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2018 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 28,
2018 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:
Equiniti 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
© 2019 TE Connectivity Ltd. All Rights Reserved.
001-AR-FY2018
“TE Connectivity” and “TE Connectivity (logo)” are trademarks. This report further contains other
trademarks of ours and additional trade names and trademarks of other companies that are not
owned by TE Connectivity. We do not intend our use or display of other companies’ trade names
or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship
with any of these companies.
BOARD OF DIRECTORS
Thomas J. Lynch
Non-Executive Chairman
TE Connectivity Ltd.
Dr. Pierre R. Brondeau*
President, Chairman, and
Chief Executive Officer,
FMC Corporation
Terrence R. Curtin
Director and
Chief Executive Officer,
TE Connectivity Ltd.
Dr. William A. Jeffrey
Chief Executive Officer,
SRI International
Yong Nam
Advisor to the CEO,
Daelim Industrial Co. Ltd.
Daniel J. Phelan
Retired Chief of Staff,
GlaxoSmithKline plc
Abhijit Y. Talwalkar
Former President and
Chief Executive Officer,
LSI Corporation
Mark C. Trudeau
President and
John C. Van Scoter
Former President and
Chief Executive Officer,
eSolar, Inc.
Former Chief Executive Officer,
Chief Executive Officer,
LG Electronics Inc.
Mallinckrodt plc
Carol A. “John” Davidson
Paula A. Sneed
Retired Senior Vice President,
Chair and Chief Executive Officer,
Laura H. Wright
Controller and Chief Accounting
Phelps Prescott Group, LLC
Founder, GSB Advisors
Officer,
Retired Executive Vice President,
Retired Chief Financial Officer,
Tyco International Ltd.
Kraft Foods Inc.
Southwest Airlines Co.
*Lead Independent Director of the TE Connectivity Ltd. Board of Directors
LEADERSHIP TEAM AND OFFICERS
Terrence R. Curtin
Chief Executive Officer
and Director
Claudia Anderson
Vice President,
Customer Experience
Mario Calastri
Senior Vice President,
Treasurer
Joel Dubs
Senior Vice President,
Operations
Arvind Kaushal
Senior Vice President,
Chief Strategy Officer
Shad W. Kroeger
President,
Robert J. Ott
Senior Vice President,
Corporate Controller
Jeanne Quirk
Senior Vice President,
Communications Solutions
Mergers and Acquisitions
Nitin Mathur
Vice President,
Eric J. Resch
Senior Vice President,
Chief Digital & eBusiness Officer
Chief Tax Officer
Jimmy McDonald
Vice President,
Kevin N. Rock
President,
Chief Supply Chain Officer
Industrial Solutions
Joseph F. Eckroth, Jr.
Senior Vice President,
Steven T. Merkt
President,
Joan E. Wainwright
President,
Chief Information Officer
Transportation Solutions
Channel and Customer Experience
Kari Janavitz
Vice President,
Chief Marketing Officer
Heath A. Mitts
Executive Vice President,
Chief Financial Officer
John S. Jenkins, Jr.
Executive Vice President,
General Counsel
Timothy J. Murphy
Senior Vice President,
Chief Human Resources Officer
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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117
i
i
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 described in this Annual Report and those discussed in our Annual Report on
Form 10-K for the fiscal year ended September 28, 2018 filed with the United States Securities and
Exchange Commission (the ‘‘SEC’’) could cause our results to differ materially from those expressed in
forward-looking statements. There may be other risks and uncertainties that we are unable to predict at
this time or that we currently do not expect to have a material adverse effect on our business.
ii
ii
‘‘TE Connectivity’’ and ‘‘TE Connectivity (logo)’’ are trademarks. This report further contains other
trademarks of ours and additional trade names and trademarks of other companies that are not owned by
TE Connectivity. We do not intend our use or display of other companies’ trade names or trademarks to
imply an endorsement or sponsorship of us by such companies, or any relationship with any of these
companies.
(cid:1) 2019 TE Connectivity Ltd. All Rights Reserved.
BUSINESS
General
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 2018, 2017, and
2016 ended on September 28, 2018, September 29, 2017, and September 30, 2016, respectively.
Fiscal 2018 and 2017 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
$190 billion. In fiscal 2018, our Subsea Communications business met the held for sale and
discontinued operations criteria. As a result, we reclassified amounts previously reported to reflect this
business as a discontinued operation in all periods presented. Prior to reclassification to discontinued
operations, this business was included in our Communications Solutions segment.
Our net sales by segment as a percentage of our total net sales were as follows:
Fiscal
2018
2017
2016
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59% 58% 58%
29
28
13
13
28
14
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
Below is a description of our reportable segments and the primary products, markets, and
competitors of each segment.
1
1
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; antennas; relays; application tooling; and wire and heat shrink tubing. The
Transportation Solutions segment’s products, which must withstand harsh conditions, are used in the
following end markets:
(cid:127) Automotive (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.
(cid:127) Commercial transportation (15% 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.
(cid:127) Sensors (11% 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, Aptiv, 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 end markets:
(cid:127) Industrial equipment (52% 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, surgical, and minimally invasive interventional applications.
(cid:127) Aerospace, defense, oil, and gas (30% of segment’s net sales). We design, develop, and
manufacture a comprehensive portfolio of critical electronic components and systems for the
harsh operating conditions of the aerospace, defense, and marine industries. Our products and
systems are designed and manufactured to operate effectively in harsh conditions ranging from
the depths of the ocean to the far reaches of space.
(cid:127) Energy (18% 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.
2
2
Communications Solutions
The Communications Solutions segment is a leading supplier of electronic components for the data
and devices and the appliances markets. The primary products sold by the Communications Solutions
segment include terminals and connector systems and components; relays; heat shrink tubing; and
antennas. The Communications Solutions segment’s products are used in the following end markets:
(cid:127) Data and devices (58% of segment’s net sales). We deliver products and solutions that are used in
a variety of equipment architectures within the networking equipment, data center equipment,
and wireless infrastructure industries. Additionally, we deliver a range of connectivity solutions
for the Internet of Things, smartphones, tablet computers, notebooks, and virtual reality
applications to help our customers meet their current challenges and future innovations.
(cid:127) Appliances (42% 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).
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 our 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 2018, 2017, or
2016.
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:
Europe/Middle East/Africa (‘‘EMEA’’) . . . . . . . . . . . . . . . . . . . .
Asia–Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38% 36% 36%
35
34
29
28
35
29
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
Fiscal
2018
2017
2016
(1) Net sales to external customers are attributed to individual countries based on the legal entity that
records the sale.
We sell our products into approximately 140 countries primarily through direct selling efforts to
manufacturers. In fiscal 2018, our direct sales represented approximately 80% of total net sales. We
also sell our products indirectly via third-party distributors.
We maintain distribution centers around the world. Products are generally delivered to the
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. 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 contract with a wide range of
transport providers to deliver our products globally via road, rail, sea, and air. We believe our balanced
sales distribution lowers our exposure to any particular geography and improves our financial profile.
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.
Customer orders typically fluctuate from quarter to quarter based upon business and market
conditions. Backlog is not necessarily indicative of future net sales as unfilled orders may be cancelled
prior to shipment of goods. Backlog by reportable segment was as follows:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,779
1,245
441
$1,681
1,032
418
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,465
$3,131
We expect that the majority of our backlog at fiscal year end 2018 will be filled during fiscal 2019.
Fiscal Year End
2018
2017
(in millions)
4
4
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.
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.
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 2018, we employed
approximately 80,000 people worldwide, of whom 30,000 were in the EMEA region, 25,000 were in the
Asia–Pacific region, and 25,000 were in the Americas region. Of our total employees,
approximately 51,000 were employed in manufacturing.
5
5
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.
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 2018, we concluded that we would incur
investigation and remediation costs at these sites in the reasonably possible range of $15 million to
$42 million, and we accrued $17 million as the probable loss, which was the best estimate within this
range. We do not anticipate any material capital expenditures during fiscal 2019 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.
6
6
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders
Our common shares are listed and traded on the NYSE under the symbol ‘‘TEL.’’ The number of
registered holders of our common shares at November 8, 2018 was 20,236.
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 2013 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
$200
$150
$100
$50
2013
2014
2015
2016
2017
2018
Fiscal Year End
TE Connectivity Ltd.
S&P 500 Index
Dow Jones Electrical Components and Equipment Index
20DEC201801315946
TE Connectivity Ltd. . . . . . . . . . . . . . . . .
S&P 500 Index . . . . . . . . . . . . . . . . . . . .
Dow Jones Electrical Components and
Fiscal Year End
2013(1)
2014
2015
2016
2017
2018
$100.00
100.00
$115.30
119.64
$116.76
118.93
$131.63
136.54
$173.37
161.95
$186.80
190.95
Equipment Index . . . . . . . . . . . . . . . . .
100.00
111.56
102.46
121.63
156.84
174.41
(1) $100 invested on September 27, 2013 in TE Connectivity Ltd.’s common shares and in indexes. Indexes
calculated on month-end basis.
7
7
Issuer Purchases of Equity Securities
The following table presents information about our purchases of our common shares during the
quarter ended September 28, 2018:
Period
Total Number
of Shares
Purchased(1)
Average Price
Paid Per
Share(1)
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or
Programs(2)
June 30–July 27, 2018 . . . . . . . . . . . . .
July 28–August 31, 2018 . . . . . . . . . . .
September 1–September 28, 2018 . . . . .
1,465
2,217,725
1,655,395
Total . . . . . . . . . . . . . . . . . . . . . . . .
3,874,585
$93.28
92.90
90.63
$91.93
—
2,213,500
1,635,400
3,848,900
Maximum
Approximate
Dollar Value
of Shares that May
Yet Be Purchased
Under the Plans
or Programs(2)
$1,368,819,073
1,163,190,015
1,014,947,770
(1) These columns include the following transactions which occurred during the quarter ended September 28,
2018:
(i) the acquisition of 25,685 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 3,848,900 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.
8
8
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 (credits), net(3)
. . .
Other income (expense), net(4) . . . . . . . . . . . . . . . .
Income tax (expense) benefit(4) . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . .
Income (loss) from discontinued operations, net of
income taxes(5) . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Share Data
Basic earnings per share:
Income from continuing operations . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share:
Income from continuing operations . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid per common share . . . . . . . . . . . . .
Balance Sheet Data
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . .
2018
$13,988
14
126
1
344
2,584
As of or for Fiscal
2016(1)(2)
(in millions, except per share data)
2015(1)
2017(1)
2014(1)
$12,185
6
147
(42)
$11,352
22
(2)
(677)
$11,524
55
152
(55)
$11,690
31
15
63
(180)
1,540
826
1,847
(306)
1,180
(160)
1,634
(19)
$ 2,565
143
$ 1,683
162
$ 2,009
1,240
$ 2,420
147
$ 1,781
$
$
$
7.38
7.33
7.32
7.27
1.68
$
$
$
4.34
4.74
4.30
4.70
1.54
$
$
$
5.05
5.49
5.01
5.44
1.40
$
$
$
2.91
5.98
2.87
5.89
1.24
$
$
$
3.99
4.34
3.92
4.27
1.08
$20,386
5,145
$10,831
$19,403
5,805
$ 9,751
$17,608
6,057
$ 8,485
$20,589
7,429
$ 9,585
$20,132
7,128
$ 9,007
(1)
In fiscal 2018, our Subsea Communications business met the held for sale and discontinued operations
criteria. As a result, we reclassified amounts previously reported to reflect this business as a discontinued
operation in all periods presented. For additional information regarding discontinued operations, see Notes 4
and 23 to the Consolidated Financial Statements.
(2) Fiscal 2016 was a 53-week year.
(3) 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.
(4) For fiscal 2018, 2017, and 2016, see Notes 15 and 16 to the Consolidated Financial Statements for additional
information. Fiscal 2015 income tax (expense) benefit included a $216 million income tax charge associated
with the tax impacts of certain intercompany legal entity restructurings made in connection with our
integration of Measurement Specialties, Inc; a $201 million income tax benefit related to the effective
settlement of all undisputed tax matters for the years 2001 through 2007 and the related impact of $84 million
to other expense pursuant to the Tax Sharing Agreement with Tyco International plc and Covidien plc; and a
$63 million income tax benefit associated with the effective settlement of all undisputed tax matters for the
years 2008 through 2010. 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.
(5) Fiscal 2015 included a pre-tax gain of $1.1 billion on the sale of our Broadband Network Solutions business.
9
9
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 28, 2018 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 2018 highlights included the following:
(cid:127) Our fiscal 2018 net sales increased 14.8% over fiscal 2017 levels due to growth in all segments.
On an organic basis, our net sales increased 9.2% in fiscal 2018 as compared to fiscal 2017.
(cid:127) Our net sales by segment were as follows:
(cid:127) Transportation Solutions—Our net sales increased 17.8% as a result of increased sales in all
end markets. Also, our net sales in the automotive end market benefited from sales
contributions from a recent acquisition.
(cid:127) Industrial Solutions—Our net sales increased 10.0% due to increased sales in the industrial
equipment end market and, to a lesser degree, the aerospace, defense, oil, and gas and the
energy end markets.
(cid:127) Communications Solutions—Our net sales increased 12.4% due to sales increases in the
appliances and the data and devices end markets.
(cid:127) During fiscal 2018, our shareholders approved a dividend payment to shareholders of $1.76 per
share, payable in four equal quarterly installments of $0.44 beginning in the third quarter of
fiscal 2018 and ending in the second quarter of fiscal 2019.
(cid:127) Net cash provided by continuing operating activities was $2,301 million in fiscal 2018.
Outlook
In the first quarter of fiscal 2019, we expect our net sales to be between $3.33 billion and
$3.43 billion as compared to $3.34 billion in the first quarter of fiscal 2018, with sales increases in the
Industrial Solutions and Communications Solutions segments. Additional information regarding
10
10
expectations for our reportable segments for the first quarter of fiscal 2019 as compared to the same
period of fiscal 2018 is as follows:
(cid:127) Transportation Solutions—We expect our net sales increase in the sensors end market to be offset
by sales declines in the automotive end market. Our net sales in the automotive end market are
expected to benefit from content gains; however, this growth will be more than offset by the
negative impact of foreign currency exchange rates. We expect global automotive production to
decline approximately 2% in the first quarter of fiscal 2019.
(cid:127) Industrial Solutions—We expect our net sales growth to be driven primarily by increased sales in
the aerospace, defense, oil, and gas and the industrial equipment end markets.
(cid:127) Communications Solutions—We expect net sales growth primarily as a result of increased sales in
the data and devices end market.
In the first quarter of fiscal 2019, we expect diluted earnings per share from continuing operations to
be in the range of $1.09 to $1.13 per share. This outlook reflects the negative impact of foreign
currency exchange rates on net sales and earnings per share of approximately $75 million and $0.04 per
share, respectively, in the first quarter of fiscal 2019 as compared to the same period of fiscal 2018.
We expect our net sales to be between $13.9 billion and $14.3 billion in fiscal 2019 as compared to
$14.0 billion in fiscal 2018, with moderate growth in all segments. Additional information regarding
expectations for our reportable segments for fiscal 2019 as compared to fiscal 2018 is as follows:
(cid:127) Transportation Solutions—We expect our net sales increases in the sensors end market to be
largely offset by sales declines in the commercial transportation end market. Fiscal 2019 global
automotive production is expected to be consistent with fiscal 2018 levels.
(cid:127) Industrial Solutions—We expect our net sales to increase in the industrial equipment end market
due primarily to continued growth in medical applications and a recent acquisition.
(cid:127) Communications Solutions—We expect net sales growth due primarily to sales increases in the
data and devices end market.
We expect diluted earnings per share from continuing operations to be in the range of $5.20 to $5.40
per share in fiscal 2019. This outlook reflects the negative impact of foreign currency exchange rates on
net sales and earnings per share of approximately $400 million and $0.16 per share, respectively, in
fiscal 2019 as compared to 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 2018, we acquired two businesses for a combined cash purchase price of $153 million,
net of cash acquired. The acquisitions were reported as part of our Industrial Solutions segment from
the date of acquisition.
We acquired two businesses during fiscal 2017 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.
11
11
In fiscal 2016, we acquired four businesses, including the Creganna Medical group (‘‘Creganna’’),
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.
See Note 5 to the Consolidated Financial Statements for additional information regarding
acquisitions.
Discontinued Operations
On September 16, 2018, we entered into a definitive agreement to sell our Subsea
Communications (‘‘SubCom’’) business for $325 million, subject to a final working capital adjustment.
The SubCom business met the held for sale and discontinued operations criteria and has been reported
as such in all periods presented on the Consolidated Financial Statements. Prior to reclassification to
discontinued operations, the SubCom business was included in the Communications Solutions segment.
See Notes 4 and 23 to the Consolidated Financial Statements for additional information regarding
discontinued operations.
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 $144 million on the transaction. The CPD business
was reported as part of the Data and Devices business within our Communications Solutions segment.
Net Sales
Results of Operations
The following table presents our net sales and the percentage of total net sales by segment:
2018
Fiscal
2017
($ in millions)
2016
Transportation Solutions . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . .
$ 8,290
3,856
1,842
59% $ 7,039
3,507
28
1,639
13
58% $ 6,503
3,215
29
1,634
13
58%
28
14
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,988
100% $12,185
100% $11,352
100%
The following table provides an analysis of the change in our net sales compared to the prior fiscal
year by segment:
2018
2017
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
(Divestiture)
Transportation
.
Solutions .
.
Industrial Solutions .
Communications
.
Solutions .
.
.
.
.
.
$1,251
349
17.8% $ 739
207
10.0
10.5%
5.9
203
12.4
172
10.5
$295
110
31
Total
.
.
.
.
.
.
.
$ 1,803
14.8% $ 1,118
9.2%
$436
($ in millions)
$217
32
—
$249
$536
292
8.2% $553
50
9.1
5
0.3
91
$833
7.3% $694
8.5%
1.6
5.7
6.1%
$(47)
(20)
(16)
$(83)
$ 30
262
(70)
$222
Net sales increased $1,803 million, or 14.8%, in fiscal 2018 as compared to fiscal 2017. The increase in
net sales resulted from organic net sales growth of 9.2%, the positive impact of foreign currency translation
of 3.6% due to the strengthening of certain foreign currencies, and sales contributions from acquisitions of
2.0%. Organic net sales were adversely affected by price erosion of $180 million in fiscal 2018.
12
12
Net sales increased $833 million, or 7.3%, in fiscal 2017 as compared to fiscal 2016. The increase
in net sales resulted from organic net sales growth of 6.1% and net sales contributions from
acquisitions and a divestiture of 1.9%, 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 $227 million in net sales. The impact of the additional week was estimated
using an average weekly sales figure for the last month of the fiscal year.
See further discussion of net sales below under ‘‘Segment Results.’’
Net Sales by Geographic Region. Our business operates in three geographic regions—EMEA,
Asia–Pacific, and the Americas—and our results of operations are influenced by changes in foreign
currency exchange rates. Increases or decreases in the value of the U.S. dollar, compared to other
currencies, will directly affect our reported results as we translate those currencies into U.S. dollars at
the end of each fiscal period. We sell our products into approximately 140 countries, and approximately
60% of our net sales were invoiced in currencies other than the U.S. dollar in fiscal 2018. The
percentage of net sales in fiscal 2018 by major currencies invoiced was as follows:
Currencies
U.S. dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chinese renminbi
Japanese yen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage
40%
32
14
6
8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
The following table presents our net sales and the percentage of total net sales by geographic
region:
2018
Fiscal
2017
($ in millions)
2016
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia–Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,255
4,762
3,971
38% $ 4,399
4,312
34
3,474
28
36% $ 4,114
3,923
35
3,315
29
36%
35
29
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,988
100% $12,185
100% $11,352
100%
The following table provides an analysis of the change in our net sales compared to the prior fiscal
year by geographic region:
2018
2017
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
Acquisitions
Translation (Divestiture)
EMEA .
.
Asia–Pacific
Americas .
Total
.
.
.
.
.
.
.
.
.
.
.
.
.
. . .
.
.
.
.
.
.
.
.
.
.
.
.
.
$ 856
450
497
19.5% $ 330
318
10.4
470
14.3
7.5% $332
117
7.4
(13)
13.6
($ in millions)
$285
389
159
$194
15
40
6.9% $140
498
9.9
56
4.8
$1,803
14.8% $1,118
9.2% $436
$249
$833
7.3% $694
3.4%
12.7
1.7
6.1%
$(24)
(66)
7
$(83)
$169
(43)
96
$222
13
13
Cost of Sales and Gross Margin
The following table presents cost of sales and gross margin information:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percentage of net sales . . . . . . . . . . . . . . . . . . . .
2018
Fiscal
2017
$9,243
$8,002
2016
($ in millions)
$7,525
66.1% 65.7% 66.3%
Fiscal
2018
versus
2017
Fiscal
2017
versus
2016
$1,241
$477
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percentage of net sales . . . . . . . . . . . . . . . . . . . .
$4,745
$4,183
$3,827(1) $ 562
$356
33.9% 34.3% 33.7%
(1) Fiscal 2016 included an additional week which contributed $86 million in gross margin.
In fiscal 2018, gross margin increased $562 million as compared to fiscal 2017, primarily as a result
of higher volume and the positive impact of foreign currency translation, partially offset by price
erosion. Gross margin as a percentage of net sales decreased to 33.9% in fiscal 2018 from 34.3% in
fiscal 2017. Gross margin increased $356 million in fiscal 2017 as compared to fiscal 2016 due primarily
to higher volume and lower material costs, partially offset by price erosion. Gross margin as a
percentage of net sales increased to 34.3% in fiscal 2017 from 33.7% in fiscal 2016.
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 2018, we
purchased approximately 195 million pounds of copper, 139,000 troy ounces of gold, and 2.8 million
troy ounces of silver. The following table presents the average prices incurred related to copper, gold,
and silver.
Lb.
Copper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Troy oz.
Silver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Troy oz.
$ 2.86
1,281
17.15
Measure
2018
Fiscal
2017
$ 2.48
1,229
16.75
2016
$ 2.49
1,212
16.08
In fiscal 2019, we expect to purchase approximately 210 million pounds of copper, 140,000 troy
ounces of gold, and 2.8 million troy ounces of silver.
Operating Expenses
The following table presents operating expense information:
2018
Fiscal
2017
2016
($ in millions)
Fiscal
2018
versus
2017
Fiscal
2017
versus
2016
Selling, general, and administrative expenses . . . . . . . . . .
As a percentage of net sales . . . . . . . . . . . . . . . . . . . .
$1,594
$1,543
$1,396
$ 51
$147
11.4% 12.7% 12.3%
Research, development, and engineering expenses . . . . . .
. . . . . . . . .
Restructuring and other charges (credits), net
$ 680
126
$ 611
147
$ 603
(2)
$ 69
(21)
$
8
149
Selling, General, and Administrative Expenses.
In fiscal 2018, selling, general, and administrative
expenses increased $51 million as compared to fiscal 2017 due primarily to increased selling expenses to
support higher sales levels and incremental expenses attributable to recently acquired businesses,
14
14
partially offset by lower incentive compensation costs and a gain on the sale of certain assets. Selling,
general, and administrative expenses increased $147 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.
Research, Development, and Engineering Expenses.
In fiscal 2018, research, development, and
engineering expenses increased $69 million as compared to fiscal 2017 due to costs related to growth
initiatives, primarily in the Transportation Solutions segment.
Restructuring and Other Charges (Credits), 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 2018, we initiated a restructuring program associated with footprint consolidation and
structural improvements primarily impacting the Industrial Solutions and Transportation Solutions
segments. 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.
In connection with these initiatives, we recorded net restructuring charges of $140 million,
$146 million, and $121 million in fiscal 2018, 2017, and 2016, respectively. Annualized cost savings
related to actions initiated in fiscal 2018 are expected to be approximately $125 million and are
expected to be realized by the end of fiscal 2020. Cost savings will be reflected primarily in cost of sales
and selling, general, and administrative expenses. During fiscal 2019, we expect net restructuring
charges to be similar to fiscal 2018 levels and we expect total spending, which will be funded with cash
from operations, to be approximately $140 million.
During fiscal 2016, we recognized a pre-tax gain of $144 million on the sale of our CPD business.
See Note 3 to the Consolidated Financial Statements for additional information regarding net
restructuring and other charges (credits).
Operating Income
The following table presents operating income and operating margin information:
2018
Fiscal
2017
2016
($ in millions)
Fiscal
2018
versus
2017
Fiscal
2017
versus
2016
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,331
$1,876
$1,808(1) $455
$68
16.7% 15.4% 15.9%
(1) Fiscal 2016 included an additional week which contributed $53 million in operating income.
15
15
Operating income included the following:
Acquisition related charges:
Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges associated with the amortization of acquisition-related fair value
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2018
2017
2016
(in millions)
$ 14
$ 6
$22
8
22
5
11
10
32
Restructuring and other charges (credits), net . . . . . . . . . . . . . . . . . . . . . . . . . . .
126
147
(2)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$148
$158
$30
See discussion of operating income below under ‘‘Segment Results.’’
Non-Operating Items
The following table presents select non-operating information:
Other income (expense), net . . . . . . . . . . . . . . . . . . . .
$
1
($ in millions)
$ (677)
$ (42)
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
(344)
180
(15.4)% 10.5% (80.9)%
(826)
2018
Fiscal
2017
2016
Fiscal
2018
versus
2017
Fiscal
2017
versus
2016
$
43
$ 635
(524)
1,006
Income (loss) from discontinued operations, net of
income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (19)
$ 143
$ 162
$ (162)
$ (19)
Other Income (Expense), Net.
In fiscal 2016, 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 income (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 2018, 2017, and 2016
and information regarding the Tax Cuts and Jobs Act (the ‘‘Act’’). We do not expect a significant
change in our effective tax rate on future results of operations as a result of the Act.
The valuation allowance for deferred tax assets was $2,191 million and $3,627 million at fiscal year
end 2018 and 2017, 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 2018, certain subsidiaries had approximately $23 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 (Loss) from Discontinued Operations, Net of Income Taxes. On September 16, 2018, we
entered into a definitive agreement to sell our SubCom business. The net sales of the business were
$702 million, $928 million, $886 million in fiscal 2018, 2017, and 2016, respectively. In fiscal 2018, net
sales and operating income were negatively impacted by production delays on a program. In fiscal 2017,
net sales increased as a result of higher project activity and operating income was positively impacted
by lower material costs and improved manufacturing productivity as compared to fiscal 2016.
16
16
In connection with the sale of the SubCom business, in fiscal 2018, we recorded a pre-tax
impairment charge of $19 million, which is included in income (loss) from discontinued operations on
the Consolidated Statement of Operations, to write the carrying value of the business down to its
estimated fair value less costs to sell. We expect to incur a pre-tax loss on sale of approximately
$90 million, related primarily to the recognition of cumulative translation adjustment losses and certain
guarantee liabilities, which will be presented in income (loss) from discontinued operations on the
Consolidated Statement of Operations. In November 2018, we completed the sale of the SubCom
business for $325 million. The proceeds received are subject to a final working capital adjustment.
During fiscal 2016, we settled a lawsuit with the former shareholders of Com-Net, which we
acquired in fiscal 2001, and recorded pre-tax credits of $30 million representing a release of excess
reserves. This amount was reflected in income (loss) from discontinued operations on the Consolidated
Statement of Operations as the Com-Net case was associated with our former Wireless Systems
business which was sold in fiscal 2009. Also during fiscal 2016, we recognized an additional pre-tax gain
of $29 million on the fiscal 2015 divestiture of our Broadband Network Solutions (‘‘BNS’’) business,
related primarily to pension and net working capital adjustments.
See Notes 4 and 23 to the Consolidated Financial Statements for additional information regarding
discontinued operations.
Transportation Solutions
Segment Results
Net Sales. The following table presents the Transportation Solutions segment’s net sales and the
percentage of total net sales by primary industry end market(1):
2018
Fiscal
2017
($ in millions)
2016
Automotive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial transportation . . . . . . . . . . . . . . . . . . . . .
Sensors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,092
1,280
918
74% $5,228
997
15
814
11
74% $4,912
825
14
766
12
75%
13
12
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,290
100% $7,039
100% $6,503
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:
2018
2017
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 Acquisition
Net Sales
Growth
Organic Net
Sales Growth
Translation Acquisition
$ 864
16.5% $434
8.2% $213
($ in millions)
$316
$217
6.4% $349
7.1%
$(33)
283
104
28.4
12.8
233
72
23.2
8.9
50
32
—
—
172
48
20.8
6.3
181
23
21.9
3.0
(9)
(5)
$1,251
17.8% $739
10.5% $295
$217
$536
8.2% $553
8.5%
$(47)
.
.
.
.
.
.
.
.
.
.
.
.
$—
—
30
$30
Automotive .
Commercial
.
.
.
.
transportation .
.
Sensors .
.
.
. . .
.
.
.
Total
.
.
.
.
.
. . .
In fiscal 2018, net sales in the Transportation Solutions segment increased $1,251 million, or
17.8%, from fiscal 2017 due to organic net sales growth of 10.5%, the positive impact of foreign
17
17
currency translation of 4.2%, and sales contributions from an acquisition of 3.1%. Our organic net sales
by primary industry end market were as follows:
(cid:127) Automotive—Our organic net sales increased 8.2% in fiscal 2018 with growth of 16.0% in the
Americas region, 8.3% in the EMEA region, and 5.0% in the Asia–Pacific region. Our growth in
the Americas region resulted from electronification and market share gains in North America
and market growth in South America. In the EMEA region, our growth was driven by market
growth, electronification, and market share gains. Our growth in the Asia–Pacific region was
driven by market share gains and electronification.
(cid:127) Commercial transportation—Our organic net sales increased 23.2% in fiscal 2018 with growth in
all regions due primarily to strength in the heavy truck, construction, and agriculture markets.
(cid:127) Sensors—Our organic net sales increased 8.9% in fiscal 2018 primarily as a result of growth in
the commercial transportation, industrial equipment, and automotive markets.
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:
(cid:127) 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
growth, electronification, and new model launches. Our growth in the Americas region resulted
from continued market recovery in South America.
(cid:127) 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.
(cid:127) 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.
Operating Income. The following table presents the Transportation Solutions segment’s operating
income and operating margin information:
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
Fiscal
2017
$1,578
$1,294
2016
($ in millions)
$1,209
19.0% 18.4% 18.6%
Fiscal
2018
versus
2017
Fiscal
2017
versus
2016
$ 284
$
85
Operating income in the Transportation Solutions segment increased $284 million in fiscal 2018 as
compared to fiscal 2017. In fiscal 2017, operating income in the Transportation Solutions segment
18
18
increased $85 million from fiscal 2016. The Transportation 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
Fiscal
2018
2017
2016
(in millions)
$ 8
$ 3
$ 9
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 — —
Restructuring and other charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
33
3
69
9
47
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$45
$72
$56
Excluding these items, operating income increased in fiscal 2018 primarily as a result of higher volume
and, to a lesser degree, lower material costs, partially offset by price erosion. Excluding these items,
operating income increased in fiscal 2017 primarily as a result of higher volume, partially offset by price
erosion.
Industrial Solutions
Net Sales. The following table presents the Industrial Solutions segment’s net sales and the
percentage of total net sales by primary industry end market(1):
2018
Fiscal
2017
($ in millions)
2016
Industrial equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Aerospace, defense, oil, and gas . . . . . . . . . . . . . . . . . .
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,987
1,157
712
52% $1,747
1,075
30
685
18
50% $1,419
1,100
31
696
19
44%
34
22
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,856
100% $3,507
100% $3,215
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:
2018
2017
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
$240
13.7% $150
8.6% $ 58
($ in millions)
$328
$32
23.1% $ 77
5.5%
$(10)
$261
82
27
7.6
3.9
51
6
4.7
0.9
31
21
$349
10.0% $207
5.9% $110
—
—
$32
(25)
(11)
(2.3)
(1.6)
(19)
(8)
(1.7)
(1.0)
(7)
(3)
1
—
$292
9.1% $ 50
1.6%
$(20)
$262
.
.
.
.
Industrial equipment .
.
Aerospace, defense, oil,
.
.
and gas .
.
Energy .
.
.
.
.
.
.
.
.
.
.
.
.
.
Total .
.
.
.
.
.
.
.
.
.
Net sales in the Industrial Solutions segment increased $349 million, or 10.0%, in fiscal 2018 as
compared to fiscal 2017 due to organic net sales growth of 5.9%, the positive impact of foreign
19
19
currency translation of 3.2%, and sales contributions from acquisitions of 0.9%. Our organic net sales
by primary industry end market were as follows:
(cid:127) Industrial equipment—Our organic net sales increased 8.6% in fiscal 2018 primarily as a result of
strength in factory automation and controls and medical applications.
(cid:127) Aerospace, defense, oil, and gas—Our organic net sales increased 4.7% in fiscal 2018 due to
growth in the commercial aerospace, defense, and oil and gas markets.
(cid:127) Energy—Our organic net sales increased 0.9% in fiscal 2018 as a result of growth in the
Americas region, partially offset by declines in the EMEA and Asia–Pacific regions.
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
additional week which contributed $65 million in net sales. Our organic net sales by primary industry
end market were as follows:
(cid:127) Industrial equipment—Our organic net sales increased 5.5% in fiscal 2017 due primarily to
growth in factory automation and controls and medical applications.
(cid:127) 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.
(cid:127) 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.
Operating Income. The following table presents the Industrial Solutions segment’s operating
income and operating margin information:
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
Fiscal
2017
$ 465
$ 364
2016
($ in millions)
$ 353
12.1% 10.4% 11.0%
Fiscal
2018
versus
2017
Fiscal
2017
versus
2016
$ 101
$
11
Operating income in the Industrial Solutions segment increased $101 million in fiscal 2018 as
compared to fiscal 2017 and increased $11 million in fiscal 2017 as compared to fiscal 2016. 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
2018
2017
2016
(in millions)
$ 6
$ 3
$13
4
10
80
5
8
74
10
23
31
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$90
$82
$54
20
20
Excluding these items, operating income increased in fiscal 2018 due primarily to higher volume.
Excluding these items, operating income increased in fiscal 2017 primarily as a result of higher volume,
partially offset by price erosion.
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):
Data and devices . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,068
774
58% $ 963
676
42
59% $1,019
615
41
62%
38
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,842
100% $1,639
100% $1,634
100%
2018
Fiscal
2017
($ in millions)
2016
(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:
2018
2017
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
Net Sales
Growth
Organic Net
Sales Growth
Translation Divestiture
Data and devices
.
Appliances .
.
Total
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$105
98
$203
10.9% $ 91
81
14.5
12.4% $172
9.5%
12.0
10.5%
$14
17
$31
($ in millions)
$(56)
61
(5.5)% $24
67
9.9
$ 5
0.3%
$91
2.3%
10.8
5.7%
$(10)
(6)
$(16)
$(70)
—
$(70)
In fiscal 2018, net sales in the Communications Solutions segment increased $203 million, or
12.4%, as compared to fiscal 2017 due to organic net sales growth of 10.5% and the positive impact of
foreign currency translation of 1.9%. Our organic net sales by primary industry end market were as
follows:
(cid:127) Data and devices—Our organic net sales increased 9.5% in fiscal 2018 as a result of growth in all
regions, primarily attributable to growth in high speed connectivity in data center applications.
(cid:127) Appliances—Our organic net sales increased 12.0% in fiscal 2018 as a result of growth in all
regions and market share gains.
Net sales in the Communications Solutions segment increased $5 million in fiscal 2017 as
compared to fiscal 2016. Organic net sales growth of 5.7% was largely offset by sales declines resulting
from a divestiture of 4.3% and the negative impact of foreign currency translation of 1.1%. Fiscal 2016
included an additional week which contributed $32 million in net sales. Our organic net sales by
primary industry end market were as follows:
(cid:127) Data and devices—Our organic net sales 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.
(cid:127) 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.
21
21
Operating Income. The following table presents the Communications Solutions segment’s
operating income and operating margin information:
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
Fiscal
2017
2016
Fiscal
2018
versus
2017
Fiscal
2017
versus
2016
$ 288
$ 218
($ in millions)
$ 246
$
15.6% 13.3% 15.1%
70
$ (28)
In the Communications Solutions segment, operating income increased $70 million in fiscal 2018 as
compared to fiscal 2017 and decreased $28 million in fiscal 2017 as compared to fiscal 2016. The
Communications Solutions segment’s operating income included the following:
Fiscal
2018
2017
2016
Restructuring and other charges (credits), net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13
(in millions)
$4
$(80)(1)
(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 both fiscal 2018 and 2017 due primarily to higher
volume and improved manufacturing productivity, partially offset by price erosion.
Liquidity and Capital Resources
Our ability to fund our future capital needs will be affected by our ability to continue to generate
cash from operations and may be affected by our ability to access the capital markets, money markets,
or other sources of funding, as well as the capacity and terms of our financing arrangements. We
believe that cash generated from operations and, to the extent necessary, these other sources of
potential funding will be sufficient to meet our anticipated capital needs for the foreseeable future,
including the payment of $325 million of 2.375% senior notes and $250 million of 2.35% senior notes
due in fiscal 2019. 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. 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 2018, 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 2018,
we had approximately $11.6 billion of cash, cash equivalents, and intercompany deposits, principally in
our subsidiaries, that we have the ability to distribute to TEGSA and TE Connectivity Ltd. but we
consider to be permanently reinvested. We estimate that up to $0.9 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.
22
22
Cash Flows from Operating Activities
Net cash provided by continuing operating activities increased $28 million to $2,301 million in
fiscal 2018 as compared to $2,273 million in fiscal 2017. The increase resulted primarily from higher
pre-tax income levels, substantially offset by the impact of higher working capital to support increased
business levels and increased incentive compensation payments.
Net cash provided by continuing operating activities increased $340 million to $2,273 million in
fiscal 2017 as compared to $1,933 million in fiscal 2016. The increase resulted primarily from higher
pre-tax income levels, an increase in accrued and other current liabilities related primarily to incentive
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.
The amount of income taxes paid, net of refunds, during fiscal 2018, 2017, and 2016 was
$393 million, $323 million, and $806 million, respectively. In fiscal 2017 and 2016, these amounts
included refunds of $23 million and payments of $471 million, respectively, related to pre-separation tax
matters. During fiscal 2016, we received net reimbursements of $321 million from Tyco International
and Covidien pursuant to their indemnifications for pre-separation tax matters. We do not expect a
significant change in our income tax payments as a result of the Tax Cuts and Jobs Act.
See Note 15 to the Consolidated Financial Statements for further information regarding the Tax
Sharing Agreement and payments related to pre-separation tax matters.
Pension contributions in fiscal 2018, 2017, and 2016 were $54 million, $48 million, and $67 million,
respectively. We expect pension contributions to be $47 million in fiscal 2019, before consideration of
any voluntary contributions.
Cash Flows from Investing Activities
Capital expenditures were $935 million, $679 million, and $603 million in fiscal 2018, 2017, and
2016, respectively. Capital spending increased in fiscal 2018 as a result of increased investments in
growth initiatives, primarily in the Transportation Solutions segment. We expect fiscal 2019 capital
spending levels to be approximately 5-6% of net sales. We believe our capital funding levels are
adequate to support new programs, and we continue to invest in our manufacturing infrastructure to
further enhance productivity and manufacturing capabilities.
During fiscal 2018, we acquired two businesses for a combined cash purchase price of $153 million,
net of cash acquired. We acquired two businesses during fiscal 2017 for a combined cash purchase price
of $250 million, net of cash acquired. In fiscal 2016, we acquired four businesses, including Creganna,
for a combined cash purchase price of $1.3 billion, 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.
Cash Flows from Financing Activities and Capitalization
Total debt at fiscal year end 2018 and 2017 was $4,000 million and $4,344 million, respectively. See
Note 11 to the Consolidated Financial Statements for additional information regarding debt.
TEGSA, our 100%-owned subsidiary, 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 2018 or 2017.
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
23
23
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 2018, we were in compliance with all of
our debt covenants and believe that we will continue to be in compliance with our existing covenants
for the foreseeable future.
Periodically, TEGSA issues commercial paper to U.S. institutional accredited investors and
qualified institutional buyers in accordance with available exemptions from the registration
requirements of the Securities Act of 1933 as part of our ongoing effort to maintain financial flexibility
and to potentially decrease the cost of borrowings. Borrowings under the commercial paper program
are backed by the Credit Facility.
TEGSA’s payment obligations under its senior notes, commercial paper, and Credit Facility are
fully and unconditionally guaranteed by its parent, TE Connectivity Ltd.
Payments of common share dividends to shareholders were $588 million, $546 million, and
$509 million in fiscal 2018, 2017, and 2016, 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 2018 and 2016, our board of directors authorized increases of $1.5 billion and
$1.0 billion, respectively, in the share repurchase program. We repurchased approximately 10 million of
our common shares for $966 million, 8 million of our common shares for $621 million, and 43 million
of our common shares for $2,610 million under the share repurchase program during fiscal 2018, 2017,
and 2016, respectively. At fiscal year end 2018, we had $1.0 billion of availability remaining under our
share repurchase authorization.
Commitments and Contingencies
The following table provides a summary of our contractual obligations and commitments for debt,
minimum lease payment obligations under non-cancelable leases, and other obligations at fiscal year
end 2018:
Payments Due by Fiscal Year
Total
2019
2020
2021
2022
2023 Thereafter
(in millions)
Debt(1)
Interest payments on debt(2) . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations(3) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,021 $ 963 $ — $252 $501 $639
79
88
48
38
2 — —
1,092
403
820
119
97
798
109
76
17
103
62
$1,666
594
82
3
Total contractual cash obligations(4)(5)(6)
. . . . . . . . . . $6,336 $1,977 $202 $419 $637 $756
$2,345
(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 swap contracts.
(3) Purchase obligations consist primarily of commitments for purchases of goods and services.
24
24
(4) The above table does not reflect unrecognized income tax benefits of $566 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 $47 million to
pension plans in fiscal 2019, before consideration of any voluntary contributions. See Note 14 to the
Consolidated Financial Statements for additional information regarding these plans and our estimates of
future contributions and benefit payments.
(6) Other long-term liabilities of $487 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 2019 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 2018, we had outstanding letters of credit, letters of guarantee, and surety bonds
of $275 million.
As discussed above, in September 2018, we entered into a definitive agreement to sell our SubCom
business. Following the divestiture, we will continue to honor performance guarantees and letters of
credit related to the SubCom business’ existing projects. These existing guarantees have a combined
value of approximately $1.7 billion and are expected to expire at various dates through fiscal 2025;
however, the majority are expected to expire within two years. Also, under the terms of the definitive
agreement, we are required to issue up to $300 million of new performance guarantees, subject to
certain limitations, for projects entered into by the SubCom business following the sale for a period of
up to three years. We have contractual recourse against the SubCom business if we are required to
perform on these guarantees; however, based on historical experience, we do not anticipate having to
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perform. See Notes 4 and 23 to the Consolidated Financial Statements for additional information
regarding the divestiture of the SubCom business.
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
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 SubCom business
which is reported in discontinued operations, 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.
See Notes 4 and 23 to the Consolidated Financial Statements for additional information regarding
the SubCom business. See Note 2 to the Consolidated Financial Statements for information regarding
our adoption of ASC 606, Revenue from Contracts with Customers, in fiscal 2019.
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 (a ‘‘component’’) if the component
constitutes a business for which discrete financial information is available and regularly reviewed by
segment management. At fiscal year end 2018, we had five reporting units, all of which contained
goodwill. There were two reporting units in both the Transportation Solutions and Industrial Solutions
segments and one reporting unit in the Communications Solutions segment. When changes occur in the
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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
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 2018 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
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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
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 2018, a 25 basis point decrease in the
discount rate would have increased the present value of our pension obligations by $124 million; a 25
basis point increase would have decreased the present value of our pension obligations by $111 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 2018 pension expense by
$12 million.
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At fiscal year end 2018, the long-term target asset allocation in our U.S. plans’ master trust is 10%
return-seeking assets and 90% liability-hedging assets. 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 2018, our target asset allocation is 45% return-seeking and 55% liability-hedging.
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 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.
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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 28, 2018 filed with
the SEC and elsewhere in this Annual Report, could cause our results to differ materially from those
expressed in forward-looking statements:
(cid:127) conditions in the global or regional economies and global capital markets, and cyclical industry
conditions;
(cid:127) conditions affecting demand for products in the industries we serve, particularly the automotive
industry;
(cid:127) competition and pricing pressure;
(cid:127) market acceptance of our new product introductions and product innovations and product life
cycles;
(cid:127) raw material availability, quality, and cost;
(cid:127) fluctuations in foreign currency exchange rates;
(cid:127) financial condition and consolidation of customers and vendors;
(cid:127) reliance on third-party suppliers;
(cid:127) risks associated with current and future acquisitions and divestitures;
(cid:127) global risks of business interruptions such as natural disasters and political, economic, and
military instability;
(cid:127) risks associated with security breaches and other disruptions to our information technology
infrastructure;
(cid:127) risks related to compliance with current and future environmental and other laws and
regulations;
(cid:127) our ability to protect our intellectual property rights;
(cid:127) risks of litigation;
(cid:127) our ability to operate within the limitations imposed by our debt instruments;
(cid:127) the possible effects on us of various non-U.S. and U.S. legislative proposals and other initiatives
that, if adopted, could materially increase our worldwide corporate effective tax rate and
negatively impact our U.S. government contracts business;
(cid:127) various risks associated with being a Swiss corporation;
(cid:127) the impact of fluctuations in the market price of our shares; and
(cid:127) the impact of certain provisions of our articles of association on unsolicited takeover proposals.
There may be other risks and uncertainties that we are unable to predict at this time or that we
currently do not expect to have a material adverse effect on our business.
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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 and foreign currency forward 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 or foreign
currency forward contracts from the fiscal year end 2018 market rates would have changed the
unrealized value of our contracts by $101 million. A 10% appreciation or depreciation of the
underlying currency in our cross-currency swap contracts or foreign currency forward contracts from the
fiscal year end 2017 market rates would have changed the unrealized value of our contracts by
$122 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 swap
contracts to convert a portion of fixed-rate debt into variable-rate debt. We may use forward starting
interest rate swap contracts to manage interest rate exposure in periods prior to the anticipated
issuance of fixed-rate debt. We also utilize investment swap contracts to manage earnings exposure on
certain nonqualified deferred compensation liabilities.
Based on our floating rate debt balances at fiscal year end 2018 and 2017, a 50 basis point increase
in the levels of the U.S. dollar interest rates, with all other variables held constant, would have resulted
in an immaterial increase in interest expense in both fiscal 2018 and 2017.
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 2018, our commodity hedges, which related to expected purchases of
gold, silver, and copper, were in a net loss position of $34 million and had a notional value of
$401 million. 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. 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 2018 prices would have changed the unrealized
value of our forward contracts by $37 million. A 10% appreciation or depreciation of the price of a
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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 value of our forward contracts by $33 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 28, 2018. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of September 28, 2018.
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 28, 2018.
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 28, 2018, which is included in
this Annual Report.
Changes in Internal Control Over Financial Reporting
During the quarter ended September 28, 2018, there were no changes in our internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
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TE CONNECTIVITY LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
34
Consolidated Statements of Operations for the Fiscal Years Ended September 28, 2018,
September 29, 2017, and September 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended September 28,
2018, September 29, 2017, and September 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of September 28, 2018 and September 29, 2017 . . . . . . . . . . . . .
Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended September 28, 2018,
September 29, 2017, and September 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Fiscal Years Ended September 28, 2018,
September 29, 2017, and September 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37
38
39
40
41
97
Report of the Statutory Auditor on the Consolidated Financial Statements of
TE Connectivity Ltd.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of TE Connectivity Ltd.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of TE Connectivity Ltd. and
subsidiaries (the ‘‘Company’’) as of September 28, 2018 and September 29, 2017, 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 28, 2018, and the related notes and
schedule listed in the Index (collectively referred to as the ‘‘financial statements’’). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of
September 28, 2018 and September 29, 2017, and the results of its operations and its cash flows for
each of the three fiscal years in the period ended September 28, 2018, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as
of September 28, 2018, 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 13, 2018 expressed an unqualified opinion on the Company’s internal control
over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 13, 2018
We have served as the Company’s auditor since 2007.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of TE Connectivity Ltd.:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of TE Connectivity Ltd. and
subsidiaries (the ‘‘Company’’) as of September 28, 2018, based on criteria established in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of September 28, 2018, based on criteria
established in Internal Control—Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the financial statements as of and for the fiscal year ended
September 28, 2018 of the Company and our report dated November 13, 2018 expressed an unqualified
opinion on those financial statements.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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 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 the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 13, 2018
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TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016
2018
Fiscal
2017
2016
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 (credits), net . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of income taxes . . . . . . .
(in millions, except per share
data)
$12,185
8,002
$13,988
9,243
$11,352
7,525
4,745
1,594
680
14
126
2,331
15
(107)
1
2,240
344
2,584
(19)
4,183
1,543
611
6
147
1,876
16
(130)
(42)
1,720
(180)
1,540
143
3,827
1,396
603
22
(2)
1,808
17
(127)
(677)
1,021
826
1,847
162
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,565
$ 1,683
$ 2,009
Basic earnings per share:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
7.38
(0.05)
7.33
7.32
(0.05)
7.27
Weighted-average number of shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
350
353
4.34
0.40
4.74
4.30
0.40
4.70
355
358
$
$
5.05
0.44
5.49
5.01
0.44
5.44
366
369
See Notes to Consolidated Financial Statements.
36
36
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to unrecognized pension and postretirement benefit costs,
2018
Fiscal
2017
2016
(in millions)
$1,683
$2,565
$2,009
(117)
37
(92)
net of income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains (losses) on cash flow hedges, net of income taxes . . . . . . . . . . . . . .
83
(74)
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(108)
330
15
382
(88)
11
(169)
Comprehensive income.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,457
$2,065
$1,840
See Notes to Consolidated Financial Statements.
37
37
TE CONNECTIVITY LTD.
CONSOLIDATED BALANCE SHEETS
As of September 28, 2018 and September 29, 2017
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $22 and $18,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year End
2018
2017
(in millions, except
share data)
$
848
$ 1,218
2,361
1,857
661
472
6,199
3,497
5,684
1,704
2,144
—
1,158
2,138
1,647
578
345
5,926
3,159
5,651
1,841
2,141
257
428
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,386
$19,403
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term pension and postretirement liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
963
1,548
1,711
188
4,410
3,037
1,102
207
312
—
487
9,555
$
710
1,387
1,613
137
3,847
3,634
1,158
236
293
43
441
9,652
Commitments and contingencies (Note 12)
Shareholders’ equity:
Common shares, CHF 0.57 par value, 357,069,981 shares authorized and issued .
Accumulated earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury shares, at cost, 12,279,603 and 5,356,369 shares, respectively . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
157
12,114
(1,134)
(306)
157
10,175
(421)
(160)
Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,831
9,751
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,386
$19,403
See Notes to Consolidated Financial Statements.
38
38
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016
Common
Shares
Treasury
Shares
Contributed Accumulated Comprehensive Shareholders’
Accumulated
Other
Total
Shares Amount Shares Amount
Surplus
Earnings
Loss
Equity
(in millions)
$182
—
—
(20)
—
—
$(1,256)
—
—
$ 4,359
—
—
$ 6,673
2,009
—
$(373)
—
(169)
Balance at September 25, 2015 .
414
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
Adoption of ASU No. 2018-02 . . —
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 . . —
—
—
—
—
—
—
—
—
Balance at September 28, 2018 .
357
$157
$ 9,585
2,009
(169)
91
(512)
90
1
(2,610)
—
—
—
2
2
(43)
31
(28)
—
—
—
—
—
3
2
(8)
26
(5)
—
—
—
—
—
1
2
(10)
(12)
—
—
90
146
(2,610)
2,006
91
(512)
—
(145)
—
(1,992)
—
—
—
—
—
—
—
—
—
—
—
—
$(1,624)
$ 1,801
$ 8,682
$(542)
$ 8,485
—
—
—
—
—
117
195
(621)
1,512
—
—
—
99
(564)
—
(184)
—
(1,152)
165
1,683
—
—
—
—
(6)
—
(349)
$ (421)
$ —
$10,175
—
—
—
—
—
100
—
—
—
98
—
—
153
(966)
(98)
—
38
2,565
—
—
(610)
—
(54)
—
—
—
382
—
—
—
—
—
—
$(160)
(38)
—
(108)
—
—
—
—
—
165
1,683
382
99
(564)
117
5
(621)
—
$ 9,751
—
2,565
(108)
98
(610)
100
1
(966)
$(1,134)
$ —
$12,114
$(306)
$10,831
See Notes to Consolidated Financial Statements.
39
39
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016
Net cash provided by continuing operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by discontinued operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,301
150
2,451
2,273
48
2,321
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Income) loss from discontinued operations, net of income taxes . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile income from continuing operations to net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in continuing investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in discontinued investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flows From Financing Activities:
Net increase (decrease) in commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental Cash Flow Information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See Notes to Consolidated Financial Statements.
40
40
Fiscal
2017
2016
2018
(in millions)
$ 2,565
19
$1,683
(143)
$ 2,009
(162)
2,584
1,540
1,847
667
(791)
30
—
95
(2)
7
(269)
(247)
(63)
201
5
54
30
611
(142)
20
8
95
—
17
(204)
(270)
(62)
314
224
(1)
123
(935)
23
(153)
—
(8)
(1,073)
(21)
(1,094)
270
119
(708)
100
(879)
(588)
129
(36)
(1,593)
(129)
(1,722)
(5)
(370)
1,218
(679)
19
(250)
4
(3)
(909)
(23)
(932)
(330)
589
—
117
(614)
(546)
25
(30)
(789)
(25)
(814)
(4)
571
647
560
136
13
632
87
(144)
99
95
154
281
(87)
(4)
(1,769)
33
1,933
14
1,947
(603)
8
(1,336)
333
42
(1,556)
(25)
(1,581)
330
352
(501)
90
(2,787)
(509)
(11)
(30)
(3,066)
11
(3,055)
7
(2,682)
3,329
$
$
848
$1,218
127
393
$ 128
323
$
$
647
117
806
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:
(cid:127) Transportation Solutions. The Transportation Solutions segment is a leader in connectivity and
sensor technologies. Our products, which must withstand harsh conditions, are used in the
automotive, commercial transportation, and sensors markets.
(cid:127) Industrial Solutions. The Industrial Solutions segment is a leading supplier of products that
connect and distribute power, data, and signals. Our products are used in the industrial
equipment; aerospace, defense, oil, and gas; and energy markets.
(cid:127) Communications Solutions. The Communications Solutions segment is a leading supplier of
electronic components for the data and devices and the appliances markets.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and
expenses. Significant estimates in these Consolidated Financial Statements include restructuring and
other charges, assets acquired and liabilities assumed in acquisitions, allowances for doubtful accounts
receivable, estimates of future cash flows and discount rates associated with asset impairments, useful
lives for depreciation and amortization, loss contingencies, net realizable value of inventories, estimated
contract revenue and related costs, legal contingencies, tax reserves and deferred tax asset valuation
allowances, and the determination of discount and other rate assumptions for pension 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 2018, 2017, and
2016 ended on September 28, 2018, September 29, 2017, and September 30, 2016, respectively.
Fiscal 2018 and 2017 were 52 weeks in length. Fiscal 2016 was a 53-week year.
41
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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.
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.
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.
See ‘‘Recently Issued Accounting Pronouncements’’ below for information regarding our adoption
of Accounting Standards Codification (‘‘ASC’’) 606, Revenue from Contracts with Customers, in
fiscal 2019.
Inventories
Inventories are recorded at the lower of cost or net realizable value using the first-in, first-out cost
method.
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
42
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
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 2018, we had five reporting units, all of which contained goodwill. There were
two reporting units in both the Transportation Solutions and Industrial Solutions segments and one
reporting unit in the Communications Solutions segment. 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
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
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
43
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
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 2018, 2017, and 2016 were $606 million, $548 million, and $525 million,
respectively.
Income Taxes
Income taxes are computed in accordance with the provisions of 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.
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.
44
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
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 2018, we have assessed the likelihood of
counterparty default as remote. We currently provide guarantees from a wholly-owned subsidiary to the
counterparties to our commodity swap derivatives and exchange cash collateral with the counterparties
to our cross-currency swap contracts. The likelihood of performance on the guarantees has been
assessed as remote. For all other derivative financial instruments, we are not required to provide, nor
do we require counterparties to provide, collateral or other security.
Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, specifies a fair value hierarchy based upon the
observable inputs utilized in valuation of certain assets and liabilities. Observable inputs (highest level)
reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect
internally developed market assumptions. Fair value measurements are classified under the following
hierarchy:
(cid:127) Level 1. Quoted prices in active markets for identical assets and liabilities.
(cid:127) Level 2. Quoted prices in active markets for similar assets and liabilities, or other inputs that are
observable for the asset or liability, either directly or indirectly, for substantially the full term of
the asset or liability.
(cid:127) Level 3. Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets and liabilities. This includes certain pricing models,
discounted cash flows methodologies, and similar techniques that use significant unobservable
inputs.
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:
(cid:127) Cash and cash equivalents. Cash and cash equivalents are valued at book value, which we
consider to be equivalent to unadjusted quoted prices (level 1).
45
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
(cid:127) Accounts receivable. Accounts receivable are valued based on the net value expected to be
realized. The net realizable value generally represents an observable contractual agreement
(level 2).
(cid:127) Accounts payable. Accounts payable are valued based on the net value expected to be paid,
generally supported by an observable contractual agreement (level 2).
(cid:127) Debt. The fair value of debt, including both current and non-current maturities, is derived from
quoted market prices or other pricing determinations based on the results of market approach
valuation models using observable market data such as recently reported trades, bid and offer
information, and benchmark securities (level 2).
Pension 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.
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.
46
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
Currency Translation
For our non-U.S. dollar functional currency subsidiaries, assets and liabilities are translated into
U.S. dollars using fiscal year end exchange rates. Sales and expenses are translated at average monthly
exchange rates. Foreign currency translation gains and losses are included as a component of
accumulated other comprehensive income (loss) within equity.
Gains and losses resulting from foreign currency transactions, which are included in earnings, were
immaterial in fiscal 2018, 2017, and 2016.
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.
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
47
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
retrospective basis, is effective for us in the first quarter of fiscal 2019. Adoption is expected to result
in a $443 million cumulative-effect adjustment to beginning accumulated earnings, which represents the
net reversal of all balances associated with deferred tax impacts of intra-entity transfers of assets other
than inventory. This will result in a decrease in other assets of $798 million, an increase in deferred tax
assets of $418 million, and a decrease in prepaid expenses and other current assets of $63 million on
the Consolidated Balance Sheet.
In February 2016, the FASB issued ASU No. 2016-02 which codified ASC 842, Leases. This
guidance, as subsequently amended, requires lessees to recognize a lease liability and a right-of-use
asset for most leases and is effective for us in the first quarter of fiscal 2020. We are currently in the
process of updating policies, internal controls, financial statement disclosures, and systems to
incorporate the impact of the new standard in our financial reporting processes. We intend to adopt
the standard using the modified retrospective approach in the period of adoption, as permitted by ASU
No. 2018-11. We expect that adoption will likely have a material impact to our Consolidated Balance
Sheet; however, we currently do not expect adoption to have a material impact to our results of
operations or cash flows. We believe that we are following an appropriate timeline to adopt the new
standard in the first quarter of fiscal 2020.
In May 2014, the FASB issued ASU No. 2014-09 which codified ASC 606, Revenue from Contracts
with Customers. This guidance supersedes ASC 605, Revenue Recognition, and introduces a single,
comprehensive, five-step revenue recognition model. ASC 606 also enhances disclosures related to
revenue recognition. ASC 606, as amended, is effective for us beginning in fiscal 2019. Significantly all
our revenues are generated from the sale of products. Our Subsea Communications (‘‘SubCom’’)
business, which is reported in discontinued operations, generates contract revenues for construction
related projects which are recorded primarily using the percentage-of-completion method. Our review
of existing contracts, which is complete, affirms that product revenue and contract revenue will
continue to be recognized at a point in time and over-time, respectively, in a manner consistent with
current practice. See Notes 4 and 23 for additional information regarding our SubCom business. In
fiscal 2018, we completed the process of updating policies, internal controls, financial statement
disclosures, and systems to incorporate the impact of the new standard in our financial reporting
processes. We will adopt the new standard using the modified retrospective approach and have
determined that transition impacts, which relate primarily to incentive compensation arrangements, are
not material to our results of operations or financial position.
Recently Adopted Accounting Pronouncements
In February 2018, the FASB issued ASU No. 2018-02, an update to ASC 220, Income Statement—
Reporting Comprehensive Income, to allow a reclassification from accumulated other comprehensive
income (loss) for stranded tax effects resulting from the Tax Cuts and Jobs Act (the ‘‘Act’’). See
Note 15 for additional information regarding the Act. We elected to early adopt this update in
fiscal 2018 and reclassify the stranded tax effects resulting from the change in the U.S. federal
corporate income tax rate. This change in accounting principle resulted in a reclassification of
$38 million, primarily associated with our pension plans, during the period of adoption. The
reclassification increased both accumulated other comprehensive loss and accumulated earnings on the
Consolidated Balance Sheet with no impact to total shareholders’ equity.
48
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
2. Summary of Significant Accounting Policies (Continued)
In March 2017, the FASB issued ASU No. 2017-07, an update to ASC 715, Compensation—
Retirement Benefits, which changes the income statement presentation of net periodic pension and
postretirement benefit costs. The ASU requires that service costs be presented with other employee
compensation costs within operating income and that other cost components be presented outside of
operating income. We elected to early adopt this update in fiscal 2018. The update was applied
retrospectively and did not have a material impact on our Consolidated Statements of Operations.
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 (Credits), Net
Net restructuring and other charges (credits) consisted of the following:
Fiscal
2017
2018
2016
Restructuring charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on divestiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other charges (credits), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring Charges, Net
Net restructuring charges by segment were as follows:
Transportation Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$ 146
$121
— (144)
21
1
$140
(2)
(12)
$126
$ 147
$ (2)
Fiscal
2017
2016
2018
(in millions)
$ 69
73
4
$ 39
28
54
$ 42
83
15
Restructuring charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$140
$146
$121
49
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
3. Restructuring and Other Charges (Credits), Net (Continued)
Activity in our restructuring reserves was as follows:
Balance at
Beginning
of Fiscal
Year
Changes in
Charges Estimate
Cash
Payments
Non-Cash Currency
Translation
Items
(in millions)
Balance at
End of
Fiscal
Year
Fiscal 2018 Activity:
Fiscal 2018 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Property, plant, and equipment . . . .
Total
. . . . . . . . . . . . . . . . . . . .
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 . . . . . . .
Property, plant, and equipment . . . .
Total
. . . . . . . . . . . . . . . . . . . .
Pre-Fiscal 2016 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
$ —
—
—
—
102
1
—
103
26
—
—
26
9
—
9
$130
6
6
142
$ —
—
—
—
$ (16)
(2)
—
(18)
$ —
—
(6)
(6)
5
2
1
8
7
4
1
12
—
2
2
(10)
—
(2)
(12)
(7)
—
(3)
(10)
(2)
—
(2)
(60)
(3)
2
(61)
(14)
(4)
3
(15)
(5)
(1)
(6)
—
—
(1)
(1)
—
—
(1)
(1)
—
—
—
$—
—
—
—
(1)
—
—
(1)
—
—
—
—
(1)
(1)
(2)
$114
4
—
118
36
—
—
36
12
—
—
12
1
—
1
Total fiscal 2018 activity . . . . . . . . . . .
$138
$164
$(24)
$(100)
$ (8)
$(3)
$167
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
. . . . . . . . . . . . . . . . . . . .
Pre-Fiscal 2016 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
—
53
—
53
23
1
24
$141
2
9
152
$ (5)
—
—
(5)
$ (39)
(1)
—
(40)
$ —
—
(9)
(9)
8
3
11
—
1
1
(9)
—
(9)
(4)
—
(4)
(26)
(3)
(29)
(7)
(2)
(9)
—
—
—
—
—
—
$ 5
—
—
5
—
—
—
(3)
—
(3)
$102
1
—
103
26
—
26
9
—
9
Total fiscal 2017 activity . . . . . . . . . . .
$ 77
$164
$(18)
$ (78)
$ (9)
$ 2
$138
50
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
3. Restructuring and Other Charges (Credits), Net (Continued)
Balance at
Beginning
of Fiscal
Year
Changes in
Charges Estimate
Cash
Payments
Non-Cash Currency
Translation
Items
(in millions)
Balance at
End of
Fiscal
Year
Fiscal 2016 Activity:
Fiscal 2016 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Property, plant, and equipment . . . .
$ —
—
—
Total
. . . . . . . . . . . . . . . . . . . .
Pre-Fiscal 2016 Actions:
Employee severance . . . . . . . . . . .
Facility and other exit costs . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
—
68
1
69
$ 84
2
41
127
2
2
4
$ —
—
—
—
(10)
—
(10)
$ (32)
(2)
—
(34)
(39)
(2)
(41)
$ —
—
(41)
(41)
—
—
—
Total fiscal 2016 activity . . . . . . . . . . .
$ 69
$131
$(10)
$ (75)
$(41)
$ 1
—
—
1
2
—
2
$ 3
$ 53
—
—
53
23
1
24
$ 77
Fiscal 2018 Actions
During fiscal 2018, we initiated a restructuring program associated with footprint consolidation and
structural improvements primarily impacting the Industrial Solutions and Transportation Solutions
segments. In connection with this program, during fiscal 2018, we recorded restructuring charges of
$142 million. We expect to complete all restructuring actions commenced during fiscal 2018 by the end
of fiscal 2020 and to incur additional charges of approximately $15 million primarily in the Industrial
Solutions segment.
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 2018 and 2017, we recorded net restructuring credits of $4 million and
charges of $147 million, respectively. We expect to complete all restructuring actions commenced
during fiscal 2017 by the end of fiscal 2019 and anticipate that any additional charges will be
insignificant.
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 2018, 2017, and 2016, we recorded net restructuring charges
of $2 million, $2 million, and $127 million, respectively. We expect to complete all restructuring actions
commenced during fiscal 2016 by the end of fiscal 2019 and to incur additional employee severance
charges of approximately $10 million primarily in the Communications Solutions segment.
51
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
3. Restructuring and Other Charges (Credits), Net (Continued)
Pre-Fiscal 2016 Actions
During fiscal 2017 and 2016, we recorded net restructuring credits of $3 million and $6 million,
respectively, related to pre-fiscal 2016 actions. We do not expect to incur any additional charges related
to pre-fiscal 2016 actions.
Total Restructuring Reserves
Restructuring reserves included on the Consolidated Balance Sheets were as follows:
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities
$141
26
Restructuring reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$167
$127
11
$138
Fiscal Year End
2018
2017
(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.
4. Discontinued Operations
On September 16, 2018, we entered into a definitive agreement to sell our Subsea
Communications (‘‘SubCom’’) business for $325 million, subject to a final working capital adjustment.
The agreement provides that, if the purchaser sells the business within two years of the closing date, we
will be entitled to 20% of the net proceeds of that future sale, as defined in the agreement, in excess of
$325 million. The sale of the SubCom business, which was previously included in our Communications
Solutions segment, represents our exit from the telecommunications market and is significant to our
sales and profitability, both to the Communications Solutions segment and to the consolidated
company. We have concluded that the divestiture is a strategic shift that will have a major effect on our
operations and financial results. As a result, the SubCom business met the held for sale and
discontinued operations criteria and was reported as a discontinued operation on our Consolidated
Financial Statements for all periods presented.
Upon entering into the definitive agreement, which we consider a level 2 observable input in the
fair value hierarchy, we assessed the carrying value of the SubCom business and determined that it was
in excess of its fair value. In fiscal 2018, we recorded a pre-tax impairment charge of $19 million, which
is included in income (loss) from discontinued operations on the Consolidated Statement of
Operations, to write the carrying value of the business down to its estimated fair value less costs to sell.
We expect to incur a pre-tax loss on sale of approximately $90 million, related primarily to the
recognition of cumulative translation adjustment losses and the guarantee liabilities discussed below,
which will be presented in income (loss) from discontinued operations on the Consolidated Statement
of Operations. See Note 23 for additional information regarding the divestiture.
52
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
4. Discontinued Operations (Continued)
Following the divestiture, we will continue to honor performance guarantees and letters of credit
related to the SubCom business’ existing projects. These existing guarantees have a combined value of
approximately $1.7 billion and are expected to expire at various dates through fiscal 2025; however, the
majority are expected to expire within two years. Also, under the terms of the definitive agreement, we
are required to issue up to $300 million of new performance guarantees, subject to certain limitations,
for projects entered into by the SubCom business following the sale for a period of up to three years.
We have contractual recourse against the SubCom business if we are required to perform on these
guarantees; however, based on historical experience, we do not anticipate having to perform.
The SubCom business generates contract revenues for construction related projects which 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.
The following table presents the summarized components of income (loss) from discontinued
operations, net of income taxes, for the SubCom business and prior divestitures:
Fiscal
2017
2016
2018
(in millions)
$928
653
$886
666
$702
602
100
48
39
30
(17)
—
275
50
40
(3)
188
22
220
13
34
3
170
—
170
29
(37)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses(1)
. . . . . . . . . . . . . . . . . . . . . . . . . .
Research, development, and engineering expenses . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges (credits), net(2)
. . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating income, net(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-tax income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
Pre-tax gain (loss) on sale of discontinued operations(4) . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
210
(17)
(2)
3
— (70)
Income (loss) from discontinued operations, net of income taxes . . . . . . . . . . .
$ (19) $143
$162
(1) Fiscal 2016 included $30 million of credits related to the settlement of the Com-Net case as discussed below.
(2) Fiscal 2018 included a $19 million impairment charge recorded in connection with the sale of our SubCom
business.
(3) Fiscal 2017 included a $19 million credit related to the SubCom business’ curtailment of a postretirement
benefit plan.
53
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
4. Discontinued Operations (Continued)
(4) Fiscal 2016 included a gain of $29 million on the fiscal 2015 divestiture of our Broadband Network Solutions
(‘‘BNS’’) business as discussed below.
The following table presents balance sheet information for assets and liabilities held for sale:
Fiscal Year End
2018
2017
(in millions)
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net(1) . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets held for sale(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities held for sale(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 72
130
32
221
17
$472
$ 63
26
60
39
$188
$152
166
27
241
16
$602
$ 50
39
48
43
$180
(1) Fiscal year end 2018 included a reduction of $19 million related to the impairment charge recorded
in connection with the sale of our SubCom business.
(2) Assets and liabilities held for sale at fiscal year end 2017 were classified as both current and
noncurrent on the Consolidated Balance Sheet.
During fiscal 2016, we settled a lawsuit with the former shareholders of Com-Net, which we
acquired in fiscal 2001, and paid an aggregate amount of $96 million. In connection with the
settlement, we recorded pre-tax credits of $30 million, representing a release of excess reserves, during
fiscal 2016. This amount was reflected in income (loss) from discontinued operations on the
Consolidated Statement of Operations as the Com-Net case was associated with our former Wireless
Systems business which was sold in fiscal 2009. Also during fiscal 2016, we recognized an additional
pre-tax gain of $29 million on the fiscal 2015 divestiture of our BNS business, related primarily to
pension and net working capital adjustments.
The Wireless Systems and BNS businesses met the held for sale and discontinued operations
criteria and were reported as such in all periods presented on the Consolidated Financial Statements.
Prior to reclassification to discontinued operations, the Wireless Systems and BNS businesses were
included in the former Wireless Systems and Network Solutions segments, respectively.
5. Acquisitions
Fiscal 2018 Acquisitions
During fiscal 2018, we acquired two businesses for a combined cash purchase price of $153 million,
net of cash acquired. The acquisitions were reported as part of our Industrial Solutions segment from
the date of acquisition.
54
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Acquisitions (Continued)
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.
55
55
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.
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:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2016
(in millions, except
per share data)
$11,585
2,038
5.52
$
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
56
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
5. Acquisitions (Continued)
either future results of operations or results that might have been achieved had these acquisitions
occurred at the beginning of the preceding fiscal years.
6. Inventories
Inventories consisted of the following:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 276
656
925
$ 271
570
806
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,857
$1,647
Fiscal Year End
2018
2017
(in millions)
7. Property, Plant, and Equipment, Net
Net property, plant, and equipment consisted of the following:
Fiscal Year End
2018
2017
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(in millions)
171
1,379
7,124
724
174
1,324
6,757
683
Gross property, plant, and equipment . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,398
(5,901)
8,938
(5,779)
Property, plant, and equipment, net
. . . . . . . . . . . . . . . . . . . .
$ 3,497
$ 3,159
Depreciation expense was $487 million, $442 million, and $411 million in fiscal 2018, 2017, and
2016, respectively.
57
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
8. Goodwill
The changes in the carrying amount of goodwill by segment were as follows:
Fiscal year end 2016(1) . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . .
Fiscal year end 2017(1) . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . .
Fiscal year end 2018(1) . . . . . . . . . . . . . . . . . . . . . . .
Transportation
Solutions
Industrial
Solutions
Communications
Solutions
Total
(in millions)
$1,903
82
26
2,011
—
(18)
$3,005
14
28
3,047
78
(21)
$584
—
9
593
—
(6)
$5,492
96
63
5,651
78
(45)
$1,993
$3,104
$587
$5,684
(1) At fiscal year end 2018, 2017, and 2016, accumulated impairment losses for the Transportation Solutions,
Industrial Solutions, and Communications Solutions segments were $2,191 million, $669 million, and
$489 million, respectively.
During fiscal 2018, we recognized goodwill of $78 million in the Industrial Solutions segment due
primarily to recent acquisitions. During fiscal 2017, we acquired two businesses and recognized goodwill
of $130 million, which benefitted the Transportation Solutions and Industrial Solutions segments. Also
in fiscal 2017, we finalized the purchase price allocation of our fiscal 2016 acquisitions, and the
associated goodwill was reduced by $34 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.
We completed our annual goodwill impairment test in the fourth quarter of fiscal 2018 and
determined that no impairment existed.
9. Intangible Assets, Net
Intangible assets consisted of the following:
2018
Gross
Carrying
Amount
Accumulated
Amortization
Customer relationships . . . . . . . . . . .
Intellectual property . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . .
$1,468
1,261
33
$ (389)
(653)
(16)
Fiscal Year End
Net
Carrying
Amount
Gross
Carrying
Amount
(in millions)
$1,079
608
17
$1,433
1,262
36
Total . . . . . . . . . . . . . . . . . . . . . . .
$2,762
$(1,058)
$1,704
$2,731
2017
Accumulated
Amortization
$(300)
(574)
(16)
$(890)
Net
Carrying
Amount
$1,133
688
20
$1,841
58
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
9. Intangible Assets, Net (Continued)
Intangible asset amortization expense was $180 million, $169 million, and $149 million for fiscal
2018, 2017, and 2016, respectively. At fiscal year end 2018, the aggregate amortization expense on
intangible assets is expected to be as follows:
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$ 184
176
173
173
172
826
$1,704
10. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
Fiscal Year End
2018
2017
(in millions)
Accrued payroll and employee benefits . . . . . . . . . . . . . . . . . . . . .
Dividends payable to shareholders . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share repurchase program payable . . . . . . . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 565
303
109
141
94
34
27
438
$ 577
281
121
127
7
58
27
415
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . .
$1,711
$1,613
59
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
11. Debt
Debt was as follows:
Commercial paper, at a weighted-average interest rate of 2.35% at
fiscal year end 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
2018
2017
(in millions)
$ 270
—
325
250
250
500
639
350
350
400
477
210
$ —
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 swap contracts .
4,021
(21)
—
4,356
(26)
14
Total debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,000
$4,344
Tyco Electronics Group S.A. (‘‘TEGSA’’), our 100%-owned subsidiary, 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
2018 or 2017.
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
60
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
11. Debt (Continued)
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.
At fiscal year end 2018, principal payments required for debt are as follows:
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
$ 963
—
252
501
639
1,666
$4,021
The fair value of our debt, based on indicative valuations, was approximately $4,149 million and
$4,622 million at fiscal year end 2018 and 2017, respectively.
12. Commitments and Contingencies
Legal Proceedings
In the normal course of business, we are subject to various legal proceedings and claims, including
patent infringement claims, product liability matters, employment disputes, disputes on agreements,
other commercial disputes, environmental matters, antitrust claims, and tax matters, including
non-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax.
Although it is not feasible to predict the outcome of these proceedings, based upon our experience,
current information, and applicable law, we do not expect that the outcome of these proceedings, either
individually or in the aggregate, will have a material effect on our results of operations, financial
position, or cash flows.
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 2018, we concluded that we would
incur investigation and remediation costs at these sites in the reasonably possible range of $15 million
to $42 million, and we accrued $17 million as the probable loss, which was the best estimate within this
range. We believe that any potential payment of such estimated amounts will not have a material
adverse effect on our results of operations, financial position, or cash flows.
Leases
We have facility, land, vehicle, and equipment leases that expire at various dates. Rental expense
under these operating leases was $141 million, $147 million, and $137 million for fiscal 2018, 2017, and
61
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
12. Commitments and Contingencies (Continued)
2016, respectively. At fiscal year end 2018, future minimum lease payments under non-cancelable
operating lease obligations were as follows:
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 97
76
62
48
38
82
$403
(in millions)
Guarantees
In disposing of assets or businesses, we often provide representations, warranties, and/or
indemnities to cover various risks including unknown damage to assets, environmental risks involved in
the sale of real estate, liability for investigation and remediation of environmental contamination at
waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to
periods prior to disposition. We do not expect that these uncertainties will have a material adverse
effect on our results of operations, financial position, or cash flows.
At fiscal year end 2018, we had outstanding letters of credit, letters of guarantee, and surety bonds
of $275 million.
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 2018, 2017, and 2016.
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 and foreign currency forward contracts, a portion of which are designated as
cash flow hedges. The objective of these contracts is to minimize impacts to cash flows and profitability
due to changes in foreign currency exchange rates on intercompany and other cash transactions. We
expect that significantly all of the balance in accumulated other comprehensive income (loss) associated
with the cash flow hedge-designated instruments addressing foreign exchange risks will be reclassified
into the Consolidated Statement of Operations within the next twelve months.
During fiscal 2015, we entered into cross-currency swap contracts with an aggregate notional value
of A1,000 million to reduce our exposure to foreign currency exchange risk associated with certain
intercompany loans. Under the terms of these contracts, which have been designated as cash flow
hedges, we make quarterly interest payments in euros at 3.50% per annum and receive interest in U.S.
dollars at a weighted-average rate of 5.33% per annum. Upon maturity of these contracts in fiscal 2022,
62
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
13. Financial Instruments and Fair Value Measurements (Continued)
we will pay the notional value of the contracts in euros and receive U.S. dollars from our
counterparties. In connection with the cross-currency swap contracts, we are required to post cash
collateral with our counterparties.
At fiscal year end 2018 and 2017, our cross-currency swap contracts were in liability positions of
$100 million and $96 million, respectively, and were recorded in other liabilities on the Consolidated
Balance Sheets. At fiscal year end 2018 and 2017, collateral paid to our counterparties approximated
the derivative positions and was recorded in prepaid expenses and other current assets on the
Consolidated Balance Sheets. The impacts of our cross-currency swap contracts were as follows:
Losses recorded in other comprehensive income (loss) . . . . . . .
Gains (losses) excluded from the hedging relationship(1)
. . . . . .
Fiscal
2018
2017
2016
(in millions)
$(25) $(20) $(26)
(7)
(58)
21
(1) Gains and losses excluded from the hedging relationship are recognized prospectively in selling,
general, and administrative expenses and are offset by losses and gains generated as a result of
re-measuring certain intercompany loans to the U.S. dollar.
We hedge our net investment in certain foreign operations using intercompany loans and external
borrowings denominated in the same currencies. The aggregate notional value of these hedges was
$4,064 million and $3,110 million at fiscal year end 2018 and 2017, respectively. The impacts of our
hedging program were as follows:
Fiscal
2018
2017
2016
(in millions)
Foreign currency exchange gains (losses)(1) . . . . . . . . . . . . . . . . .
$36
$(74) $(45)
(1) Foreign currency exchange gains and losses are recorded as currency translation, a component of
accumulated other comprehensive income (loss), and are offset by changes attributable to the
translation of the net investment.
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 swap
contracts to convert a portion of fixed-rate debt into variable-rate debt. We may use forward starting
interest rate swap contracts to manage interest rate exposure in periods prior to the anticipated
issuance of fixed-rate debt. We also utilize investment swap contracts 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.
63
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
13. Financial Instruments and Fair Value Measurements (Continued)
At fiscal year end 2018 and 2017, our commodity hedges had notional values of $401 million and
$314 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 2018 and 2017.
14. Retirement Plans
Defined Benefit Pension Plans
We have a number of contributory and noncontributory defined benefit retirement plans covering
certain of our non-U.S. and U.S. employees, designed in accordance with local customs and practice.
The net periodic pension benefit cost for all non-U.S. and U.S. defined benefit pension plans was
as follows:
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost
Expected return on plan assets . . . . . . . . . . . . . . . . . . .
Amortization of net actuarial loss . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic pension benefit cost
. . . . . . . . . . . . . . .
Weighted-average assumptions used to determine net
pension benefit cost during the fiscal year:
Non-U.S. Plans
Fiscal
2017
$ 50
35
(68)
41
(4)
$ 54
2018
$ 46
42
(69)
24
(6)
$ 37
2016
2018
($ in millions)
$ 14
$ 48
43
52
(59)
(68)
22
36
—
(6)
$ 62
$ 20
U.S. Plans
Fiscal
2017
$ 12
43
(53)
40
—
$ 42
2016
$ 9
50
(59)
40
—
$ 40
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . .
1.87% 1.44% 2.50% 3.77% 3.58% 4.38%
4.92% 5.21% 5.98% 6.45% 5.93% 6.97%
2.53% 2.52% 2.81% —% —% —%
The components of net periodic pension benefit cost other than service cost are included in net
other income (expense) on the Consolidated Statements of Operations.
64
64
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 non-U.S. and U.S. defined benefit
pension plans:
Change in benefit obligation:
Benefit obligation at beginning of fiscal year . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits and administrative expenses paid . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. Plans
Fiscal
U.S. Plans
Fiscal
2018
2017
2018
2017
($ in millions)
$2,292
46
42
(22)
(77)
(43)
(18)
$2,535
50
35
(301)
(69)
29
13
$1,191
14
43
(69)
(86)
—
—
$1,250
12
43
(34)
(82)
—
2
Benefit obligation at end of fiscal year . . . . . . . . . . . . . . . . . . . . .
2,220
2,292
1,093
1,191
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,402
51
51
(77)
(30)
(7)
1,371
49
47
(69)
(2)
6
Fair value of plan assets at end of fiscal year . . . . . . . . . . . . . . . . .
1,390
1,402
963
37
3
(86)
—
—
917
929
115
1
(82)
—
—
963
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (830) $ (890) $ (176) $ (228)
Amounts recognized on the Consolidated Balance Sheets:
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . . . .
Long-term pension and postretirement liabilities . . . . . . . . . . . . . .
$ 107
(23)
(914)
$
50
(22)
(918)
$ — $ —
(5)
(223)
(5)
(171)
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (830) $ (890) $ (176) $ (228)
Weighted-average assumptions used to determine pension benefit
obligation at fiscal year end:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.94% 1.87% 4.35% 3.77%
—%
2.57% 2.53%
—%
65
65
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
non-U.S. and U.S. defined benefit pension plans were as follows:
Non-U.S. Plans
Fiscal
U.S. Plans
Fiscal
2018
2017
2018
2017
(in millions)
Change in net loss:
Unrecognized net loss at beginning of fiscal year . . . . . . . . . . . . . .
Current year change recorded in accumulated other comprehensive
income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization reclassified to earnings . . . . . . . . . . . . . . . . . . . . . . .
$ 513
$ 839
$ 292
$ 428
(13)
(24)
(285)
(41)
(46)
(22)
(96)
(40)
Unrecognized net loss at end of fiscal year . . . . . . . . . . . . . . . . . .
$ 476
$ 513
$ 224
$ 292
Change in prior service credit:
Unrecognized prior service credit at beginning of fiscal year . . . . . .
Current year change recorded in accumulated other comprehensive
income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Amortization reclassified to earnings(1)
$ (59) $ (70) $
2
$ —
(5)
6
5
6
—
—
2
$
2
—
2
Unrecognized prior service credit at end of fiscal year . . . . . . . . . .
$ (58) $ (59) $
(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 2018 and 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 non-U.S. and U.S. defined benefit pension plans as compared to fiscal 2017 and 2016, respectively.
The estimated amortization of actuarial losses from accumulated other comprehensive income
(loss) into net periodic pension benefit cost for non-U.S. and U.S. defined benefit pension plans in
fiscal 2019 is expected to be $24 million and $17 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 2019 is expected to be $7 million.
In determining the expected return on plan assets, we consider the relative weighting of plan assets
by class and individual asset class performance expectations.
The investment strategies for non-U.S. and 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.
At fiscal year end 2018, the long-term target asset allocation in our U.S. plans’ master trust is 10%
return-seeking assets and 90% liability-hedging assets. Return-seeking assets, including non-U.S. and
U.S. equity securities, are assets intended to generate returns in excess of pension liability growth.
66
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. Retirement Plans (Continued)
Liability-hedging assets, including government and corporate bonds, are assets intended to have
characteristics similar to pension liabilities and are used to better match asset cash flows with expected
obligation cash flows. 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 2018, our target asset
allocation is 45% return-seeking and 55% liability-hedging.
Target weighted-average asset allocation and weighted-average asset allocation for non-U.S. and
U.S. pension plans were as follows:
Non-U.S. Plans
U.S. Plans
Fiscal
Year End
2018
Fiscal
Year End
2017
Target
Fiscal
Year End
2018
Fiscal
Year End
2017
Target
Asset category:
Equity securities . . . . . . . . . . . . . . . . . . . . . . .
Fixed income . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts and other investments . . . .
Real estate investments . . . . . . . . . . . . . . . . . .
27%
51
20
2
29%
49
20
2
30%
49
19
2
45%
55
—
—
53%
47
—
—
50%
50
—
—
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 $42 million and $5 million to
our non-U.S. and U.S. pension plans, respectively, in fiscal 2019. We may also make voluntary
contributions at our discretion.
At fiscal year end 2018, benefit payments, which reflect future expected service, as appropriate, are
expected to be paid as follows:
Non-U.S. Plans
U.S. Plans
(in millions)
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2024–2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 74
78
82
83
88
487
$ 76
73
73
74
74
368
67
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. Retirement Plans (Continued)
Presented below is the accumulated benefit obligation for all non-U.S. and 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. Plans
U.S. Plans
Fiscal Year End
Fiscal Year End
2018
2017
2018
2017
(in millions)
$2,099
$2,167
$1,093
$1,191
1,400
580
1,402
581
1,093
917
1,191
963
1,560
623
1,524
583
1,093
917
1,191
963
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 2018
Non-U.S. Plans
U.S. Plans
Level 1 Level 2 Level 3
Total
Level 1 Level 2 Level 3 Total
(in millions)
Equity:
Non-U.S. equity securities(1)
. . . . . . . . . . . .
U.S. equity securities(1)
. . . . . . . . . . . . . . . . —
Commingled equity funds(2) . . . . . . . . . . . . . —
$— $ — $ — $ — $220
— 265
397 —
— —
397 —
$ — $— $220
— — 265
—
— —
Fixed income:
Government bonds(3)
Corporate bonds(4)
Commingled bond funds(5)
. . . . . . . . . . . . . . . . . —
. . . . . . . . . . . . . . . . . . . —
. . . . . . . . . . . . . —
Other(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
213 —
6 —
464 —
120
184
45 —
213 —
45
6 — 283 — 283
87
11
87 —
11 —
464 —
304 —
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
$— $1,264 $120
1,384 $485
$426
$— 911
Items to reconcile to fair value of plan
assets(7) . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets
. . . . . . . . . . . . .
6
$1,390
6
$917
68
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
14. Retirement Plans (Continued)
Equity:
Fiscal Year End 2017
Non-U.S. Plans
U.S. Plans
Level 1 Level 2 Level 3
Total
Level 1 Level 2 Level 3 Total
(in millions)
Non-U.S. equity securities(1)
. . . . . . . . . . . .
U.S. equity securities(1)
. . . . . . . . . . . . . . . . —
Commingled equity funds(2) . . . . . . . . . . . . . —
$— $ — $ — $ — $227
— 250
418 —
— —
418 —
$ — $— $227
— — 250
—
— —
Fixed income:
Government bonds(3)
Corporate bonds(4)
Commingled bond funds(5)
. . . . . . . . . . . . . . . . . —
. . . . . . . . . . . . . . . . . . . —
. . . . . . . . . . . . . —
Other(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
219 —
8 —
455 —
117
180
59 —
219 —
59
8 — 351 — 351
48
16
48 —
16 —
455 —
297 —
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
$— $1,280 $117
1,397 $477
$474
$— 951
Items to reconcile to fair value of plan
assets(7) . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets
. . . . . . . . . . . . .
5
$1,402
12
$963
(1) Non-U.S. and 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.
69
69
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 2018
and 2017.
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 $62 million, $60 million, and $52 million for
fiscal 2018, 2017, and 2016, 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. At fiscal year end 2018 and 2017, total deferred
compensation liabilities were $189 million and $157 million, respectively, and were recorded primarily
in other liabilities on the Consolidated Balance Sheets. 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 $18 million and $19 million at fiscal year end 2018 and 2017,
respectively, and the underfunded status of the postretirement benefit plans was included primarily in
long-term pension and postretirement liabilities on the Consolidated Balance Sheets. Activity during
fiscal 2018, 2017, and 2016 was not significant.
70
70
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:
Current income tax expense (benefit):
U.S.:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S.
$
2018
Fiscal
2017
2016
(in millions)
20
21
406
447
$
(9) $(1,120)
(163)
9
321
322
322
(962)
Deferred income tax expense (benefit):
U.S.:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S.
499
(30)
(1,260)
(119)
(15)
(8)
(791)
(142)
133
18
(15)
136
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . .
$ (344) $ 180
$ (826)
The U.S. and non-U.S. components of income from continuing operations before income taxes
were as follows:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S.
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
Fiscal
2017
2016
(in millions)
$ (245) $ (273) $ (244)
1,265
1,993
2,485
Income from continuing operations before income taxes
$2,240
$1,720
$1,021
71
71
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(1)
Adjustments to reconcile to the income tax expense
(benefit):
U.S. state income tax benefit, net . . . . . . . . . . . . . . . .
Other expense—Tax Sharing Agreement(2) . . . . . . . . . .
Tax law changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. net earnings(3) . . . . . . . . . . . . . . . . . . . . . . .
Change in accrued income tax liabilities . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal entity restructuring and intercompany
transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based payments . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
Fiscal
2017
2016
(in millions)
$
551
$ 602
$
357
(7)
—
638
(8)
(213)
13
33
(1,329)
(1)
(24)
3
(4)
3
7
(8)
(355)
24
(1)
(40)
—
(40)
(8)
(94)
221
(3)
(10)
(341)
(1,056)
97
39
(31)
—
(5)
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . .
$ (344) $ 180
$ (826)
(1) The U.S. federal statutory rate was 24.58% for fiscal 2018 and 35% for both fiscal 2017 and 2016.
(2) Net other expense pursuant to the Tax Sharing Agreement with Tyco International plc and
Covidien plc is not taxable or deductible.
(3) Excludes items which are separately presented.
The income tax benefit for fiscal 2018 included a $1,222 million net income tax benefit associated
with the tax impacts of certain legal entity restructurings and intercompany transactions that occurred
in the quarter ended September 28, 2018. The net income tax benefit of $1,222 million related
primarily to the recognition of certain non-U.S. loss carryforwards and basis differences in subsidiaries
expected to be utilized against future taxable income, partially offset by a $46 million increase in the
valuation allowance for certain U.S. federal tax credit carryforwards. The income tax benefit for fiscal
2018 also included $567 million of income tax expense related to the tax impacts of the Tax Cuts and
Jobs Act (the ‘‘Act’’) and a $61 million net income tax benefit related to the tax impacts of certain legal
entity restructurings that occurred in the quarter ended December 29, 2017. See ‘‘Tax Cuts and Jobs
Act’’ below for additional information regarding the Act.
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
72
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
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, partially offset by a $91 million
income tax charge related to an increase to the valuation allowance for certain U.S. deferred tax assets.
Additionally, the tax benefit for fiscal 2016 included an $83 million net income tax benefit related to
tax settlements in certain other tax jurisdictions, partially offset by an income tax charge related to
certain legal entity restructurings. See ‘‘Internal Revenue Service Audits’’ below for additional
information regarding settlements with the Internal Revenue Service (‘‘IRS’’).
In fiscal 2016, the increase to the valuation allowance for deferred tax assets related primarily 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.
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 . . . . . . . . . . . . . . . . . . . . . .
Basis difference in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year End
2018
2017
(in millions)
$
255
3,237
58
179
5
30
8
946
13
4,731
$
357
5,264
48
231
8
366
10
—
22
6,306
(552)
(13)
(38)
(603)
(653)
(22)
(99)
(774)
Net deferred tax asset before valuation allowance . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,128
(2,191)
5,532
(3,627)
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,937
$ 1,905
73
73
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 2018 were as follows:
Expiration Period
Through
Fiscal 2023
Fiscal 2024
Through
Fiscal 2038
No
Expiration
Total
(in millions)
U.S. Federal:
Net operating loss carryforwards . . . . .
Tax credit carryforwards . . . . . . . . . . .
$119
32
$ 385
115
$ — $ 504
199
52
U.S. State:
Net operating loss carryforwards . . . . .
Tax credit carryforwards . . . . . . . . . . .
Non-U.S.:
Net operating loss carryforwards . . . . .
Tax credit carryforwards . . . . . . . . . . .
Capital loss carryforwards . . . . . . . . . .
45
9
12
—
—
52
16
863
1
3
—
8
1,496
1
28
97
33
2,371
2
31
Total tax loss and credit carryforwards . . .
$217
$1,435
$1,585
$3,237
The valuation allowance for deferred tax assets of $2,191 million and $3,627 million at fiscal year
end 2018 and 2017, 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 2018, tax loss and credit carryforwards decreased primarily as a result of a $1,675 million
(tax effected) recovery of prior years’ net write-downs of investments in subsidiaries in certain
jurisdictions, offset by a corresponding decrease to the valuation allowance. 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 2018, certain
subsidiaries had approximately $23 billion of cumulative undistributed earnings that have been retained
indefinitely and reinvested in our global manufacturing operations, including working capital; property,
plant, and equipment; intangible assets; and research and development activities. A liability could arise
if our intention to permanently reinvest such earnings were to change and amounts are distributed by
such subsidiaries or if such subsidiaries are ultimately disposed. It is not practicable to estimate the
additional income taxes related to permanently reinvested earnings or the basis differences related to
investments in subsidiaries. As of fiscal year end 2018, we had approximately $11.6 billion of cash, cash
equivalents, and intercompany deposits, principally in our subsidiaries, that we have the ability to
distribute to TEGSA, our Luxembourg subsidiary, which is the obligor of substantially all of our debt,
and to TE Connectivity Ltd., our Swiss parent company, but we consider to be permanently reinvested.
We estimate that up to $0.9 billion of tax expense would be recognized on the Consolidated Financial
74
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
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 2018, we had total unrecognized income tax benefits of $566 million. If
recognized in future years, $467 million of these currently unrecognized income tax benefits would
impact income tax expense (benefit) and the effective tax rate. 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. The following table summarizes the activity related to unrecognized income tax benefits:
Fiscal
2018
2017
2016
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 limitations .
(in millions)
$490
40
(9)
70
—
(4)
(86)
$1,368
75
(817)
124
4
(205)
(59)
$501
14
(11)
105
—
(7)
(36)
Balance at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . .
$566
$501
$ 490
We record accrued interest and penalties related to uncertain tax positions as part of income tax
expense (benefit). As of fiscal year end 2018 and 2017, we had $60 million of accrued interest and
penalties related to uncertain tax positions on the Consolidated Balance Sheets, recorded primarily in
income taxes. During fiscal 2018, 2017, and 2016, we recognized income tax expense of $5 million,
benefits of $5 million, and benefits of $765 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.
75
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
As of fiscal year end 2018, 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
2008 through 2018
2015 through 2018
2013 through 2018
2012 through 2018
2013 through 2018
2013 through 2018
2012 through 2018
2012 through 2018
2013 through 2018
2012 through 2018
2013 through 2018
2014 through 2018
2013 through 2018
2016 through 2018
2015 through 2018
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 $130 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
2018.
Other Income Tax Matters
Tax Cuts and Jobs Act
On December 22, 2017, the President of the U.S. signed the Tax Cuts and Jobs Act (the ‘‘Act’’)
into law. The Act includes numerous significant changes to existing tax law, including a permanent
reduction in the U.S. federal corporate income tax rate from 35% to 21%, further limitations on the
deductibility of interest expense and certain executive compensation, repeal of the corporate
Alternative Minimum Tax, and imposition of a territorial tax system with a one-time repatriation tax on
deemed repatriated earnings of foreign subsidiaries. While some of the new provisions of the Act will
impact us in fiscal 2019 and beyond, the change in the tax rate was effective January 1, 2018. In the
period of enactment, we were required to revalue our U.S. federal deferred tax assets and liabilities at
the new tax rate. Accordingly, during fiscal 2018, we recorded income tax expense of $567 million
primarily in connection with the write-down of our U.S. federal deferred tax asset for net operating loss
and interest carryforwards to the lower tax rate. Included in the expense of $567 million was an income
76
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
tax benefit of $34 million related to the reduction in the existing valuation allowance recorded against
certain U.S. federal tax credit carryforwards. The limitations on interest expense deductions contained
in the Act are expected to increase prospective taxable income and thereby allow the utilization of
more tax credits in future years. As a Swiss corporation, the one-time repatriation tax imposed by the
Act will not be significant to us.
The Act makes broad and complex changes to the U.S. Internal Revenue Code, and in certain
instances, lacks clarity and is subject to interpretation until additional IRS guidance is issued. The
ultimate impact of the Act may differ from our estimates due to changes in the interpretations and
assumptions we made as well as any forthcoming regulatory guidance.
Intra-Entity Transfers of Assets
In fiscal 2018, there were certain sales of assets other than inventory between affiliated companies
that are consolidated for financial statement purposes but file separate tax returns. In accordance with
U.S. GAAP, the tax impact of these intra-entity transfers of assets was deferred and not recognized.
Such transactions resulted in a $674 million increase to other assets and a $48 million increase to
prepaid expenses and other current assets on the Consolidated Balance Sheet during fiscal 2018. See
Note 2 for information regarding our adoption of ASU No. 2016-16 in fiscal 2019 and the net reversal
of all balances associated with deferred tax impacts of intra-entity transfers of assets other than
inventory.
Tax Sharing Agreement
Under a Tax Sharing Agreement entered into upon our separation from Tyco International plc
(‘‘Tyco International’’) in fiscal 2007, we, Tyco International, and Covidien plc (‘‘Covidien’’) share 31%,
27%, and 42%, respectively, of income tax liabilities that arise from adjustments made by tax
authorities to the collective income tax returns for periods prior to and including June 29, 2007.
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 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. As a result of subsequent
transactions, Tyco International plc (‘‘Tyco International’’) and Covidien plc (‘‘Covidien’’) now operate
as part of Johnson Controls International plc and Medtronic plc, respectively.
Internal Revenue Service Audits
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.
77
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
15. Income Taxes (Continued)
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
payment, we received net reimbursements of $303 million from Tyco International and Covidien
pursuant to their indemnifications for pre-separation tax matters.
16. Other Income (Expense), Net
In fiscal 2018, 2017, and 2016, we recorded net other income of $1 million, net other expense of
$42 million, and net other expense of $677 million, respectively. In fiscal 2016, net other expense was
primarily pursuant to the Tax Sharing Agreement with Tyco International and Covidien and included
$604 million related to the effective settlement of tax matters for the years 1997 through 2000 and
$46 million related to a tax settlement in another tax jurisdiction. See Note 15 for further information
regarding the Tax Sharing Agreement and settlements.
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
2018
2017
2016
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive impact of share-based compensation arrangements . . . .
(in millions)
355
3
366
3
350
3
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
353
358
369
There were one million, one million, and three million share options that were not included in the
computation of diluted earnings per share for fiscal 2018, 2017, and 2016, respectively, because the
instruments’ underlying exercise prices were greater than the average market prices of our common
shares and inclusion would be antidilutive.
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 2018, our shareholders reapproved and extended through March 14, 2020, our board
of directors’ authorization to issue additional new shares, subject to certain conditions specified in the
articles of association, in aggregate not exceeding 50% of the amount of our authorized shares.
78
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
18. Shareholders’ Equity (Continued)
Common Shares Held in Treasury
At fiscal year end 2018, approximately 12 million common shares were held in treasury, of which
6 million were owned by one of our subsidiaries. At fiscal year end 2017, approximately 5 million
common shares were held in treasury and 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 and 2016, our shareholders approved the cancellation of 26 million 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.
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 2018 and 2017, Swiss Contributed Surplus was CHF 6,724 million and
CHF 7,300 million, respectively (equivalent to $5,809 million and $6,420 million, respectively).
Dividends
We paid cash dividends to shareholders of $1.68, $1.54, and $1.40 per share in fiscal 2018, 2017,
and 2016, respectively.
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.
79
79
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 2015 . . . . . . . . . . . . . . . . .
$1.32, payable in four quarterly
installments of $0.33
March 2016 . . . . . . . . . . . . . . . . .
$1.48, payable in four quarterly
installments of $0.37
March 2017 . . . . . . . . . . . . . . . . .
$1.60, payable in four quarterly
installments of $0.40
March 2018 . . . . . . . . . . . . . . . . .
$1.76, payable in four quarterly
installments of $0.44
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
Third quarter of fiscal 2018
Fourth quarter of fiscal 2018
First quarter of fiscal 2019
Second quarter of fiscal 2019
Upon shareholders’ approval of a dividend payment, we record a liability with a corresponding
charge to shareholders’ equity. At fiscal year end 2018 and 2017, the unpaid portion of the dividends
recorded in accrued and other current liabilities on the Consolidated Balance Sheets totaled
$303 million and $281 million, respectively.
Share Repurchase Program
During fiscal 2018 and 2016, our board of directors authorized increases of $1.5 billion and
$1.0 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
$966
(in millions)
8
$621
43
$2,610
At fiscal year end 2018, we had $1.0 billion of availability remaining under our share repurchase
authorization.
Fiscal
2018
2017
2016
80
80
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:
Balance at fiscal year end 2015 . . . . . . . . . . .
$ 408
$(738)
$(43)
$(373)
Currency
Translation(1)
Unrecognized
Pension and
Postretirement
Benefit Costs
Gains (Losses)
on Cash
Flow
Hedges
Accumulated
Other
Comprehensive
Income (Loss)
(in millions)
Other comprehensive income (loss), net of
tax:
Other comprehensive loss before
reclassifications . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated
other comprehensive income (loss) . . .
Income tax (expense) benefit . . . . . . . . .
Other comprehensive income (loss),
net of tax . . . . . . . . . . . . . . . . . . . .
Balance at fiscal year end 2016 . . . . . . . . . . .
Other comprehensive income, net of tax:
Other comprehensive income before
reclassifications . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated
other comprehensive income (loss) . . .
Income tax expense . . . . . . . . . . . . . . . .
Other comprehensive income, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at fiscal year end 2017 . . . . . . . . . . .
Adoption of ASU No. 2018–02 . . . . . . . . .
Other comprehensive income (loss), net of
tax:
Other comprehensive income (loss)
(69)
(23)
—
(92)
316
38
(1)
—
37
353
—
before reclassifications . . . . . . . . . . . .
(117)
Amounts reclassified from accumulated
other comprehensive income (loss) . . .
Income tax (expense) benefit . . . . . . . . .
—
—
Other comprehensive income (loss),
net of tax . . . . . . . . . . . . . . . . . . . .
(117)
Balance at fiscal year end 2018 . . . . . . . . . . .
$ 236
(190)
70
32
(88)
(826)
378
74
(122)
330
(496)
(39)
64
40
(21)
83
$(452)
(14)
32
(7)
11
(32)
32
(14)
(3)
15
(17)
1
(60)
(23)
9
(74)
$(90)
(273)
79
25
(169)
(542)
448
59
(125)
382
(160)
(38)
(113)
17
(12)
(108)
$(306)
(1)
Includes hedges of net investment foreign currency exchange gains or losses which offset foreign currency
exchange losses or gains attributable to the translation of the net investments.
81
81
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. As of
fiscal year end 2018, 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 20 million shares remained
available for issuance under our plans as of fiscal year end 2018.
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
2018
2017
2016
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . .
$95
(in millions)
$95
$87
We recognized a related tax benefit associated with our share-based compensation arrangements of
$20 million, $31 million, and $28 million in fiscal 2018, 2017, and 2016, 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 2017 . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
1,990,784
592,852
(799,724)
(152,442)
Nonvested at fiscal year end 2018 . . . . . . . . . . . . . . . . .
1,631,470
Weighted-Average
Grant-Date
Fair Value
$64.40
93.45
62.06
70.88
$75.39
82
82
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 2018,
2017, and 2016 was $93.45, $67.72, and $64.88, respectively.
The total fair value of restricted share awards that vested during fiscal 2018, 2017, and 2016 was
$50 million, $50 million, and $51 million, respectively.
As of fiscal year end 2018, there was $66 million of unrecognized compensation cost related to
nonvested restricted share awards. The cost is expected to be recognized over a weighted-average
period of 1.6 years.
Performance Share Awards
Performance share awards, which are generally in the form of performance share units, are granted
with pay-out subject to vesting requirements and certain performance conditions that are determined at
the time of grant. Based on our performance, the pay-out of performance share units can range from
0% to 200% of the number of units originally granted. The grant-date fair value of performance share
awards is expensed over the period of performance once achievement of the performance criteria is
deemed probable. Recipients of performance share units have no voting rights but do receive dividend
equivalents. Performance share awards generally vest after a period of three years as determined by the
management development and compensation committee.
Performance share award activity was as follows:
Outstanding at fiscal year end 2017 . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
703,407
301,483
(300,174)
(15,813)
Outstanding at fiscal year end 2018 . . . . . . . . . . . . . . . .
688,903
Weighted-Average
Grant-Date
Fair Value
$65.13
92.96
61.99
71.26
$73.38
The weighted-average grant-date fair value of performance share awards granted during fiscal
2018, 2017, and 2016 was $92.96, $62.88, and $55.15, respectively.
The total fair value of performance share awards that vested during fiscal 2018, 2017, and 2016
was $19 million, $15 million, and $15 million, respectively.
As of fiscal year end 2018, there was $24 million of unrecognized compensation cost related to
nonvested performance share awards. The cost is expected to be recognized over a weighted-average
period of 1.0 years.
Share Options
Share options are granted to purchase our common shares at prices which are equal to or greater
than the market price of the common shares on the date the option is granted. Conditions of vesting
are determined at the time of grant. All restrictions on the award will lapse upon death or disability of
the employee. If the employee satisfies retirement requirements, a portion of the award may vest,
depending on the terms and conditions of the particular grant. Options generally vest and become
83
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
20. Share Plans (Continued)
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 2017 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . .
7,685,093
1,386,850
(2,103,141)
(8,565)
(201,160)
Outstanding at fiscal year end 2018 . . . . . . .
6,759,077
Vested and expected to vest at fiscal year
end 2018 . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at fiscal year end 2018 . . . . . . . .
6,376,801
2,908,893
$55.70
93.44
46.50
60.44
70.98
$65.85
$65.27
$53.08
7.0
7.0
5.5
$157
$151
$101
The weighted-average exercise price of share option awards granted during fiscal 2018, 2017, and
2016 was $93.44, $66.76, and $65.70, respectively.
The total intrinsic value of options exercised during fiscal 2018, 2017, and 2016 was $106 million,
$130 million, and $67 million, respectively. We received cash related to the exercise of options of
$100 million, $117 million, and $90 million in fiscal 2018, 2017, and 2016, respectively.
As of fiscal year end 2018, there was $34 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 1.7 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.
84
84
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:
2018
Fiscal
2017
2016
Weighted-average grant-date fair value . . . . . . . . . . .
$16.49
$12.80
$14.26
Assumptions:
Expected share price volatility . . . . . . . . . . . . . . . . .
Risk free interest rate . . . . . . . . . . . . . . . . . . . . . . .
Expected annual dividend per share . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Expected life of options (in years)
20%
2.2%
24%
1.9%
26%
2.0%
$ 1.60
5.3
$ 1.48
5.6
$ 1.32
5.7
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.
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
2017
2018
Operating Income
2016
2018
(in millions)
Fiscal
2017
2016
Transportation Solutions . . . . . . . . . . . . . . . .
Industrial Solutions . . . . . . . . . . . . . . . . . . . .
Communications Solutions . . . . . . . . . . . . . .
$ 8,290
3,856
1,842
$ 7,039
3,507
1,639
$ 6,503
3,215
1,634
$1,578
465
288
$1,294
364
218
$1,209
353
246(1)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,988
$12,185
$11,352
$2,331
$1,876
$1,808
(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 2018, 2017, or
2016.
As we are not organized by product or service, it is not practicable to disclose net sales by product
or service.
85
85
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
2018
$416
178
73
$667
Fiscal
2017
$362
165
84
$611
2016
2018
(in millions)
$341
134
85
$560
$711
145
79
$935
Fiscal
2017
$473
123
83
$679
2016
$432
108
63
$603
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
2018
2017
2016
$ 4,707
2,049
959
7,715
1,981
10,690
(in millions)
$ 4,084
1,909
951
6,944
2,141
10,318
$ 3,510
1,725
889
6,124
1,460
10,024
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,386
$19,403
$17,608
(1) Segment assets are composed of accounts receivable, inventories, and net property, plant, and
equipment.
86
86
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
2018
2017
2016
2018
2017
2016
(in millions)
Europe/Middle East/Africa:
Switzerland . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . .
Other Europe/Middle East/Africa . . . . . . . .
$ 3,478
443
1,334
$ 3,016
235
1,148
$ 2,979
127
1,008
$
94
448
829
$
80
413
741
$
62
334
628
Total Europe/Middle East/Africa . . . . . . .
5,255
4,399
4,114
1,371
1,234
1,024
Asia–Pacific:
China . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Asia–Pacific . . . . . . . . . . . . . . . . . . .
Total Asia–Pacific . . . . . . . . . . . . . . . . . .
Americas:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Americas . . . . . . . . . . . . . . . . . . . . .
Total Americas . . . . . . . . . . . . . . . . . . . .
2,739
2,023
4,762
3,583
388
3,971
2,414
1,898
4,312
3,136
338
3,474
2,165
1,758
3,923
3,018
297
3,315
627
436
1,063
964
99
1,063
555
390
945
880
100
980
491
371
862
830
93
923
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,988
$12,185
$11,352
$3,497
$3,159
$2,809
(1) Net sales to external customers is attributed to individual countries based on the legal entity that records the
sale.
87
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
22. Quarterly Financial Data (unaudited)
Summarized quarterly financial data was as follows:
Fiscal
2018
2017
First
Second
Fourth
Quarter(1) Quarter Quarter Quarter(2) Quarter Quarter Quarter Quarter
(in millions, except per share data)
Second
Fourth
Third
Third
First
Net sales . . . . . . . . . . . . . . . . . . . . . . . $3,336 $3,562 $3,581 $3,509 $2,848 $3,007 $3,095 $3,235
1,067
Gross margin . . . . . . . . . . . . . . . . . . . .
1
Acquisition and integration costs . . . . . .
22
Restructuring and other charges, net . . .
1,164
2
34
1,212
3
6
1,187
4
64
1,182
5
22
1,015
2
46
1,041
2
59
1,060
1
20
Income (loss) from continuing
operations . . . . . . . . . . . . . . . . . . . .
(33)
490
453
1,674
387
374
390
389
Income (loss) from discontinued
operations, net of income taxes . . . . .
45
Net income (loss) . . . . . . . . . . . . . . . . . $ (40) $ 490 $ 454 $1,661 $ 409 $ 405 $ 435 $ 434
(13)
(7)
45
—
22
31
1
Basic earnings (loss) per share:
Income (loss) from continuing
operations . . . . . . . . . . . . . . . . . . . $ (0.09) $ 1.40 $ 1.30 $ 4.82 $ 1.09 $ 1.05 $ 1.10 $ 1.10
1.23
1.40
Net income (loss) . . . . . . . . . . . . . . .
(0.11)
1.15
1.30
1.23
4.79
1.14
Diluted earnings (loss) per share:
Income (loss) from continuing
operations . . . . . . . . . . . . . . . . . . . $ (0.09) $ 1.38 $ 1.29 $ 4.78 $ 1.08 $ 1.04 $ 1.09 $ 1.09
1.22
1.38
Net income (loss) . . . . . . . . . . . . . . .
(0.11)
1.22
1.14
1.13
4.75
1.29
(1) Results for the quarter ended December 29, 2017 included $567 million of income tax expense related to the
tax impacts of the Tax Cuts and Jobs Act. See Note 15 for additional information regarding income taxes.
(2) Results for the quarter ended September 28, 2018 included a $1,222 million net income tax benefit associated
with the tax impacts of certain legal entity restructurings and intercompany transactions. See Note 15 for
additional information regarding income taxes.
23. Subsequent Event
In November 2018, we completed the sale of the Subsea Communications business for
$325 million. The proceeds received are subject to a final working capital adjustment.
88
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
24. 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 28, 2018
TE
Connectivity
Ltd.
Consolidating
TEGSA Subsidiaries Adjustments
Other
Total
(in millions)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses, net . . .
Research, development, and engineering expenses . .
Acquisition and integration costs . . . . . . . . . . . . . .
. . . . . . . . . . .
Restructuring and other charges, net
Operating income (loss)
. . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net
. . . . . . . . . . . . . . . . . . . . . . . .
Equity in net income of subsidiaries . . . . . . . . . . . .
Equity in net loss of subsidiaries of discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany interest income (expense), net . . . . . .
Income from continuing operations before income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . .
Loss from discontinued operations, net of income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . . . .
$ — $ — $13,988
9,243
—
—
—
154
—
—
—
(154)
—
—
—
2,808
(19)
(70)
2,565
—
2,565
—
2,565
(108)
—
6
—
—
—
(6)
2
(105)
—
2,841
(19)
76
2,789
—
2,789
—
2,789
(108)
4,745
1,434
680
14
126
2,491
13
(2)
1
—
—
(6)
2,497
344
2,841
(19)
2,822
(82)
$
— $13,988
9,243
—
—
—
—
—
—
—
—
—
—
(5,649)
38
—
(5,611)
—
(5,611)
—
(5,611)
190
4,745
1,594
680
14
126
2,331
15
(107)
1
—
—
—
2,240
344
2,584
(19)
2,565
(108)
Comprehensive income . . . . . . . . . . . . . . . . . . .
$ 2,457
$ 2,681
$ 2,740
$ (5,421)
$ 2,457
89
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
24. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Operations
For the Fiscal Year Ended September 29, 2017
TE
Connectivity
Ltd.
Consolidating
TEGSA Subsidiaries Adjustments
Other
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 . . . . . . . . . . . . . . . . .
$ — $ — $12,185
8,002
—
—
—
184
—
—
—
(184)
—
—
—
1,756
143
(32)
1,683
—
1,683
—
1,683
382
—
1,911
—
—
—
(1,911)
—
(129)
—
3,686
156
110
1,912
—
1,912
(13)
1,899
382
4,183
(552)
611
6
147
3,971
16
(1)
(42)
—
—
(78)
3,866
(180)
3,686
156
3,842
375
$
— $12,185
8,002
—
—
—
—
—
—
—
—
—
—
(5,442)
(299)
—
(5,741)
—
(5,741)
—
(5,741)
(757)
4,183
1,543
611
6
147
1,876
16
(130)
(42)
—
—
—
1,720
(180)
1,540
143
1,683
382
Comprehensive income . . . . . . . . . . . . . . . . . . .
$ 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.
90
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
24. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Operations
For the Fiscal Year Ended September 30, 2016
TE
Connectivity
Ltd.
Consolidating
TEGSA Subsidiaries Adjustments
Other
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 . . . . . . . . . . . . . . . . . . .
$ — $ — $11,352
7,525
—
—
—
168
—
—
2
(170)
—
—
—
2,045
161
(28)
2,008
—
2,008
1
2,009
(169)
—
95
—
—
(1)
(94)
—
(126)
—
2,167
262
98
2,307
—
2,307
(101)
2,206
(169)
3,827
1,133
603
22
(3)
2,072
17
(1)
(677)
—
—
(70)
1,341
826
2,167
262
2,429
(143)
$
— $11,352
7,525
—
—
—
—
—
—
—
—
—
—
(4,212)
(423)
—
(4,635)
—
(4,635)
—
(4,635)
312
3,827
1,396
603
22
(2)
1,808
17
(127)
(677)
—
—
—
1,021
826
1,847
162
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.
91
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
24. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Balance Sheet
As of September 28, 2018
TE
Connectivity
Ltd.
Consolidating
TEGSA Subsidiaries Adjustments
Other
Total
(in millions)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany receivables . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . .
Current assets held for sale . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net
. . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . .
Intercompany loans receivable . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ — $
—
—
37
5
—
42
—
—
—
—
13,626
2
—
—
—
2,391
112
—
2,503
—
—
—
—
26,613
6,535
—
848
2,361
1,857
48
544
472
$
— $
—
—
(2,476)
—
—
6,130
3,497
5,684
1,704
2,144
—
17,887
1,158
(2,476)
—
—
—
—
(40,239)
(24,424)
—
848
2,361
1,857
—
661
472
6,199
3,497
5,684
1,704
2,144
—
—
1,158
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,670
$35,651
$38,204
$(67,139)
$20,386
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt
. . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . . .
Intercompany payables
. . . . . . . . . . . . . . . . . . .
Current liabilities held for sale . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany loans payable . . . . . . . . . . . . . . . . . .
Long-term pension and postretirement liabilities . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$ — $
2
400
2,437
—
961
—
36
—
—
997
2,839
3,033
—
— 17,888
—
—
—
—
—
—
107
—
2
1,546
1,275
39
188
3,050
4
6,536
1,102
207
312
380
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . .
2,839
Total Shareholders’ Equity . . . . . . . . . . . . . . . . .
10,831
22,025
13,626
11,591
26,613
$
— $
—
—
(2,476)
—
(2,476)
—
(24,424)
—
—
—
—
(26,900)
963
1,548
1,711
—
188
4,410
3,037
—
1,102
207
312
487
9,555
(40,239)
10,831
Total Liabilities and Shareholders’ Equity . . . . . .
$13,670
$35,651
$38,204
$(67,139)
$20,386
92
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
24. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Balance Sheet
As of September 29, 2017
TE
Connectivity
Ltd.
Consolidating
TEGSA Subsidiaries Adjustments
Other
Total
(in millions)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany receivables . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . .
Current assets held for sale . . . . . . . . . . . . . . . .
$ — $ — $ 1,218
2,138
1,647
60
478
345
—
—
1,914
96
—
—
—
49
4
—
Total current assets . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net
. . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . .
Intercompany loans receivable . . . . . . . . . . . . . . . .
Noncurrent assets held for sale . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
—
—
—
—
11,960
—
—
—
2,010
—
—
—
—
20,109
4,027
—
6
5,886
3,159
5,651
1,841
2,141
—
9,700
257
422
$
— $ 1,218
2,138
—
1,647
—
—
(2,023)
578
—
345
—
(2,023)
—
—
—
—
(32,069)
(13,727)
—
—
5,926
3,159
5,651
1,841
2,141
—
—
257
428
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,013
$26,152
$29,057
$(47,819)
$19,403
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt
. . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . . .
Intercompany payables
. . . . . . . . . . . . . . . . . . .
Current liabilities held for sale . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany loans payable . . . . . . . . . . . . . . . . . .
Long-term pension and postretirement liabilities . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities held for sale . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Total Shareholders’ Equity . . . . . . . . . . . . . . . . .
$ — $
2
286
1,974
—
2,262
—
—
—
—
—
—
—
2,262
9,751
708
—
59
—
—
767
3,629
9,700
—
—
—
—
96
14,192
11,960
$
2
1,385
1,268
49
137
2,841
5
4,027
1,158
236
293
43
345
8,948
20,109
$
— $
—
—
(2,023)
—
(2,023)
—
(13,727)
—
—
—
—
—
(15,750)
(32,069)
710
1,387
1,613
—
137
3,847
3,634
—
1,158
236
293
43
441
9,652
9,751
Total Liabilities and Shareholders’ Equity . . . . . .
$12,013
$26,152
$29,057
$(47,819)
$19,403
93
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
24. Tyco Electronics Group S.A. (Continued)
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended September 28, 2018
TE
Connectivity
Ltd.
TEGSA
Other
Subsidiaries
Consolidating
Adjustments
Total
(in millions)
$ 2,625
150
2,775
$ (1,153)
—
(1,153)
$ 2,301
150
2,451
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 . . . . . . .
Intercompany distribution receipts(1)
. . . . . . . . . . . . . .
Change in intercompany loans . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) continuing investing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .
Net cash used in discontinued investing activities
Net cash provided by (used in) investing activities . . . .
Cash Flows From Financing Activities:
Changes in parent company equity(2) . . . . . . . . . . . . . .
Net 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 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 decrease in cash and cash equivalents . . . . . . . . . .
Cash and cash equivalents at beginning of fiscal year . . .
486
—
486
—
—
—
—
—
—
—
—
—
112
—
—
—
—
(478)
(594)
—
474
—
—
(486)
—
(486)
—
—
—
$
343
—
343
—
—
—
794
62
—
856
—
856
(170)
270
119
(708)
—
—
—
(710)
—
—
—
(1,199)
—
(1,199)
—
—
—
(935)
23
(153)
—
—
(8)
(1,073)
(21)
(1,094)
58
—
—
—
100
(401)
6
(505)
(1,268)
129
(36)
(1,917)
(129)
(2,046)
(5)
(370)
1,218
—
—
—
(794)
(62)
—
(856)
—
(856)
—
—
—
—
—
—
—
1,215
794
—
—
2,009
—
2,009
—
—
—
—
(935)
23
(153)
—
—
(8)
(1,073)
(21)
(1,094)
—
270
119
(708)
100
(879)
(588)
—
—
129
(36)
(1,593)
(129)
(1,722)
(5)
(370)
1,218
$
848
Cash and cash equivalents at end of fiscal year . . . . . . .
$ —
$ —
$
848
$
(1) During fiscal 2018, other subsidiaries made distributions to TEGSA in the amount of $505 million and TEGSA made
distributions to TE Connectivity Ltd. in the amount of $710 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.
94
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
24. 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)
$ 2,581
48
2,629
$
(230)
—
(230)
$ 2,273
48
2,321
Cash Flows From Operating Activities:
Net cash provided by (used in) continuing operating
activities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by discontinued operating activities .
Net cash provided by (used in) operating activities . . .
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant, and equipment . . .
Acquisition of businesses, net of cash acquired . . . . . . .
Proceeds from divestiture of business, net of cash
retained by sold business . . . . . . . . . . . . . . . . . . . .
Intercompany distribution receipts(1)
. . . . . . . . . . . . . .
Change in intercompany loans . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in continuing investing activities . . . . . .
. . . .
Net cash used in discontinued investing activities
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 from discontinued operations . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) continuing financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in discontinued financing activities . . . .
Net cash provided by (used in) financing activities . . . .
Effect of currency translation on cash . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . .
Cash and cash equivalents at beginning of fiscal year . . .
$
$ (180)
—
(180)
—
—
—
—
—
—
—
—
—
—
97
—
—
—
—
(550)
—
633
—
—
180
—
180
—
—
—
102
—
102
—
—
—
—
516
(1,369)
(12)
(865)
—
(865)
559
(330)
589
—
—
—
(50)
—
—
(5)
763
—
763
—
—
—
(679)
19
(250)
4
—
—
9
(897)
(23)
(920)
(656)
—
—
117
(614)
4
(696)
736
25
(25)
(1,109)
(25)
(1,134)
(4)
571
647
—
—
—
—
(516)
1,369
—
853
—
853
—
—
—
—
—
—
746
(1,369)
—
—
(623)
—
(623)
—
—
—
—
(679)
19
(250)
4
—
—
(3)
(909)
(23)
(932)
—
(330)
589
117
(614)
(546)
—
—
25
(30)
(789)
(25)
(814)
(4)
571
647
$ 1,218
Cash and cash equivalents at end of fiscal year . . . . . . .
$ —
$ —
$ 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.
95
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TE CONNECTIVITY LTD.
24. 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 provided by discontinued operating activities .
$
Net cash provided by (used in) operating activities . . .
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant, and equipment . . .
Acquisition of businesses, net of cash acquired . . . . . . .
Proceeds from divestiture of business, net of cash
retained by sold business . . . . . . . . . . . . . . . . . . . .
Intercompany distribution receipts(1)
. . . . . . . . . . . . . .
Change in intercompany loans . . . . . . . . . . . . . . . . . .
Other(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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(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 . . .
(37)
—
(37)
—
—
—
—
1,082
—
—
1,082
—
1,082
410
—
—
—
—
(2,780)
(513)
—
1,838
—
—
(1,045)
—
(1,045)
—
—
—
$
211
—
211
—
—
—
$ 2,095
14
2,109
(603)
8
(1,336)
199
1,729
(1,244)
(120)
564
—
564
300
330
349
(500)
—
—
—
(1,250)
—
—
(4)
(775)
—
(775)
—
—
—
134
—
—
162
(1,635)
(25)
(1,660)
(710)
—
3
(1)
90
(7)
4
(1,897)
(594)
(11)
(26)
(3,149)
11
(3,138)
7
(2,682)
3,329
$
(336)
—
(336)
$ 1,933
14
1,947
—
—
—
—
(2,811)
1,244
—
(1,567)
—
(1,567)
—
—
—
—
—
—
—
3,147
(1,244)
—
—
1,903
—
1,903
—
—
—
—
(603)
8
(1,336)
333
—
—
42
(1,556)
(25)
(1,581)
—
330
352
(501)
90
(2,787)
(509)
—
—
(11)
(30)
(3,066)
11
(3,055)
7
(2,682)
3,329
$
647
Cash and cash equivalents at end of fiscal year . . . . . . .
$ —
$ —
$
647
$
(1) During fiscal 2016, other subsidiaries made distributions to TEGSA in the amount of $1,897 million and TEGSA made
distributions to TE Connectivity Ltd. in the amount of $1,250 million. Cash flows are presented based upon the nature
of the distributions.
(2)
Includes the internal allocation of proceeds between TEGSA and other subsidiaries associated with the divestiture of our
BNS business.
(3) Changes in parent company equity includes cash flows related to certain intercompany equity and funding transactions,
and other intercompany activity.
96
96
TE CONNECTIVITY LTD.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016
Description
Fiscal 2018:
Allowance for doubtful accounts
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
receivable . . . . . . . . . . . . . . . . . . . . .
$
18
$
7
$ (1)
$
(2)
$
22
Valuation allowance on deferred tax
assets . . . . . . . . . . . . . . . . . . . . . . . .
3,627
261
—
(1,697)
2,191
Fiscal 2017:
Allowance for doubtful accounts
receivable . . . . . . . . . . . . . . . . . . . . .
$
17
$
5
Valuation allowance on deferred tax
assets . . . . . . . . . . . . . . . . . . . . . . . .
3,096
1,072
$—
—
$
(4)
$
18
(541)
3,627
Fiscal 2016:
Allowance for doubtful accounts
receivable . . . . . . . . . . . . . . . . . . . . .
$
18
$ —
$ 1
$
(2)
$
17
Valuation allowance on deferred tax
assets . . . . . . . . . . . . . . . . . . . . . . . .
3,237
283
1
(425)
3,096
97
97
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 28, 2018, 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
98
98
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 $5,684 million
as of September 28, 2018 is significant to the
financial statements representing 28% 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.
99
99
Opinion
In our opinion, the consolidated financial statements for the year ended September 28, 2018
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 13, 2018
/s/ Dominik Voegtli
Licensed Audit Expert
100
100
TE CONNECTIVITY LTD.
INDEX TO SWISS STATUTORY FINANCIAL STATEMENTS
Statements of Operations for the Fiscal Years Ended September 28, 2018 and September 29,
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance Sheets as of September 28, 2018 and September 29, 2017 . . . . . . . . . . . . . . . . . . . . . . .
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
102
103
104
113
Connectivity Ltd.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114
101
101
TE CONNECTIVITY LTD.
SWISS STATUTORY FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
Fiscal Years Ended September 28, 2018 and September 29, 2017
Income
Income from distributions made by subsidiaries
(Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-separation tax settlement income, net (Note 3) . . .
Remeasurement gain (loss) on foreign currency
transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance premiums charged to subsidiaries . . . . . . . .
Total income, net
. . . . . . . . . . . . . . . . . . . . . . . . .
Expenses
Salary and social costs . . . . . . . . . . . . . . . . . . . . . . .
General and administrative costs . . . . . . . . . . . . . . . .
Legal and consulting costs . . . . . . . . . . . . . . . . . . . . .
Insurance premiums . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses for services provided by subsidiaries . . . . . .
Intercompany interest expense . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2018
Fiscal 2017
U.S. dollars
Swiss francs
U.S. dollars
Swiss francs
(in millions)
$710
14
14
10
748
4
4
8
12
48
70
146
$602
CHF680
14
15
10
719
4
4
8
12
47
68
$ 58
—
(16)
11
53
5
5
8
13
48
32
CHF 56
—
(16)
11
51
5
5
8
12
47
32
143
111
109
CHF576
$ (58)
CHF (58)
See Notes to Swiss Statutory Financial Statements.
102
102
TE CONNECTIVITY LTD.
SWISS STATUTORY FINANCIAL STATEMENTS
BALANCE SHEETS
As of September 28, 2018 and September 29, 2017
Fiscal Year End 2018
Fiscal Year End 2017
U.S. dollars
Swiss francs
U.S. dollars
Swiss francs
(in millions, except share data)
Assets
Current assets:
Accounts receivable from subsidiaries . . . . . . . . .
Prepaid expenses and other current assets . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries (Notes 2 and 8) . . . . . .
$
38
5
43
9,635
CHF
37
5
42
10,430
$
56
5
61
9,635
CHF
54
4
58
10,430
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . .
$9,678
CHF10,472
$9,696
CHF10,488
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 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) . . . . . . . . .
Total Shareholders’ Equity . . . . . . . . . . . . . . .
CHF
$
2
48
2,389
97
303
2,839
—
2,839
CHF
2
46
2,334
94
286
2,762
669
3,431
$
1
65
1,917
7
286
2,276
—
2,276
157
38
5,809
(562)
1,407
(572)
562
6,839
204
49
157
38
6,724
6,420
(546)
625
(561)
546
(421)
805
—
421
7,041
7,420
1
63
1,856
6
289
2,215
671
2,886
204
49
7,300
(409)
49
—
409
7,602
Total Liabilities and Shareholders’ Equity . . . .
$9,678
CHF10,472
$9,696
CHF10,488
See Notes to Swiss Statutory Financial Statements.
103
103
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 28,
2018 and September 29, 2017. 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 28, 2018.
The accompanying statements of operations reflect the results of operations for the fiscal years
ended September 28, 2018 and September 29, 2017, 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 2018 and fiscal 2017 are
to our fiscal years ended September 28, 2018 and September 29, 2017. We have a 52- or 53-week fiscal
year that ends on the last Friday of September. Fiscal 2018 and 2017 were both 52-week years.
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 2018 and 2017,
exchange rates were CHF 0.9766:$1 and CHF 0.9681:$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 0.9760:$1 and CHF 0.9880:$1 for fiscal 2018
and 2017, 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.
During fiscal 2018 and 2017, 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.
104
104
2. Summary of Significant Accounting Policies (Continued)
Investments in Subsidiaries and Income from Distributions Made by a Subsidiary
Investments in subsidiaries are equity interests held on a long-term basis for the purpose of our
business activities. Investments in subsidiaries are carried at a value no higher than cost less
adjustments for impairment.
Salaries and Social Costs
Salaries and social costs include cash and equity compensation paid to our directors.
Reclassifications
Certain fiscal 2017 balances have been reclassified to conform to current year presentation.
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 fiscal year end 2018,
we had a Cash Pool liability of CHF 2,008 million (equivalent to $2,055 million) that was included in
loans from subsidiaries on our balance sheet. At fiscal year end 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.
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 fiscal year
end 2018 and 2017, the borrowing totaled CHF 326 million (equivalent to $334 million) and CHF 309
million (equivalent to $319 million), respectively, and was reflected as loans from subsidiaries on our
balance sheets. At fiscal year end 2018 and 2017, 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 3,916 million (equivalent to $4,010 million) and CHF 4,217 million
(equivalent to $4,356 million) at fiscal year end 2018 and 2017, respectively. As of September 28, 2018,
we have not been required to perform on our guarantee.
Tax Sharing Agreement
We are a party to the Tax Sharing Agreement (‘‘TSA’’) with Tyco International plc (‘‘Tyco
International,’’ which now operates as part of Johnson Controls International plc) and Covidien plc
(‘‘Covidien,’’ which now operates as part of Medtronic plc), under which we share responsibility for
certain of our, Tyco International’s, and Covidien’s income tax liabilities based on a sharing formula for
periods prior to and including June 29, 2007. We, Tyco International, and Covidien share 31%, 27%,
and 42%, respectively, of income tax liabilities that arose from adjustments made by tax authorities to
our, Tyco International’s, and Covidien’s income tax returns.
105
105
3. Commitments, Contingencies, and Guarantees (Continued)
During fiscal 2018, we recorded net income of CHF 14 million (equivalent to $14 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 fiscal year end 2018 and 2017, these performance guarantees totaled CHF 169 million
(equivalent to $173 million) and CHF 81 million (equivalent to $84 million), respectively. In addition to
these amounts, all of which are quantifiable, we have issued a parent company guarantee in behalf of a
U.S.-based aerospace customer that does not have a limit. We do not anticipate having to perform
under these guarantees.
We are the leader of a Swiss value-added tax (‘‘VAT’’) group (‘‘VAT Group’’). All companies in
the VAT Group maintain primary responsibility for their own VAT liabilities. However, in the event of
non-compliance by any company in the VAT Group, all companies within the VAT Group assume joint
and several 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 2018 and 2017 in
Swiss francs.
General
Reserve
from
Reserves
from
Capital
Share
Capital Earnings Contributions
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
.
.
.
.
.
.
.
.
.
September 30, 2016 .
. CHF218 CHF49
.
.
—
—
.
Approved dividends .
.
Retirement of treasury shares
—
(14)
.
Transfer of reserves for treasury
.
.
shares and other .
.
.
Net loss .
—
—
—
—
. .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
September 29, 2017 .
.
.
.
.
Approved dividends .
.
.
Acquisition of treasury shares
Transfer of reserves for treasury
.
.
shares .
.
Net income .
. .
. .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
204
—
—
—
—
49
—
—
—
—
(in CHF millions)
CHF7,878
(578)
—
CHF(110)
—
—
CHF 1,594
—
(1,487)
CHF(1,501) CHF110
—
—
—
1,501
CHF8,238
(578)
—
—
—
7,300
(576)
—
—
—
(299)
—
(409)
—
—
(137)
—
—
(58)
49
—
—
—
576
—
—
—
—
(561)
—
—
299
—
409
—
—
137
—
—
(58)
7,602
(576)
(561)
—
576
September 28, 2018 .
.
.
.
.
.
.
.
. CHF204 CHF49
CHF6,724
CHF(546)
CHF 625
CHF (561) CHF546
CHF7,041
106
106
4. Equity (Continued)
The following table presents activity related to our equity accounts during fiscal 2018 and 2017 in
U.S. dollars.
General
Reserve
from
Reserves
from
Capital
Share
Capital Earnings Contributions
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
(in USD millions)
$ 2,364
—
(1,501)
$(111)
—
—
.
.
.
.
.
.
.
.
.
.
September 30, 2016 .
.
.
Approved dividends .
.
Retirement of treasury shares .
Transfer of reserves for treasury
.
.
shares and other
. .
.
Net loss .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
September 29, 2017 .
.
.
Approved dividends .
.
Acquisition of treasury shares .
Transfer of reserves for treasury
.
.
.
.
shares
.
Net income
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
September 28, 2018 .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$168
—
(11)
—
—
157
—
—
—
—
$38
—
—
—
—
38
—
—
—
—
$6,992
(572)
—
—
—
6,420
(611)
—
—
—
$157
$38
$5,809
(310)
—
(421)
—
—
(141)
—
$(562)
$(1,512)
—
1,512
—
—
—
—
(572)
—
—
$111
—
—
310
—
421
—
—
141
—
$8,050
(572)
—
—
(58)
7,420
(611)
(572)
—
602
—
(58)
805
—
—
—
602
$ 1,407
$ (572)
$562
$6,839
Authorized Share Capital
In March 2018, our shareholders reapproved and extended through March 14, 2020 our board of
directors’ authorization to issue additional new shares, subject to certain conditions specified in 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 fiscal year end 2018, 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 fiscal year end 2018, no conditional shares had been issued.
107
107
4. Equity (Continued)
Own Shares Held in Treasury and Treasury Shares Held by a Subsidiary
During fiscal 2018 and 2017, 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)
cancellations . . . . . . . . . . . .
(26)
(1,501)
(1,512)
Common shares held as of
September 30, 2016 . . . . . . . . .
Repurchases under share
repurchase program . . . . . . .
Other additions(1)
. . . . . . . . . .
Reissuances . . . . . . . . . . . . . .
Shareholder-approved
26
—
—
—
Common shares held as of
September 29, 2017 . . . . . . . . .
Repurchases under share
repurchase program . . . . . . .
Other additions(1)
. . . . . . . . . .
Reissuances . . . . . . . . . . . . . .
Common shares held as of
September 28, 2018 . . . . . . . . .
—
6
—
—
6
CHF 1,501
$ 1,512
2
CHF 110
$ 111
—
—
—
—
—
—
—
561
—
—
—
572
—
—
8
—
(5)
—
5
4
—
(3)
610
22
(333)
621
21
(332)
—
—
409
421
383
35
(281)
393
36
(288)
CHF 561
$
572
6
CHF 546
$ 562
(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, our shareholders approved the cancellation of 26 million shares purchased under
our share repurchase program. This capital reduction by cancellation of shares was subject to a notice
period and filing with the commercial register in Switzerland.
During fiscal 2018, our board of directors authorized an increase of $1.5 billion in the share
repurchase program. At fiscal year end 2018, we had CHF 991 million (equivalent to $1,015 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 fiscal year end 2018 and 2017, reserves from capital contributions were CHF 6,724 million
(equivalent to $5,809 million) and CHF 7,300 million (equivalent to $6,420 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.
108
108
4. Equity (Continued)
Dividends
We paid cash dividends to shareholders of $1.68 and $1.54 per share in fiscal 2018 and 2017,
respectively.
Under current Swiss tax law, subject to certain conditions, dividends paid from reserves from
capital contributions are exempt from Swiss withholding tax. Dividends on our shares must be approved
by our shareholders.
Our shareholders approved the following dividends on our common shares:
Approval Date
Annual Payment Per Share
Payment Dates
March 2016 . . . . . . . . . . . . . . . . . . .
$1.48, payable in four quarterly
installments of $0.37
March 2017 . . . . . . . . . . . . . . . . . . .
$1.60, payable in four quarterly
installments of $0.40
March 2018 . . . . . . . . . . . . . . . . . . .
$1.76, payable in four quarterly
installments of $0.44
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
Third quarter of fiscal 2018
Fourth quarter of fiscal 2018
First quarter of fiscal 2019
Second quarter of fiscal 2019
Upon shareholders’ approval of a dividend payment, we record a liability with a corresponding
charge to shareholders’ equity.
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 fiscal year end 2018
and 2017 by each member of our board of directors serving on our board at fiscal year end 2018. The
109
109
6. Security Ownership of Board of Directors and Executive Officers (Continued)
share ownership of Mr. Curtin, our Chief Executive Officer and a member of the board of directors, is
set forth in Executive Management.
Year
Shares
Held
Options
Held
Options
Exercise Price(1)
Fiscal
Years of
Expiration
RSUs
Held(2)
PSUs
Held(3)
DSUs
Held
Board of Directors:
Pierre R. Brondeau . . . . 2018
2017
33,418
24,073
Carol A. (‘‘John’’)
—
—
—
—
—
—
—
—
—
—
— 12,876
Davidson . . . . . . . . . . 2018
2017
William A. Jeffrey . . . . . 2018
2017
8,588
7,052
14,717
13,181
Thomas J. Lynch(4) . . . . . 2018 140,967
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,081 101,668
728,450 $61.50 - $93.36 2025 - 2028
—
2017 298,851 1,305,150 $34.05 - $66.74 2023 - 2027 23,625 139,262
—
—
—
—
—
—
— 12,876
—
—
— 15,805
—
—
—
—
—
—
—
—
—
—
— 6,896
—
—
—
—
14,613
13,181
31,571
22,226
34,548
23,426
3,486
1,438
4,988
3,452
35,783
27,322
8,940
7,404
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Yong Nam . . . . . . . . . . . 2018
2017
Daniel J. Phelan . . . . . . 2018
2017
Paula A. Sneed . . . . . . . 2018
2017
Abhijit Y. Talwalkar . . . . 2018
2017
Mark C. Trudeau . . . . . . 2018
2017
John C. Van Scoter(5) . . . 2018
2017
. . . . . . 2018
2017
Laura H. Wright
(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) Mr. Lynch 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 28, 2018 and September 29, 2017,
respectively. Under the terms of the PSUs, shares of stock are earned 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 9, 2015, November 14, 2016 and November 13, 2017.
(4) Mr. Lynch served as Chief Executive Officer of the Company until March 8, 2017 and as Executive Chairman
of the Company until March 14, 2018. Since March 2018, Mr. Lynch has served as Non-Executive Chairman
of the board of directors. Shares held as of September 28, 2018 includes 15,000 shares held in a charitable
trust and 21,300 shares held in a grantor retained annuity trust.
110
110
6. Security Ownership of Board of Directors and Executive Officers (Continued)
(5)
Includes 22,627 shares as of September 28, 2018 and September 29, 2017 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 28, 2018 and September 29, 2017.
Executive Management
The following table sets forth the shares, options and share units held as of fiscal year end 2018
and 2017 by each member of our executive management serving in such position as of fiscal year end
2018.
Year
Shares Options
Held
Held
Options
Exercise Price(1)
Fiscal Years
RSUs
of Expiration Held(2)
PSUs
Held(3)
Executive Management:
Terrence R. Curtin(4)
John S. Jenkins, Jr.
2017
Shad W. Kroeger(5) . . . . . . . . . . . 2018
Steven T. Merkt . . . . . . . . . . . . . 2018
2017
2,848 114,961
. . . . . . . . . 2018 58,122 861,250 $34.05 - $93.36 2023 - 2028
93,783
7,966
2017 40,475 814,350 $34.05 - $72.13 2022 - 2027
31,041
6,336
. . . . . . . . . . 2018 15,967 189,400 $61.50 - $93.36 2025 - 2028
30,046
6,788
8,823 185,150 $51.61 - $66.74 2024 - 2027
13,082
2,592
427
90,050 $51.61 - $93.36 2024 - 2028
44,891
2,126 285,800 $51.61 - $93.36 2024 - 2028 31,810
41,754
1,915 220,250 $51.61 - $66.74 2024 - 2027 34,697
27,153
Heath A. Mitts . . . . . . . . . . . . . 2018 12,908 138,800 $66.74 - $93.36 2027 - 2028 39,792
15,337
2027 58,662
16,848
535
12,541
1,631
24,385
. . . . . . . . . . . . 2018 42,182 234,350 $34.05 - $93.36 2022 - 2028 12,136
23,007
2,227
17,739
9,870
18,047
2,609
2017 35,668 202,300 $34.05 - $72.13 2022 - 2027
69,788 $61.50 - $93.36 2025 - 2028
2017 39,818 110,050 $51.61 - $66.74 2024 - 2027
5,302 100,800 $34.05 - $93.36 2023 - 2028
94,600 $33.88 - $66.74 2022 - 2027
4,084
Timothy J. Murphy . . . . . . . . . . . 2018
2017
Joan E. Wainwright . . . . . . . . . . 2018 45,071
Kevin N. Rock(6)
2017 10,736
$66.74
79,100
(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 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 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 earned 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 9, 2015, November 14, 2016 and November 13, 2017.
(4) Mr. Curtin is a member of the board of directors and chief executive officer.
(5) Mr. Kroeger became a member of executive management in December 2017.
(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.
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111
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 28,
2018.
Name and Address of Beneficial Owner
Number
of Shares
Percentage
of Class
Harris Associates L.P.(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,536,233
7.4%
111 S. Wacker Drive, Suite 4600
Chicago, IL 60606
Dodge & Cox(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,697,064
7.2%
555 California Street, 40th Floor
San Francisco, CA 94104
The Vanguard Group(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,834,061
6.9%
100 Vanguard Blvd.
Malvern, PA 19355
Capital World Investors(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,471,631
5.1%
333 South Hope Street
Los Angeles, CA 90071
(1) This information is based on a Schedule 13G/A filed with the SEC on February 14, 2018 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—23,005,132 and sole dispositive power—25,536,233. 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.
(2) This information is based on a Schedule 13G/A filed with the SEC on February 13, 2018 by Dodge & Cox,
which reported sole voting power and sole dispositive power as follows: sole voting power—23,788,203 and
sole dispositive power—24,697,064.
(3) This information is based on a Schedule 13G/A filed with the SEC on February 8, 2018 by The Vanguard
Group, which reported sole voting power, sole dispositive power and shared dispositive power as follows: sole
voting power—428,089, sole dispositive power—23,340,636, and shared dispositive power—493,425.
(4) This information is based on a Schedule 13G filed with the SEC on February 14, 2018 by Capital World
Investors, which reported sole voting power and sole dispositive power as follows: sole voting power—
17,462,727, and sole dispositive power—17,471,631.
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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 fiscal year end 2018:
Entity Name
Jurisdiction
Direct or Indirect
Holding(1)
Tyco Electronics Group S.A.
Tyco Electronics Holdings (Bermuda) No. 7
. . . . . . . . . . . . Luxembourg
Limited . . . . . . . . . . . . . . . . . . . . . . . . . . Bermuda
TE Connectivity Corporation . . . . . . . . . . . . United States
TE Connectivity Germany GmbH . . . . . . . . . Germany
TE Connectivity HK Limited.
TE Connectivity Holding
International II S.a r.l.
. . . . . . . . . . . Hong Kong
. . . . . . . . . . . . . . . Luxembourg
Switzerland
TE Connectivity Solutions GmbH . . . . . . . . .
Tyco Electronics (Shanghai) Co., Ltd.
Tyco Electronics AMP Korea Co., Ltd. . . . . .
Tyco Electronics Holding S.a r.l.
Tyco Electronics Japan G.K.
Tyco Electronics Singapore Pte Ltd.
Tyco Electronics Subsea
. . . . . . . . . . . .
. . . . . . .
. . . . . . China
South Korea
. . . . . . . . . Luxembourg
Japan
Singapore
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Nominal
Capital
(in millions)
$
1
—
$
625
$
EUR 78
380
$
—
$
CHF —
CNY
6
KRW6,812
$
593
JPY 21,835
183
$
Communications LLC(3)
. . . . . . . . . . . . . . United States
Indirect
$
—
Purpose(2)
F
F
M
M
S
F
S
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.
(3) This indirect subsidiary is held for sale as of fiscal year end 2018 and was subsequently sold in fiscal 2019.
During fiscal 2018 and 2017, subsidiaries distributed CHF 680 million (equivalent to $710 million)
and CHF 56 million (equivalent to $58 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 13, 2018, 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 625 million as included in our balance sheet as
of September 28, 2018.
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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 28, 2018, 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 28, 2018 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.
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114
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 13, 2018
/s/ Dominik Voegtli
Licensed Audit Expert
115
115
(This page has been left blank intentionally.)
116
116
TE Connectivity Ltd.
Swiss Statutory Compensation Report
September 28, 2018
117
117
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 TE
Page
119
120
122
Connectivity Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
124
118
118
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 2018 consisted of Terrence Curtin, Chief Executive Officer; John Jenkins, Jr.,
Executive Vice President and General Counsel; Shadrak Kroeger, President, Communication Solutions;
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;
Kevin Rock, President, Industrial Solutions; and Joan Wainwright, President, Channel and Customer
Experience. Compensation for fiscal 2018 for Joseph Donahue, former Executive Vice President and
Chief Operating Officer, is included as he served as member of executive management through his
retirement as an executive on December 31, 2017. Compensation for Thomas Lynch, former Executive
Chairman is included until his March 14, 2018 transition to Non-Executive Chairman of the Board of
Directors. Mr. Lynch’s board compensation is included in Table 1 below. James O’Toole, former
President, Communications Solutions, is included as he served as a member of executive management
through his retirement on December 31, 2017.
Jane Leipold former Senior Vice President Global Human Resources is included as a member of
Executive Management for fiscal 2017 but is not included for fiscal 2018.
The following sets forth, for the years ended September 28, 2018 and September 29, 2017, 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. (‘‘TE Connectivity’’ or the ‘‘Company,’’
which may be referred to as ‘‘we,’’ ‘‘us,’’ or ‘‘our’’). 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 2019 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.
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119
B. Compensation of the Board of Directors
Compensation paid for fiscal 2018 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:
Non-Executive Chairman(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Lead Independent Director . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Chair . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Member . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating, Governance & Compliance Committee Chair . .
Management, Development & Compensation Committee
Fee Structure
Cash
Equity
$ 90,000
$185,000
$170,000
$ 40,000
$ 25,000
$ 10,000
$ 15,000
Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Science Advisory Board Retainer . . . . . . . . . . . . . . . . . . . .
$ 20,000
$ 10,000
(1) The fee structure reflects a new retainer for Mr. Lynch for his work as Non-Executive Chairman which became
effective on March 14, 2018
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
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 $10,000 per year.
Our board members also receive non-compensatory reimbursement for expenses incurred in
attending board and committee meetings or performing other services for us in their capacities as
directors. Such expenses include food, lodging and transportation. Directors who are our employees or
employees of our subsidiaries do not receive any compensation for their services as directors.
Each non-employee director received the equity component of their compensation in the form of a
grant of common shares of TE Connectivity Ltd.
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120
The following table discloses the cash and equity awards paid to each of our non-employee
directors for fiscal 2018 and 2017.
Name
Fiscal Year
Fees Earned
or Paid in
Cash
($)(1)
Stock Awards
($)(2)
Dividend
Equivalent
Units and Other
Compensation
($)(3)
Pierre Brondeau . . . . . . . . . . . . . . . .
Carol (John) Davidson . . . . . . . . . . . .
William Jeffrey . . . . . . . . . . . . . . . . .
Thomas Lynch(4)
. . . . . . . . . . . . . . . .
Yong Nam . . . . . . . . . . . . . . . . . . . . .
Daniel Phelan . . . . . . . . . . . . . . . . . .
Paula Sneed . . . . . . . . . . . . . . . . . . .
Abhijit Talwalkar . . . . . . . . . . . . . . . .
Mark Trudeau . . . . . . . . . . . . . . . . . .
John Van Scoter . . . . . . . . . . . . . . . .
Laura Wright . . . . . . . . . . . . . . . . . . .
2018
2017
2018
2017
2018
2017
2018
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
$145,000
$145,000
$100,000
$100,000
$100,000
$100,000
$151,667
$ 90,000
$ 90,000
$110,000
$110,000
$ 90,000
$ 90,000
$100,000
$ 58,333
$100,000
$100,000
$ 90,000
$ 90,000
$115,000
$115,000
$191,201
$195,348
$191,201
$195,348
$191,201
$195,348
—
$191,201
$195,348
$191,201
$195,348
$191,201
$195,348
$191,201
$106,829
$191,201
$195,348
$191,201
$195,348
$191,201
$195,348
$ 5,120
$19,594
$ 5,000
$ 7,996
—
$ 3,995
—
—
—
$12,620
$24,594
$12,258
$29,998
$10,000
$47,996
—
—
$ 2,750
$10,482
$10,000
$12,996
Total
($)(5)
$341,321
$359,942
$296,201
$303,344
$291,201
$299,343
$151,667
$281,201
$285,348
$313,821
$329,942
$293,459
$315,346
$301,201
$213,158
$291,201
$295,348
$283,951
$295,830
$316,201
$323,344
(1) The amounts shown represent the amount of cash compensation earned in fiscal 2018 and 2017 for Board and committee
services. Mr. Lynch received additional fees for his work as Non-Executive Chairman for one month during the second-
quarter and the last two full quarters of 2018. Dr. Brondeau received additional fees for his work as Lead Independent
Director for fiscal 2018 and 2017. For fiscal 2018 and 2017, 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 2018 and fiscal 2017,
Mr. Davidson and Mr. Trudeau each received an additional cash retainer for serving on the audit committee. Mr. Talwalkar
received an additional cash retainer for serving on the audit committee for fiscal 2018 and for one month during the
second-quarter and the last two full quarters of fiscal 2017. For fiscal 2018 and fiscal 2017, Dr. Jeffrey received an
additional fee for his role on the Science Advisory board.
(2) On November 13, 2017, Dr. Brondeau, Mr. Davidson, Dr. Jeffrey, Mr. Nam, Mr. Phelan, Ms. Sneed, Mr. Trudeau,
Mr. Talwalkar, Mr. Van Scoter and Ms. Wright each received a grant of 2,048 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 ($90.33 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 2018, was calculated by using the closing price of TE Connectivity Ltd. common shares on the
date of grant ($93.36 per share). 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 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). The common shares vested immediately.
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121
(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 for the first quarter of fiscal 2018 and fiscal 2017, 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 for expenses incurred when attending
continuing education courses. In fiscal 2017, Mr. Talwalkar received fees in the amount of $45,000 for consulting services
performed prior to being elected to the board.
(4) Mr. Lynch was a member of Executive Management until March 14, 2018 when he was elected to our Board of Directors
as Non-Executive Chairman. Cash compensation for Mr. Lynch was pro-rated for service during fiscal year 2018.
(5) The Company has not made any loans or extended credit to any current or former member of the Board of Directors.
C. Compensation of Executive Management
The following table presents information concerning Executive Management’s fiscal 2018 and 2017
compensation.
Name and Principal Position Year
Salary(3) Bonus Awards(4)
($)
($)
($)
Stock
Non-Equity
Incentive
Plan
Option
Awards(5) Compensation(6)
($)
($)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(7)
($)
All Other
Compensation(8)
($)
Total(9)
($)
Terrence Curtin, Chief
Executive Officer .
.
Terrence Curtin, Chief
Executive Officer .
.
All Other Executive
Management(1)(2)
.
.
.
.
.
.
.
.
.
.
.
. 2018 $1,136,539 — $3,359,093 $3,118,595
$2,164,875
. 2017 $1,024,231 — $3,431,771 $3,461,614
$2,239,875
. 2018 $5,035,014 — $7,740,793 $5,230,049
2017 $5,793,647 — $8,308,677 $8,121,011
$5,844,452
$9,066,307
—
—
$
0
$291
$ 457,909
$10,237,011
$ 269,205
$10,426,696
$2,156,390
$1,950,577
$26,006,698
$33,240,510
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
For fiscal 2018, the Executive Management team for Swiss reporting purposes includes Mr. Jenkins, Mr. Kroeger, Mr. Merkt, Mr. Mitts,
Mr. Murphy, Mr. Rock and Ms. Wainwright. Compensation for Mr. Lynch, Mr. Donahue and Mr. O’Toole is also reported as they were
members of executive management for part of fiscal 2018.
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. Compensation for Ms. Leipold 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.
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 2018 and 2017 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.
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All Other Compensation
Insurance
Perquisites(a) Premiums(b)
Name
Year
($)
Terrence Curtin . . . . . . 2018
Terrence Curtin . . . . . . 2017
$ 52,570
—
($)
—
—
All Other Executive
Dollar
Value of
Dividends
not
factored
into
Grant
Date Fair
Value(c)
($)
$202,754
$160,380
Employee
Stock
Purchase
Plan
Company
Payment
for
unused
Contributions (‘‘ESPP’’) vacation/
Company personal
Match(e)
($)
to DC
plans(d)
($)
($)
time(f) Compensation
Total All
Other
($)
$202,585
$108,825
—
—
— $ 457,909
— $ 269,205
Management . . . . . . 2018
2017
$482,470
$331,690
$811
$735
$722,211
$863,557
$904,609
$718,229
$1,950
$1,950
$44,339
$34,416
$2,156,390
$1,950,577
(a)
Perquisites consisting of the following:
Amounts in fiscal 2018 for Mr. Curtin include the incremental pre-tax cost to us of non-business use of our aircraft.
Mr. Curtin is permitted to use the corporate aircraft for business and non-business purposes.
Amounts in fiscal 2018 for All Other Executive Management include the incremental pre-tax cost to us for
non-business use of our aircraft for two executives and the value and tax gross-up amount of a retirement gift for one
executive. Amounts in fiscal 2017 for All Other Executive Management also include the value of an attendance gift
for one executive that was provided to all attendees at a certain business meeting.
Amounts for All Other Executive Management 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 2018 and fiscal 2017. 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: $1.13–$1.25: EUR in fiscal 2018 and EUR to U.S. dollars: $1.04–$1.20: EUR in fiscal 2017.
Amounts for All Other Executive management also include relocation expenses for two executives in fiscal 2018 and
one executive in fiscal 2017.
(b) Additional income reported for participation in a Company paid split dollar life insurance program for one executive in
fiscal 2018 and fiscal 2017.
(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.
(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 . . . . . . . . . . . . . . . . . . . . . . . .
Terrence Curtin . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
All Other Executive Management
Company Matching
Contribution
(Qualified Plan)(*)
Company
Contribution
(Non-Qualified Plan)
$ 16,500
$ 16,000
$ 124,411
$ 156,388
$ 186,085
$ 92,825
$ 780,198
$ 561,841
Year
2018
2017
2018
2017
(*)
Included in the amount above is an additional matching contribution in fiscal 2018 and fiscal 2017 for two
executives as a result of a frozen defined benefit plan.
(e)
(f)
For fiscal 2018 and 2017 the Company matching contribution made under the TE Connectivity employee stock purchase
plan for one executive.
For fiscal 2018 and 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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123
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 28, 2018.
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 28,
2018 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, 2018
Enclosure: Compensation report
/s/ Dominik Voegtli
Licensed audit expert
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124
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 28,
2018 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:
Equiniti 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
© 2019 TE Connectivity Ltd. All Rights Reserved.
001-AR-FY2018
“TE Connectivity” and “TE Connectivity (logo)” are trademarks. This report further contains other
trademarks of ours and additional trade names and trademarks of other companies that are not
owned by TE Connectivity. We do not intend our use or display of other companies’ trade names
or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship
with any of these companies.
BOARD OF DIRECTORS
Thomas J. Lynch
Non-Executive Chairman
TE Connectivity Ltd.
Dr. Pierre R. Brondeau*
President, Chairman, and
Chief Executive Officer,
FMC Corporation
Terrence R. Curtin
Director and
Chief Executive Officer,
TE Connectivity Ltd.
Dr. William A. Jeffrey
Chief Executive Officer,
SRI International
Yong Nam
Advisor to the CEO,
Daelim Industrial Co. Ltd.
Former Chief Executive Officer,
LG Electronics Inc.
Daniel J. Phelan
Retired Chief of Staff,
GlaxoSmithKline plc
Abhijit Y. Talwalkar
Former President and
Chief Executive Officer,
LSI Corporation
Mark C. Trudeau
President and
Chief Executive Officer,
Mallinckrodt plc
John C. Van Scoter
Former President and
Chief Executive Officer,
eSolar, Inc.
Carol A. “John” Davidson
Retired Senior Vice President,
Controller and Chief Accounting
Officer,
Tyco International Ltd.
Paula A. Sneed
Chair and Chief Executive Officer,
Phelps Prescott Group, LLC
Retired Executive Vice President,
Kraft Foods Inc.
Laura H. Wright
Founder, GSB Advisors
Retired Chief Financial Officer,
Southwest Airlines Co.
*Lead Independent Director of the TE Connectivity Ltd. Board of Directors
LEADERSHIP TEAM AND OFFICERS
Terrence R. Curtin
Chief Executive Officer
and Director
Arvind Kaushal
Senior Vice President,
Chief Strategy Officer
Robert J. Ott
Senior Vice President,
Corporate Controller
Claudia Anderson
Vice President,
Customer Experience
Mario Calastri
Senior Vice President,
Treasurer
Joel Dubs
Senior Vice President,
Operations
Joseph F. Eckroth, Jr.
Senior Vice President,
Chief Information Officer
Kari Janavitz
Vice President,
Chief Marketing Officer
Shad W. Kroeger
President,
Communications Solutions
Jeanne Quirk
Senior Vice President,
Mergers and Acquisitions
Nitin Mathur
Vice President,
Chief Digital & eBusiness Officer
Eric J. Resch
Senior Vice President,
Chief Tax Officer
Jimmy McDonald
Vice President,
Chief Supply Chain Officer
Kevin N. Rock
President,
Industrial Solutions
Steven T. Merkt
President,
Transportation Solutions
Heath A. Mitts
Executive Vice President,
Chief Financial Officer
Joan E. Wainwright
President,
Channel and Customer Experience
John S. Jenkins, Jr.
Executive Vice President,
General Counsel
Timothy J. Murphy
Senior Vice President,
Chief Human Resources Officer
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2018 ANNUAL REPORT