes due in October
2017 was made after fiscal year end 2017. 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 2017, 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 2017,
we had approximately $6.3 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 approximately $1.2 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 increased $278 million to $2,322 million in
fiscal 2017 as compared to $2,044 million in fiscal 2016. The increase resulted primarily from higher
pre-tax income levels, an increase in accrued and other current liabilities related to employee
compensation, and a decrease in net payments related to pre-separation tax matters, partially offset by
the impact of increased sales on accounts receivable levels.
Net cash provided by continuing operating activities was $2,044 million in fiscal 2016 as compared
to $1,636 million in fiscal 2015. The increase resulted primarily from the favorable effects of changes in
accounts receivable and inventory levels, partially offset by an increase in net payments related to
pre-separation tax matters.
The amount of income taxes paid, net of refunds, during fiscal 2017, 2016, and 2015 was
$323 million, $806 million, and $350 million, respectively. In fiscal 2017, 2016, and 2015, these amounts
included refunds of $23 million, payments of $471 million, and payments of $47 million, respectively,
related to pre-separation tax matters. 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.
See Note 12 to the Consolidated Financial Statements for further information regarding the Tax
Sharing Agreement associated with pre-separation tax matters. For additional information regarding
payments related to pre-separation tax matters, see Note 15 to the Consolidated Financial Statements.
25
25
Pension contributions in fiscal 2017, 2016, and 2015 were $48 million, $67 million, and $66 million,
respectively. We expect pension contributions to be $62 million in fiscal 2018, before consideration of
any voluntary contributions. There were no voluntary pension contributions in fiscal 2017, 2016, or
2015.
Cash Flows from Investing Activities
Capital expenditures were $702 million, $628 million, and $600 million in fiscal 2017, 2016, and
2015, respectively. We expect fiscal 2018 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.
We acquired two businesses during fiscal 2017 for a combined cash purchase price of $250 million,
net of cash acquired. 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. See Note 5 to the Consolidated Financial Statements for additional
information regarding acquisitions.
During fiscal 2016, we received net cash proceeds of $333 million related to the sale of our CPD
business. See Note 3 to the Consolidated Financial Statements for further information. We received net
cash proceeds of $3.0 billion related to the sale of our BNS business during fiscal 2015. See Note 4 to
the Consolidated Financial Statements for further information.
Cash Flows from Financing Activities and Capitalization
Total debt at fiscal year end 2017 and 2016 was $4,344 million and $4,070 million, respectively. See
Note 11 to the Consolidated Financial Statements for additional information regarding debt.
During August 2017, TEGSA, our 100%-owned subsidiary, issued $400 million aggregate principal
amount of 3.125% senior notes due August 2027 and $100 million aggregate principal amount of 3.45%
senior notes due August 2024. The 3.45% senior notes were issued under an existing indenture under
which TEGSA had previously issued $250 million aggregate principal amount. 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 a maturity
date of December 2020 and total commitments of $1,500 million. TEGSA had no borrowings under the
Credit Facility at fiscal year end 2017 or 2016.
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 2017, 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
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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 $546 million, $509 million, and
$502 million in fiscal 2017, 2016, and 2015, respectively. See Note 18 to the Consolidated Financial
Statements for additional information regarding dividends on our common shares.
Future dividends on our common shares, if any, must be approved by our shareholders. In
exercising their discretion to recommend to the shareholders that such dividends 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 and 2015, our board of directors authorized increases of $1.0 billion and
$3.0 billion, respectively, in the share repurchase program. We repurchased approximately 8 million of
our common shares for $621 million, 43 million of our common shares for $2,610 million, and
18 million of our common shares for $1,163 million under the share repurchase program during fiscal
2017, 2016, and 2015, respectively. At fiscal year end 2017, we had $480 million of availability
remaining under our share repurchase authorization.
Commitments and Contingencies
The following table provides a summary of our contractual obligations and commitments for debt,
minimum lease payment obligations under non-cancelable leases, and other obligations at fiscal year
end 2017:
Payments Due by Fiscal Year
Total
2018
2019
2020
2021
2022 Thereafter
(in millions)
Debt(1)
Interest payments on debt(2) . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations(3) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,356 $ 710 $580 $ — $250 $500
88
103
109
62
42
51
10 — —
1,239
454
485
146
110
460
119
85
12
$2,316
674
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Total contractual cash obligations(4)(5)(6)
. . . . . . . . . . $6,534 $1,426 $796 $181 $404 $630
$3,097
(1) Debt represents principal payments. See Note 11 to the Consolidated Financial Statements for additional
information regarding debt.
(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 above table does not reflect unrecognized income tax benefits of $501 million and related accrued
interest and penalties of $60 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 above table 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 $62 million to
pension plans in fiscal 2018, before consideration of any voluntary contributions. See Note 14 to the
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Consolidated Financial Statements for additional information regarding these plans and our estimates of
future contributions and benefit payments.
(6) Other long-term liabilities of $482 million are excluded from the above table 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 2018 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 2017, we had outstanding letters of credit, letters of guarantee, and surety bonds
of $298 million.
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. We believe the following accounting policies are 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
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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 unbilled
receivables on 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 determinable lives primarily include intellectual
property, consisting of patents, trademarks, and unpatented technology, and customer relationships.
Recoverability estimates range from 1 to 50 years and costs are generally amortized on a straight-line
basis. Evaluations of the remaining useful lives of determinable-lived intangible assets are performed on
a periodic basis and when events and circumstances warrant.
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 2017, 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,
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 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
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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 2017 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 pre-tax operating income in various tax jurisdictions, 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.
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 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 Liabilities
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
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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 2017, a 25-basis point decrease in the
discount rate would have increased the present value of our pension obligations by $134 million; a
25-basis point increase would have decreased the present value of our pension obligations by
$120 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 2017 pension
expense by $11 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. We expect to reach our target allocation when the funded status of the plans exceeds
105%. Based on the funded status of the plans as of fiscal year end 2017, our target asset allocation is
45% equity and 55% fixed income.
See Note 2 to the Consolidated Financial Statements for information regarding recently issued and
recently adopted accounting pronouncements.
Accounting Pronouncements
Organic Net Sales Growth
Non-GAAP Financial Measure
We present organic net sales growth as we believe it is appropriate for investors to consider this
adjusted financial measure in addition to results in accordance with GAAP. Organic net sales growth
represents net sales growth (the most comparable GAAP financial measure) excluding the impact of
foreign currency exchange rates, and acquisitions and divestitures that occurred in the preceding twelve
months, if any. Organic net sales growth is a useful measure of our performance because it excludes
items that are not completely under management’s control, such as the impact of changes in foreign
currency exchange rates, and items that do not reflect the underlying growth of the company, such as
acquisition and divestiture activity.
Organic net sales growth provides useful information about our results and the trends of our
business. Management uses organic net sales growth to monitor and evaluate performance. Also,
management uses organic net sales growth together with GAAP financial measures in its
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decision-making processes related to the operations of our reportable segments and our overall
company. It is also a significant component in our incentive compensation plans. We believe that
investors benefit from having access to the same financial measures that management uses in evaluating
operations. The tables presented in ‘‘Results of Operations’’ and ‘‘Segment Results’’ provide
reconciliations of organic net sales growth to net sales growth calculated in accordance with GAAP.
Organic net sales growth is a non-GAAP financial measure and should not be considered a
replacement for results in accordance with GAAP. This non-GAAP financial measure may not be
comparable to similarly-titled measures reported by other companies. The primary limitation of this
measure is that it excludes the financial impact of items that would otherwise either increase or
decrease our reported results. This limitation is best addressed by using organic net sales growth in
combination with net sales growth in order to better understand the amounts, character, and impact of
any increase or decrease in reported amounts.
Forward-Looking Information
Certain statements in this 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. Investors should not place undue
reliance on any forward-looking statements. We do not have any intention or obligation to update
forward-looking statements after we file this report except as required by law.
The following and other risks, which are described in greater detail in ‘‘Part I. Item 1A. Risk
Factors’’ of our Annual Report on Form 10-K for the fiscal year ended September 29, 2017 filed with
the SEC and elsewhere in this Annual Report, could cause our results to differ materially from those
expressed in forward-looking statements:
• conditions in the global or regional economies and global capital markets, and cyclical industry
conditions;
• conditions affecting demand for products in the industries we serve, particularly the automotive
industry;
• competition and pricing pressure;
• market acceptance of our new product introductions and product innovations and product life
cycles;
• raw material availability, quality, and cost;
• fluctuations in foreign currency exchange rates;
• financial condition and consolidation of customers and vendors;
• reliance on third-party suppliers;
• risks associated with current and future acquisitions and divestitures;
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• global risks of business interruptions such as natural disasters and political, economic, and
military instability;
• risks associated with security breaches and other disruptions to our information technology
infrastructure;
• risks related to compliance with current and future environmental and other laws and
regulations;
• our ability to protect our intellectual property rights;
• risks of litigation;
• our ability to operate within the limitations imposed by our debt instruments;
• 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;
• various risks associated with being a Swiss corporation;
• the impact of fluctuations in the market price of our shares; and
• 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.
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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 foreign 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 2017 market rates would have changed the unrealized value of
our contracts by $122 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 2016 market rates would have changed the unrealized value of our contracts by
$112 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 at fiscal year end 2017 and 2016, 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 immaterial increase in interest expense in both fiscal 2017 and 2016.
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 to hedge a portion of usage requirements over
that period. At fiscal year end 2017, our commodity hedges, which related to expected purchases of
gold, silver, and copper, were in a net gain position of $20 million and had a notional value of
$314 million. 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. 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 2017 prices would have changed the unrealized
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value of our forward contracts by $33 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 2016 prices
would have changed the unrealized value of our forward contracts by $24 million.
See Note 13 to the Consolidated Financial Statements for additional information regarding
financial instruments.
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 29, 2017. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of September 29, 2017.
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 29, 2017.
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 29, 2017, which is included in
this Annual Report.
Changes in Internal Control Over Financial Reporting
During the quarter ended September 29, 2017, 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.
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TE CONNECTIVITY LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
38
Consolidated Statements of Operations for the Fiscal Years Ended September 29, 2017,
September 30, 2016, and September 25, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended September 29,
2017, September 30, 2016, and September 25, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of September 29, 2017 and September 30, 2016 . . . . . . . . . . . . .
Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended September 29, 2017,
September 30, 2016, and September 25, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Fiscal Years Ended September 29, 2017,
September 30, 2016, and September 25, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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43
44
45
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101
Report of the Statutory Auditor on the Consolidated Financial Statements of TE Connectivity
Ltd.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102
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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 29, 2017 and September 30, 2016, and the related
consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for
each of the three fiscal years in the period ended September 29, 2017. 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 29, 2017 and September 30, 2016, and the results of
its operations and its cash flows for each of the three fiscal years in the period ended September 29,
2017, 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 29, 2017, 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 14, 2017 expressed an unqualified opinion on the Company’s internal control over
financial reporting.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 14, 2017
38
38
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 29, 2017, 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 29, 2017, 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 29, 2017, and our report dated
November 14, 2017 expressed an unqualified opinion on those consolidated financial statements and
financial statement schedule.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 14, 2017
39
39
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended September 29, 2017, September 30, 2016, and September 25, 2015
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 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 . . . . . . . . .
2017
Fiscal
2016
2015
(in millions, except per share data)
$12,233
$12,238
$13,113
8,146
8,205
8,663
4,450
1,591
658
6
148
2,047
20
(130)
(9)
1,928
(255)
1,673
10
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
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,683
$ 2,009
$ 2,420
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
4.71
0.03
4.74
4.67
0.03
4.70
$
$
5.30
0.19
5.49
5.26
0.18
5.44
$
$
3.06
2.92
5.98
3.01
2.88
5.89
Dividends paid per common share . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.54
$
1.40
$
1.24
Weighted-average number of shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
355
358
366
369
405
411
See Notes to Consolidated Financial Statements.
40
40
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal Years Ended September 29, 2017, September 30, 2016, and September 25, 2015
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to unrecognized pension and postretirement benefit costs,
net of income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on cash flow hedges, net of income taxes . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
Fiscal
2016
2015
(in millions)
$2,009
$1,683
$2,420
37
(92)
(312)
330
15
382
(88)
11
(46)
2
(169)
(356)
Comprehensive income.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,065
$1,840
$2,064
See Notes to Consolidated Financial Statements.
41
41
TE CONNECTIVITY LTD.
CONSOLIDATED BALANCE SHEETS
As of September 29, 2017 and September 30, 2016
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $21 and $17,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year End
2017
2016
(in millions, except
share data)
$ 1,218
$
647
2,290
1,813
605
5,926
3,400
5,651
1,841
2,141
444
2,046
1,596
486
4,775
3,052
5,492
1,879
2,111
299
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,403
$17,608
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
710
1,436
1,626
75
3,847
3,634
1,160
236
293
482
9,652
$
331
1,090
1,437
208
3,066
3,739
1,502
207
247
362
9,123
Commitments and contingencies (Note 12)
Shareholders’ equity:
Common shares, CHF 0.57 par value, 357,069,981 shares authorized and issued,
and 382,835,381 shares authorized and issued, respectively . . . . . . . . . . . . . . .
Contributed surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury shares, at cost, 5,356,369 and 27,554,005 shares, respectively . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
157
—
10,175
(421)
(160)
168
1,801
8,682
(1,624)
(542)
Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,751
8,485
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,403
$17,608
See Notes to Consolidated Financial Statements.
42
42
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Fiscal Years Ended September 29, 2017, September 30, 2016, and September 25, 2015
Common
Shares
Treasury
Shares
Contributed Accumulated Comprehensive Shareholders’
Accumulated
Other
Total
Shares Amount Shares Amount
Surplus
Earnings
Loss
Equity
(in millions)
$184
—
—
(11)
—
—
$ (644)
—
—
$ 5,231
—
—
$ 4,253
2,420
—
$ (17)
—
(356)
Balance at September 26, 2014 .
419
Net income . . . . . . . . . . . . . . —
Other comprehensive loss . . . . . —
Share-based compensation
expense . . . . . . . . . . . . . . . —
Dividends approved . . . . . . . . —
Exercise of share options . . . . . —
Restricted share award vestings
and other activity . . . . . . . . . —
Repurchase of common shares . . —
(5)
Cancellation of treasury shares . .
—
—
—
—
—
(2)
Balance at September 25, 2015 .
414
$182
Net income . . . . . . . . . . . . . . —
Other comprehensive loss . . . . . —
Share-based compensation
expense . . . . . . . . . . . . . . . —
Dividends approved . . . . . . . . —
Exercise of share options . . . . . —
Restricted share award vestings
and other activity . . . . . . . . . —
Repurchase of common shares . . —
(31)
Cancellation of treasury shares . .
—
—
—
—
—
—
—
(14)
Balance at September 30, 2016 .
383
$168
Adoption of ASU No. 2016-09 . . —
Net income . . . . . . . . . . . . . . —
Other comprehensive income . . . —
Share-based compensation
expense . . . . . . . . . . . . . . . —
Dividends approved . . . . . . . . —
Exercise of share options . . . . . —
Restricted share award vestings
and other activity . . . . . . . . . —
Repurchase of common shares . . —
(26)
Cancellation of treasury shares . .
—
—
—
—
—
—
—
—
(11)
Balance at September 29, 2017 .
357
$157
—
—
3
1
(18)
5
(20)
—
—
—
—
2
2
(43)
31
(28)
—
—
—
—
—
3
2
(8)
26
(5)
$ 9,007
2,420
(356)
95
(526)
103
5
(1,163)
—
$ 9,585
2,009
(169)
91
(512)
90
1
(2,610)
—
—
—
103
143
(1,163)
305
95
(526)
—
(138)
—
(303)
—
—
—
—
—
—
$(1,256)
$ 4,359
$ 6,673
—
—
—
—
90
—
—
91
(512)
—
146
(2,610)
2,006
(145)
—
(1,992)
2,009
—
—
—
—
—
—
—
—
—
—
—
—
—
$(373)
—
(169)
—
—
—
—
—
—
$(1,624)
$ 1,801
$ 8,682
$(542)
$ 8,485
—
—
—
—
—
117
195
(621)
1,512
—
—
—
99
(564)
—
(184)
—
(1,152)
165
1,683
—
—
—
—
(6)
—
(349)
—
—
382
—
—
—
—
—
—
165
1,683
382
99
(564)
117
5
(621)
—
$ (421)
$ —
$10,175
$(160)
$ 9,751
See Notes to Consolidated Financial Statements.
43
43
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended September 29, 2017, September 30, 2016, and September 25, 2015
Fiscal
2016
2015
2017
(in millions)
$1,683
(10)
$ 2,009
(68)
$ 2,420
(1,182)
1,673
1,941
1,238
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for losses on accounts receivable and inventories
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax sharing 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
635
(75)
19
8
99
—
10
(253)
(211)
(72)
308
225
(137)
7
86
Net cash provided by continuing operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) discontinued operating activities
2,322
(1)
Net cash provided by operating activities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,321
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 used in continuing financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(702)
19
(250)
4
—
(3)
(932)
—
(932)
(330)
589
—
117
(614)
(546)
(1)
(30)
(815)
1
(814)
(4)
571
647
Cash and cash equivalents at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,218
Supplemental Cash Flow Information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 128
323
See Notes to Consolidated Financial Statements.
44
44
585
178
17
632
91
(144)
102
116
16
282
(75)
(4)
26
(1,764)
45
2,044
(97)
1,947
(628)
8
(1,336)
333
(19)
61
(1,581)
—
(1,581)
330
352
(501)
90
(2,787)
(509)
(97)
(30)
(3,152)
97
616
40
36
52
89
—
126
(210)
(220)
36
(5)
(155)
12
(52)
33
1,636
294
1,930
(600)
17
(1,725)
—
2,957
12
661
(25)
636
(328)
617
(473)
103
(1,023)
(502)
269
(17)
(1,354)
(269)
(3,055)
(1,623)
7
(2,682)
3,329
(71)
872
2,457
$
$
647
$ 3,329
117
806
$
128
350
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 and manufacturing leader creating a safer, sustainable,
productive, and connected future. For more than 75 years, our connectivity and sensor solutions,
proven in the harshest environments, have enabled advancements in transportation, industrial
applications, medical technology, energy, data communications, and the home.
We operate through three reportable segments:
• 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.
• 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.
• Communications Solutions. The Communications Solutions segment is a leading supplier of
electronic components for the data and devices and the 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 2017, 2016, and
2015 ended on September 29, 2017, September 30, 2016, and September 25, 2015, respectively.
Fiscal 2017 and 2015 were 52 weeks in length. Fiscal 2016 was a 53-week year.
45
45
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 unbilled
receivables on 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.
46
46
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 determinable lives primarily include intellectual
property, consisting of patents, trademarks, and unpatented technology, and customer relationships.
Recoverability estimates range from 1 to 50 years and costs are generally amortized on a straight-line
basis. Evaluations of the remaining useful lives of determinable-lived intangible assets are performed on
a periodic basis and when events and circumstances warrant.
At fiscal year end 2017, 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
47
47
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 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 2017, 2016, and 2015 were $595 million, $566 million, and $540 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 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.
48
48
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 2017, 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:
• Level 1. Quoted prices in active markets for identical assets and liabilities.
• 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.
49
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
• 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.
Derivative financial instruments 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:
• 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).
• 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).
• Accounts payable. Accounts payable are valued based on the net value expected to be paid,
generally supported by an observable contractual agreement (level 2).
• 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 Liabilities
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.
50
50
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 2017, 2016, and 2015.
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.
51
51
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 October 2016, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting
Standards Update (‘‘ASU’’) No. 2016-16, an update to ASC 740, Income Taxes. This new guidance
requires the recognition of the income tax consequences of intra-entity transfers of assets other than
inventory in the period in which the transfer occurs. The update, which we will adopt on a modified
retrospective basis, is effective for us in the first quarter of fiscal 2019. Based on amounts recorded as
of September 29, 2017, adoption would result in approximately a $120 million cumulative-effect
adjustment to beginning accumulated earnings and a $120 million decrease in total assets, primarily in
other assets. Future transactions prior to adoption of this update could significantly change the impact
at adoption.
In February 2016, the FASB issued ASU No. 2016-02 which codified ASC 842, Leases. This
guidance, which requires lessees to recognize a lease liability and a right-of-use asset for most leases, 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 ASU No. 2014-09 which codified ASC topic 606, Revenue from
Contracts with Customers. This guidance supersedes ASC 605, Revenue Recognition, and introduces a
single, comprehensive, five-step revenue recognition model. ASC 606 also enhances disclosures related
to revenue recognition. ASC 606, as amended, is effective for us 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. Based on the initial evaluation of our current
52
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
contracts and revenue streams, we do not expect that adoption will have a material impact on our
results of operations or financial position and plan to adopt the new standard using the modified
retrospective approach. We are in the process of identifying necessary changes to accounting policies,
processes, financial statement disclosures, internal controls, and systems to enable compliance with this
new standard. We believe we are following an appropriate timeline to allow for the proper recognition,
reporting, and disclosure of revenue upon adoption of ASC 606 at the beginning of fiscal 2019.
Recently Adopted Accounting Pronouncements
In March 2016, the FASB issued ASU No. 2016-09, an update to ASC 718, Compensation—Stock
Compensation, to simplify various aspects of accounting for share-based payments to employees. We
elected to early adopt this update in fiscal 2017. The provisions of the update addressing the
accounting for excess tax benefits and deficiencies were adopted using a modified retrospective
transition approach, with a cumulative-effect adjustment to beginning accumulated earnings and a
corresponding increase in deferred tax assets of $165 million. The provision of the update addressing
the presentation on the statement of cash flows of employee taxes paid via the withholding of shares
was applied retrospectively and did not have a material impact on our Consolidated Financial
Statements. Adoption of other provisions, which were applied prospectively, also did not have a
material impact on our Consolidated Financial Statements.
3. Restructuring and Other Charges, Net
Net restructuring and other charges consisted of the following:
Fiscal
2016
2015
2017
Restructuring charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on divestiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Charges, Net
Net restructuring charges by segment were as follows:
$147
(in millions)
$ 125
$ 93
— (144) —
59
21
1
$148
$
2
$152
Fiscal
2017
2016
2015
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$ 39
28
58
$ 67
72
8
Restructuring charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$147
$125
53
$ 6
29
58
$93
53
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
Currency
Non-Cash Translation
and Other
Items
Balance at
End of
Fiscal
Year
(in millions)
Fiscal 2017 Activity:
Fiscal 2017 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Property, plant, and equipment . . . .
$ —
—
—
Total
. . . . . . . . . . . . . . . . . . . .
Fiscal 2016 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
Fiscal 2015 Actions:
Employee severance . . . . . . . . . . .
Pre-Fiscal 2015 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
—
54
—
54
13
12
12
24
$143
2
9
154
$ (5)
—
—
(5)
8
3
11
—
—
1
1
(9)
—
(9)
(2)
(3)
—
(3)
$(40)
(1)
—
(41)
(27)
(3)
(30)
(4)
(3)
(4)
(7)
$ —
—
(9)
(9)
—
—
—
—
—
—
—
$ 5
—
—
5
—
—
—
(1)
(2)
—
(2)
Total fiscal 2017 activity . . . . . . . . . . .
$ 91
$166
$(19)
$(82)
$ (9)
$ 2
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
. . . . . . . . . . . . . . . . . . . .
Pre-Fiscal 2015 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
—
45
1
46
24
14
38
$ 86
3
41
130
$ —
—
—
—
3
—
3
—
2
2
(4)
—
(4)
(6)
—
(6)
Total fiscal 2016 activity . . . . . . . . . . .
$ 84
$135
$(10)
$(32)
(3)
—
(35)
(31)
(1)
(32)
(8)
(4)
(12)
$(79)
54
54
$103
1
—
104
26
—
26
6
4
9
13
$149
$ 54
—
—
54
13
—
13
12
12
24
$ —
—
(41)
(41)
—
—
—
—
—
—
$ —
—
—
—
—
—
—
2
—
2
$(41)
$ 2
$ 91
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
Currency
Non-Cash Translation
and Other
Items
Balance at
End of
Fiscal
Year
(in millions)
Fiscal 2015 Activity:
Fiscal 2015 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Property, plant, and equipment . . . .
$ —
—
—
Total
. . . . . . . . . . . . . . . . . . . .
Pre-Fiscal 2015 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
Total fiscal 2015 activity . . . . . . . . . . .
—
91
23
114
$114
$ 68
3
21
92
2
3
5
$ —
—
—
—
(4)
—
(4)
$(23)
(2)
—
(25)
(54)
(13)
(67)
$ —
—
(21)
(21)
—
—
—
$ —
—
—
—
(11)
1
(10)
$ 45
1
—
46
24
14
38
$ 97
$ (4)
$(92)
$(21)
$(10)
$ 84
Fiscal 2017 Actions
During fiscal 2017, we initiated a restructuring program associated with footprint consolidation
related to recent acquisitions and structural improvements impacting all segments. In connection with
this program, during fiscal 2017, we recorded net restructuring charges of $149 million. We expect to
complete all restructuring actions commenced during fiscal 2017 by the end of fiscal 2019 and to incur
total charges of approximately $160 million with remaining charges primarily related to employee
severance.
The following table summarizes expected, incurred, and remaining charges for the fiscal 2017
program by segment:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Expected
Charges
Cumulative
Charges
Incurred
Remaining
Expected
Charges
$ 75
77
8
$160
(in millions)
$ 72
75
2
$149
$ 3
2
6
$11
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 2017 and 2016, we recorded net restructuring charges of
$2 million and $130 million, respectively. We expect to complete all restructuring actions commenced
during fiscal 2016 by the end of fiscal 2019 and to incur total charges of approximately $155 million
with remaining charges related primarily to employee severance.
55
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
3. Restructuring and Other Charges, Net (Continued)
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
Cumulative
Charges
Incurred
Remaining
Expected
Charges
$ 38
28
89
$155
(in millions)
$ 37
28
67
$132
$ 1
—
22
$23
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 2017, 2016, and 2015, we recorded net
restructuring credits of $2 million, 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.
Pre-Fiscal 2015 Actions
During fiscal 2017, 2016, and 2015, we recorded net restructuring credits of $2 million, credits of
$4 million, and charges of $1 million, respectively, related to pre-fiscal 2015 actions. We do not expect
to incur any additional charges related to pre-fiscal 2015 actions.
Total Restructuring Reserves
Restructuring reserves included on the Consolidated Balance Sheets were as follows:
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$130
19
Restructuring reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$149
$64
27
$91
Fiscal Year End
2017
2016
(in millions)
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, Net
During fiscal 2016, we incurred costs of $21 million, associated primarily with the divestiture of
certain businesses.
56
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
3. Restructuring and Other Charges, Net (Continued)
During fiscal 2015, we incurred costs of $59 million, consisting primarily of $36 million of legal and
professional fees and $18 million of charges associated with the exit of a facility. These costs were
incurred in connection with the sale of our Broadband Network Solutions (‘‘BNS’’) business but were
not directly related to the business sold and accordingly were recorded in continuing operations. See
Note 4 for additional information regarding the divestiture of BNS.
4. Discontinued Operations
The following table presents certain components of income from discontinued operations, net of
income taxes:
Net sales from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . .
Fiscal
2017
2016
2015
(in millions)
$— $— $1,595
$ 3
3
4
$10
$30
29
9
$68
$ 118
1,105
(41)
$1,182
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.
Consequently, we recorded a reserve and pre-tax charges of $127 million during fiscal 2015. During
fiscal 2016, we settled all matters in dispute and paid the sellers an aggregate amount of $96 million. In
connection with the settlements, we recorded pre-tax credits of $30 million, representing a release of
excess reserves, during fiscal 2016. These amounts were 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 fiscal 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.
57
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Acquisitions
Fiscal 2017 Acquisitions
During fiscal 2017, we acquired two businesses for a combined cash purchase price of $250 million,
net of cash acquired. The acquisitions were reported as part of our Transportation Solutions and
Industrial Solutions segments from the date of acquisition.
Fiscal 2016 Acquisitions
In 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 were reported as part of our
Industrial Solutions and Transportation Solutions segments from the date of acquisition.
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:
(in millions)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
77
97
802
530
73
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,579
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
100
20
166
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents acquired . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,413
(77)
Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,336
The fair values assigned to intangible assets were determined using 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.
58
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Acquisitions (Continued)
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
The acquired intangible assets are being amortized on a straight-line basis over their expected
useful lives.
Goodwill of $802 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.
59
59
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 using 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
60
60
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.
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
(in millions, except
per share data)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,471
2,038
5.52
$
$12,613
2,448
5.96
$
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.
61
61
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 . . . . . . . . . . . . . . . . . . . .
$ 306
580
810
117
$ 241
504
669
182
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,813
$1,596
Fiscal Year End
2017
2016
(in millions)
7. Property, Plant, and Equipment, Net
Net property, plant, and equipment consisted of the following:
Fiscal Year End
2017
2016
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(in millions)
178
1,399
7,306
697
159
1,272
6,890
567
Gross property, plant, and equipment . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,580
(6,180)
8,888
(5,836)
Property, plant, and equipment, net
. . . . . . . . . . . . . . . . . . . .
$ 3,400
$ 3,052
Depreciation expense was $466 million, $436 million, and $463 million in fiscal 2017, 2016, and
2015, respectively.
8. Goodwill
The changes in the carrying amount of goodwill by segment were as follows:
Fiscal year end 2015(1) . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Divestiture of business . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . .
Fiscal year end 2016(1) . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . .
Fiscal year end 2017(1) . . . . . . . . . . . . . . . . . . . . . . .
Transportation
Solutions
Industrial
Solutions
Communications
Solutions
Total
(in millions)
$1,863
60
—
(20)
1,903
82
26
$2,253
776
—
(24)
3,005
14
28
$ 708
—
(117)
(7)
584
—
9
$4,824
836
(117)
(51)
5,492
96
63
$2,011
$3,047
$ 593
$5,651
(1) At fiscal year end 2017, 2016, and 2015, accumulated impairment losses for the Transportation Solutions and
Industrial Solutions segments were $2,191 million and $669 million, respectively. Accumulated impairment
62
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
8. Goodwill (Continued)
losses for the Communications Solutions segment were $1,514 million at fiscal year end 2017 and 2016 and
$1,626 million at fiscal year end 2015.
During fiscal 2017, we acquired two businesses and recognized goodwill of $130 million, which
benefitted the Transportation Solutions and Industrial Solutions segments. During fiscal 2016, we
acquired four businesses and recognized goodwill of $836 million, which benefited the Industrial
Solutions and Transportation Solutions segments. In fiscal 2017, we finalized the purchase price
allocation of our fiscal 2016 acquisitions, and the associated goodwill was reduced to $802 million. This
reduction, which was primarily within the Industrial Solutions segment, is reflected in fiscal 2017
acquisitions in the above table. 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 2017 and
determined that no impairment existed.
9. Intangible Assets, Net
Intangible assets consisted of the following:
2017
Gross
Carrying
Amount
Accumulated
Amortization
Customer relationships . . . . . . . . . . .
Intellectual property . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . .
$1,433
1,263
36
Total . . . . . . . . . . . . . . . . . . . . . . .
$2,732
$(300)
(575)
(16)
$(891)
Fiscal Year End
Net
Carrying
Amount
Gross
Carrying
Amount
(in millions)
$1,133
688
20
$1,332
1,300
36
$1,841
$2,668
2016
Accumulated
Amortization
$(212)
(563)
(14)
$(789)
Net
Carrying
Amount
$1,120
737
22
$1,879
Intangible asset amortization expense was $169 million, $149 million, and $153 million for fiscal
2017, 2016, and 2015, respectively. The aggregate amortization expense on intangible assets is expected
to be as follows:
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$ 184
181
174
171
170
961
$1,841
63
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
10. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
Fiscal Year End
2017
2016
(in millions)
Accrued payroll and employee benefits . . . . . . . . . . . . . . . . . . . . .
Dividends payable to shareholders . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 596
281
121
130
58
440
$ 431
263
149
64
56
474
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . .
$1,626
$1,437
11. Debt
Debt was as follows:
Commercial paper, at a weighted-average interest rate of 0.69% at
fiscal year end 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.55% senior notes due 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.375% senior notes due 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.35% senior notes due 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.875% senior notes due 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.50% senior notes due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.10% euro-denominated senior notes due 2023 . . . . . . . . . . . . . .
3.45% senior notes due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.70% senior notes due 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.125% senior notes due 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.125% senior notes due 2037 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year End
2017
2016
(in millions)
$ — $ 330
708
325
250
250
500
618
250
350
—
477
3
708
325
250
250
500
650
350
350
400
477
96
Total principal debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized discounts and debt issuance costs . . . . . . . . . . . . . . .
Effects of fair value hedge-designated interest rate swaps . . . . . . . .
4,356
(26)
14
4,061
(26)
35
Total debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,344
$4,070
During August 2017, Tyco Electronics Group S.A. (‘‘TEGSA’’), our 100%-owned subsidiary, issued
$400 million aggregate principal amount of 3.125% senior notes due August 2027 and $100 million
aggregate principal amount of 3.45% senior notes due August 2024. The 3.45% senior notes were
issued under an existing indenture under which TEGSA had previously issued $250 million aggregate
principal amount. 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.
64
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
11. Debt (Continued)
TEGSA has a five-year unsecured senior revolving credit facility (‘‘Credit Facility’’) with a maturity
date of December 2020 and total commitments of $1,500 million. TEGSA had no borrowings under the
Credit Facility at fiscal year end 2017 or 2016.
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.
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 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$ 710
580
—
250
500
2,316
$4,356
The fair value of our debt, based on indicative valuations, was approximately $4,622 million and
$4,424 million at fiscal year end 2017 and 2016, respectively.
65
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
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.
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 2017, we concluded that it was
probable that we would incur investigation and remediation costs at these sites in the range of
$15 million to $43 million, and that the best estimate within this range was $19 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.
Leases
We have facility, land, vehicle, and equipment leases that expire at various dates. Rental expense
under these operating leases was $153 million, $143 million, and $141 million for fiscal 2017, 2016, and
2015, respectively. At fiscal year end 2017, future minimum lease payments under non-cancelable
operating lease obligations were as follows:
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$110
85
62
51
42
104
$454
(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.
66
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
12. Commitments and Contingencies (Continued)
At fiscal year end 2017, we had outstanding letters of credit, letters of guarantee, and surety bonds
of $298 million.
We generally record estimated product warranty costs when contract revenues are recognized
under the percentage-of-completion method for construction related contracts; other warranty reserves
are not significant. The estimation is based primarily on historical experience and actual warranty
claims. Amounts accrued for warranty claims were $50 million and $48 million at fiscal year end 2017
and 2016, respectively.
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
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 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 income tax liabilities that arise from adjustments made by tax
authorities to our, Tyco International’s, and Covidien’s income tax returns. Pursuant to the Tax Sharing
Agreement, we entered into certain guarantee commitments and indemnifications with Tyco
International and Covidien. We have substantially settled all U.S. federal income tax matters with the
Internal Revenue Service (‘‘IRS’’) for periods covered under the Tax Sharing Agreement. Certain
shared U.S. state and non-U.S. income tax matters remain open. We do not expect these matters will
have a material effect on our results of operations, financial position, or cash flows.
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 2017, 2016, and 2015.
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
67
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
13. Financial Instruments and Fair Value Measurements (Continued)
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 $3,110 million and $3,480 million at fiscal year end 2017 and 2016, respectively. The
impacts of our hedging program were as follows:
Foreign exchange gains (losses) . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2017
2016
2015
(in millions)
$(74) $(45) $353
These foreign exchange gains and losses were recorded as currency translation, a component of
accumulated other comprehensive income (loss), offsetting foreign exchange losses and gains
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 2017 and 2016, our commodity hedges had notional values of $314 million and
$232 million, respectively. We expect that significantly all of the balance in accumulated other
comprehensive income (loss) associated with the commodity hedges will be reclassified into the
Consolidated Statement of Operations within the next twelve months.
Fair Value Measurements
Financial instruments recorded at fair value on a recurring basis, which consist of derivative
instruments and marketable securities, were immaterial at fiscal year end 2017 and 2016.
68
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. Retirement Plans
Defined Benefit Pension Plans
We have a number of contributory and noncontributory defined benefit retirement plans covering
certain of our U.S. and non-U.S. employees, designed in accordance with local customs and practice.
The net periodic pension benefit cost for all U.S. and non-U.S. defined benefit pension plans was
as follows:
U.S. Plans
Fiscal
Non-U.S. Plans
Fiscal
2017
2016
2015
2017
2016
2015
($ in millions)
$ 50
$ 9
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
48
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(68)
(67)
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . .
41
Amortization of net actuarial loss . . . . . . . . . . . . . . . . . . . . . .
25
(4)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. — — —
$ 9
50
(59)
40
$ 12
43
(53)
40
$ 48
52
(68)
36
(6)
$ 45
58
(72)
33
(5)
Net periodic pension benefit cost
. . . . . . . . . . . . . . . . . . . .
$ 42
$ 40
$ 15
$ 54
$ 62
$ 59
Weighted-average assumptions used to determine net pension
benefit cost during the fiscal year:
3.58% 4.38% 4.34% 1.44% 2.50% 2.77%
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . .
5.93% 6.97% 7.20% 5.21% 5.98% 6.46%
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . —% —% —% 2.52% 2.81% 2.86%
69
69
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:
U.S. Plans
Fiscal
Non-U.S. Plans
Fiscal
2017
2016
2017
2016
($ in millions)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,250
12
43
(34)
(82)
—
2
$1,170
9
50
102
(81)
—
—
$2,535
50
35
(301)
(69)
29
13
$ 2,188
48
52
368
(85)
(63)
27
Benefit obligation at end of fiscal year . . . . . . . . . . . . . . . . . . . . .
1,191
1,250
2,292
2,535
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 . . . . . . . . . . . . . . . .
929
115
1
(82)
—
—
963
879
130
1
(81)
—
—
929
1,371
49
47
(69)
(2)
6
1,402
1,167
261
66
(85)
(59)
21
1,371
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (228) $ (321) $ (890) $(1,164)
Amounts recognized on the Consolidated Balance Sheets:
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . . .
Long-term pension and postretirement liabilities . . . . . . . . . . . . . .
$ — $ — $
(5)
(223)
(5)
(316)
50
(22)
(918)
$ —
(20)
(1,144)
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (228) $ (321) $ (890) $(1,164)
Weighted-average assumptions used to determine pension benefit
obligation at fiscal year end:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . .
3.77% 3.58% 1.87% 1.44%
—% 2.53% 2.52%
—%
70
70
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
2017
2016
2017
2016
(in millions)
$428
$436
$ 839
$711
income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization reclassified to earnings . . . . . . . . . . . . . . . . . . . . . . . . .
(96)
(40)
32
(40)
(285)
(41)
164
(36)
Unrecognized net loss at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . .
$292
$428
$ 513
$839
Change in prior service credit:
Unrecognized prior service credit at beginning of fiscal year . . . . . . . . . .
Current year change recorded in accumulated other comprehensive
$ — $ — $ (70) $ (66)
income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Amortization reclassified to earnings(1)
2
—
—
—
5
6
(10)
6
Unrecognized prior service credit at end of fiscal year . . . . . . . . . . . . . .
$
2
$ — $ (59) $ (70)
(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 2017, unrecognized actuarial gains recorded in accumulated other comprehensive income
(loss) were primarily the result of higher discount rates and favorable asset performance for both U.S.
and non-U.S. defined benefit pension plans as compared to fiscal 2016. 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.
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 2018 is expected to be $22 million and $24 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 2018 is expected to be $6 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
primarily on pro forma asset allocation, expected long-term returns, and forward-looking estimates of
active portfolio and investment management.
71
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. Retirement Plans (Continued)
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. We expect to reach our target allocation when the funded status of the plans exceeds
105%. Based on the funded status of the plans as of fiscal year end 2017, 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
2017
Fiscal
Year End
2016
Target
Fiscal
Year End
2017
Fiscal
Year End
2016
Target
Asset category:
Equity securities . . . . . . . . . . . . . . . . . . . . . . .
Fixed income . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts and other investments . . . .
Real estate investments . . . . . . . . . . . . . . . . . .
45%
55
—
—
50%
50
—
—
45%
55
—
—
27%
52
19
2
30%
49
19
2
41%
33
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 $56 million to
our U.S. and non-U.S. pension plans, respectively, in fiscal 2018. 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 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2023-2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 75
71
72
73
74
371
$ 71
76
77
79
85
485
72
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. Retirement Plans (Continued)
Presented 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
2017
2016
2017
2016
(in millions)
$1,191
$1,250
$2,167
$2,389
1,191
963
1,250
929
1,402
581
2,380
1,361
1,191
963
1,250
929
1,524
583
2,534
1,371
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 2017
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)
. . . . . . . . . . . . . . . . $250
Non-U.S. equity securities(1)
227
. . . . . . . . . . . .
Commingled equity funds(2) . . . . . . . . . . . . . —
Fixed income:
$ — $— $250
— — 227 —
— —
— —
$— $ — $ — $ —
—
— —
418
418 —
Government bonds(3)
Corporate bonds(4)
Commingled bond funds(5)
. . . . . . . . . . . . . —
Other(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
. . . . . . . . . . . . . . . . . —
59 —
. . . . . . . . . . . . . . . . . . . — 351 — 351 —
48 —
16 —
48 —
16 —
59 —
219 —
8 —
455 —
117
180
219
8
455
297
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . $477
$474
$— 951
$— $1,280 $117
1,397
Items to reconcile to fair value of plan
assets(7) . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets
. . . . . . . . . . . . .
12
$963
5
$1,402
73
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. Retirement Plans (Continued)
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
(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.
74
74
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 2017
and 2016.
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 $68 million, $59 million, and $60 million for
fiscal 2017, 2016, and 2015, 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
$157 million and $132 million at fiscal year end 2017 and 2016, 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 $20 million and $45 million at fiscal year end 2017 and 2016,
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. The decrease in
the accumulated postretirement benefit obligation during fiscal 2017 was primarily attributable to a
plan curtailment that was recognized on the Consolidated Statement of Operations; activity during
fiscal 2016 and 2015 was not significant.
75
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes
Income Tax Expense (Benefit)
Significant components of the income tax expense (benefit) were as follows:
Fiscal
2016
2015
2017
(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.
$ (2) $(1,115) $ (67)
12
352
(163)
321
9
323
330
(957)
297
(58)
(9)
(8)
(75)
173
20
(15)
178
87
5
(52)
40
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . .
$255
$ (779) $337
The U.S. and non-U.S. components of income from continuing operations before income taxes
were as follows:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S.
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
Fiscal
2016
2015
(in millions)
$ (75) $ (115) $ (31)
1,606
1,277
2,003
Income from continuing operations before income taxes
$1,928
$1,162
$1,575
76
76
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 expense—Tax Sharing Agreement(1)
. . . . . . . . . . . . . . . . . . . . . . . .
Tax law changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. net earnings(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in accrued income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal entity restructuring and intercompany transactions . . . . . . . . . . . . . .
Divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based payments . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
Fiscal
2016
2015
(in millions)
$ 675
$
407
$ 551
—
3
7
(9)
(355)
24
(1)
(40)
—
(40)
(9)
(93)
221
(3)
(10)
(342)
(1,056)
97
39
(31)
—
(8)
11
18
10
(9)
(275)
(183)
(3)
211
—
—
6
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 255
$ (779) $ 337
(1) Net other expense pursuant to the Tax Sharing Agreement with Tyco International and Covidien is not taxable
or deductible.
(2) Excludes items which are separately presented.
The income tax expense for fiscal 2017 included a $52 million income tax benefit associated with
the tax impacts of certain intercompany transactions and the corresponding reduction in the valuation
allowance for U.S. tax loss carryforwards, a $40 million income tax benefit related to share-based
payments and the adoption of ASU No. 2016-09, and a $14 million income tax benefit associated with
pre-separation tax matters. See Note 2 for additional information regarding recently adopted
accounting pronouncements.
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.
In fiscal 2016, the increase to the valuation allowance for deferred tax assets primarily related 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.
77
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
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 our BNS business.
See ‘‘IRS Audits’’ below for additional information regarding settlements with the IRS.
Deferred Tax Assets and Liabilities
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
2017
2016
(in millions)
$
356
5,265
48
231
8
366
10
22
6,306
$
286
4,656
46
349
11
470
10
32
5,860
(653)
(22)
(99)
(774)
(761)
(15)
(84)
(860)
Net deferred tax asset before valuation allowance . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,532
(3,627)
5,000
(3,096)
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,905
$ 1,904
78
78
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 2017 were as follows:
Expiration Period
Through
Fiscal 2022
Fiscal 2023
Through
Fiscal 2037
No
Expiration
Total
(in millions)
U.S. Federal:
Net operating loss carryforwards . . . . .
Tax credit carryforwards . . . . . . . . . . .
Capital loss carryforwards . . . . . . . . . .
$143
24
10
$1,171
119
—
$ — $1,314
200
10
57
—
U.S. State:
Net operating loss carryforwards.
. . . .
Tax credit carryforwards . . . . . . . . . . .
Non-U.S.:
Net operating loss carryforwards . . . . .
Tax credit carryforwards . . . . . . . . . . .
Capital loss carryforwards . . . . . . . . . .
52
9
11
—
—
49
15
998
1
—
—
7
2,568
2
29
101
31
3,577
3
29
Total tax loss and credit carryforwards . . .
$249
$2,353
$2,663
$5,265
The valuation allowance for deferred tax assets of $3,627 million and $3,096 million at fiscal year
end 2017 and 2016, respectively, related principally to the uncertainty of the utilization of certain
deferred tax assets, primarily tax loss, capital loss, and credit carryforwards in various jurisdictions.
During fiscal 2017, tax loss and credit carryforwards increased due primarily to tax losses of
$709 million (tax effected) generated in connection with the net write-down of investments in
subsidiaries in certain jurisdictions, offset by the impacts of a statutory rate reduction in the same
jurisdictions. The valuation allowance was increased by a corresponding amount due to the uncertainty
of future realization of these tax losses. Additionally, the valuation allowance decreased by $165 million
in connection with the adoption of ASU No. 2016-09 related to share-based payments. See Note 2 for
additional information regarding recently adopted accounting pronouncements. 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.
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 2017, certain
subsidiaries had approximately $22 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
79
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
investments in subsidiaries. As of fiscal year end 2017, we had approximately $6.3 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 approximately $1.2 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.
Uncertain Tax Positions
As of fiscal year end 2017, we had total unrecognized income tax benefits of $501 million. If
recognized in future years, $431 million of these currently unrecognized income tax benefits would
impact income tax expense (benefit) and the effective tax rate. 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. The following table summarizes the activity related to unrecognized income tax benefits:
Balance at beginning of fiscal year . . . . . . . . . . . . . . . . . . .
Additions related to prior years tax positions . . . . . . . . . .
Reductions related to prior years tax positions . . . . . . . . .
Additions related to current year tax positions . . . . . . . . .
Acquisitions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions due to lapse of applicable statute of
Fiscal
2016
2015
(in millions)
$1,368
75
(817)
124
4
(205)
$1,595
24
(291)
97
—
(29)
2017
$490
40
(9)
70
—
(4)
limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(86)
(59)
(28)
Balance at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . .
$501
$ 490
$1,368
We record accrued interest and penalties related to uncertain tax positions as part of income tax
expense (benefit). As of fiscal year end 2017 and 2016, we had $60 million and $54 million,
respectively, of accrued interest and penalties related to uncertain tax positions on the Consolidated
Balance Sheets, recorded primarily in income taxes. During fiscal 2017, 2016, and 2015, we recognized
income tax benefits of $5 million, benefits of $765 million, and expense of $7 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.
80
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
As of fiscal year end 2017, 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
Open Years
2007 through 2017
2014 through 2017
2013 through 2017
2011 through 2017
2012 through 2017
2013 through 2017
2011 through 2017
2012 through 2017
2012 through 2017
2012 through 2017
2012 through 2017
2013 through 2017
2012 through 2017
2015 through 2017
2014 through 2017
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 approximately $40 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
2017.
IRS Audits
1997-2000 Audit Years
As previously disclosed, in fiscal 2013, the IRS effectively settled its audit of all tax matters for the
years 1997 through 2000, excluding one issue involving the tax treatment of certain intercompany debt
transactions. In fiscal 2016, the U.S. Tax Court resolved all aspects of the disputed debt matter for the
1997 to 2000 audit cycle and the Appeals Division of the IRS effectively settled the intercompany debt
issues on appeal for subsequent audit cycles (years 2001 to 2007). In connection with 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. See Note 12 for further information regarding the Tax Sharing Agreement.
During fiscal 2016, in connection with the disputed debt matter, we made a payment to the IRS of
$443 million for tax deficiencies for which we were the primary obligor. Concurrent with remitting this
81
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
payment, we received net reimbursements of $303 million from Tyco International and Covidien
pursuant to their indemnifications for pre-separation tax matters.
2001-2007 Audit Years
In fiscal 2015, the IRS effectively settled its audit of tax matters for the years 2001 through 2007,
excluding the disputed debt matter which was subsequently resolved during fiscal 2016 as discussed
above. Consequently, 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 effectively settled its audit of tax matters for the years 2008 through 2010,
excluding the disputed debt matter which was subsequently resolved consistent with the terms of the
disputed debt settlement discussed above. Consequently, 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.
16. Other Expense, Net
In fiscal 2017, 2016, and 2015, we recorded net other expense of $9 million, $632 million, and
$55 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 tax
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 Notes 12 and 15 for further
information regarding the Tax Sharing Agreement and settlements, respectively.
17. Earnings Per Share
The weighted-average number of shares outstanding used in the computations of basic and diluted
earnings per share were as follows:
Fiscal
2017
2016
2015
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive impact of share-based compensation arrangements . . . .
(in millions)
366
3
405
6
355
3
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
358
369
411
There were one million, three million, and one million share options that were not included in the
computation of diluted earnings per share for fiscal 2017, 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.
82
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
18. Shareholders’ 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 2017, approximately 5 million common shares were held in treasury and owned
by one of our subsidiaries. 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. Shares held both directly by us
and by our subsidiary are presented as treasury shares on the Consolidated Balance Sheets.
In fiscal 2017, 2016, and 2015, our shareholders approved the cancellation of 26 million, 31 million,
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.
Contributed Surplus
During fiscal 2017, cumulative equity transactions, including dividend activity and treasury share
cancellations, reduced our contributed surplus balance to zero with residual activity recorded against
accumulated earnings as reflected on the Consolidated Statement of Shareholders’ Equity. To the
extent that the contributed surplus balance continues to be zero, the impact of future transactions that
normally would have been recorded as a reduction of contributed surplus will be recorded in
accumulated earnings. Contributed surplus established for Swiss tax and statutory purposes (‘‘Swiss
Contributed Surplus’’), is not impacted by our GAAP treatment.
Swiss Contributed Surplus, subject to certain conditions, is a freely distributable reserve. As of
fiscal year end 2017 and 2016, Swiss Contributed Surplus was CHF 7,300 million and
CHF 7,878 million, respectively (equivalent to $6,420 million and $6,992 million, respectively).
Dividends
Under Swiss law, subject to certain conditions, dividends paid from reserves from capital
contributions (equivalent to Swiss Contributed Surplus) are exempt from Swiss withholding tax.
Dividends on our shares must be approved by our shareholders.
83
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
18. Shareholders’ Equity (Continued)
Our shareholders approved the following dividends on our common shares:
Approval Date
Annual Payment Per Share
Payment Dates
March 2014 . . . . . . . . . . . . . . . . .
March 2015 . . . . . . . . . . . . . . . . .
March 2016 . . . . . . . . . . . . . . . . .
March 2017 . . . . . . . . . . . . . . . . .
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
$1.60 (equivalent to CHF 1.62),
payable in four quarterly
installments of $0.40
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
Third quarter of fiscal 2017
Fourth quarter of fiscal 2017
First quarter of fiscal 2018
Second quarter of fiscal 2018
Upon shareholders’ approval of a dividend payment, we record a liability with a corresponding
charge to shareholders’ equity. At fiscal year end 2017 and 2016, the unpaid portion of the dividends
recorded in accrued and other current liabilities on the Consolidated Balance Sheets totaled
$281 million and $263 million, respectively.
Share Repurchase Program
During fiscal 2016 and 2015, our board of directors authorized increases of $1.0 billion and
$3.0 billion, respectively, in the share repurchase program. Common shares repurchased under the
share repurchase program were as follows:
Number of common shares repurchased . . . . . . . . . . . . . . .
Repurchase value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
$621
(in millions)
43
$2,610
18
$1,163
At fiscal year end 2017, we had $480 million of availability remaining under our share repurchase
authorization.
Fiscal
2016
2015
2017
84
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
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 2014 . . . . . . . . . . .
$ 720
$(692)
$(45)
$ (17)
Other comprehensive loss before
reclassifications . . . . . . . . . . . . . . . . . . .
(536)
(147)
(44)
(727)
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 . . . . . . . . . . . . . . . . . . . . .
Balance at fiscal year end 2016 . . . . . . . . . . .
Other comprehensive income before
reclassifications . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated
other comprehensive income (loss) . . . . .
Income tax expense . . . . . . . . . . . . . . . . .
Net other comprehensive income, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . .
224(2)
—
(312)
408
(69)
(23)
—
(92)
316
38
(1)
—
37
Balance at fiscal year end 2017 . . . . . . . . . . .
$ 353
75
26
(46)
(738)
(190)
70
32
(88)
(826)
378
74
(122)
45
1
2
(43)
(14)
32
(7)
11
(32)
32
(14)
(3)
344
27
(356)
(373)
(273)
79
25
(169)
(542)
448
59
(125)
330
$(496)
15
$(17)
382
$(160)
(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.
(2) Represents net currency translation reclassified as a result of the sale of our BNS business. 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.
85
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
20. Share Plans
Our equity compensation plans, of which the TE Connectivity Ltd. 2007 Stock and Incentive Plan,
amended and restated as of March 8, 2017 (the ‘‘2017 Plan’’), 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. In March
2017, our shareholders approved an increase of 10 million shares in the number of shares available for
awards under the 2017 Plan. As of fiscal year end 2017, our plans provided for a maximum of
77 million shares to be issued as Awards, subject to adjustment as provided under the terms of the
plans. A total of 23 million shares remained available for issuance under our plans as of fiscal year end
2017.
Share-Based Compensation Expense
Share-based compensation expense, which was included in selling, general, and administrative
expenses on the Consolidated Statements of Operations, was as follows:
Fiscal
2017
2016
2015
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . .
$99
(in millions)
$91
$89
We recognized a related tax benefit associated with our share-based compensation arrangements of
$32 million, $29 million, and $29 million in fiscal 2017, 2016, and 2015, 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.
Restricted share award activity was as follows:
Nonvested at fiscal year end 2016 . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
2,287,004
821,016
(937,917)
(179,319)
Nonvested at fiscal year end 2017 . . . . . . . . . . . . . . . . .
1,990,784
Weighted-Average
Grant-Date
Fair Value
$58.47
67.72
52.89
63.12
$64.40
86
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
20. Share Plans (Continued)
The weighted-average grant-date fair value of restricted share awards granted during fiscal 2017,
2016, and 2015 was $67.72, $64.88, and $62.45, respectively.
The total fair value of restricted share awards that vested during fiscal 2017, 2016, and 2015 was
$50 million, $51 million, and $58 million, respectively.
As of fiscal year end 2017, 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 1.7 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.
Performance share award activity was as follows:
Outstanding at fiscal year end 2016 . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
626,625
376,380
(281,417)
(18,181)
Outstanding at fiscal year end 2017 . . . . . . . . . . . . . . . .
703,407
Weighted-Average
Grant-Date
Fair Value
$60.56
62.88
51.61
65.12
$65.13
The weighted-average grant-date fair value of performance share awards granted during fiscal
2017, 2016, and 2015 was $62.88, $55.15, and $61.65, respectively.
The total fair value of performance share awards that vested during both fiscal 2017 and 2016 was
$15 million. The total fair value of performance share awards that vested in fiscal 2015 was
insignificant.
As of fiscal year end 2017, there was $28 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,
87
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
20. Share Plans (Continued)
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.
Share option award activity was as follows:
Weighted-Average
Exercise
Price
Shares
Weighted-Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in years)
(in millions)
Outstanding at fiscal year end 2016 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . .
9,104,380
2,076,300
(3,313,145)
(2,307)
(180,135)
Outstanding at fiscal year end 2017 . . . . . . .
7,685,093
Vested and expected to vest at fiscal year
end 2017 . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at fiscal year end 2017 . . . . . . . .
7,228,213
3,482,445
$45.79
66.76
34.96
45.08
63.24
$55.70
$55.14
$44.91
7.0
7.0
5.4
$210
$202
$133
The weighted-average exercise price of share option awards granted during fiscal 2017, 2016, and
2015 was $66.76, $65.70, and $61.70, respectively.
The total intrinsic value of options exercised during fiscal 2017, 2016, and 2015 was $130 million,
$67 million, and $107 million, respectively. We received cash related to the exercise of options of
$117 million, $90 million, and $103 million in fiscal 2017, 2016, and 2015, respectively.
As of fiscal year end 2017, there was $37 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 1.9 years.
Share-Based Compensation Assumptions
The grant-date fair value of each share option grant was estimated using the Black-Scholes-Merton
option pricing model. Use of a valuation model requires management to make certain assumptions with
respect to selected model inputs. 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.
88
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
20. Share Plans (Continued)
The weighted-average grant-date fair value of options granted and the weighted-average
assumptions we used in the Black-Scholes-Merton option pricing model were as follows:
2017
Fiscal
2016
2015
Weighted-average grant-date fair value . . . . . . . . . . . . . . .
$12.80
$14.26
$18.77
Assumptions:
Expected share price volatility . . . . . . . . . . . . . . . . . . . . .
Risk free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected annual dividend per share . . . . . . . . . . . . . . . . .
Expected life of options (in years) . . . . . . . . . . . . . . . . . .
24%
36%
26%
1.9% 2.0% 2.0%
$ 1.48
5.6
$ 1.32
5.7
$ 1.16
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.
Net sales and operating income by segment were as follows:
Net Sales
Fiscal
2016
2017
Operating Income
2015
2017
(in millions)
Fiscal
2016
2015
Transportation Solutions . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . .
$ 7,039
3,507
2,567
$ 6,503
3,215
2,520
$ 6,351
3,179
2,703
$1,299
364
384
$1,191
343
368(1)
$1,193
352
204
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,113
$12,238
$12,233
$2,047
$1,902
$1,749
(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 2017, 2016, or
2015.
As we are not organized by product or service, it is not practicable to disclose net sales by product
or service.
89
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
21. Segment and Geographic Data (Continued)
Depreciation and amortization and capital expenditures were as follows:
Transportation Solutions . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and Amortization
Capital Expenditures
2017
$359
165
111
$635
Fiscal
2016
$337
131
117
$585
2015
2017
(in millions)
$347
123
146
$471
122
109
$616
$702
Fiscal
2016
$429
107
92
$628
2015
$400
104
96
$600
Segment assets and a reconciliation of segment assets to total assets were as follows:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . . . .
Total segment assets(1)
. . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . .
Segment Assets
Fiscal Year End
2017
2016
2015
$ 4,072
1,905
1,526
7,503
1,823
10,077
(in millions)
$ 3,501
1,720
1,473
6,694
1,133
9,781
$ 3,310
1,720
1,625
6,655
4,150
9,784
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,403
$17,608
$20,589
(1) Segment assets are composed of accounts receivable, inventories, and net property, plant, and
equipment.
90
90
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
2017
2016
2015
2017
2016
2015
(in millions)
Americas:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Americas . . . . . . . . . . . . . . . . . . . . .
$ 4,063
338
$ 3,901
298
$ 3,817
321
$ 980
100
$ 922
93
$ 887
87
Total Americas . . . . . . . . . . . . . . . . . . . .
4,401
4,199
4,138
1,080
1,015
974
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 . . . . . . . . . . . . . . . . . .
3,016
235
1,150
4,401
2,414
1,897
4,311
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
80
412
742
62
334
630
1,234
1,026
555
531
491
520
1,086
1,011
55
313
588
956
529
461
990
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,113
$12,238
$12,233
$3,400
$3,052
$2,920
(1) Net sales to external customers is attributed to individual countries based on the legal entity that records the
sale.
91
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
22. Quarterly Financial Data (unaudited)
Summarized quarterly financial data was as follows:
2017
2016
Fiscal
First
Second
Third
Fourth
First
Second
Third
Fourth
Quarter Quarter Quarter Quarter Quarter Quarter(1) Quarter(2) Quarter(3)
(in millions, except per share data)
Net sales . . . . . . . . . . . . . . . . . . . . . . $3,063 $3,227 $3,367 $3,456 $2,833 $2,952
962
Gross margin . . . . . . . . . . . . . . . . . . .
Acquisition and integration costs . . . . .
3
Restructuring and other charges
1,138
1
1,139
1
1,108
2
1,065
2
945
5
$3,121
1,022
11
$3,332
1,104
3
(credits), net . . . . . . . . . . . . . . . . . .
Income from continuing operations . . .
Income (loss) from discontinued
47
406
59
406
19
432
23
429
40
324
(99)
389
31
791
30
437
operations, net of income taxes . . . .
(9)
Net income . . . . . . . . . . . . . . . . . . . . $ 409 $ 405 $ 435 $ 434 $ 353 $ 380
(1)
29
3
3
5
Basic earnings per share:
Income from continuing operations . . . $ 1.14 $ 1.14 $ 1.22 $ 1.22 $ 0.84 $ 1.07
1.04
1.15
Net income . . . . . . . . . . . . . . . . . .
1.23
1.14
0.92
1.23
Diluted earnings per share:
Income from continuing operations . . . $ 1.13 $ 1.13 $ 1.21 $ 1.21 $ 0.83 $ 1.06
1.03
1.14
Net income . . . . . . . . . . . . . . . . . .
0.91
1.22
1.22
1.13
48
$ 839
—
$ 437
$ 2.22
2.35
$ 1.23
1.23
$ 2.19
2.32
$ 1.22
1.22
(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.
92
92
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 29, 2017
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 (loss) from discontinued operations,
net of income taxes(2)
. . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . .
$ — $ — $13,113
8,663
—
—
—
184
—
—
—
(184)
—
—
—
1,889
10
(32)
1,683
—
1,683
—
1,683
382
—
4,450
1,911
(504)
—
—
—
(1,911)
—
(129)
—
3,819
23
110
1,912
—
1,912
(13)
1,899
382
658
6
148
4,142
20
(1)
(9)
—
—
(78)
4,074
(255)
3,819
23
3,842
375
$ — $13,113
8,663
—
—
—
—
—
—
—
—
—
—
(5,708)
(33)
—
(5,741)
—
(5,741)
—
(5,741)
(757)
4,450
1,591
658
6
148
2,047
20
(130)
(9)
—
—
—
1,928
(255)
1,673
10
1,683
382
$2,065
$ 2,281
$ 4,217
$(6,498)
$ 2,065
(1) TEGSA selling, general and administrative expenses include losses of $1,965 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.
93
93
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 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)
$ — $12,238
8,205
—
—
—
—
—
—
—
—
—
—
(4,400)
(235)
—
(4,635)
—
(4,635)
—
(4,635)
312
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.
94
94
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 . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . .
$ — $ — $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)
$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.
95
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
23. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Balance Sheet
As of September 29, 2017
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 . . .
Total current assets . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . .
Intercompany loans receivable . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and Shareholders’ Equity
Current liabilities:
$ — $ — $ 1,218
2,290
1,813
60
505
—
—
1,914
96
—
—
49
4
53
—
—
—
—
11,960
—
—
2,010
—
—
—
—
20,109
4,027
6
5,886
3,400
5,651
1,841
2,141
—
9,700
438
$
— $ 1,218
2,290
—
1,813
—
—
(2,023)
605
—
(2,023)
—
—
—
—
(32,069)
(13,727)
—
5,926
3,400
5,651
1,841
2,141
—
—
444
$12,013
$26,152
$29,057
$(47,819)
$19,403
Short-term debt . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . .
Intercompany payables . . . . . . . . . . . . . . . .
$ — $
2
286
—
1,974
Total current liabilities . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . .
Intercompany loans payable . . . . . . . . . . . . . .
Long-term pension and postretirement
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . .
Total Shareholders’ Equity . . . . . . . . . . . . .
Total Liabilities and Shareholders’ Equity . .
708
—
59
—
—
767
3,629
9,700
—
—
—
96
$
2
1,434
1,281
75
49
2,841
5
4,027
1,160
236
293
386
8,948
20,109
$
— $
—
—
—
(2,023)
(2,023)
—
(13,727)
—
—
—
—
(15,750)
(32,069)
710
1,436
1,626
75
—
3,847
3,634
—
1,160
236
293
482
9,652
9,751
2,262
—
—
—
—
—
—
2,262
9,751
14,192
11,960
$12,013
$26,152
$29,057
$(47,819)
$19,403
96
96
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
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 . . .
Total current assets . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . .
Intercompany loans receivable . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . .
Total Shareholders’ Equity . . . . . . . . . . . . .
Total Liabilities and Shareholders’ Equity . .
$ — $ — $
—
—
37
3
40
—
—
—
—
10,053
22
—
—
—
1,314
17
1,331
—
—
—
—
19,425
3,739
14
647
2,046
1,596
48
466
$
— $
—
—
(1,399)
—
4,803
3,052
5,492
1,879
2,111
—
10,313
285
(1,399)
—
—
—
—
(29,478)
(14,074)
—
647
2,046
1,596
—
486
4,775
3,052
5,492
1,879
2,111
—
—
299
$10,115
$24,509
$27,935
$(44,951)
$17,608
$ — $
1
266
—
1,363
330
—
57
—
—
1,630
—
—
387
3,737
10,314
—
—
—
—
—
—
—
18
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
$10,115
$24,509
$27,935
$(44,951)
$17,608
97
97
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 29, 2017
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
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 . . . . . . . . . . . . . . . . . . . .
Intercompany distribution receipts(1) . . . . . . . . . . . . . .
Change in intercompany loans
. . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash 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 . . . . . . . . . . . . . . . . .
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 provided by (used in) continuing financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by discontinued financing activities
Net cash provided by (used in) financing activities . . .
Effect of currency translation on cash . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . .
Cash and cash equivalents at beginning of fiscal year . .
Cash and cash equivalents at end of fiscal year . . . . . .
$
$(180)
—
(180)
—
—
—
—
—
—
—
—
97
—
—
—
—
(550)
—
633
—
—
180
—
180
—
—
—
102
—
102
—
—
—
—
516
(1,369)
(12)
(865)
559
(330)
589
—
—
—
(50)
—
—
(5)
763
—
763
—
—
—
$ 2,630
(1)
2,629
$ (230)
—
(230)
$2,322
(1)
2,321
(702)
19
(250)
4
—
—
9
(920)
(656)
—
—
117
(614)
4
(696)
736
(1)
(25)
(1,135)
1
(1,134)
(4)
571
647
—
—
—
—
(516)
1,369
—
853
—
—
—
—
—
—
746
(1,369)
—
—
(623)
—
(623)
—
—
—
(702)
19
(250)
4
—
—
(3)
(932)
—
(330)
589
117
(614)
(546)
—
—
(1)
(30)
(815)
1
(814)
(4)
571
647
$ —
$ —
$ 1,218
$ —
$1,218
(1) During fiscal 2017, other subsidiaries made distributions to TEGSA in the amount of $696 million and TEGSA
made distributions to TE Connectivity Ltd. in the amount of $50 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.
98
98
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)
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 .
Cash and cash equivalents at end of fiscal year . . . . .
$
$
(37)
—
(37)
—
—
—
—
—
1,082
—
—
1,082
410
—
—
—
—
(2,780)
(513)
—
1,838
—
—
(1,045)
—
(1,045)
—
—
—
211
—
211
—
—
—
199
(120)
1,729
(1,244)
—
$ 2,206
(97)
2,109
(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)
(26)
(3,235)
97
(3,138)
7
(2,682)
3,329
$ (336)
—
$ 2,044
(97)
(336)
1,947
—
—
—
—
—
(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)
(30)
(3,152)
97
(3,055)
7
(2,682)
3,329
$ —
$ —
$
647
$ —
$
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.
99
99
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 .
Cash and cash equivalents at end of fiscal year . . . . .
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
$ 1,186
$ 1,270
$ 1,841
$(2,661)
$ 1,636
—
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
2,135
(600)
17
(1,725)
2,248
—
12
(48)
(25)
(73)
(704)
—
—
(223)
103
(107)
13
(1,326)
1,139
269
(13)
(849)
(269)
(1,118)
(71)
873
2,456
—
(2,661)
—
—
—
—
1,304
—
1,304
—
1,304
—
—
—
—
—
—
—
2,661
(1,304)
—
—
1,357
—
1,357
—
—
—
294
1,930
(600)
17
(1,725)
2,957
—
12
661
(25)
636
—
(328)
617
(473)
103
(1,023)
(502)
—
—
269
(17)
(1,354)
(269)
(1,623)
(71)
872
2,457
$ —
$ —
$ 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.
100
100
TE CONNECTIVITY LTD.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Fiscal Years Ended September 29, 2017, September 30, 2016, and September 25, 2015
Description
Fiscal 2017:
Balance at
Beginning of
Fiscal Year
Additions
Charged to
Costs and
Expenses
Acquisitions,
Divestitures,
and Other
(in millions)
Deductions
Balance at
End of
Fiscal Year
Allowance for doubtful accounts
receivable . . . . . . . . . . . . . . . . . . . . .
$
17
$
8
Valuation allowance on deferred tax
assets . . . . . . . . . . . . . . . . . . . . . . . .
3,096
1,072
Fiscal 2016:
Allowance for doubtful accounts
receivable . . . . . . . . . . . . . . . . . . . . .
$
18
$ —
Valuation allowance on deferred tax
assets . . . . . . . . . . . . . . . . . . . . . . . .
3,237
283
Fiscal 2015:
Allowance for doubtful accounts
receivable . . . . . . . . . . . . . . . . . . . . .
$
14
$
2
Valuation allowance on deferred tax
assets . . . . . . . . . . . . . . . . . . . . . . . .
1,706
1,627
$—
—
$ 1
1
$ 3
1
$
(4)
$
21
(541)
3,627
$
(2)
$
17
(425)
3,096
$
(1)
$
18
(97)
3,237
101
101
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 29,
2017, 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.
Report on Key Audit Matters based on the circular 1/2015 of the Federal Audit Oversight Authority
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the consolidated financial statements of the current period. These matters were
102
102
addressed in the context of our audit of the consolidated financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
How the scope of our audit
responded to the key audit matters:
We obtained an understanding of the process for
how management develops forecasts of financial
information, evaluated the design of, and performed
tests of controls in this area. Our procedures
included a review of the valuations prepared by
management and related supporting third-party
evidence for the fair values of each goodwill
reporting unit. We also evaluated management’s
ability to accurately forecast financial results
through retrospective analysis and sensitivity
analysis. Additionally, we evaluated the accounting
conclusion on the identification and aggregation of
reporting units using industry information and
historical objectively verifiable evidence.
We involved our Deloitte internal fair value
specialists, who assisted us in auditing the valuation
assumptions within the Company’s fair value
estimates, including discount rates and long-term
growth rates in addition to valuation methodology.
Key Audit Matter (KAM):
Goodwill Reporting Unit Fair Value Estimates
The Company reviews the carrying amount of its
reporting units annually as of the first day of the
fourth quarter or more frequently if impairment
indicators are present. The impairment assessment
involves a comparison of the estimated fair value of
each reporting unit to its carrying amount.
This annual impairment test was significant to our
audit because the goodwill balance of $5,651 million
as of September 29, 2017 is significant to the
financial statements representing 29% of the total
assets. In addition, we note that management’s
assessment process is assumption based, complex
and subject to highly judgmental estimates.
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. This approach
incorporates 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.
See Note 2 to these consolidated financial
statements for TE Connectivity’s description of the
accounting policy for Goodwill and Other Intangible
Assets.
Income Taxes (Recoverability of Deferred Tax Assets)
Significant judgment is involved in determining the
recoverability of deferred tax amounts and
therefore, the corresponding valuation allowance
recorded. The assessment is complex, since the
Company operates in multiple tax jurisdictions.
Furthermore, the Company is required to record
both deferred tax assets and liabilities and estimates
the recoverability of its deferred tax asset position
related to temporary differences and the amount of We also evaluated the key assumptions with
tax loss carryforwards that can be applied to future
taxable income.
We obtained an understanding of the process for
how management reviews the valuation allowance,
including the Company’s estimate of projected
taxable income and tax planning strategies. We will
also evaluated management’s estimate as to
projected taxable income by comparing such
projections to the Company’s strategic plan and
objectively verifiable information about the prior
periods.
assistance of our tax specialists, including any tax
planning strategies, used by management in their
analysis to conclude that the increase in the
valuation allowance recorded during the fiscal year
and that the total valuation allowance at year-end is
appropriate.
Key assumptions applied by the Company regarding
recoverability of deferred tax assets relate to
managements budgets and forecasts including
applicable tax rates whether enacted or substantially
enacted. Due to the significance of the income tax
balances and the judgment involved in determining
these, this matter was considered significant to our
audit. See Note 2 to these consolidated financial
statements for TE Connectivity’s description of the
accounting policy for Income Taxes.
103
103
Opinion
In our opinion, the consolidated financial statements for the year ended September 29, 2017
present fairly, in all material respects, the financial position of the Company and the result of its
operations and its cash flows in accordance with accounting principles generally accepted in the United
States of America, and comply with Swiss law.
Report on Other Legal Requirements
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight
Act (‘‘AOA’’) and independence (Article 728 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 14, 2017
/s/ Dominik Voegtli
Licensed Audit Expert
104
104
TE CONNECTIVITY LTD.
INDEX TO SWISS STATUTORY FINANCIAL STATEMENTS
Statements of Operations for the Fiscal Years Ended September 29, 2017 and September 30,
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance Sheets as of September 29, 2017 and September 30, 2016 . . . . . . . . . . . . . . . . . . . . . . .
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
106
107
108
118
Connectivity Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
119
105
105
TE CONNECTIVITY LTD.
SWISS STATUTORY FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
Fiscal Years Ended September 29, 2017 and September 30, 2016
September 29, 2017
September 30, 2016
U.S. dollars
Swiss francs
U.S. dollars
Swiss francs
(in millions)
Income
Income from distributions made by subsidiaries
(Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-separation tax settlement income, net (Note 3) . .
Insurance premiums charged to subsidiaries . . . . . . . .
$ 58
—
11
CHF 56
—
11
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 on foreign currency transactions .
Intercompany interest expense . . . . . . . . . . . . . . . . .
69
5
5
8
13
48
16
32
67
5
5
8
12
47
16
32
$1,250
317
10
1,577
CHF 1,209
311
10
1,530
4
4
7
12
45
15
28
4
4
7
12
44
15
27
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
127
125
115
113
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . .
$ (58)
CHF (58)
$1,462
CHF 1,417
See Notes to Swiss Statutory Financial Statements.
106
106
TE CONNECTIVITY LTD.
SWISS STATUTORY FINANCIAL STATEMENTS
BALANCE SHEETS
As of September 29, 2017 and September 30, 2016
September 29, 2017
September 30, 2016
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) . . . . . .
$
56
5
61
9,635
CHF
54
4
58
10,430
$
41
4
45
9,644
CHF
40
3
43
10,439
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . .
$9,696
CHF 10,488
$ 9,689
CHF 10,482
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable to subsidiaries . . . . . . . . . . . .
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, 357,069,981 and 382,835,381 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) . . . . . . . . .
CHF
$
1
65
1,917
7
286
2,276
—
2,276
CHF
1
63
1,856
6
289
2,215
671
2,886
$
1
47
1,318
9
264
1,639
—
1,639
157
38
204
49
168
38
1
46
1,279
9
264
1,599
645
2,244
218
49
6,420
7,300
6,992
7,878
(421)
805
—
421
(409)
49
—
409
(111)
2,364
(1,512)
111
(110)
1,594
(1,501)
110
8,238
Total Shareholders’ Equity . . . . . . . . . . . . . . .
7,420
7,602
8,050
Total Liabilities and Shareholders’ Equity . . .
$9,696
CHF 10,488
$ 9,689
CHF 10,482
See Notes to Swiss Statutory Financial Statements.
107
107
TE CONNECTIVITY LTD.
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS
1. Basis of Presentation
TE Connectivity Ltd. (‘‘TE Connectivity’’ or the ‘‘Company,’’ which may be referred to as ‘‘we,’’
‘‘us,’’ or ‘‘our’’), 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 29,
2017 and September 30, 2016. 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 29, 2017.
The accompanying statements of operations reflect the results of operations for the fiscal years
ended September 29, 2017 and September 30, 2016, 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 2017 and fiscal 2016 are
to our fiscal years ended September 29, 2017 and September 30, 2016. We have a 52- or 53-week fiscal
year that ends on the last Friday of September. Fiscal 2017 was a 52-week year and fiscal 2016 was a
53-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 2017 and 2016,
exchange rates were CHF 0.9681:$1 and CHF 0.9694:$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 0.9880:$1 and CHF 0.9823:$1 for fiscal 2017
and 2016, 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. Our reserves for treasury shares reflects all treasury
shares held by a subsidiary and is recorded at historical cost.
As management deems appropriate, we can establish reserves for treasury shares by charging
either accumulated earnings or allocated reserves for the acquisition of treasury shares by a subsidiary.
108
108
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
During fiscal 2017 and 2016, allocated reserves for the acquisition of treasury shares by a subsidiary
were charged to establish reserves. 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.
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.
Salaries and Social Costs
Salaries and social costs include cash and equity compensation paid to our directors.
3. Commitments, Contingencies, and Guarantees
Affiliated Debt and Loans Receivable
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 29, 2017,
we had a Cash Pool asset and Cash Pool liability of CHF 3 million (equivalent to $3 million) and
CHF 1,547 million (equivalent to $1,598 million), respectively, that were included in accounts receivable
from subsidiaries and loans from subsidiaries, respectively, on our balance sheet. 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.
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 29, 2017 and September 30, 2016, the borrowing totaled CHF 309 million (equivalent to
$319 million) and CHF 278 million (equivalent to $287 million), respectively, and was reflected as loans
from subsidiaries on our balance sheets. At September 29, 2017 and September 30, 2016, the related
loan receivable, which approximates the borrowing, was included in the net Cash Pool liability reflected
in loans from subsidiaries on our balance sheets.
We have fully and unconditionally guaranteed the debt of a subsidiary, Tyco Electronics
Group S.A., totaling CHF 4,173 million (equivalent to $4,356 million) and CHF 3,961 million
(equivalent to $4,086 million) at September 29, 2017 and September 30, 2016, respectively. As of
September 29, 2017, 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%,
109
109
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
3. Commitments, Contingencies, and Guarantees (Continued)
and 42%, respectively, of income tax liabilities that arose from adjustments made by tax authorities to
our, Tyco International’s, and Covidien’s income tax returns.
During fiscal 2016, we recorded net income of CHF 311 million (equivalent to $317 million)
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 statement of operations.
Performance Guarantees
From time to time, we provide performance guarantees and surety bonds in favor of our
subsidiaries. At both September 29, 2017 and September 30, 2016, these performance guarantees
totaled CHF 81 million (equivalent to $84 million). 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 responsibilities 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 VAT Group.
4. Equity
Changes in Equity Accounts
The following table presents activity related to our equity accounts during fiscal 2017 and 2016 in
Swiss francs.
General
Reserve Reserves from
Share
Capital Earnings Contributions
Capital
from
Allocated
Reserves for
the Acquisition
of Treasury
Shares by a
Subsidiary
. CHF 236 CHF 49
—
—
.
CHF 8,392
(514)
CHF (166)
—
Unappropriated Own Shares
Reserves
for
Treasury
Shares
Total
Accumulated
Earnings
Held in
Treasury
held by a Shareholders’
Subsidiary
Equity
(in CHF millions)
CHF 1,968
—
CHF (875) CHF 314
—
—
CHF 9,918
(514)
(18)
—
—
—
218
—
(14)
—
—
—
—
—
—
49
—
—
—
—
—
—
—
—
7,878
(578)
—
—
—
—
—
56
—
(110)
—
—
(299)
—
(1,939)
—
148
1,417
1,594
—
(1,487)
—
(58)
1,957
(2,583)
—
—
(1,501)
—
1,501
—
—
—
—
(204)
—
110
—
—
299
—
—
(2,583)
—
1,417
8,238
(578)
—
—
(58)
.
.
September 25, 2015 .
Approved dividends
.
Retirement of treasury
.
.
Acquisition of treasury
.
.
Transfer of reserves for
shares .
shares .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
treasury shares and other .
.
.
Net income .
.
.
.
.
.
.
.
.
.
September 30, 2016 .
Approved dividends
.
Retirement of treasury
.
.
Transfer of reserves for
shares .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
treasury shares and other .
.
.
Net loss
.
.
.
.
.
.
.
.
.
.
September 29, 2017 .
.
.
.
.
.
. CHF 204 CHF 49
CHF 7,300
CHF (409)
CHF
49
CHF — CHF 409
CHF 7,602
110
110
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
4. Equity (Continued)
The following table presents activity related to our equity accounts during fiscal 2017 and 2016 in
U.S. dollars.
General
Reserve Reserves from
Share
Capital Earnings Contributions
Capital
from
$182
—
(14)
—
—
—
168
—
(11)
—
—
$38
—
—
—
—
—
38
—
—
—
—
$7,505
(513)
—
—
—
—
6,992
(572)
—
—
—
Allocated
Reserves for
the Acquisition
of Treasury
Shares by a
Subsidiary
Unappropriated Own Shares
Reserves
for
Treasury
Shares
Total
Accumulated
Earnings
Held in
Treasury
held by a Shareholders’
Subsidiary
Equity
$(175)
—
—
—
64
—
(111)
—
—
(310)
—
(in USD millions)
$ 2,728
—
(1,992)
—
166
1,462
2,364
—
(1,501)
—
(58)
$ (915)
—
2,006
(2,603)
—
—
(1,512)
—
1,512
—
—
$ 341
—
—
—
(230)
—
111
—
—
310
—
$ 9,704
(513)
—
(2,603)
—
1,462
8,050
(572)
—
—
(58)
$157
$38
$6,420
$(421)
$
805
$ —
$ 421
$ 7,420
.
.
September 25, 2015 .
Approved dividends
.
Retirement of treasury shares .
Acquisition of treasury shares .
Transfer of reserves for
.
.
.
.
.
.
.
.
.
.
treasury shares and other .
.
.
.
Net income .
.
.
.
.
.
.
.
.
.
.
September 30, 2016 .
Approved dividends
.
Retirement of treasury shares .
Transfer of reserves for
.
.
.
.
.
.
.
.
.
.
treasury shares and other .
.
.
.
Net loss .
.
.
.
.
.
.
.
.
September 29, 2017 .
.
.
.
.
.
.
.
.
.
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 29, 2017, 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 29, 2017, no conditional shares had been issued.
111
111
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
4. Equity (Continued)
Own Shares Held in Treasury and Treasury Shares Held by a Subsidiary
During the fiscal years ended September 29, 2017 and September 30, 2016, activity related to
common shares held in treasury by us and by a subsidiary was as follows:
Common Shares Held By Us
Common Shares Held By a Subsidiary
Number of
Shares
Total Cost
Total Cost
Number of
Shares
Total Cost
Total Cost
(in millions)
CHF 875
$
915
6
CHF 314
$ 341
Common shares held as of
September 25, 2015 . . . . . . . . .
Repurchases under share
repurchase program . . . . . . .
Other additions(1)
. . . . . . . . . .
Reissuances . . . . . . . . . . . . . .
Shareholder-approved
14
43
—
—
2,583
—
—
2,603
—
—
cancellations . . . . . . . . . . . .
(31)
(1,957)
(2,006)
Common shares held as of
September 30, 2016 . . . . . . . . .
Repurchases under share
repurchase program . . . . . . .
Other additions(1)
. . . . . . . . . .
Reissuances . . . . . . . . . . . . . .
Shareholder-approved
26
—
—
—
1,501
1,512
—
—
—
—
—
—
cancellations . . . . . . . . . . . .
(26)
(1,501)
(1,512)
Common shares held as of
September 29, 2017 . . . . . . . . .
—
CHF — $ —
—
—
(4)
—
2
8
—
(5)
—
5
6
25
(235)
7
25
(262)
—
—
110
111
610
22
(333)
621
21
(332)
—
—
CHF 409
$ 421
(1) Other additions include shares withheld to cover employee taxes under share-based compensation
arrangements. These additions are not part of the share repurchase program.
In fiscal 2017 and 2016, our shareholders approved the cancellation of 26 million shares and
31 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.
During fiscal 2016, our board of directors authorized an increase of $1 billion in the share
repurchase program. At September 29, 2017, we had CHF 466 million (equivalent to $480 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 29, 2017 and September 30, 2016, reserves from capital contributions were
112
112
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
4. Equity (Continued)
CHF 7,300 million (equivalent to $6,420 million) and CHF 7,878 million (equivalent to $6,992 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.
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.
Dividends
Under current Swiss tax law, subject to certain conditions, dividends paid from reserves from
capital contributions are exempt from Swiss withholding tax.
During the quarters ended December 25, 2015 and March 25, 2016, we paid the third and fourth
installments of the dividend approved in March 2015 at a rate of $0.33 per installment.
In March 2016, our shareholders approved a dividend payment to shareholders of $1.48
(equivalent to 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 and ending in 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, September 30, 2016, December 30,
2016 and March 31, 2017.
In March 2017, our shareholders approved a dividend payment to shareholders of $1.60
(equivalent to CHF 1.62, 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
2017 and ending in the second quarter of fiscal 2018. We paid the first and second installments of the
dividend at a rate of $0.40 per share during each of the quarters ended June 30, 2017 and
September 29, 2017. 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 29, 2017
and September 30, 2016 by each member of our board of directors serving on our board at
September 29, 2017. The share ownership of Mr. Curtin, our Chief Executive Officer and a member of
113
113
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
6. Security Ownership of Board of Directors and Executive Officers (Continued)
the board of directors, and Mr. Lynch, our Executive Chairman, is set forth in Executive Management
below.
Board of Directors:
Pierre R. Brondeau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carol A. (‘‘John’’) Davidson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William A. Jeffrey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yong Nam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Daniel J. Phelan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paula A. Sneed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Abhijit Y. Talwalkar(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark C. Trudeau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John C. Van Scoter(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Laura H. Wright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year
Shares
Held
DSUs Held(1)
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2017
2016
2017
2016
2017
2016
24,073
21,878
7,052
4,857
13,181
10,986
13,181
10,986
22,226
20,031
23,426
21,231
1,438
3,452
1,257
27,322
25,127
7,404
5,209
12,876
12,618
—
—
—
—
—
—
12,876
12,618
15,805
15,489
—
—
—
6,896
6,758
—
—
(1) Directors hold deferred share units (‘‘DSUs’’). The DSUs are vested upon issuance and receive
dividend equivalent units. Pursuant to U.S. tax law, the Company expects to settle the DSUs for
common shares on a one-for-one basis in December 2017.
(2) Mr. Talwalkar was first elected to our board of directors on March 8, 2017.
(3) Includes 22,627 shares as of September 29, 2017 and September 30, 2016 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 29, 2017 and September 30, 2016.
114
114
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
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 29, 2017
and September 30, 2016 by each member of our executive management serving in such position as of
September 29, 2017.
Year
Shares
Held
Options
Held
Options
Exercise Price(1)
Fiscal Years
RSUs
of Expiration Held(2)
PSUs
Held(3)
Executive Management:
Terrence R. Curtin(4)
40,475
40,181
John S. Jenkins, Jr.
. . . . . . . 2017
2016
814,350 $34.05 - $72.13 2022 - 2027
7,966
693,700 $33.73 - $72.13 2021 - 2026 16,643
93,783
54,439
Thomas J. Lynch(5) . . . . . . . . . 2017 298,851 1,305,150 $34.05 - $66.74 2023 - 2027 23,625 139,262
2016 384,179 2,852,765 $24.60 - $65.95 2020 - 2026 49,993 152,312
48,656
258,525 $51.61 - $66.74 2024 - 2027
6,669
44,228
251,688 $34.05 - $65.95 2023 - 2026 29,239
30,046
6,788
185,150 $51.61 - $66.74 2024 - 2027
25,649
140,850 $34.05 - $65.95 2023 - 2026 10,344
41,754
220,250 $51.61 - $66.74 2024 - 2027 34,697
34,621
246,026 $34.05 - $65.95 2021 - 2026 39,827
15,337
2027 58,662
66.74
79,100 $
—
— 76,650
—
—
12,541
1,631
94,600 $33.88 - $66.74 2022 - 2027
61,300 $33.88 - $65.95 2022 - 2026
5,961
3,541
29,132
— 167,050 $51.61 - $66.74 2024 - 2027 19,146
28,160
— 138,088 $34.05 - $65.95 2023 - 2026 24,112
23,007
2,227
16,885
4,346
18,047
2,609
16,814
5,766
Joseph B. Donahue . . . . . . . . 2017
2016
. . . . . . . . 2017
2016
Steven T. Merkt . . . . . . . . . . . 2017
2016
Heath A. Mitts . . . . . . . . . . . 2017
2016
Timothy J. Murphy . . . . . . . . 2017
2016
James O’Toole . . . . . . . . . . . . 2017
2016
. . . . . . . . . . 2017
2016
Joan E. Wainwright . . . . . . . . 2017
2016
202,300 $34.05 - $72.13 2022 - 2027
156,500 $34.05 - $72.13 2022 - 2026
110,050 $51.61 - $66.74 2024 - 2027
119,888 $34.05 - $65.95 2022 - 2026
42,331
38,825
8,823
816
1,915
13,051
10,736
—
4,084
4,507
35,668
32,002
39,818
33,812
Kevin N. Rock(6)
(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 29, 2017 and
September 30, 2016, 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 10, 2014, November 9, 2015 and November 14, 2016. Certain members of executive
115
115
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
6. Security Ownership of Board of Directors and Executive Officers (Continued)
management also received PSU awards on February 2, 2015, March 9, 2015 and January 25, 2016.
Year One certification results relating to the November 10, 2014 grant occurred on December 14,
2015 and the following shares were reserved: Mr. Curtin—5,414; Mr. Curtin—1,353 (relating to a
March 9, 2015 grant); Mr. Lynch—19,181; 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); and Ms. Wainwright—2,030. Year Two
certification results relating to the November 10, 2014 grant occurred on December 13, 2016 and
the following shares were reserved: Mr. Curtin—6,825; Mr. Curtin—1,706 (relating to a March 9,
2015 grant); Mr. Lynch—24,182; Mr. Donahue—6,545; Mr. Jenkins—3,698; Mr. Merkt—5,119;
Mr. Murphy—211 (relating to a February 2, 2015 grant); Mr. O’Toole—4,265; Mr. Rock—1,706;
Mr. Rock—907 (relating to a March 9, 2015 grant); and Ms. Wainwright—2,560.
(4) Mr. Curtin is a member of the board of directors and chief executive officer.
(5) Mr. Lynch serves as executive chairman.
(6) Includes 18,676 shares held in a family trust over which Mr. Rock has dispositive power.
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 29,
2017.
Name and Address of Beneficial Owner
Number
of Shares
Percentage
of Class
Dodge & Cox(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,613,637
7.9%
555 California Street, 40th Floor
San Francisco, CA 94104
Harris Associates L.P.(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,326,054
7.8%
111 S. Wacker Drive, Suite 4600
Chicago, IL 60606
The Vanguard Group(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,993,700
6.3%
100 Vanguard Blvd.
Malvern, PA 19355
Capital World Investors(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,624,571
5.3%
333 South Hope Street
Los Angeles, CA 90071
(1) This information is based on a Schedule 13G/A filed with the SEC on March 20, 2017 by Dodge &
Cox, which reported sole voting power and sole dispositive power as follows: sole voting power—
26,632,113 and sole dispositive power—27,613,637.
116
116
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
7. Significant Shareholders (Continued)
(2) This information is based on a Schedule 13G/A filed with the SEC on February 10, 2017 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—24,619,685 and sole dispositive power—
27,326,054. 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 10, 2017 by The
Vanguard Group, which reported sole voting power, sole dispositive power and shared dispositive
power as follows: sole voting power—485,363, sole dispositive power—21,431,800, and shared
dispositive power—561,900.
(4) This information is based on a Schedule 13G filed with the SEC on February 13, 2017 by Capital
World Investors, which reported sole voting power and sole dispositive power as follows: sole
voting power—18,624,571, and sole dispositive power—18,624,571.
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 29, 2017:
Entity Name
Jurisdiction
Direct or Indirect
Holding(1)
Nominal
Capital
(in millions)
Purpose(2)
Tyco Electronics Group S.A.
Tyco Electronics Holdings (Bermuda) No. 7
. . . . . . . . . . . . Luxembourg
Limited . . . . . . . . . . . . . . . . . . . . . . . . . . Bermuda
. . . . . . . . . . . Hong Kong
TE Connectivity HK Limited.
TE Connectivity Holding
International II S.a r.l.
. . . . . . . . . . . . . . . Luxembourg
Switzerland
. . . . . . China
TE Connectivity Solutions GmbH . . . . . . . . .
Tyco Electronics (Shanghai) Co., Ltd.
TE Connectivity Germany GmbH . . . . . . . . . Germany
South Korea
Tyco Electronics AMP Korea Co., Ltd. . . . . .
TE Connectivity Corporation . . . . . . . . . . . . United States
Tyco Electronics Holding S.a r.l.
. . . . . . . . . Luxembourg
Tyco Electronics Japan G.K.
Tyco Electronics Singapore Pte Ltd.
Tyco Electronics Subsea
. . . . . . . . . . . .
. . . . . . .
Japan
Singapore
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
$
$
$
1
—
380
—
$
CHF —
CNY
6
EUR 78
KRW6,811
625
$
$
593
JPY 21,776
183
$
Communications LLC . . . . . . . . . . . . . . . . United States
Indirect
$
—
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) ‘‘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.
117
117
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
8. Subsidiaries (Continued)
During fiscal 2017 and 2016, subsidiaries distributed CHF 56 million (equivalent to $58 million)
and CHF 1,209 million (equivalent to $1,250 million), respectively, to us. The distributions are included
in income from distributions made by subsidiaries in our statements of operations. Also during fiscal
2017, a subsidiary made a return of capital distribution to us in the amount of CHF 9 million
(equivalent to $9 million), reducing our investment in that subsidiary.
9. Subsequent Events
We have evaluated subsequent events through November 14, 2017, 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 49 million as included in our balance sheet as of
September 29, 2017.
118
118
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 29, 2017, 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 29, 2017 comply with Swiss
law and the Company’s articles of association.
Report on Key Audit Matters based on the circular 1/2015 of the Federal Audit Oversight Authority
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial statements of the current period. We have determined that there are no
key audit matters to communicate in our report.
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.
119
119
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.
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 14, 2017
/s/ Dominik Voegtli
Licensed Audit Expert
120
120
TE Connectivity Ltd.
Swiss Statutory Compensation Report
September 29, 2017
121
121
TE Connectivity Ltd.
Index to Swiss Statutory Compensation Report
General
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation of Executive Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of the Statutory Auditor on the Swiss Statutory Compensation Report of
Page
123
123
127
TE Connectivity Ltd.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
130
122
122
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, hereafter referred to as ‘‘Executive
Management’’) for fiscal 2017 consisted of Terrence Curtin, Chief Executive Officer; Thomas Lynch,
Executive Chairman; Joseph Donahue, Executive Vice President and Chief Operating Officer;
John Jenkins, Jr., Executive Vice President and General Counsel; Heath Mitts, Executive Vice
President and Chief Financial Officer (‘‘CFO’’); 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; and Joan Wainwright,
President, Channel and Customer Experience. Jane Leipold, former Senior Vice President, Global
Human Resources, was a former member of Executive Management who continued to receive pay as
an employee during fiscal 2017 and is included in this report.
Mario Calastri, Interim Chief Financial Officer for part of fiscal 2016; Robert Shaddock, former
Executive Vice President and Chief Technology Officer; and Robert Hau, former Executive Vice
President and Chief Financial Officer are included as members of Executive Management for fiscal
2016 but are not included for fiscal 2017.
The following sets forth, for the years ended September 29, 2017 and September 30, 2016, the
compensation of the members of the Board of Directors and Executive Management for all the
functions that they have performed for TE Connectivity Ltd. (the ‘‘Company’’). 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 2018 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 2017 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
$185,000
Lead Independent Director . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Member . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating, Governance & Compliance Committee Chair . . .
Management, Development & Compensation Committee
$40,000
$25,000
$10,000
$15,000
Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Science Advisory Board Retainer . . . . . . . . . . . . . . . . . . . . .
$20,000
$10,000
123
123
B. Compensation of the Board of Directors (Continued)
Compensation paid for fiscal 2016 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 $10,000 per year.
Our board members also receive non-compensatory reimbursement for expenses incurred in
attending board and committee meetings or performing other services for us in their capacities as
directors. Such expenses include food, lodging and transportation. Directors who are employees of us
or our subsidiaries, including our current chairman of the board, do not receive any compensation for
their services as directors.
Each non-employee director received the equity component of their compensation in the form of a
grant of common shares of TE Connectivity Ltd., with the exception of Dr. Gromer, who received the
equity component of his compensation in the form of deferred stock units (‘‘DSUs’’). Under current
U.S. tax law, our U.S.-based non-employee directors cannot defer any portion of their compensation,
including DSUs and therefore, they were issued common shares (which are immediately taxable) in lieu
of DSUs. Because Dr. Gromer is a German citizen, he received his equity compensation in the form of
DSUs.
DSUs awarded to Dr. Gromer vested immediately upon grant, and per the terms of the award
were paid in common shares within 30 days following his retirement from the Board of Directors.
Dividend equivalents are credited to a non-employee director’s DSU account when dividends are paid
on our common shares.
The following table discloses the cash and equity awards paid to each of our non-employee
directors for fiscal 2017 and 2016.
124
124
B. Compensation of the Board of Directors (Continued)
Table 1
Name
Fiscal Year
Fees Earned
or Paid in
Cash
($)(1)
Stock Awards
($)(2)
Dividend
Equivalent
Units and Other
Compensation
($)(3)
Pierre Brondeau . . . . . . . . . . . . . . . .
Carol (John) Davidson . . . . . . . . . . . .
Juergen Gromer(4)
. . . . . . . . . . . . . . .
William Jeffrey . . . . . . . . . . . . . . . . .
Yong Nam . . . . . . . . . . . . . . . . . . . . .
Daniel Phelan . . . . . . . . . . . . . . . . . .
Paula Sneed . . . . . . . . . . . . . . . . . . .
Abhijit Talwalkar(5) . . . . . . . . . . . . . . .
Mark Trudeau . . . . . . . . . . . . . . . . . .
John Van Scoter . . . . . . . . . . . . . . . .
Laura Wright . . . . . . . . . . . . . . . . . . .
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2017
2016
2017
2016
2017
2016
$145,000
$135,000
$100,000
$ 58,333
$ 41,667
$100,000
$100,000
$ 90,000
$ 90,000
$ 90,000
$110,000
$110,000
$ 90,000
$ 90,000
$ 58,333
$100,000
$ 58,333
$ 90,000
$ 90,000
$115,000
$115,000
$195,348
$196,333
$195,348
$ 99,353
$ 97,707
$165,337
$195,348
$165,337
$195,348
$165,337
$195,348
$165,337
$195,348
$165,337
$106,829
$195,348
$ 99,353
$195,348
$165,337
$195,348
$165,337
$19,594
$27,393
$ 7,996
$27,500
$32,251
$57,869
$ 3,995
$ —
$ —
$64,651
$24,594
$24,893
$29,998
$38,204
$47,996
$ —
$45,000
$10,482
$ 9,620
$12,996
$10,000
Total
($)(6)
$359,942
$358,726
$303,344
$185,186
$171,625
$323,206
$299,343
$255,337
$285,348
$319,988
$329,942
$300,230
$315,346
$293,541
$213,158
$295,348
$202,686
$295,830
$264,957
$323,344
$290,337
(1) The amounts shown represent the amount of cash compensation earned in fiscal 2017 and 2016 for
Board and committee services. Dr. Brondeau received additional fees for his work as Lead
Independent Director for fiscal 2017 and 2016. For fiscal 2017 and 2016, Dr. Brondeau,
Mr. Phelan, and Ms. Wright each received additional fees for their role as chairs of the
nominating, governance and compliance committee, the management development and
compensation committee and the audit committee, respectively. For fiscal 2017 and one month
during quarter two and the last two full quarters of fiscal 2016, Mr. Davidson and Mr. Trudeau
each received an additional cash retainer for serving on the audit committee. Dr. Gromer received
an additional audit committee cash retainer for serving on the committee for quarter one and two
months during quarter two of fiscal 2017 and the full year of fiscal 2016. Mr. Talwalkar received an
additional cash retainer for serving on the audit committee for one month during quarter two and
the last two full quarters of fiscal 2017. For fiscal 2017, Dr. Jeffrey received an additional fee for
his role on the Science Advisory board.
(2) On November 14, 2016, Dr. Brondeau, Mr. Davidson, Dr. Jeffrey, Mr. Nam, Mr. Phelan,
Ms. Sneed, Mr. Trudeau, Mr. Van Scoter and Ms. Wright each received a grant of 2,927 common
shares. In determining the number of common shares issued, we used the average daily closing
price for the 20-day period prior to the grant date ($63.20 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 2017, was calculated by using the closing price of TE Connectivity Ltd. common
shares on the date of grant ($66.74 per share). On March 9, 2017, Mr. Talwalkar received a grant
125
125
B. Compensation of the Board of Directors (Continued)
of 1,438 common shares. In determining the number of common shares to be issued, we used the
average daily closing price for the 20-day period prior to the grant date ($75.06 per share), the
same methodology used to determine employee equity awards. The grant date fair value of this
award as shown above for fiscal 2017, was calculated by using the closing price of
TE Connectivity Ltd. common shares on the date of grant ($74.29 per share). On December 13,
2017, pursuant to U.S. tax law, we settled outstanding DSUs for common shares on a one-for-one
basis in the following amounts: Dr. Brondeau—12,930; Mr. Phelan—12,930; Ms. Sneed—15,871;
Mr. Van Scoter—6,925. This DSU settlement is with respect to shares that had been deferred
under a previous DSU program. 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). On March 2, 2016, Mr. Davidson and Mr. Trudeau received a grant of
1,676 common shares. In determining the number of common shares 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). 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, Dr. Jeffrey, Ms. Wright, Mr. Davidson and Mr. Talwalkar
in fiscal 2017 and Ms. Sneed in fiscal 2016 for expenses incurred when attending continuing
education courses. Amounts reported in fiscal 2017 and 2016, for Dr. Gromer of $32,251 and
$57,869, respectively, are the dividend equivalent unit amount earned on his DSU awards. In fiscal
2017, Mr. Talwalkar received fees in the amount of $45,000 for consulting services performed prior
to being elected to the board. In fiscal 2016, Mr. Nam received payment by the Company of
Mr. Nam’s Swiss social tax obligations for the period 2012-2015 (and additional amounts paid 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, Mr. Davidson and Mr. Trudeau received fees, in the amount of
$22,500 and $45,000, respectively, for consulting services performed prior to being elected to the
board.
(4) On November 14, 2016, Dr. Gromer received 1,464 DSUs. Dr. Gromer left the board effective
March 8, 2017. The number of DSUs issued to Dr. Gromer was determined in the same manner
applied to all grants on November 14, 2016 and reflects a pro-ration of his service during fiscal
2017. Cash compensation for Dr. Gromer was also pro-rated for his service during fiscal 2017.
(5) On March 8, 2017, Mr. Talwalkar was elected to our Board of Directors. Cash compensation for
Mr. Talwalkar was pro-rated for service during fiscal year 2017.
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126
B. Compensation of the Board of Directors (Continued)
(6) The Company has not made any loans or extended credit to any current or former member of the
Board of Directors.
C. Compensation of Executive Management
The following table presents information concerning Executive Management’s fiscal 2017 and 2016
compensation.
Table 2
Name and Principal
Position
Salary(3) Bonus
Year
($)
($)
Non-Equity
Incentive
Plan
Option
Awards(5) Compensation(6)
($)
($)
Stock
Awards(4)
($)
Terrence Curtin, Chief
Executive Officer .
Thomas Lynch, Chief
Executive Officer .
.
.
.
. 2017 $1,024,231
$— $ 3,431,771 $3,461,614
$2,239,875
.
.
.
. 2016 $1,200,000
$— $ 3,875,222 $4,020,726
$1,722,600
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(7)
($)
$
$
—
—
All Other
Compensation(8)
($)
Total(9)
($)
$ 269,205
$10,426,696
$ 557,736
$11,376,284
All Other Executive
Management(1)(2)
.
.
.
.
2017 $5,793,647
. 2016 $6,122,321
$— $ 8,308,677 $8,121,011
$— $13,125,894 $8,241,510
$9,066,307
$4,345,074
291
$
$245,958
$1,950,577
$1,477,961
$33,240,510
$33,558,718
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
For fiscal 2017, the Executive Management team for Swiss reporting purposes includes Mr. Lynch, Mr. Donahue, Mr. Jenkins, Mr. Merkt,
Mr. Mitts, Mr. Murphy, Mr. O’Toole, Mr. Rock, and Ms. Wainwright. Ms. Leipold’s pay in 2017 is also reported as she was a former member
of executive management. Mr. Lynch served as Chief Executive Officer until March 8, 2017 at which time he transitioned to the role of
Executive Chairman. Mr. Curtin assumed the role of Chief Executive Officer on March 8, 2017.
For fiscal 2016, 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 CFO from March 2016 until September 2016. Mr. Mitts became CFO on September 12, 2016.
Amounts shown are not reduced to reflect Executive Management’s 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.
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 Executive
Management’s 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 fiscal 2017 and 2016 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.
127
127
C. Compensation of Executive Management (Continued)
All Other Compensation
Name
Insurance
Perquisites(a) Premiums(b)
Year
($)
($)
Dollar
Value of
Dividends
not
factored
into
Grant
Date Fair
Value(c)
($)
Employee
Stock
Purchase
Plan
Company
Payment
for
unused
Contributions (‘‘ESPP’’) vacation/
Company personal
Match(e)
($)
to DC
plans(d)
($)
time(f)
($)
Total All
Other
Compensation
($)
Terrence Curtin . . . . 2017
$
—
$ — $160,380
$108,825
$ — $ — $ 269,205
Thomas Lynch . . . . 2016
$119,631
$ — $301,305
$136,800
$ — $ — $ 557,736
All Other Executive 2017
Management . . . . 2016
$331,690
$143,940
$735
$673
$863,557
$707,434
$718,229
$623,965
$1,950 $34,416 $1,950,577
$1,950 $ — $1,477,961
(a) Perquisites consisting of the following:
• Amounts in fiscal 2017 and 2016 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 2017 and 2016 includes the
direct variable cost and value of the lost corporate tax benefit associated with Mr. Lynch’s travel
to attend Thermo 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 in
fiscal 2017 include the value and tax gross-up amount of a retirement gift for one executive.
Amounts also include the value of an attendance gift for one executive that was provided to all
attendees at a certain business meeting. Amounts in fiscal 2016 for four executives reflect an
attendance gift provided to all attendees at a certain business meeting.
• Amounts reflect a cash perquisite paid for all fiscal 2016 for one executive and the first quarter
of fiscal 2016 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.
• Amounts 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 two executives in fiscal 2017 and three executives in fiscal 2016. 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: $1.04—$1.20:
EUR in fiscal 2017 and $1.06—$1.15: EUR in fiscal 2016 and CNY to U.S. dollars: $0.149—
$0.158 in fiscal 2016.
• Fiscal 2017 and 2016 amounts include relocation expenses for one executive.
(b) Additional income reported for participation in a Company paid split dollar life insurance program
for one executive.
(c) 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.
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128
C. Compensation of Executive Management (Continued)
(d) Contributions made on behalf of Executive Management under TE Connectivity’s qualified defined
contribution plan and accruals on behalf of Executive Management under the SSRP (a
nonqualified defined contribution excess plan).
Name
Terrence Curtin . . . . . . . . . . . . . . . . . .
Thomas Lynch . . . . . . . . . . . . . . . . . . .
All Other Executive
Management . . . . . . . . . . . . . . . . . .
Year
2017
2016
2017
2016
Company Matching
Contribution
(Qualified Plan)(*)
Company
Contribution
(Non-Qualified Plan)
$ 16,000
$ 15,900
$156,388
$172,451
$ 92,825
$120,900
$561,841
$451,514
(*) Included in the amount above is an additional matching contribution of $5,830 and $6,360
for fiscal 2017 and 2016 for two executives as a result of a frozen defined benefit plan.
(e) The Company matching contribution made under the TE Connectivity employee stock purchase
plan for one executive.
(f) For fiscal 2017, amount includes the value of unused vacation and personal time paid to one
executive pursuant to local state law requirements.
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129
Report of the Statutory Auditor on the Swiss Statutory Compensation Report of
TE Connectivity Ltd.
To the General meeting of
TE CONNECTIVITY LTD., SCHAFFHAUSEN
We have audited Tables 1 and 2 within the accompanying compensation report of TE
Connectivity Ltd. for the year ended September 29, 2017.
Board of Directors’ Responsibility
The Board of Directors is responsible for the preparation and overall fair presentation of the
compensation report in accordance with Swiss law and the Ordinance against Excessive Compensation
in Stock Exchange Listed Companies (the ‘‘Ordinance’’). The Board of Directors is also responsible for
designing the compensation system and defining individual compensation packages.
Auditor’s Responsibility
Our responsibility is to express an opinion on the accompanying compensation report. We
conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the compensation report complies with Swiss law and articles 14–16 of the Ordinance.
An audit involves performing procedures to obtain audit evidence on the disclosures made in the
compensation report with regard to compensation, loans and credits in accordance with articles 14–16
of the Ordinance. The procedures selected depend on the auditor’s judgment, including the assessment
of the risks of material misstatements in the compensation report, whether due to fraud or error. This
audit also includes evaluating the reasonableness of the methods applied to value components of
remuneration, as well as assessing the overall presentation of the compensation report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Opinion
In our opinion, the compensation report of TE Connectivity Ltd. for the year ended September 29,
2017 complies with Swiss law and articles 14–16 of the Ordinance.
Deloitte AG
/s/ Matthias Gschwend
Licensed audit expert
Auditor in charge
Zurich, December 13, 2017
/s/ Dominik Voegtli
Licensed audit expert
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130
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 29,
2017 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
BOARD OF DIRECTORS
Thomas J. Lynch ‡
Executive Chairman
TE Connectivity Ltd.
Dr. William A. Jeffrey
Chief Executive Officer,
SRI International
Dr. Pierre R. Brondeau*
President, Chairman, and Chief
Executive Officer,
FMC Corporation
Yong Nam
Advisor to the CEO,
Daelim Industrial Co. Ltd.
Former Chief Executive Officer,
LG Electronics Inc.
Terrence R. Curtin
Director and
Chief Executive Officer,
TE Connectivity Ltd.
Daniel J. Phelan
Retired Chief of Staff,
GlaxoSmithKline plc
Carol A. “John” Davidson
Retired Senior Vice President,
Controller and Chief Accounting
Officer,
Tyco International Ltd.
Mark C. Trudeau
President and Chief Executive
Officer,
Mallinckrodt plc
*Lead Independent Director of the TE Connectivity Ltd. Board of Directors
Paula A. Sneed
Chair and Chief Executive Officer,
Phelps Prescott Group, LLC
Retired Executive Vice President,
Kraft Foods Inc.
Abhijit Y. Talwalkar
Former President and Chief
Executive Officer,
LSI Corporation
John C. Van Scoter
Former President and Chief
Executive Officer,
eSolar, Inc.
Laura H. Wright
Founder, GSB Advisors
Retired Chief Financial Officer,
Southwest Airlines Co.
LEADERSHIP TEAM AND OFFICERS
Terrence R. Curtin
Chief Executive Officer
and Director
Mario Calastri
Senior Vice President, Treasurer
Joel Dubs
Senior Vice President, Operations
Thomas J. Lynch‡
Executive Chairman
Steven T. Merkt
President,
Transportation Solutions
Heath A. Mitts
Executive Vice President,
Chief Financial Officer
Joseph F. Eckroth, Jr.
Senior Vice President,
Chief Information Officer
John S. Jenkins, Jr.
Executive Vice President,
General Counsel
Shad W. Kroeger
President,
Communications Solutions
Timothy J. Murphy
Senior Vice President,
Chief Human Resources Officer
Robert J. Ott
Senior Vice President,
Corporate Controller
Sameer Pagnis
Senior Vice President,
Corporate Strategy
Jeanne Quirk
Senior Vice President,
Mergers and Acquisitions
Eric J. Resch
Senior Vice President,
Chief Tax Officer
Kevin N. Rock
President,
Industrial Solutions
Amy Summy
Senior Vice President,
Chief Marketing Officer
Joan E. Wainwright
President,
Channel and Customer Experience
© 2018 TE Connectivity Ltd. All Rights Reserved.
001-AR-FY2017
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.
‡ On December 14, 2017, Mr. Lynch announced his retirement as Executive Chairman of TE Connectivity effective March 14, 2018.
Mr. Lynch has been nominated for, and will continue to serve on, the Board of Directors of TE Connectivity and as the Non-Executive
Chairman of the Board of Directors, if elected at the Annual General Meeting of Shareholders on March 14, 2018.
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