unitedstatesd18rn0p25nwr6d.cloudfront.net/cik-0001385157/4d2e18e7... · 2016-11-15 · united...
TRANSCRIPT
UsetheselinkstorapidlyreviewthedocumentTECONNECTIVITYLTD.TABLEOFCONTENTSTECONNECTIVITYLTD.
TableofContents
UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION
Washington,D.C.20549
FORM10-K
001-33260(CommissionFileNumber)
TECONNECTIVITYLTD.(Exactnameofregistrantasspecifiedinitscharter)
Switzerland(JurisdictionofIncorporation)
98-0518048(I.R.S.EmployerIdentification
No.)
Rheinstrasse20,CH-8200Schaffhausen,Switzerland(Addressofprincipalexecutiveoffices)
+41(0)526336661(Registrant'stelephonenumber)
SecuritiesregisteredpursuanttoSection12(b)oftheAct:
Titleofeachclass NameofeachexchangeonwhichregisteredCommonShares,ParValue
CHF0.57 NewYorkStockExchange
SecuritiesregisteredpursuanttoSection12(g)oftheAct:None
Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YesýNoo
IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.YesoNoý
Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.YesýNoo
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-Tduringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).YesýNoo
(MarkOne)
ý ANNUALREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934
ForthefiscalyearendedSeptember30,2016
or
o TRANSITIONREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934
IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-Kisnotcontainedherein,andwillnotbecontained,tothebestofregistrant'sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.ý
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,orasmallerreportingcompany.Seethedefinitionsof"largeacceleratedfiler,""acceleratedfiler,"and"smallerreportingcompany"inRule12b-2oftheExchangeAct:
Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheAct).YesoNoý
Theaggregatemarketvalueoftheregistrant'scommonsharesheldbynon-affiliatesoftheregistrantwas$21.7billionasofMarch25,2016,thelastbusinessdayoftheregistrant'smostrecentlycompletedsecondfiscalquarter.Directorsandexecutiveofficersoftheregistrantareconsideredaffiliatesforpurposesofthiscalculationbutshouldnotnecessarilybedeemedaffiliatesforanyotherpurpose.
ThenumberofcommonsharesoutstandingasofNovember10,2016was355,343,021.
DOCUMENTSINCORPORATEDBYREFERENCE
Portionsoftheregistrant'sProxyStatementtobefiledinconnectionwiththeregistrant's2017annualgeneralmeetingofshareholdersareincorporatedbyreferenceintoPartIIIofthisForm10-K.
Largeacceleratedfilerý Acceleratedfilero Non-acceleratedfilero(Donotcheckifa
smallerreportingcompany)
Smallerreportingcompanyo
TableofContents
TECONNECTIVITYLTD.TABLEOFCONTENTS
i
Page PartI
Item1. Business 1Item1A. RiskFactors 7Item2. Properties 20Item3. LegalProceedings 20
PartII
Item5. MarketforRegistrant'sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities
21
Item6. SelectedFinancialData 24Item7. Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations 26Item7A. QuantitativeandQualitativeDisclosuresAboutMarketRisk 49Item8. FinancialStatementsandSupplementaryData 50Item9A. ControlsandProcedures 51
PartIII
Item10. Directors,ExecutiveOfficersandCorporateGovernance 52Item11. ExecutiveCompensation 52Item12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters 52Item13. CertainRelationshipsandRelatedTransactions,andDirectorIndependence 54Item14. PrincipalAccountantFeesandServices 54
PartIV
Item15. ExhibitsandFinancialStatementSchedules 55Signatures 59IndextoConsolidatedFinancialStatements 61
TableofContents
SPECIALNOTEABOUTFORWARD-LOOKINGSTATEMENTS
Wehavemadeforward-lookingstatementsinthisAnnualReport,includinginthesectionsentitled"Business,""RiskFactors,""LegalProceedings,""Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations,"and"QuantitativeandQualitativeDisclosuresaboutMarketRisk,"thatarebasedonourmanagement'sbeliefsandassumptionsandoninformationcurrentlyavailabletoourmanagement.Forward-lookingstatementsinclude,amongothers,theinformationconcerningourpossibleorassumedfutureresultsofoperations,businessstrategies,financingplans,competitiveposition,potentialgrowthopportunities,potentialoperatingperformanceimprovements,acquisitions,divestitures,theeffectsofcompetition,andtheeffectsoffuturelegislationorregulations.Forward-lookingstatementsincludeallstatementsthatarenothistoricalfactsandcanbeidentifiedbytheuseofforward-lookingterminologysuchasthewords"believe,""expect,""plan,""intend,""anticipate,""estimate,""predict,""potential,""continue,""may,""should,"orthenegativeofthesetermsorsimilarexpressions.
Forward-lookingstatementsinvolverisks,uncertainties,andassumptions.Actualresultsmaydiffermateriallyfromthoseexpressedintheseforward-lookingstatements.Youshouldnotputunduerelianceonanyforward-lookingstatements.Wedonothaveanyintentionorobligationtoupdateforward-lookingstatementsafterwefilethisreportexceptasrequiredbylaw.
Theriskfactorsdiscussedin"RiskFactors"andotherrisksidentifiedinthisAnnualReportcouldcauseourresultstodiffermateriallyfromthoseexpressedinforward-lookingstatements.Theremaybeotherrisksanduncertaintiesthatweareunabletopredictatthistimeorthatwecurrentlydonotexpecttohaveamaterialadverseeffectonourbusiness.
ii
TableofContents
PARTI
ITEM1.BUSINESS
General
TEConnectivityLtd.("TEConnectivity"orthe"Company,"whichmaybereferredtoas"we,""us,"or"our")isaglobaltechnologyleader.Wedesignandmanufactureconnectivityandsensorsolutionsthatareessentialintoday'sincreasinglyconnectedworld.Wehelpourcustomerssolvetheneedforintelligent,efficient,andhigh-performingproductsandsolutions.
Webecameanindependent,publiclytradedcompanyin2007;however,throughourpredecessorcompanies,wetraceourfoundationsintheconnectivitybusinessbackto1941.WeareorganizedunderthelawsofSwitzerland.TherightsofholdersofoursharesaregovernedbySwisslaw,ourSwissarticlesofassociation,andourSwissorganizationalregulations.
Wehavea52or53-weekfiscalyearthatendsonthelastFridayofSeptember.Fiscal2016wasa53weekyearandendedonSeptember30,2016.Fiscal2015and2014were52weeksinlengthandendedonSeptember25,2015andSeptember26,2014,respectively.
Segments
Weoperatethroughthefollowingreportablesegments:TransportationSolutions,IndustrialSolutions,andCommunicationsSolutions.Webelieveourthreesegmentsserveacombinedmarketofapproximately$170billion.
Ournetsalesbysegmentasapercentageofourtotalnetsaleswereasfollows:
Belowisadescriptionofourreportablesegmentsandtheprimaryproducts,markets,andcompetitorsofeachsegment.SeeNotes1and21totheConsolidatedFinancialStatementsforadditionalinformationregardingoursegments.
Transportation Solutions
TheTransportationSolutionssegmentisaleaderinconnectivityandsensortechnologies.TheprimaryproductssoldbytheTransportationSolutionssegmentincludeterminalsandconnectorsystemsandcomponents;sensors;relays;applicationtooling;andwireandheatshrinktubing.TheTransportationSolutionssegment'sproducts,whichmustwithstandharshconditions,areusedinthefollowingendmarkets:
• Automotive(75%ofsegment'snetsales).Weareoneoftheleadingprovidersofadvancedautomobileconnectivitysolutions.Theautomotiveindustryusesourproductsinautomotivetechnologiesforbodyandchassissystems,convenienceapplications,driverinformation,infotainmentsolutions,miniaturizationsolutions,motorandpowertrainapplications,andsafetyandsecuritysystems.Hybridandelectronicmobilitysolutionsincludein-vehicletechnologies,batterytechnologies,andchargingsolutions.
1
Fiscal 2016 2015 2014 TransportationSolutions 53% 52% 51%IndustrialSolutions 26 26 28CommunicationsSolutions 21 22 21Total 100% 100% 100%
TableofContents
• Commercialtransportation(13%ofsegment'snetsales).Wedeliverreliableconnectivityproductsdesignedtowithstandharshenvironmentalconditionsforon-andoff-highwayvehiclesandrecreationaltransportation,includingconstruction,agriculture,buses,andothervehicles.
• Sensors(12%ofsegment'snetsales).Weofferaportfolioofintelligent,efficient,andhigh-performingsensorsolutionsthatareusedbycustomersacrossmultipleindustries,includingautomotive,industrialequipment,commercialtransportation,medicalsolutions,aerospaceanddefense,andconsumerapplications.
TheTransportationSolutionssegment'smajorcompetitorsincludeYazaki,Delphi,Sumitomo,Sensata,Honeywell,Molex,andAmphenol.
Industrial Solutions
TheIndustrialSolutionssegmentisaleadingsupplierofproductsthatconnectanddistributepower,data,andsignals.TheprimaryproductssoldbytheIndustrialSolutionssegmentincludeterminalsandconnectorsystemsandcomponents;heatshrinktubing;relays;andwireandcable.TheIndustrialSolutionssegment'sproductsareusedinthefollowingmarkets:
• Industrialequipment(44%ofsegment'snetsales).Ourproductsareusedinfactoryautomationandprocesscontrolsystemssuchasindustrialcontrols,robotics,humanmachineinterface,industrialcommunication,andpowerdistribution.Themedicalindustryusesourproductsinimaging,diagnostic,therapeutic,surgical,tubing,andminimallyinvasiveinterventionalapplications.Ourintelligentbuildingproductsareusedtoconnectlighting,HVAC,elevators/escalators,andsecurity.Ourrailproductsareusedinhigh-speedtrains,metros,lightrailvehicles,locomotives,andsignalingswitchingequipment.Also,ourproductsareusedbythesolarandlightingindustry.
• Aerospace,defense,oil,andgas(34%ofsegment'snetsales).Weprovidecomponentsandsolutionsforthecommercialaerospaceindustryfromtheinitialstagesofaircraftdesigntoaftermarketsupport.Ourdefenseproductsincluderuggedizedelectronicinterconnectsservingmilitaryaviation,marine,andgroundvehiclesincludingelectronicwarfareandspacesystems.Ouroilandgasproductsincludecablesandelectronicsusedforharshsubseaenvironmentsintheoffshoreoilandgasandcivilmarineindustriesandinshipboard,subsea,andsonarapplications.
• Energy(22%ofsegment'snetsales).OurproductsareusedbyOEMsandutilitycompaniesintheelectricalpowerindustryandincludeawiderangeofsolutionsfortheelectricalpowergeneration,transmission,distribution,andindustrialmarkets.
TheIndustrialSolutionssegmentcompetesprimarilyagainstAmphenol,Esterline,Molex,Belden,PhoenixContact,Hubbell,CarlisleCompanies,andIntegerHoldings.
Communications Solutions
TheCommunicationsSolutionssegmentisaleadingsupplierofelectroniccomponentsforthedataanddevicesandappliancesmarkets.Wearealsoaleaderindeveloping,manufacturing,installing,andmaintainingsomeoftheworld'smostadvancedsubseafiberopticcommunicationssystems.TheprimaryproductssoldbytheCommunicationsSolutionssegmentincludeterminalsandconnectorsystemsandcomponents;underseatelecommunicationsystems;relays;heatshrinktubing;andantennas.TheCommunicationsSolutionssegment'sproductsareusedinthefollowingmarkets:
• Dataanddevices(40%ofsegment'snetsales).Wedeliverproductsandsolutionsthatareusedinavarietyofequipmentarchitectureswithinthenetworkingequipment,datacenterequipment,andwirelessinfrastructureindustries.Additionally,wedeliverarangeofconnectivitysolutions
2
TableofContents
fortheInternetofThings,smartphones,tabletcomputers,notebooks,andvirtualrealityapplicationstohelpourcustomersmeettheircurrentchallengesandfutureinnovations.
• Subseacommunications(35%ofsegment'snetsales).Ourproductsareusedinunderseafiberoptictelecommunicationsystems.Withverticallyintegratedunderseacommunicationssystemsandservices,wesupportthetelecommunicationsandoilandgasindustriesandothercustomersseekingmarineservices.
• Appliances(25%ofsegment'snetsales).Weprovidesolutionstomeetthedailydemandsofhomeappliances.Ourproductsareusedinmanyhouseholdappliances,includingwashers,dryers,refrigerators,airconditioners,dishwashers,cookingappliances,waterheaters,andmicrowaves.Ourexpansiverangeofstandardproductsissupplementedbyanarrayofcustom-designedsolutions.
TheCommunicationsSolutionssegment'smajorcompetitorsincludeAmphenol,Molex,FCIElectronics,JST,andKoreaElectricTerminal(KET).Also,thesubseacommunicationsbusinesscompetesagainstNokia(Alcatel-LucentSubmarineNetworks)andNEC.
Customers
Asanindustryleader,wehaveestablishedcloseworkingrelationshipswithmanyofourcustomers.Theserelationshipsallowustobetteranticipateandrespondtocustomerneedswhendesigningnewproductsandnewtechnicalsolutions.Byworkingwithourcustomersindevelopingnewproductsandtechnologies,webelieveweareabletoidentifyandactontrendsandleverageknowledgeaboutnext-generationtechnologyacrossourproducts.
Ourapproachtoourcustomersisdrivenbyourdedicationtofurtherdevelopourproductfamiliesandensurethatwearegloballypositionedtobestprovideourcustomerswithsalesandengineeringsupport.Webelievethataselectroniccomponenttechnologiescontinuetoproliferate,ourbroadproductportfolioandengineeringcapabilitygiveusapotentialcompetitiveadvantagewhenaddressingtheneedsofourglobalcustomers.
Wemanufactureandsellabroadportfolioofproductstocustomersinvariousindustries.Ourcustomersincludemanyoftheleadersintheirrespectiveindustries,andourrelationshipswiththemtypicallydatebackmanyyears.Webelievethatthisdiversifiedcustomerbaseprovidesusanopportunitytoleverageourskillsandexperienceacrossmarketsandreduceourexposuretoindividualendmarkets,therebyreducingthevariabilityofourfinancialperformance.Additionally,webelievethatthediversityofourcustomerbasereducesthelevelofcyclicalityinourresultsanddistinguishesusfromourcompetitors.
Thereisnosinglecustomerthataccountedforasignificantamountofournetsalesinfiscal2016,2015,or2014.
3
TableofContents
SalesandDistribution
Wemaintainastronglocalpresenceineachofthegeographicregionsinwhichweoperate.Ournetsalesbygeographicregion(1)asapercentageofourtotalnetsaleswereasfollows:
SeeNote21totheConsolidatedFinancialStatementsforadditionalgeographicinformationrelatingtoourbusiness.
Wesellourproductsintoapproximately150countriesprimarilythroughdirectsellingeffortstomanufacturers.Wealsosellsomeofourproductsindirectlyviathird-partydistributors.Infiscal2016,ourdirectsalesrepresented80%oftotalnetsales.
Wemaintaindistributioncentersaroundtheworld.Ourglobalcoveragepositionsusnearourcustomers'locationsandallowsustoassisttheminconsolidatingtheirsupplybaseandloweringtheirproductioncosts.Webelieveourbalancedsalesdistributionlowersourexposuretoanyparticulargeographyandimprovesourfinancialprofile.
Productsaregenerallydeliveredtodistributioncentersbyourmanufacturingfacilitiesandthensubsequentlydeliveredtothecustomer.Insomeinstances,however,productisdelivereddirectlyfromourmanufacturingfacilitytothecustomer.Wecontractwithawiderangeoftransportproviderstodeliverourproductsviaroad,rail,sea,andair.
SeasonalityandBacklog
Weexperienceaslightseasonalpatterntoourbusiness.Overall,thethirdandfourthfiscalquartersaretypicallythestrongestquartersofourfiscalyear,whereasthefirstfiscalquarterisnegativelyaffectedbywinterholidaysandthesecondfiscalquartermaybeaffectedbyadversewinterweatherconditionsinsomeofourmarkets.
Certainofourendmarketsexperiencesomeseasonality.Oursalesintotheautomotivemarketaredependentuponglobalautomotiveproduction,andseasonaldeclinesinEuropeanproductionmaynegativelyimpactnetsalesinthefourthfiscalquarter.Also,oursalesintotheenergymarkettypicallyincreaseinthethirdandfourthfiscalquartersascustomeractivityincreases.
4
Fiscal 2016 2015 2014
Americas(2) 34% 34% 30%Europe/MiddleEast/Africa("EMEA") 34 33 35Asia–Pacific 32 33 35Total 100% 100% 100%
(1) Netsalestoexternalcustomersareattributedtoindividualcountriesbasedonthelegalentitythatrecordsthesale.
(2) TheAmericasregionincludesoursubseacommunicationsbusiness.
TableofContents
Customerorderstypicallyfluctuatefromquartertoquarterbaseduponbusinessconditionsandcancellationofunfilledorderspriortoshipmentofgoods.Backlogbyreportablesegmentwasasfollows:
Weexpectthatthemajorityofourbacklogatfiscalyearend2016willbefilledduringfiscal2017.
Competition
Theindustriesinwhichweoperatearehighlycompetitive,andwecompetewiththousandsofcompaniesthatrangefromlargemultinationalcorporationstolocalmanufacturers.Competitionisgenerallyonthebasisofbreadthofproductoffering,productinnovation,price,quality,delivery,andservice.Ourmarketshavegenerallybeengrowingbutwithdownwardpressureonprices.
RawMaterials
Weuseawidevarietyofrawmaterialsinthemanufactureofourproducts.Theprincipalrawmaterialsthatweuseincludeplasticresinsformolding;preciousmetalssuchasgoldandsilverforplating;andothermetalssuchascopper,aluminum,brass,andsteelformanufacturingcable,contacts,andotherpartsthatareusedforcableandcomponentbodiesandinserts.Manyoftheserawmaterialsareproducedinalimitednumberofcountriesaroundtheworldorareonlyavailablefromalimitednumberofsuppliers.Thepricesofthesematerialsaredrivenbyglobalsupplyanddemand.
ResearchandDevelopment
Weareengagedinbothinternalandexternalresearchanddevelopmentinanefforttointroducenewproductstoenhancetheeffectiveness,easeofuse,safety,andreliabilityofourexistingproducts,andtoexpandtheapplicationsforwhichtheusesofourproductsareappropriate.Wecontinuallyevaluatedevelopingtechnologiesinareaswherewemayhavetechnologicalormarketingexpertiseforpossibleinvestmentoracquisition.
Ourresearchanddevelopmentexpensewasasfollows:
Ourcapitalspendingandinvestmentinproductandprocessengineeringanddevelopmentenableustoconsistentlyprovideinnovative,high-qualityproductswithefficientmanufacturingmethods.Infiscal2016,wederivedapproximately20%ofournetsalesfromnewproducts,includingproductextensions,introducedwithinthepreviousthreefiscalyears.
5
FiscalYearEnd 2016 2015 (inmillions) TransportationSolutions $ 1,343 $ 1,208IndustrialSolutions 875 814CommunicationsSolutions(1) 1,387 1,310Total $ 3,605 $ 3,332
(1) Includesoursubseacommunicationsbusiness'backlogof$1,047millionand$995millionatfiscalyearend2016and2015,respectively.
Fiscal 2016 2015 2014 (inmillions) TransportationSolutions $ 312 $ 262 $ 196IndustrialSolutions 136 128 128CommunicationsSolutions 118 150 160Total $ 566 $ 540 $ 484
TableofContents
IntellectualProperty
Patentsandotherproprietaryrightsareimportanttoourbusiness.Wealsorelyupontradesecrets,manufacturingknow-how,continuingtechnologicalinnovations,andlicensingopportunitiestomaintainandimproveourcompetitiveposition.Wereviewthird-partyproprietaryrights,includingpatentsandpatentapplications,asavailable,inanefforttodevelopaneffectiveintellectualpropertystrategy,avoidinfringementofthird-partyproprietaryrights,identifylicensingopportunities,andmonitortheintellectualpropertyclaimsofothers.
Weownalargeportfolioofpatentsthatrelateprincipallytoelectrical,optical,andelectronicproducts.Wealsoownaportfoliooftrademarksandarealicenseeofvariouspatentsandtrademarks.Patentsforindividualproductsextendforvaryingperiodsaccordingtothedateofpatentfilingorgrantandthelegaltermofpatentsinthevariouscountrieswherepatentprotectionisobtained.Trademarkrightsmaypotentiallyextendforlongerperiodsoftimeandaredependentuponnationallawsanduseofthetrademarks.
Whileweconsiderourpatentsandtrademarkstobevaluedassets,wedonotbelievethatourcompetitivepositionorouroperationsaredependentuponorwouldbemateriallyimpactedbyanysinglepatentorgroupofrelatedpatents.
TEConnectivityandTEConnectivity(logo)aretrademarks.©2016TEConnectivityLtd.AllRightsReserved.
ManagementTeamandEmployees
Webelieveourmanagementteamhastheexperiencenecessarytoeffectivelyexecuteourstrategyandadvanceourproductandtechnologyleadership.Ourchiefexecutiveofficer,president,andsegmentleadersaverageover25yearsofindustryexperience.Theyaresupportedbyanexperiencedandtalentedmanagementteamwhoisdedicatedtomaintainingandexpandingourpositionasagloballeaderintheindustry.
Ourstrongemployeebase,alongwiththeircommitmenttouncompromisingvalues,providesthefoundationofourcompany'ssuccess.Wecontinuetoemphasizeemployeedevelopmentandtraining,andweembracediversityandinclusion.
Wehaveemployeeslocatedthroughouttheworld.Asoffiscalyearend2016,weemployedapproximately75,000peopleworldwide,ofwhom23,000wereintheAmericasregion,28,000wereintheEMEAregion,and24,000wereintheAsia–Pacificregion.Ofourtotalemployees,approximately46,000wereemployedinmanufacturing.
GovernmentRegulationandSupervision
TheimportandexportofproductsaresubjecttoregulationbytheUnitedStates("U.S.")andothercountries.Asmallportionofourproducts,includingdefense-relatedproducts,mayrequiregovernmentalimportandexportlicenses,whoseissuancemaybeinfluencedbygeopoliticalandotherevents.Wehaveatradecomplianceorganizationandothersystemsinplacetoapplyforlicensesandotherwisecomplywithsuchregulations.Anyfailuretomaintaincompliancewithdomesticandforeigntraderegulationcouldlimitourabilitytoimportandexportrawmaterialsandfinishedgoodsintoorfromtherelevantjurisdiction.
Environmental
Ouroperationsaresubjecttonumerousenvironmental,health,andsafetylawsandregulations,includingthoseregulatingthedischargeofmaterialsintotheenvironment,greenhousegasemissions,hazardousmaterialsinproducts,andchemicalusage.Wearecommittedtocomplyingwiththeselaws
6
TableofContents
andtotheprotectionofouremployeesandtheenvironment.Wemaintainaglobalenvironmental,health,andsafetyprogramthatincludesappropriatepoliciesandstandards;staffdedicatedtoenvironmental,health,andsafetyissues;periodiccomplianceauditing;training;andothermeasures.WealsohaveaprogramforcompliancewiththeEuropeanUnion("EU")RestrictionofHazardousSubstancesandWasteElectricalandElectronicEquipmentDirectives,theChinaRestrictionofHazardousSubstanceslaw,theEURegistration,Evaluation,Authorization,andRestrictionofChemicals("REACH")Regulation,andsimilarlaws.
Compliancewiththeselawshasincreasedourcostsofdoingbusinessinavarietyofwaysandmaycontinuetodosointhefuture.Forexample,lawsregardingproductcontentandchemicalregistrationrequireextensiveandcostlydatacollection,management,andreporting,andlawsregulatinggreenhousegasemissionsarelikelytoincreaseourcostsforenergyandcertainmaterialsandproducts.Wealsohaveprojectsunderwayatanumberofcurrentandformermanufacturingfacilitiestoinvestigateandremediateenvironmentalcontaminationresultingfrompastoperations.Baseduponourexperience,currentinformation,andapplicablelaws,webelievethatitisprobablethatwewillincurremedialcostsintherangeof$17millionto$42million,andthatthebestestimatewithinthisrangeis$20million.Wedonotanticipateanymaterialcapitalexpendituresduringfiscal2017forenvironmentalcontrolfacilitiesorothercostsofcompliancewithlawsorregulationsrelatingtogreenhousegasemissions.
AvailableInformation
Allperiodicandcurrentreports,registrationfilings,andotherfilingsthatwearerequiredtofilewiththeU.S.SecuritiesandExchangeCommission("SEC"),includingAnnualReportsonForm10-K,QuarterlyReportsonForm10-Q,CurrentReportsonForm8-K,andamendmentstothosereportsfiledorfurnishedpursuanttoSection13(a)or15(d)oftheSecuritiesExchangeActof1934("ExchangeAct")areavailablefreeofchargethroughourinternetwebsiteatwww.te.com.SuchdocumentsareavailableassoonasreasonablypracticableafterelectronicfilingorfurnishingofthematerialwiththeSEC.TheinformationonourwebsiteisnotincorporatedbyreferenceinthisAnnualReportonForm10-K.
ITEM1A.RISKFACTORS
Youshouldcarefullyconsidertherisksdescribedbelowbeforeinvestinginoursecurities.Therisksdescribedbelowarenottheonlyonesfacingus.Ourbusinessalsoissubjecttogeneralrisksthataffectmanyothercompanies.Additionalrisksnotcurrentlyknowntousorthatwecurrentlybelieveareimmaterialmayalsoimpairourbusinessoperations,financialcondition,andliquidity.
RisksRelatingtotheMacroeconomicEnvironmentandOurGlobalPresence
Conditions in global or regional economies, capital and money markets, and banking systems, and cyclical industry demand may adversely affect ourresults of operations, financial position, and cash flows.
Ourbusinessandoperatingresultshavebeenandwillcontinuetobeaffectedbyeconomicconditionsregionallyorglobally,includingthecostandavailabilityofconsumerandbusinesscredit,enddemandfromconsumerandindustrialmarkets,andconcernsastosovereigndebtlevelsincludingcreditratingdowngradesanddefaultsonsovereigndebtandsignificantbankfailuresordefaults,anyofwhichcouldcauseourcustomerstoexperiencedeteriorationoftheirbusinesses,cashflow,andabilitytoobtainfinancing.Asaresult,existingorpotentialcustomersmaydelayorcancelplanstopurchaseourproductsandmaynotbeabletofulfilltheirobligationstousinatimelyfashionorinfull.Further,ourvendorsmayexperiencesimilarproblems,whichmayimpacttheirabilitytofulfillourordersormeetagreedserviceandqualitylevels.Ifregionalorglobaleconomicconditionsdeteriorate,ourresultsofoperations,financialposition,andcashflowscouldbemateriallyadverselyaffected.Also,
7
TableofContents
deteriorationineconomicconditionscouldtriggertherecognitionofimpairmentchargesforourgoodwillorotherlong-livedassets.Impairmentcharges,ifany,maybematerialtoourresultsofoperationsandfinancialposition.
Foreign currency exchange rates may adversely affect our results.
AsignificantportionofourbusinessisconductedoutsidetheU.S.,andchangesintherelativevaluesofcurrenciesmayhaveasignificanteffectonourresultsofoperations,financialposition,andcashflows.
Weareexposedtotheeffectsofchangesinforeigncurrencyexchangeratesonourcostsandrevenue.Approximately54%ofournetsalesforfiscal2016wereinvoicedincurrenciesotherthantheU.S.dollar,andweexpectnon-U.S.dollarrevenuetorepresentasignificantandlikelyincreasedportionofourfuturenetrevenue.Wehaveelectednottohedgethisforeigncurrencyexposure.Therefore,whentheU.S.dollarstrengthensinrelationtothecurrenciesofthecountrieswherewesellourproducts,suchastheeuroorAsiancurrencies,ourU.S.dollarreportedrevenueandincomewilldecrease.
Wemanagecertaincash,intercompany,andotherbalancesheetcurrencyexposuresinpartbyenteringintofinancialderivativecontracts.Inadditiontotheriskofnon-performancebythecounterpartytothesecontracts,oureffortstomanagetheserisksmightnotbesuccessful.
We could suffer significant business interruptions.
Ouroperationsandthoseofoursuppliersandcustomers,andthesupplychainsthatsupporttheiroperations,maybevulnerabletointerruptionbynaturaldisasterssuchasearthquakes,tsunamis,typhoons,orfloods;orotherdisasterssuchasfires,explosions,actsofterrorismorwar,disease,orfailuresofmanagementinformationorothersystemsduetointernalorexternalcauses.Ifabusinessinterruptionoccursandweareunsuccessfulinourcontinuingeffortstominimizetheimpactoftheseevents,ourbusiness,resultsofoperations,financialposition,andcashflowscouldbemateriallyadverselyaffected.
We could be adversely affected by a decline in the market value of our pension plans' investment portfolios or a reduction in returns on plan assets.
Concernsaboutdeteriorationintheglobaleconomy,togetherwithconcernsaboutcredit,inflation,ordeflation,havecausedandcouldcontinuetocausesignificantvolatilityinthepriceofallsecurities,includingfixedincomeandequitysecurities,whichhasreducedandcouldfurtherreducethevalueofourpensionplans'investmentportfolios.Inaddition,theexpectedreturnsonplanassetsmaynotbeachieved.Adecreaseinthevalueofourpensionplans'investmentportfoliosorareductioninreturnsonplanassetscouldhaveanadverseeffectonourresultsofoperations,financialposition,andcashflows.
Disruption in credit markets and volatility in equity markets may affect our ability to access sufficient funding.
Theglobalequitymarketshavebeenvolatileandattimescreditmarketshavebeendisrupted,whichhasreducedtheavailabilityofinvestmentcapitalandcredit.Recentdowngradesofsovereigndebtcreditratingshavesimilarlyaffectedtheavailabilityandcostofcapital.Asaresult,wemaybeunabletoaccessadequatefundingtooperateandgrowourbusiness.Ourinabilitytoaccessadequatefundingortogeneratesufficientcashfromoperationsmayrequireustoreconsidercertainprojectsandcapitalexpenditures.Theextentofanyimpactwilldependonseveralfactors,includingouroperatingcashflows,thedurationoftightcreditconditionsandvolatileequitymarkets,ourcreditratingsandcreditcapacity,thecostoffinancing,andothergeneraleconomicandbusinessconditions.
8
TableofContents
We are subject to global risks of political, economic, and military instability.
Ourworkforce;manufacturing,research,administrative,andsalesfacilities;markets;customers;andsuppliersarelocatedthroughouttheworld.Asaresult,weareexposedtorisksthatcouldnegativelyaffectsalesorprofitability,including:
• tariffs,tradebarriers,andtradedisputes;
• regulationsrelatedtocustomsandimport/exportmatters;
• variationsinlengthsofpaymentcyclesandchallengesincollectingaccountsreceivable;
• taxlawandregulatorychangesintheU.S.andEUamongotherjurisdictions,includingtaxlawandregulatorychangesthatmaybeeffectedasaresultoftaxpolicyrecommendationsfromquasi-governmentalorganizations,suchastheOrganisationforEconomicCo-operationandDevelopment("OECD"),examinationsbytaxingauthorities,variationsintaxlawsfromcountrytocountry,changestothetermsofincometaxtreaties,anddifficultiesinthetax-efficientrepatriationofcashgeneratedorheldinanumberofjurisdictions;
• employmentregulationsandlocallaborconditions,includingincreasesinemploymentcosts,particularlyinlow-costregionsinwhichwecurrentlyoperate;
• difficultiesprotectingintellectualproperty;
• instabilityineconomicorpoliticalconditions,includingsovereigndebtlevels,Eurozoneuncertainty,inflation,recession,actualoranticipatedmilitaryorpoliticalconflicts,andanyimpactasaresultoftheproposedexitoftheUnitedKingdomfromtheEU;and
• theimpactofeachoftheforegoingonouroutsourcingandprocurementarrangements.
WehavesizeableoperationsinChina,including15manufacturingsites.Inaddition,approximately17%ofournetsalesinfiscal2016weremadetocustomersinChina.EconomicconditionsinChinahavebeenandmaycontinuetobevolatileanduncertain.Inaddition,thelegalsysteminChinaisstilldevelopingandsubjecttochange.Accordingly,ouroperationsandordersforproductsinChinacouldbeadverselyaffectedbychangestomarketconditionsorinterpretationofChineselaw.
Inaddition,anydowngradebyratingagenciesoflong-termU.S.sovereigndebtordowngradesordefaultsofsovereigndebtofothernationsmaynegativelyaffectglobalfinancialmarketsandeconomicconditions,whichcouldnegativelyaffectourbusiness,financialcondition,andliquidity.
RisksRelatingtotheIndustryinWhichWeOperate
We are dependent on the automotive and other industries.
Wearedependentonendmarketdynamicstosellourproducts,andouroperatingresultscanbeadverselyaffectedbycyclicalandreduceddemandinthesemarkets.Periodicdownturnsinourcustomers'industriescansignificantlyreducedemandforcertainofourproducts,whichcouldhaveamaterialadverseeffectonourresultsofoperations,financialposition,andcashflows.
Approximately40%ofournetsalesforfiscal2016weretocustomersintheautomotiveindustry.Theautomotiveindustryisdominatedbylargemanufacturersthatcanexertsignificantpricepressureontheirsuppliers.Additionally,theautomotiveindustryhashistoricallyexperiencedsignificantdownturnsduringperiodsofdeterioratingglobalorregionaleconomicorcreditconditions.Asasupplierofautomotiveelectronicsproducts,oursalesoftheseproductsandourprofitabilityhavebeenandcouldcontinuetobenegativelyaffectedbysignificantdeclinesinglobalorregionaleconomicandcreditconditionsandchangesintheoperations,products,businessmodels,part-sourcingrequirements,financialcondition,andmarketshareofautomotivemanufacturers,aswellaspotentialconsolidationsamongautomotivemanufacturers.
9
TableofContents
Duringfiscal2016,approximately12%ofournetsalesweretocustomersintheindustrialequipmentendmarket,9%ofournetsalesweretocustomersintheaerospace,defense,oil,andgasendmarket,and8%ofournetsalesweretocustomersinthedataanddevicesendmarket.Demandforindustrialequipmentisdependentuponeconomicconditions,includingcustomerinvestmentinintelligentbuildings,factoryautomation,andprocesscontrolsystems,aswellasmarketconditionsinthemedical,railtransportation,solarandlighting,andothermajorindustrialmarketsweserve.Theaerospaceanddefenseindustryhasundergonesignificantfluctuationsindemand,dependingonworldwideeconomicandpoliticalconditions.Demandintheoilandgasmarketisimpactedbyoilpricevolatility.Thedataanddevicesindustrycanexperiencevariabilityindemanddependingontheunderlyingbusinessandconsumerdemandforcomputerandconsumerelectronicsproducts.
We encounter competition in substantially all areas of the electronic components industry.
Weoperateinhighlycompetitivemarketsforelectroniccomponents,andexpectthatbothdirectandindirectcompetitionwillincreaseinthefuture.Ouroverallcompetitivepositiondependsonanumberoffactorsincludingtheprice,quality,andperformanceofourproducts;thelevelofcustomerservice;thedevelopmentofnewtechnology;ourabilitytoparticipateinemergingmarkets;andcustomers'expectationsrelatingtosociallyresponsibleoperations.Thecompetitionweexperienceacrossproductlinesfromothercompaniesrangesinsizefromlarge,diversifiedmanufacturerstosmall,highlyspecializedmanufacturers.Theelectroniccomponentsindustryhasbecomeincreasinglyconcentratedandglobalizedinrecentyears,andourmajorcompetitorshavesignificantfinancialresourcesandtechnologicalcapabilities.Anumberofthesecompetitorscompetewithusprimarilyonprice,andinsomeinstancesmayenjoylowerproductioncostsforcertainproducts.Wecannotprovideassurancethatadditionalcompetitorswillnotenterourmarkets,orthatwewillbeabletocompetesuccessfullyagainstexistingornewcompetitors.Increasedcompetitionmayresultinpricereductions,reducedmargins,orlossofmarketshare,anyofwhichcouldmateriallyandadverselyaffectourresultsofoperations,financialposition,andcashflows.
We are dependent on market acceptance of our new product introductions and product innovations for future revenue.
Substantiallyallofthemarketsinwhichweoperateareimpactedbytechnologicalchangeorchangeinconsumertastesandpreferences,whicharerapidincertainendmarkets.Ouroperatingresultsdependsubstantiallyuponourabilitytocontinuallydesign,develop,introduce,andsellnewandinnovativeproducts;tomodifyexistingproducts;andtocustomizeproductstomeetcustomerrequirementsdrivenbysuchchange.Therearenumerousrisksinherentintheseprocesses,includingtheriskthatwewillbeunabletoanticipatethedirectionoftechnologicalchangeorthatwewillbeunabletodevelopandmarketprofitablenewproductsandapplicationsintimetosatisfycustomerdemands.
Like other suppliers to the electronics industry, we are subject to continuing pressure to lower our prices.
Wehavehistoricallyexperienced,andweexpecttocontinuetoexperience,continuingpressuretolowerourprices.Inrecentyears,wehaveexperiencedpriceerosionaveragingfrom1%to2%eachyear.Inordertomaintainourmargins,wemustcontinuetoreduceourcostsbysimilaramounts.Wecannotprovideassurancethatcontinuingpressurestoreduceourpriceswillnothaveamaterialadverseeffectonourmargins,resultsofoperations,financialposition,andcashflows.
We may be negatively affected as our customers and vendors continue to consolidate.
Manyoftheindustriestowhichwesellourproducts,aswellasmanyoftheindustriesfromwhichwebuymaterials,havebecomemoreconcentratedinrecentyears,includingtheautomotive,dataanddevices,andaerospaceanddefenseindustries.Consolidationofcustomersmayleadtodecreased
10
TableofContents
productpurchasesfromus.Inaddition,asourcustomersbuyinlargervolumes,theirvolumebuyingpowerhasincreased,enablingthemtonegotiatemorefavorablepricingandfindalternativesourcesfromwhichtopurchase.Ourmaterialssupplierssimilarlyhaveincreasedtheirabilitytonegotiatefavorablepricing.Thesetrendsmayadverselyaffectthemarginsonourproducts,particularlyforcommoditycomponents.
The life cycles of certain of our products can be very short.
Thelifecyclesofcertainofourproductscanbeveryshortrelativetotheirdevelopmentcycle.Asaresult,theresourcesdevotedtoproductsalesandmarketingmaynotresultinmaterialrevenueand,fromtimetotime,wemayneedtowriteoffexcessorobsoleteinventoryorequipment.Ifweweretoincursignificantengineeringexpensesandinvestmentsininventoryandequipmentthatwewerenotabletorecover,andwewerenotabletocompensateforthoseexpenses,ourresultsofoperations,financialposition,andcashflowscouldbemateriallyandadverselyaffected.
RisksRelatingtoOurOperations
Our results are sensitive to raw material availability, quality, and cost.
Wearealargebuyerofresin,copper,gold,silver,brass,steel,chemicalsandadditives,zinc,andotherpreciousmetals.Manyoftheserawmaterialsareproducedinalimitednumberofcountriesaroundtheworldorareonlyavailablefromalimitednumberofsuppliers.Inaddition,thepriceofmanyoftheserawmaterials,includinggoldandcopper,continuestofluctuate.Ifwehavedifficultyobtainingtheserawmaterials,thequalityofavailablerawmaterialsdeteriorates,ortherearesignificantpriceincreasesfortheserawmaterials,itcouldhaveasubstantialimpactonthepricewepayforrawmaterials.Totheextentwecannotcompensateforcostincreasesthroughproductivityimprovementsorpriceincreasestoourcustomers,ourmarginsmaydecline,materiallyaffectingourresultsofoperations,financialposition,andcashflows.Inaddition,weusefinancialinstrumentstohedgethevolatilityofcertaincommoditiesprices.Thesuccessofourhedgingprogramdependsonaccurateforecastsofplannedconsumptionofthehedgedcommoditymaterials.Wecouldexperienceunanticipatedhedgegainsorlossesiftheseforecastsareinaccurate.
InaccordancewiththeDodd-FrankWallStreetReformandConsumerProtectionAct,theSECestablishedannualdisclosureandreportingrequirementsforthosecompanieswhousetin,tantalum,tungsten,orgold("conflictminerals"or"3TG")minedfromtheDemocraticRepublicofCongo("DRC")andadjoiningcountries(togetherwiththeDRC,the"CoveredCountries")intheirproducts.Theserequirementscouldaffectthesourcing,pricing,andavailabilityof3TGusedinthemanufactureofcertainofourproducts.Asaresult,theremayonlybealimitedpoolofsupplierswhocandemonstratethattheydonotsourceany3TGfromtheCoveredCountries,andwecannotprovideassurancethatwewillbeabletoobtainnon-conflict3TGinsufficientquantitiesoratcompetitiveprices.Further,sinceoursupplychainiscomplex,wemayfacereputationalchallengeswithourcustomersandotherstakeholdersifweareunabletosufficientlyverifytheoriginsandchainofcustodyforallconflictmineralsusedinourproductsthroughourduediligenceprocedures.
We may use components and products manufactured by third parties.
Wemayrelyonthird-partysuppliersforthecomponentsusedinourproducts,andwemayrelyonthird-partymanufacturerstomanufacturecertainofourassembliesandfinishedproducts.Ourresultsofoperations,financialposition,andcashflowscouldbeadverselyaffectedifsuchthirdpartieslacksufficientqualitycontroloriftherearesignificantchangesintheirfinancialorbusinesscondition.Ifthesethirdpartiesfailtodeliverqualityproducts,parts,andcomponentsontimeandatreasonableprices,wecouldhavedifficultiesfulfillingourorders,salesandprofitscoulddecline,andourcommercialreputationcouldbedamaged.
11
TableofContents
Our future success is significantly dependent on our ability to attract and retain executive management employees and limitations affecting retention andhiring, including Swiss regulations, could have a negative impact on our business and increase our expenses.
Oursuccessdependstoasignificantextentuponourcontinuedabilitytoretainourexecutivemanagementemployeesandhirenewexecutivemanagementemployeestoreplace,succeed,oraddtomembersofourexecutivemanagementteam.Ourexecutivemanagementteamhassignificantindustryexperienceandwouldbedifficulttoreplace.Competitionforexecutivetalentisintense,andwecompeteforthesepersonnelwithothercompaniesthatareregulatedbythelawsofjurisdictionsthatprovidesignificantlygreaterflexibilitythanSwitzerland,ourjurisdictionofincorporation,incompensationpracticesforexecutivemanagementemployees.
Security breaches and other disruptions to our information technology infrastructure could interfere with our operations, compromise confidentialinformation, and expose us to liability which could materially adversely impact our business and reputation.
Securitybreachesandotherdisruptionstoourinformationtechnologyinfrastructurecouldinterferewithouroperations;compromiseinformationbelongingtous,ouremployees,customers,andsuppliers;andexposeustoliabilitywhichcouldadverselyimpactourbusinessandreputation.Inthenormalcourseofbusiness,werelyoninformationtechnologynetworksandsystems,someofwhicharemanagedbythirdparties,toprocess,transmit,andstoreelectronicinformation,andtomanageorsupportavarietyofbusinessprocessesandactivities.Additionally,wecollectandstorecertaindata,includingproprietarybusinessinformationandcustomerandemployeedata,andmayhaveaccesstoconfidentialorpersonalinformationincertainofourbusinessesthatissubjecttoprivacyandsecuritylaws,regulations,andcustomer-imposedcontrols.Despiteourcybersecuritymeasures(includingemployeeandthird-partytraining,monitoringofnetworksandsystems,andmaintenanceofbackupandprotectivesystems)whicharecontinuouslyreviewedandupgraded,ourinformationtechnologynetworksandinfrastructuremaystillbevulnerabletodamage,disruptions,orshutdownsduetoattackbyhackersorbreaches,employeeerrorormalfeasance,poweroutages,computerviruses,telecommunicationorutilityfailures,systemsfailures,naturaldisasters,orothercatastrophicevents.Anysucheventscouldresultinlegalclaimsorproceedings,liabilityorpenaltiesunderprivacylaws,disruptioninoperations,anddamagetoourreputation,whichcouldmateriallyadverselyaffectourbusiness.Whilewehaveexperienced,andexpecttocontinuetoexperience,thesetypesofthreatstoourinformationtechnologynetworksandinfrastructure,todatenoneofthesethreatshashadamaterialimpactonourbusinessoroperations.
Covenants in our debt instruments may adversely affect us.
Ourfive-yearunsecuredseniorrevolvingcreditfacility("CreditFacility")containsfinancialandothercovenants,suchasalimitontheratioofConsolidatedTotalDebttoConsolidatedEBITDA(asdefinedintheCreditFacility)andlimitsontheamountofsubsidiarydebtandincurrenceofliens.Ouroutstandingnotes'indenturescontaincustomarycovenantsincludinglimitsonincurrenceofliens,saleandlease-backtransactions,andourabilitytoconsolidate,merge,andsellassets.
Althoughnoneofthesecovenantsarepresentlyrestrictivetoouroperations,ourcontinuedabilitytomeettheCreditFacilityfinancialcovenantcanbeaffectedbyeventsbeyondourcontrol,andwecannotprovideassurancethatwewillcontinuetocomplywiththecovenant.AbreachofanyofourcovenantscouldresultinadefaultunderourCreditFacilityorindentures.UpontheoccurrenceofcertaindefaultsunderourCreditFacilityandindentures,thelendersortrusteecouldelecttodeclareallamountsoutstandingthereundertobeimmediatelydueandpayable,andourlenderscouldterminatecommitmentstoextendfurthercreditunderourCreditFacility.Ifthelendersortrusteeacceleratetherepaymentofborrowings,wecannotprovideassurancethatwewillhavesufficientassetsoraccesstolendersorcapitalmarketstorepayorfundtherepaymentofanyamountsoutstanding
12
TableofContents
underourCreditFacilityandourotheraffectedindebtedness.Accelerationofanydebtobligationunderanyofourmaterialdebtinstrumentsmaypermittheholdersortrusteeofourothermaterialdebttoacceleratepaymentofdebtobligationstothecreditorsthereunder.
Theindenturesgoverningouroutstandingseniornotescontaincovenantsthatmayrequireustooffertobuybackthenotesforapriceequalto101%oftheprincipalamount,plusaccruedandunpaidinterest,totherepurchasedate,uponachangeofcontroltriggeringevent(asdefinedintheindentures).Wecannotprovideassurancethatwewillhavesufficientfundsavailableoraccesstofundingtorepurchasetenderednotesinthatevent,whichcouldresultinadefaultunderthenotes.Anyfuturedebtthatweincurmaycontaincovenantsregardingrepurchasesintheeventofachangeofcontroltriggeringevent.
The market price of our shares may fluctuate widely.
Themarketpriceofoursharesmayfluctuatewidely,dependinguponmanyfactors,including:
• ourquarterlyorannualearnings;
• changesinquarterlyorannualsalesorearningsguidancethatwemayprovide;
• actualoranticipatedfluctuationsinouroperatingresults;
• volatilityinfinancialmarketsandmarketfluctuationscausedbyglobalandregionaleconomicconditionsandinvestors'concernsaboutpotentialriskstofutureeconomicgrowth;
• changesinearningsestimatesbysecuritiesanalystsorourabilitytomeetthoseestimates;
• changesinaccountingstandards,policies,guidance,interpretations,orprinciples;
• announcementsbyusorourcompetitorsofsignificantacquisitionsordispositions;and
• theoperatingandstockpriceperformanceofcomparablecompaniesandcompaniesthatserveendmarketsimportanttoourbusiness.
RisksRelatingtoStrategicTransactions
Future acquisitions may not be successful.
Weregularlyevaluatethepossibleacquisitionofstrategicbusinesses,productlines,ortechnologieswhichhavethepotentialtostrengthenourmarketpositionorenhanceourexistingproductofferings.Wecannotprovideassurancethatwewillidentifyorsuccessfullycompletetransactionswithacquisitioncandidatesinthefuture.Wealsocannotprovideassurancethatcompletedacquisitionswillbesuccessful.Ifanacquiredbusinessfailstooperateasanticipatedorcannotbesuccessfullyintegratedwithourexistingbusiness,ourresultsofoperations,financialposition,andcashflowscouldbemateriallyandadverselyaffected.
Future acquisitions could require us to issue additional debt or equity.
Ifweweretomakeasubstantialacquisitionwithcash,theacquisitionmayneedtobefinancedinpartthroughfundingfrombanks,publicofferingsorprivateplacementsofdebtorequitysecurities,orotherarrangements.Thisacquisitionfinancingmightdecreaseourratioofearningstofixedchargesandadverselyaffectotherleveragemeasures.Wecannotprovideassurancethatsufficientacquisitionfinancingwouldbeavailabletousonacceptabletermsifandwhenrequired.Ifweweretomakeanacquisitionpartiallyorwhollyfundedbyissuingequitysecuritiesorequity-linkedsecurities,theissuedsecuritiesmayhaveadilutiveeffectontheinterestsoftheholdersofourshares.
13
TableofContents
Divestitures of some of our businesses or product lines may have a material adverse effect on our results of operations, financial position, and cash flows.
Wecontinuetoevaluatethestrategicfitofspecificbusinessesandproductswhichmayresultinadditionaldivestitures.Anydivestituresmayresultinsignificantwrite-offs,includingthoserelatedtogoodwillandotherintangibleassets,whichcouldhaveamaterialadverseeffectonourresultsofoperationsandfinancialposition.Divestiturescouldinvolveadditionalrisks,includingdifficultiesintheseparationofoperations,services,products,andpersonnel;thediversionofmanagement'sattentionfromotherbusinessconcerns;thedisruptionofourbusiness;andthepotentiallossofkeyemployees.Therecanbenoassurancethatwewillbesuccessfulinaddressingtheseoranyothersignificantrisksencountered.
RisksRelatingtoIntellectualProperty,Litigation,andRegulations
Our ability to compete effectively depends, in part, on our ability to maintain the proprietary nature of our products and technology.
Theelectronicsindustryischaracterizedbylitigationregardingpatentandotherintellectualpropertyrights.Withinthisindustry,companieshavebecomemoreaggressiveinassertinganddefendingpatentclaimsagainstcompetitors.Therecanbenoassurancethatwewillnotbesubjecttofuturelitigationalleginginfringementorinvalidityofcertainofourintellectualpropertyrightsorthatwewillnothavetopursuelitigationtoprotectourpropertyrights.Dependingontheimportanceofthetechnology,product,patent,trademark,ortradesecretinquestion,anunfavorableoutcomeregardingoneofthesemattersmayhaveamaterialadverseeffectonourresultsofoperations,financialposition,andcashflows.
We are a defendant to a variety of litigation in the course of our business that could cause a material adverse effect on our results of operations, financialposition, and cash flows.
Inthenormalcourseofbusiness,weare,fromtimetotime,adefendantinlitigation,includinglitigationallegingtheinfringementofintellectualpropertyrights,anti-competitivebehavior,productliability,breachofcontract,andemployment-relatedclaims.Incertaincircumstances,patentinfringementandantitrustlawspermitsuccessfulplaintiffstorecovertrebledamages.Thedefenseoftheselawsuitsmaydivertourmanagement'sattention,andwemayincursignificantexpensesindefendingtheselawsuits.Inaddition,wemayberequiredtopaydamageawardsorsettlements,orbecomesubjecttoinjunctionsorotherequitableremedies,thatcouldcauseamaterialadverseeffectonourresultsofoperations,financialposition,andcashflows.
If any of our operations are found not to comply with applicable antitrust or competition laws or applicable trade regulations, our business may suffer.
Ouroperationsaresubjecttoapplicableantitrustandcompetitionlawsinthejurisdictionsinwhichweconductourbusiness,inparticulartheU.S.andtheEU.Theselawsprohibit,amongotherthings,anticompetitiveagreementsandpractices.Ifanyofourcommercialagreementsandpracticeswithrespecttotheelectroniccomponentsorothermarketsarefoundtoviolateorinfringesuchlaws,wemaybesubjecttocivilandotherpenalties.Wemayalsobesubjecttothird-partyclaimsfordamages.Further,agreementsthatinfringetheseantitrustandcompetitionlawsmaybevoidandunenforceable,inwholeorinpart,orrequiremodificationinordertobelawfulandenforceable.Ifweareunabletoenforceourcommercialagreements,whetheratallorinmaterialpart,ourresultsofoperations,financialposition,andcashflowscouldbeadverselyaffected.Further,anyfailuretomaintaincompliancewithtraderegulationscouldlimitourabilitytoimportandexportrawmaterialsandfinishedgoodsintoorfromtherelevantjurisdiction,whichcouldnegativelyimpactourresultsofoperations,financialposition,andcashflows.
14
TableofContents
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the United Kingdom's Bribery Act, and similar worldwide anti-bribery laws.
TheU.S.ForeignCorruptPracticesAct,theUnitedKingdom'sBriberyAct,andsimilarworldwideanti-briberylawsgenerallyprohibitcompaniesandtheirintermediariesfrommakingimproperpaymentstogovernmentofficialsforthepurposeofobtainingorretainingbusiness.Ourpoliciesmandatecompliancewiththeseanti-briberylaws.Weoperateinmanypartsoftheworldthathaveexperiencedgovernmentalcorruptiontosomedegree,andincertaincircumstances,strictcompliancewithanti-briberylawsmayconflictwithlocalcustomsandpractices.Despiteourtrainingandcomplianceprogram,wecannotprovideassurancethatourinternalcontrolpoliciesandproceduresalwayswillprotectusfromrecklessorcriminalactscommittedbyouremployeesoragents.Violationsoftheselaws,orallegationsofsuchviolations,coulddisruptourbusinessandresultinamaterialadverseeffectonourresultsofoperations,financialposition,andcashflows.
Our operations expose us to the risk of material environmental liabilities, litigation, government enforcement actions, and reputational risk.
Wearesubjecttonumerousfederal,state,andlocalenvironmentalprotectionandhealthandsafetylawsandregulationsinthevariouscountrieswhereweoperateandwhereourproductsaresold.Theselawsandregulationsgovern,amongotherthings:
• thegeneration,storage,use,andtransportationofhazardousmaterials;
• emissionsordischargesofsubstancesintotheenvironment;
• investigationandremediationofhazardoussubstancesormaterialsatvarioussites;
• greenhousegasemissions;
• producthazardousmaterialcontent;and
• thehealthandsafetyofouremployees.
Wemaynothavebeen,orwemaynotatalltimesbe,incompliancewithallenvironmentalandhealthandsafetylawsandregulations.Ifweviolatetheselaws,wecouldbefined,criminallycharged,orotherwisesanctionedbyregulators.Inaddition,environmentalandhealthandsafetylawsarebecomingmorestringent,resultinginincreasedcostsandcomplianceburdens.
Certainenvironmentallawsassessliabilityoncurrentorpreviousownersoroperatorsofrealpropertyforthecostsofinvestigation,removal,andremediationofhazardoussubstancesormaterialsattheirpropertiesoratpropertiesatwhichtheyhavedisposedofhazardoussubstances.Liabilityforinvestigation,removal,andremediationcostsundercertainfederalandstatelawsisretroactive,strict,andjointandseveral.Inadditiontocleanupactionsbroughtbygovernmentalauthorities,privatepartiescouldbringpersonalinjuryorotherclaimsduetothepresenceof,orexposureto,hazardoussubstances.WehavereceivednotificationfromtheU.S.EnvironmentalProtectionAgencyandotherenvironmentalagenciesthatconditionsatanumberofcurrentlyandformerly-ownedoroperatedsiteswhereweandothershavedisposedofhazardoussubstancesrequireinvestigation,cleanup,andotherpossibleremedialactionandrequirethatwereimbursethegovernmentorotherwisepayforthecostsofinvestigationandremediationandfornaturalresourcedamageclaimsfromsuchsites.Wealsohaveindependentlyinvestigatedvarioussitesanddeterminedthatfurtherinvestigationand/orremediationisnecessary.
Whileweplanforfuturecapitalandoperatingexpenditurestomaintaincompliancewithenvironmentallaws,wecannotprovideassurancethatourcostsofcomplyingwithcurrentorfutureenvironmentalprotectionandhealthandsafetylaws,orourliabilitiesarisingfrompastorfuturereleasesof,orexposuresto,hazardoussubstanceswillnotexceedourestimatesoradverselyaffectour
15
TableofContents
resultsofoperations,financialposition,andcashflowsorthatwewillnotbesubjecttoadditionalenvironmentalclaimsforpersonalinjury,propertydamage,and/orcleanupinthefuturebasedonourpast,present,orfuturebusinessactivities.
Our products are subject to various requirements related to chemical usage, hazardous material content, and recycling.
TheEU,China,andotherjurisdictionsinwhichourproductsaresoldhaveenactedorareproposingtoenactlawsaddressingenvironmentalandotherimpactsfromproductdisposal,useofhazardousmaterialsinproducts,useofchemicalsinmanufacturing,recyclingofproductsattheendoftheirusefullife,andotherrelatedmatters.TheselawsincludetheEURestrictionofHazardousSubstances,EndofLifeVehicle,andWasteElectricalandElectronicEquipmentDirectives;theEUREACHRegulation;theChinalawonManagementMethodsforControllingPollutionbyElectronicInformationProducts;andvariousotherlaws.Theselawsprohibittheuseofcertainsubstancesinthemanufactureofourproductsanddirectlyandindirectlyimposeavarietyofrequirementsformodificationofmanufacturingprocesses,registration,chemicaltesting,labeling,andothermatters.Theselawscontinuetoproliferateandexpandintheseandotherjurisdictionstoaddressothermaterialsandotheraspectsofourproductmanufacturingandsale.Theselawscouldmakemanufactureorsaleofourproductsmoreexpensiveorimpossibleandcouldlimitourabilitytosellourproductsincertainjurisdictions.
RisksRelatingtoOurSwissJurisdictionofIncorporation
As a Swiss corporation, we have less flexibility with respect to certain aspects of capital management involving the issuance of shares.
AsaSwisscorporation,ourboardofdirectorsmaynotdeclareandpaydividendsordistributionsonoursharesorreclassifyreservesonourstandaloneunconsolidatedSwissbalancesheetwithoutshareholderapprovalandwithoutsatisfyingcertainotherrequirements.Inaddition,ourarticlesofassociationallowustocreateauthorizedsharecapitalthatcanbeissuedbytheboardofdirectors,butthisauthorizationislimitedto(i)authorizedsharecapitalupto50%oftheexistingregisteredshareswithsuchauthorizationvalidforamaximumoftwoyears,whichauthorizationperiodendsonMarch2,2018,approvedbyourshareholdersatourMarch2,2016annualmeetingofshareholders,and(ii)conditionalsharecapitalofupto50%oftheexistingregisteredsharesthatmaybeissuedonlyforspecificpurposes.Additionally,subjecttospecifiedexceptions,Swisslawgrantspreemptiverightstoexistingshareholderstosubscribefornewissuancesofsharesfromauthorizedsharecapitalandadvancesubscriptionrightstoexistingshareholderstosubscribefornewissuancesofsharesfromconditionalsharecapital.Swisslawalsodoesnotprovidemuchflexibilityinthevarioustermsthatcanattachtodifferentclassesofshares,andreservesforapprovalbyshareholdersmanytypesofcorporateactions,includingthecreationofshareswithpreferentialrightswithrespecttoliquidation,dividends,and/orvoting.Moreover,underSwisslaw,wegenerallymaynotissueregisteredsharesforanamountbelowparvaluewithoutpriorshareholderapprovaltodecreasetheparvalueofourregisteredshares.AnysuchactionsforwhichourshareholdersmustvotewillrequirethatwefileapreliminaryproxystatementwiththeSECandconveneameetingofshareholders,whichwoulddelaythetimingtoexecutesuchactions.Suchlimitationsprovidetheboardofdirectorslessflexibilitywithrespecttoourcapitalmanagement.WhilewedonotbelievethatSwisslawrequirementsrelatingtotheissuanceofshareswillhaveamaterialadverseeffectonus,wecannotprovideassurancethatsituationswillnotarisewheresuchflexibilitywouldhaveprovidedsubstantialbenefitstoourshareholdersandsuchlimitationsonourcapitalmanagementflexibilitywouldmakeourstocklessattractivetoinvestors.
16
TableofContents
We might not be able to make distributions on our shares without subjecting shareholders to Swiss withholding tax.
InordertomakedistributionsonoursharestoshareholdersfreeofSwisswithholdingtax,weanticipatemakingdistributionstoshareholdersthroughareductionofcontributedsurplus(asdeterminedforSwisstaxandstatutorypurposes)orregisteredsharecapital.VarioustaxlawandcorporatelawproposalsinSwitzerland,ifpassedinthefuture,mayaffectourabilitytopaydividendsordistributionstoourshareholdersfreefromSwisswithholdingtax.Therecanbenoassurancethatwewillbeabletomeetthelegalrequirementsforfuturedistributionstoshareholdersthroughdividendsfromcontributedsurplusorthroughareductionofregisteredsharecapital,orthatSwisswithholdingruleswouldnotbechangedinthefuture.Inaddition,overthelongterm,theamountofregisteredsharecapitalavailableforreductionswillbelimited.OurabilitytopaydividendsordistributionstoourshareholdersfreefromSwisswithholdingtaxisasignificantcomponentofourcapitalmanagementandshareholderreturnpracticesthatwebelieveisimportanttoourshareholders,andanyrestrictiononourabilitytodosocouldmakeourstocklessattractivetoinvestors.
Currency fluctuations between the U.S. dollar and the Swiss franc may limit the amount available for any future distributions on our shares withoutsubjecting shareholders to Swiss withholding tax.
UnderSwisscorporatelaw,whichappliestous,theregisteredsharecapitalinourunconsolidatedSwissstatutoryfinancialstatementsisrequiredtobedenominatedinSwissfrancs.SincedistributionsthatareeffectedthroughareturnofcontributedsurplusorregisteredsharecapitalareexpectedtobepaidinU.S.dollars,shareholderresolutionswithrespecttosuchdistributionsmusttakeintoaccounttheSwissfrancsdenominationoftheregisteredsharecapital.IftheU.S.dollarweretoincreaseinvaluerelativetotheSwissfranc,theU.S.dollaramountofregisteredsharecapitalavailableforfuturedistributionswithoutSwisswithholdingtaxwilldecrease.
We have certain limitations on our ability to repurchase our shares.
TheSwissCodeofObligationsregulatesacorporation'sabilitytoholdorrepurchaseitsownshares.Weandoursubsidiariesmayonlyrepurchasesharestotheextentthatsufficientfreelydistributablereserves(includingcontributedsurplusasdeterminedforSwisstaxandstatutorypurposes)areavailable.Theaggregateparvalueofourregisteredsharesheldbyusandoursubsidiariesmaynotexceed10%ofourregisteredsharecapital.Wemayrepurchaseourregisteredsharesbeyondthestatutorylimitof10%,however,onlyifourshareholdershaveadoptedaresolutionatageneralmeetingofshareholdersauthorizingtheboardofdirectorstorepurchaseregisteredsharesinanamountinexcessof10%andtherepurchasedsharesarededicatedforcancellation.Additionally,varioustaxlawandcorporatelawproposalsinSwitzerland,ifpassedinthefuture,mayaffectourabilitytorepurchaseourshares.Ourabilitytorepurchaseoursharesisasignificantcomponentofourcapitalmanagementandshareholderreturnpracticesthatwebelieveisimportanttoourshareholders,andanyrestrictiononourabilitytorepurchaseoursharescouldmakeourstocklessattractivetoinvestors.
Registered holders of our shares must be registered as shareholders with voting rights in order to vote at shareholder meetings.
OurarticlesofassociationcontainaprovisionregardingvotingrightsthatisrequiredbySwisslawforSwisscompanieslikeusthatissueregisteredshares(asopposedtobearershares).Thisprovisionprovidesthattobeabletoexercisevotingrights,holdersofoursharesmustberegisteredinourshareregister(Aktienbuch)asshareholderswithvotingrights.Onlyshareholderswhoseshareshavebeenregisteredwithvotingrightsontherecorddatemayparticipateinandvoteatourshareholders'meetings,butallshareholderswillbeentitledtodividends,distributions,preemptiverights,advancesubscriptionrights,andliquidationproceeds.Theboardofdirectorsmay,initsdiscretion,refuseto
17
TableofContents
registersharesasshareswithvotingrightsifashareholderdoesnotfulfillcertaindisclosurerequirementsassetforthinourarticlesofassociation.Additionally,variousproposalsinSwitzerlandforcorporatelawchanges,ifpassedinthefuture,mayrequireshareholderregistrationinordertoexercisevotingrightsforshareholderswhoholdtheirsharesinstreetnamethroughbrokeragesandbanks.Sucharegistrationrequirementcouldmakeourstocklessattractivetoinvestors.
Certain provisions of our articles of association may reduce the likelihood of any unsolicited acquisition proposal or potential change of control that ourshareholders might consider favorable.
Ourarticlesofassociationcontainprovisionsthatcouldbeconsidered"anti-takeover"provisionsbecausetheywouldmakeitharderforathirdpartytoacquireuswithouttheconsentofourincumbentboardofdirectors.Undertheseprovisions,amongothers:
• shareholdersmayactonlyatshareholdermeetingsandnotbywrittenconsent,and
• restrictionswillapplytoanymergerorotherbusinesscombinationbetweenourcompanyandanyholderof15%ormoreofourissuedvotingshareswhobecamesuchwithoutthepriorapprovalofourboardofdirectors.
Theseprovisionsmayonlybeamendedbytheaffirmativevoteoftheholdersof80%ofourissuedvotingshares,whichcouldhavetheeffectofdiscouraginganunsolicitedacquisitionproposalordelaying,deferring,orpreventingachangeofcontroltransactionthatmightinvolveapremiumprice,orotherwisebeconsideredfavorablebyourshareholders.Ourarticlesofassociationalsocontainprovisionspermittingourboardofdirectorstoissuenewsharesfromauthorizedorconditionalcapital(ineithercase,representingamaximumof50%ofthesharespresentlyregisteredinthecommercialregisterandincaseofissuancesfromauthorizedcapital,untilMarch2,2018unlessre-authorizedbyshareholdersforasubsequenttwo-yearperiod)withoutshareholderapprovalandwithoutregardforshareholders'preemptiverightsoradvancesubscriptionrights,forthepurposeofthedefenseofanactual,threatened,orpotentialunsolicitedtakeoverbid,inrelationtowhichtheboardofdirectors,uponconsultationwithanindependentfinancialadvisor,hasnotrecommendedacceptancetotheshareholders.WenotethatSwisscourtshavenotaddressedwhetherornotatakeoverbidofthisnatureisanacceptablereasonunderSwisslawforwithdrawingorlimitingpreemptiverightswithrespecttoauthorizedsharecapitaloradvancesubscriptionrightswithrespecttoconditionalsharecapital.Inaddition,theNYSE,onwhichoursharesarelisted,requiresshareholderapprovalforissuancesofsharesequalto20%ormoreoftheoutstandingsharesorvotingpower,withlimitedexceptions.
Legislative and regulatory actions and proposals in Switzerland, the U.S., and other jurisdictions could cause a material change in our worldwideeffective corporate tax rate.
VariousU.S.andnon-U.S.legislativeandregulatoryproposalshavebeendirectedatmultinationalcompanieswithoperationsinlowertaxjurisdictions.Therehasbeenheightenedfocusonadoptionofsuchlegislationandonotherinitiatives,suchas:
• theOrganisationforEconomicCo-operationandDevelopment'sinitiativetodevelopagreed-uponbestpracticestopreventbaseerosionandprofitshifting,whichcontemplatechangestonumerouslong-standingtaxprinciplesrelatedtothedistributionofprofitsbetweenaffiliatedentitiesindifferenttaxjurisdictions,
• corporatetaxreforminSwitzerland,whichisproposedinresponsetoOECDandEUconcerns,
• EUandothercountryeffortstoadoptcertainOECDproposalsandmodifiedOECDproposals(includingtheAnti-TaxAvoidanceDirective,stateaidcases,andvarioustransparencyproposals),and
18
TableofContents
• taxpolicyintheU.S.,suchastherecentlyissuedfinalandtemporarydebt/equityregulationsunderInternalRevenueCodeSection385,revisionstothemodelincometaxtreaty,andotherinternationaltaxreformproposals.
Iftheseproposalsareadoptedinthemainjurisdictionsinwhichwedobusiness,theycould,amongotherthings,causedoubletaxation,increaseauditrisk,andmateriallyincreaseourworldwidecorporateeffectivetaxrate.Wecannotpredicttheoutcomeofanyspecificlegislativeproposalsorinitiatives,andwecannotprovideassurancethatanysuchlegislationorinitiativewillnotapplytous.
Legislation in the U.S. could adversely impact our results of operations, financial position, and cash flows.
VariousU.S.federalandstatelegislativeproposalshavebeenintroducedinrecentyearsthatmaynegativelyimpactthegrowthofourbusinessbydenyinggovernmentcontractstoU.S.companiesthathavemovedtolower-taxjurisdictions.
WeexpecttheU.S.Congresstocontinuetoconsiderimplementationand/orexpansionofpoliciesthatwouldrestrictthefederalandstategovernmentsfromcontractingwithentitiesthathavecorporatelocationsabroad.Wecannotpredictthelikelihoodthat,orfinalforminwhich,anysuchproposedlegislationmightbecomelaw,thenatureofregulationsthatmaybepromulgatedunderanyfuturelegislativeenactments,theeffectsuchenactmentsandincreasedregulatoryscrutinymayhaveonourbusiness,ortheoutcomeofanyspecificlegislativeproposals.Therefore,wecannotprovideassurancethatanysuchlegislativeactionwillnotapplytous.Inaddition,weareunabletopredictwhetherthefinalformofanypotentiallegislationdiscussedabovealsowouldaffectourindirectsalestoU.S.federalorstategovernmentsorthewillingnessofournon-governmentalcustomerstodobusinesswithus.Asaresultoftheseuncertainties,weareunabletoassessthepotentialimpactofanyproposedlegislationinthisareaandcannotprovideassurancethattheimpactwillnotbemateriallyadversetous.
Swiss law differs from the laws in effect in the U.S. and may afford less protection to holders of our securities.
AsweareorganizedunderthelawsofSwitzerland,itmaynotbepossibletoenforcecourtjudgmentsobtainedintheU.S.againstusinSwitzerlandbasedonthecivilliabilityprovisionsoftheU.S.federalorstatesecuritieslaws.Inaddition,thereissomeuncertaintyastowhetherthecourtsofSwitzerlandwouldrecognizeorenforcejudgmentsofU.S.courtsobtainedagainstusorourdirectorsorofficersbasedonthecivilliabilityprovisionsoftheU.S.federalorstatesecuritieslawsorhearactionsagainstusorthosepersonsbasedonthoselaws.WehavebeenadvisedthattheU.S.andSwitzerlandcurrentlydonothaveatreatyprovidingforthereciprocalrecognitionandenforcementofjudgmentsincivilandcommercialmatters.SomeremediesavailableunderthelawsofU.S.jurisdictions,includingsomeremediesavailableundertheU.S.federalsecuritieslaws,wouldnotbeallowedinSwisscourtsastheyarecontrarytothatnation'spublicpolicy.
SwisscorporatelawdiffersincertainmaterialrespectsfromlawsgenerallyapplicabletoU.S.corporationsandtheirshareholders.Thesedifferencesincludethemannerinwhichdirectorsmustdisclosetransactionsinwhichtheyhaveaninterest,therightsofshareholderstobringclassactionandderivativelawsuits,andthescopeofindemnificationavailabletodirectorsandofficers.Thus,holdersofoursecuritiesmayhavemoredifficultyprotectingtheirintereststhanwouldholdersofsecuritiesofacorporationincorporatedinajurisdictionoftheU.S.
19
TableofContents
ITEM2.PROPERTIES
OurprincipalexecutiveofficeislocatedinSchaffhausen,Switzerland.Asoffiscalyearend2016,weownedapproximately19millionsquarefeetandleasedapproximately10millionsquarefeetofmanufacturing,warehousing,andofficespace.Webelieveourfacilitiesaresuitablefortheconductofourbusinessandadequateforourcurrentneeds.
Wemanufactureourproductsinapproximately25countriesworldwide.Ourmanufacturingsitesfocusonvariousaspectsofthemanufacturingprocesses,includingourprimaryprocessesofstamping,plating,molding,extrusion,beaming,andassembly.Weconsidertheproductivecapacityofourmanufacturingfacilitiessufficient.Asoffiscalyearend2016,ourprincipalcentersofmanufacturingoutputbysegmentandgeographicregionwereasfollows:
ITEM3.LEGALPROCEEDINGS
Inthenormalcourseofbusiness,wearesubjecttovariouslegalproceedingsandclaims,includingproductliabilitymatters,employmentdisputes,disputesonagreements,othercommercialdisputes,environmentalmatters,antitrustclaims,andtaxmatters,includingnon-incometaxmatterssuchasvalueaddedtax,salesandusetax,realestatetax,andtransfertax.Inaddition,weoperateinanindustrysusceptibletosignificantpatentlegalclaims.Atanygiventimeinthenormalcourseofbusiness,weareinvolvedaseitheraplaintiffordefendantinanumberofpatentinfringementactions.Ifinfringementofathirdparty'spatentweretobedeterminedagainstus,wemightberequiredtomakesignificantroyaltyorotherpaymentsormightbesubjecttoaninjunctionorotherlimitationonourabilitytomanufactureorselloneormoreproducts.Ifapatentownedbyorlicensedtousweredeterminedtobeinvalidorunenforceable,wemightberequiredtoreducethevalueofthepatentonourConsolidatedBalanceSheetandtorecordacorrespondingcharge,whichcouldbesignificantinamount.
Managementbelievesthattheselegalproceedingsandclaimslikelywillberesolvedoveranextendedperiodoftime.Althoughitisnotfeasibletopredicttheoutcomeoftheseproceedings,baseduponourexperience,currentinformation,andapplicablelaw,wedonotexpectthattheseproceedingswillhaveamaterialeffectonourresultsofoperations,financialposition,orcashflows.
20
Transportation
Solutions IndustrialSolutions
CommunicationsSolutions Total
(numberofmanufacturingfacilities) Americas 11 26 7 44EMEA 18 18 3 39Asia–Pacific 7 6 8 21Total 36 50 18 104
TableofContents
PARTII
ITEM5.MARKETFORREGISTRANT'SCOMMONEQUITY,RELATEDSTOCKHOLDERMATTERSANDISSUERPURCHASESOFEQUITYSECURITIES
MarketInformation
OurcommonsharesarelistedandtradedontheNYSEunderthesymbol"TEL."ThefollowingtablesetsforththehighandlowclosingsalespricesofourcommonsharesasreportedbytheNYSEforthequarterlyperiodsoffiscal2016and2015:
ThenumberofregisteredholdersofourcommonsharesatNovember9,2016was25,611.
DividendsandCashDistributionstoShareholders
Thefollowingtablesetsforththedividendspaidonourcommonsharesduringthequarterlyperiodsoffiscal2016and2015:
Futuredividendsonourcommonsharesorreductionsofregisteredsharecapitalfordistributiontoshareholders,ifany,mustbeapprovedbyourshareholders.Inexercisingtheirdiscretiontorecommendtotheshareholdersthatsuchdividendsordistributionsbeapproved,ourboardofdirectorswillconsiderourresultsofoperations,cashrequirementsandsurplus,financialcondition,statutoryrequirementsofapplicablelaw,contractualrestrictions,andotherfactorsthattheymaydeemrelevant.Wemayfromtimetotimeenterintofinancingagreementsthatcontainfinancialcovenantsandrestrictions,someofwhichmaylimitourabilitytopaydividendsortodistributecapitalreductions.
21
MarketPriceRange Fiscal 2016 2015 High Low High Low FirstQuarter $ 67.61 $ 56.85 $ 65.00 $ 51.47SecondQuarter 65.75 52.27 73.42 61.19ThirdQuarter 63.69 57.32 71.73 66.12FourthQuarter 64.54 54.83 64.36 55.53
Fiscal 2016 2015 FirstQuarter $ 0.33(CHF0.32)(1) $ 0.29(CHF0.26)(2)SecondQuarter $ 0.33(CHF0.32)(1) $ 0.29(CHF0.26)(2)ThirdQuarter $ 0.37(CHF0.37)(1) $ 0.33(CHF0.32)(1)FourthQuarter $ 0.37(CHF0.37)(1) $ 0.33(CHF0.32)(1)
(1) PaymentsweredeclaredinU.S.dollars.TheSwissfrancs("CHF")equivalentisbasedonaU.S.dollar/CHFexchangerateonthedateofshareholderapproval.
(2) PaymentsweredeclaredinCHFandpaidinU.S.dollarsbasedonaU.S.dollar/CHFexchangerateshortlybeforeshareholderapproval.
TableofContents
PerformanceGraph
SetforthbelowisagraphcomparingthecumulativetotalshareholderreturnonourcommonsharesagainstthecumulativereturnontheS&P500IndexandtheDowJonesElectricalComponentsandEquipmentIndex.Thegraphassumestheinvestmentof$100inourcommonsharesandineachindexatfiscalyearend2011andassumesthereinvestmentofalldividendsanddistributions.Thegraphshowsthecumulativetotalreturnforthelastfivefiscalyears.Thecomparisonsinthegraphbelowarebaseduponhistoricaldataandarenotindicativeof,norintendedtoforecast,futureperformanceofourcommonshares.
COMPARISONOFCUMULATIVETOTALRETURNAMONGTECONNECTIVITYLTD.,S&P500INDEX,AND
DOWJONESELECTRICALCOMPONENTSANDEQUIPMENTINDEX
22
FiscalYearEnd 2011(1) 2012 2013 2014 2015 2016 TEConnectivityLtd. $ 100.00 $ 123.71 $ 193.20 $ 222.75 $ 225.57 $ 254.30S&P500Index 100.00 130.20 156.32 187.02 185.92 213.44DowJonesElectricalComponentsandEquipmentIndex 100.00 132.48 181.99 203.03 186.47 221.36
(1) $100investedonSeptember30,2011inTEConnectivity'scommonsharesandinindexes.Indexescalculatedonmonth-endbasis.
TableofContents
IssuerPurchasesofEquitySecurities
ThefollowingtablepresentsinformationaboutourpurchasesofourcommonsharesduringthequarterendedSeptember30,2016:
23
Period
TotalNumberofShares
Purchased(1)
AveragePricePaidPerShare(1)
TotalNumberofSharesPurchased
asPartofPubliclyAnnounced
PlansorPrograms(2)
MaximumApproximateDollarValue
ofSharesthatMayYetBePurchasedUnderthePlansorPrograms(2)
June25–July22,2016 1,237,100 $ 58.07 1,237,100 $ 1,125,417,356July23–August26,2016 395,461 60.44 391,693 1,101,746,129August27–September30,2016 1,030 63.07 — 1,101,746,129Total 1,633,591 $ 58.64 1,628,793
(1) ThesecolumnsincludethefollowingtransactionswhichoccurredduringthequarterendedSeptember30,2016:
(i) theacquisitionof4,798commonsharesfromindividualsinordertosatisfytaxwithholdingrequirementsinconnectionwiththevestingofrestrictedshareawardsissuedunderequitycompensationplans;and
(ii) openmarketpurchasestotaling1,628,793commonshares,summarizedonatrade-datebasis,inconjunctionwiththesharerepurchaseprogramannouncedinSeptember2007.
(2) InMarch2016,ourboardofdirectorsauthorizeda$1.0billionincreaseinthesharerepurchaseprogram.Oursharerepurchaseprogramauthorizesustopurchaseaportionofouroutstandingcommonsharesfromtimetotimethroughopenmarketorprivatetransactions,dependingonbusinessandmarketconditions.Thesharerepurchaseprogramdoesnothaveanexpirationdate.
TableofContents
ITEM6.SELECTEDFINANCIALDATA
Thefollowingtablepresentsselectedconsolidatedfinancialdata.ThedatapresentedbelowshouldbereadinconjunctionwithourConsolidatedFinancialStatementsandaccompanyingnotesand"Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations"includedelsewhereinthisAnnualReport.Ourconsolidatedfinancialinformationmaynotbeindicativeofourfutureperformance.
24
AsoforforFiscal 2016(1) 2015(2) 2014(3) 2013(4) 2012(5) (inmillions,exceptpersharedata) StatementofOperationsData Netsales $ 12,238 $ 12,233 $ 11,973 $ 11,390 $ 11,325Acquisitionandintegrationcosts 22 55 31 14 27Restructuringandothercharges,net 2 152 19 222 104AmountsattributabletoTEConnectivityLtd.: Incomefromcontinuingoperations 1,941 1,238 1,614 1,154 1,003Incomefromdiscontinuedoperations,netofincometaxes 68 1,182 167 122 109Netincome $ 2,009 $ 2,420 $ 1,781 $ 1,276 $ 1,112
PerShareData BasicearningspershareattributabletoTEConnectivityLtd.: Incomefromcontinuingoperations $ 5.30 $ 3.06 $ 3.94 $ 2.76 $ 2.35Netincome 5.49 5.98 4.34 3.05 2.61
DilutedearningspershareattributabletoTEConnectivityLtd.: Incomefromcontinuingoperations $ 5.26 $ 3.01 $ 3.87 $ 2.73 $ 2.33Netincome 5.44 5.89 4.27 3.02 2.59
Dividendsandcashdistributionspaidpercommonshare $ 1.40 $ 1.24 $ 1.08 $ 0.92 $ 0.78
BalanceSheetData Totalassets $ 17,608 $ 20,589 $ 20,132 $ 18,446 $ 19,290Long-termliabilities 6,057 7,429 7,128 6,000 7,166Totalequity $ 8,485 $ 9,585 $ 9,013 $ 8,386 $ 7,977
(1) Fiscal2016resultsincludedapre-taxgainof$144milliononthesaleofourCircuitProtectionDevices("CPD")business;a$1,135millionincometaxbenefitassociatedwiththeeffectivesettlementoftaxmattersfortheyears1997through2000whichresolvedallaspectsofthedisputeddebtmatterwiththeInternalRevenueServicethroughtheyear2007andtherelatedimpactof$604milliontootherexpensepursuanttotheTaxSharingAgreementwithTycoInternationalplc("TycoInternational")andCovidienplc("Covidien");a$91millionincometaxchargerelatedtoanincreasetothevaluationallowanceforcertainU.S.deferredtaxassets;andan$83millionnetincometaxbenefitrelatedtotaxsettlementsincertainothertaxjurisdictions.(SeeNotes3,12,15,and16totheConsolidatedFinancialStatements.)Fiscal2016wasa53weekyear.
(2) Fiscal2015resultsincludeda$216millionincometaxchargeassociatedwiththetaximpactsofcertainintercompanylegalentityrestructuringsmadeinconnectionwithourintegrationofMeasurementSpecialties,Inc.("MeasurementSpecialties");a$201millionincometaxbenefitassociatedwiththeeffectivesettlementofallundisputedtaxmattersfortheyears2001through2007andtherelatedimpactof$84milliontootherexpensepursuanttotheTaxSharingAgreementwithTycoInternationalandCovidien;anda$63millionincometaxbenefitassociatedwiththeeffectivesettlementofallundisputedtaxmattersfortheyears2008through2010.Inaddition,infiscal2015,incomefromdiscontinuedoperations,netofincometaxes
TableofContents
25
includedthegainonthesaleofourBroadbandNetworkSolutions("BNS")business.(SeeNotes4,12,15,and16totheConsolidatedFinancialStatements.)
(3) Fiscal2014resultsincludeda$282millionincometaxbenefitrecognizedinconnectionwithareductioninthevaluationallowanceassociatedwithcertaintaxlosscarryforwardsrelatingtoADCTelecommunications,Inc.("ADC").(SeeNote15totheConsolidatedFinancialStatements.)
(4) Fiscal2013resultsincludeda$331millionincometaxbenefitassociatedwiththeeffectivesettlementofallundisputedtaxmattersfortheyears1997through2000andtherelatedimpactof$231milliontootherexpensepursuanttotheTaxSharingAgreementwithTycoInternationalandCovidien.
(5) Fiscal2012resultsincluded$75millionofchargesfromtheamortizationofacquisition-relatedfairvalueadjustmentsrelatedprimarilytoacquiredinventoriesandcustomerorderbacklogassociatedwithDeutschGroupSASanda$107millionincometaxbenefitrecognizedinconnectionwithareductioninthevaluationallowanceassociatedwithtaxlosscarryforwardsincertainnon-U.S.locations.
TableofContents
ITEM7.MANAGEMENT'SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
ThefollowingdiscussionandanalysisofourfinancialconditionandresultsofoperationsshouldbereadinconjunctionwithourConsolidatedFinancialStatementsandtheaccompanyingnotesincludedelsewhereinthisAnnualReport.Thefollowingdiscussionmaycontainforward-lookingstatementsthatreflectourplans,estimates,andbeliefs.Ouractualresultscoulddiffermateriallyfromthosediscussedintheseforward-lookingstatements.FactorsthatcouldcauseorcontributetothesedifferencesincludethosefactorsdiscussedbelowandelsewhereinthisAnnualReport,particularlyin"RiskFactors"and"Forward-LookingInformation."
OurConsolidatedFinancialStatementshavebeenpreparedinU.S.dollars,inaccordancewithaccountingprinciplesgenerallyacceptedintheU.S.("GAAP").
Thefollowingdiscussionincludesorganicnetsalesgrowthandfreecashflowwhicharenon-GAAPfinancialmeasures.Webelievethesenon-GAAPfinancialmeasures,togetherwithGAAPfinancialmeasures,provideusefulinformationtoinvestorsbecausetheyreflectthefinancialmeasuresthatmanagementusesinevaluatingtheunderlyingresultsofouroperations.See"Non-GAAPFinancialMeasures"formoreinformationaboutthesenon-GAAPfinancialmeasures,includingourreasonsforincludingthemeasuresandmateriallimitationswithrespecttotheusefulnessofthemeasures.
Overview
Weareaglobaltechnologyleader.Wedesignandmanufactureconnectivityandsensorsolutionsthatareessentialintoday'sincreasinglyconnectedworld.Wehelpourcustomerssolvetheneedforintelligent,efficient,andhigh-performingproductsandsolutions.
Fiscal2016highlightsincludedthefollowing:
• Overall,ournetsaleswereflatinfiscal2016ascomparedtofiscal2015,asincreasednetsalesintheTransportationSolutionsandIndustrialSolutionssegmentswereoffsetbydeclinesintheCommunicationsSolutionssegment.Foreigncurrencyexchangeratesnegativelyimpactednetsalesby$254millioninfiscal2016ascomparedtofiscal2015.Onanorganicbasis,ournetsalesincreased1.5%duringfiscal2016ascomparedtofiscal2015.
• Ournetsalesbysegmentwereasfollows:
• TransportationSolutions—Ournetsalesincreased2.4%duetoincreasedsalesintheautomotiveendmarketand,toalesserdegree,thesensorsandcommercialtransportationendmarkets.
• IndustrialSolutions—Ournetsalesincreased1.1%duetoincreasedsalesintheindustrialequipmentendmarketwhichbenefittedfromsalescontributionsfromacquisitions,partiallyoffsetbydecreasedsalesintheaerospace,defense,oil,andgasandtheenergyendmarkets.
• CommunicationsSolutions—Ournetsalesdecreased6.8%dueprimarilytosalesdeclinesinthedataanddevicesendmarket,partiallyoffsetbysalesincreasesinthesubseacommunicationsendmarket.
• Fiscal2016includedanadditionalweekwhichcontributed$238millioninnetsalesand$0.13persharetodilutedearningspershare.
• Duringfiscal2016,ourshareholdersapprovedadividendpaymenttoshareholdersof$1.48perissuedsharepayableinfourquarterlyinstallmentsof$0.37beginningwiththethirdfiscalquarterof2016andendinginthesecondfiscalquarterof2017.
26
TableofContents
• Netcashprovidedbycontinuingoperatingactivitieswas$2,019millionandfreecashflowwas$1,585millioninfiscal2016.
• Duringfiscal2016,weacquiredtheCregannaMedicalgroup("Creganna"),agloballeaderinthedesignandmanufactureofminimallyinvasivedeliveryandaccessmedicaldevices.Alsoduringfiscal2016,wecompletedthedivestitureourCPDbusiness.
Outlook
Inthefirstquarteroffiscal2017,weexpectnetsalestobebetween$2.95billionand$3.05billion.ThisreflectssalesgrowthintheIndustrialSolutionsandTransportationSolutionssegments,partiallyoffsetbysalesdeclinesintheCommunicationsSolutionssegmentrelativetothefirstquarteroffiscal2016.Additionalinformationregardingexpectationsforourreportablesegmentsforthefirstquarteroffiscal2017ascomparedtothesameperiodoffiscal2016isasfollows:
• TransportationSolutions—Weexpectournetsalesgrowthintheautomotiveendmarkettoexceedanticipatedgrowthinglobalautomotiveproductionofapproximately2%dueprimarilytogrowthinChinaandtheEMEAregion.Wealsoexpectournetsalestoincreaseinthecommercialtransportationandsensorsendmarkets.
• IndustrialSolutions—Weexpectournetsalestoincreaseintheindustrialequipmentendmarketdueprimarilytorecentacquisitions.Weexpectournetsalesgrowthintheaerospaceanddefensemarkettobepartiallyoffsetbymarketweaknessandsalesdeclinesintheoilandgasmarket.
• CommunicationsSolutions—WeexpectournetsalestodeclineinthedataanddevicesendmarketprimarilyasaresultofthedivestitureofourCPDbusiness.Thisdeclineisexpectedtobepartiallyoffsetbysalesgrowthintheappliancesandsubseacommunicationsendmarkets.
Weexpectdilutedearningspersharefromcontinuingoperationstobeintherangeof$0.84to$0.88pershareinthefirstquarteroffiscal2017.
Forfiscal2017,weexpectnetsalestobebetween$12.3billionand$12.9billion,anincreasefrom$12.2billioninfiscal2016whichincludedanadditionalweek.ThisincreaseisattributabletosalesgrowthintheIndustrialSolutionsandTransportationSolutionssegments,partiallyoffsetbysalesdeclinesintheCommunicationsSolutionssegment.Additionalinformationregardingexpectationsforourreportablesegmentsforfiscal2017comparedtofiscal2016isasfollows:
• TransportationSolutions—Weexpectournetsalesincreaseintheautomotiveendmarkettooutpaceexpectedgrowthinglobalautomotiveproductionofapproximately1%asaresultofincreasedcontentpervehicleandmarketsharegains.Wealsoexpectournetsalestoincreaseinthecommercialtransportationandsensorsendmarkets.
• IndustrialSolutions—Weexpectournetsalestoincreaseintheindustrialequipmentendmarketdueprimarilytorecentacquisitions.Also,weexpectnetsalesgrowthintheaerospaceanddefensemarket.
• CommunicationsSolutions—Weexpectournetsalesgrowthinthesubseacommunicationsandappliancesendmarketstobemorethanoffsetbysalesdeclinesinthedataanddevicesendmarket,dueprimarilytothedivestitureofourCPDbusiness.
Weexpectdilutedearningspersharefromcontinuingoperationstobeintherangeof$3.84to$4.14pershareinfiscal2017.
Theaboveoutlookisbasedonforeignexchangeratesandcommoditypricesthatareconsistentwithcurrentlevels.
27
TableofContents
Wearemonitoringthecurrentmacroeconomicenvironment,includingtheproposedexitoftheUnitedKingdomfromtheEU,anditspotentialeffectsonourcustomersandtheendmarketsweserve.Wecontinuetocloselymanageourcostsinlinewitheconomicconditions.Additionally,wearemanagingourcapitalresourcesandmonitoringcapitalavailabilitytoensurethatwehavesufficientresourcestofundfuturecapitalneeds.Seefurtherdiscussionin"LiquidityandCapitalResources."
Acquisitions
Duringfiscal2016,weacquiredfourbusinesses,includingCreganna,foracombinedcashpurchasepriceof$1.3billion,netofcashacquired.
Duringfiscal2015,weacquiredMeasurementSpecialties,aleadingglobaldesignerandmanufacturerofsensorsandsensor-basedsystems.Thetotalvaluepaidwasapproximately$1.7billion,netofcashacquired,andincluded$225millionfortherepaymentofMeasurementSpecialties'debtandaccruedinterest.Alsoduringfiscal2015,weacquiredthreeadditionalbusinessesfor$241millionincash,netofcashacquired.
Duringfiscal2014,weacquiredfivebusinesses,includingtheSEACONGroup("SEACON"),aleadingproviderofunderwaterconnectortechnologyandsystems,for$522millionincash,netofcashacquired.
SeeNote5totheConsolidatedFinancialStatementsforadditionalinformationregardingacquisitions.
Divestiture
Duringfiscal2016,wesoldourCPDbusinessfornetcashproceedsof$333million.Werecognizedapre-taxgainof$144milliononthetransaction.TheCPDbusinesswasreportedaspartoftheDataandDevicesbusinesswithinourCommunicationsSolutionssegment.
ResultsofOperations
NetSales
Thefollowingtablepresentsournetsalesandthepercentageoftotalnetsalesbysegment:
28
Fiscal 2016 2015 2014 ($inmillions) TransportationSolutions $ 6,503 53% $ 6,351 52% $ 6,090 51%IndustrialSolutions 3,215 26 3,179 26 3,302 28CommunicationsSolutions 2,520 21 2,703 22 2,581 21Total $ 12,238 100% $ 12,233 100% $ 11,973 100%
TableofContents
Thefollowingtableprovidesananalysisofthechangeinournetsalescomparedtothepriorfiscalyearbysegment:
Netsaleswereflatinfiscal2016ascomparedtofiscal2015.Organicnetsalesgrowthof1.5%andnetsalescontributionsfromacquisitionsandadivestitureof0.6%wereoffsetbythenegativeimpactofforeigncurrencytranslationof2.1%duetotheweakeningofcertainforeigncurrencies.Organicnetsaleswereadverselyaffectedbypriceerosionof$188millioninfiscal2016.Fiscal2016includedanadditionalweekwhichcontributed$238millioninnetsales.Theimpactoftheadditionalweekwasestimatedusinganaverageweeklysalesfigureforthelastmonthofthefiscalyear.
Netsalesincreased$260million,or2.2%,infiscal2015ascomparedtofiscal2014.Theincreaseinnetsalesresultedfromsalescontributionsfromacquisitionsof5.9%andorganicnetsalesgrowthof3.8%,partiallyoffsetbythenegativeimpactofforeigncurrencytranslationof7.5%duetotheweakeningofcertainforeigncurrencies.Duringfiscal2015,MeasurementSpecialtiescontributednetsalesof$548million.Organicnetsaleswereadverselyaffectedbypriceerosionof$208millioninfiscal2015.
Seefurtherdiscussionofnetsalesbelowunder"SegmentResults."
Net Sales by Geographic Region. Ourbusinessoperatesinthreegeographicregions—theAmericas,EMEA,andAsia–Pacific—andourresultsofoperationsareinfluencedbychangesinforeigncurrencyexchangerates.IncreasesordecreasesinthevalueoftheU.S.dollar,comparedtoothercurrencies,willdirectlyaffectourreportedresultsaswetranslatethosecurrenciesintoU.S.dollarsattheendofeachfiscalperiod.Wesellourproductsintoapproximately150countries,andapproximately54%ofournetsaleswereinvoicedincurrenciesotherthantheU.S.dollarinfiscal2016.Thepercentageofnetsalesinfiscal2016bymajorcurrenciesinvoicedwasasfollows:
29
Fiscal 2016 2015 ChangeinNetSalesversusPriorFiscalYear ChangeinNetSalesversusPriorFiscalYear
Total Translation Acquisitions(Divestiture) Organic Total Translation Acquisitions Organic
($inmillions) TransportationSolutions $ 152 2.4%$ (174) $ 16 $ 310 4.9%$ 261 4.3%$ (556) $ 567 $ 250 4.1%IndustrialSolutions 36 1.1 (63) 188 (89) (2.8) (123) (3.7) (258) 142 (7) (0.2)CommunicationsSolutions (183) (6.8) (17) (123) (43) (1.6) 122 4.7 (95) — 217 8.4Total $ 5 —%$ (254) $ 81 $ 178 1.5%$ 260 2.2%$ (909) $ 709 $ 460 3.8%
Currencies Percentage U.S.dollar 46%Euro 28Chineserenminbi 11Japaneseyen 6Allothers 9Total 100%
TableofContents
Thefollowingtablepresentsournetsalesandthepercentageoftotalnetsalesbygeographicregion:
Thefollowingtableprovidesananalysisofthechangeinournetsalescomparedtothepriorfiscalyearbygeographicregion:
CostofSalesandGrossMargin
Thefollowingtablepresentscostofsalesandgrossmargininformation:
Infiscal2016,grossmargindecreased$54millionascomparedtofiscal2015.Infiscal2016,grossmarginincludedchargesof$10millionfromtheamortizationofacquisition-relatedfairvalueadjustmentstoacquiredinventoriesandcustomerorderbacklogassociatedprimarilywithCreganna.Infiscal2015,grossmarginincludedchargesof$36millionfromtheamortizationofacquisition-relatedfairvalueadjustmentstoacquiredinventoriesandcustomerorderbacklogassociatedprimarilywithMeasurementSpecialties.Excludingthesecharges,thegrossmargindecreasedinfiscal2016dueprimarilytounfavorableproductmixandpriceerosion,partiallyoffsetbylowermaterialcosts.
Grossmarginincreased$115millioninfiscal2015ascomparedtofiscal2014.Infiscal2015,grossmarginincludedchargesof$36millionassociatedwiththeacquisitionofMeasurementSpecialties.Excludingthesecharges,grossmarginincreasedinfiscal2015primarilyasaresultofhighervolumeandimprovedmanufacturingproductivity,partiallyoffsetbythenegativeimpactofchangesinforeigncurrencyexchangeratesandpriceerosion.
Costofsalesandgrossmarginaresubjecttovariabilityinrawmaterialprices,andthepriceofmanyofourrawmaterialscontinuestofluctuate.Infiscal2016,wepurchasedapproximately
30
Fiscal 2016 2015 2014 ($inmillions) Americas $ 4,199 34%$ 4,138 34%$ 3,515 30%EMEA 4,116 34 3,992 33 4,224 35Asia–Pacific 3,923 32 4,103 33 4,234 35Total $ 12,238 100%$ 12,233 100%$ 11,973 100%
Fiscal 2016 2015 ChangeinNetSalesversusPriorFiscalYear ChangeinNetSalesversusPriorFiscalYear
Total Translation Acquisitions(Divestiture) Organic Total Translation Acquisitions Organic
($inmillions) Americas $ 61 1.5% $ (58) $ 104 $ 15 0.4% $ 623 17.7% $ (72) $ 334 $ 361 10.3%EMEA 124 3.1 (141) 71 194 4.9 (232) (5.5) (649) 287 130 3.1Asia–Pacific (180) (4.4) (55) (94) (31) (0.7) (131) (3.1) (188) 88 (31) (0.7)Total $ 5 —% $ (254) $ 81 $ 178 1.5% $ 260 2.2% $ (909) $ 709 $ 460 3.8%
Fiscal
Fiscal2016versus2015
Fiscal2015versus2014
2016 2015 2014 ($inmillions) Costofsales $ 8,205 $ 8,146 $ 8,001 $ 59 $ 145Asapercentageofnetsales 67.0% 66.6% 66.8% 0.4% (0.2)%
Grossmargin $ 4,033 $ 4,087 $ 3,972 $ (54) $ 115Asapercentageofnetsales 33.0% 33.4% 33.2% (0.4)% 0.2%
TableofContents
170millionpoundsofcopper,115,000troyouncesofgold,and2.4milliontroyouncesofsilver.Thefollowingtablesetsforththeaveragepricesincurredrelatedtocopper,gold,andsilver.
Infiscal2017,weexpecttopurchaseapproximately177millionpoundsofcopper,129,000troyouncesofgold,and2.5milliontroyouncesofsilver.
OperatingExpenses
Thefollowingtablepresentsoperatingexpenseinformation:
Selling, General, and Administrative Expenses. Infiscal2016,selling,general,andadministrativeexpensesdecreased$41millionascomparedtofiscal2015dueprimarilytocostcontrolmeasuresandsavingsattributabletorestructuringactions.
Selling,general,andadministrativeexpensesdecreased$30millioninfiscal2015ascomparedtofiscal2014.Thedecreaseresultedprimarilyfromcostcontrolmeasuresandsavingsattributabletorestructuringactions,partiallyoffsetbyadditionalexpensesassociatedwithMeasurementSpecialties.
Research, Development, and Engineering Expenses. Research,development,andengineeringexpensesincreased$17millioninfiscal2016ascomparedtofiscal2015and$44millioninfiscal2015ascomparedtofiscal2014.Theincreasesresultedfromadditionalexpensesrelatedtoacquisitionsandgrowthinitiatives,primarilyintheTransportationSolutionssegment.
Acquisition and Integration Costs. Infiscal2016,weincurredacquisitionandintegrationcostsof$22millionrelatedprimarilytotheacquisitionsofCregannaandMeasurementSpecialties.Infiscal2015,weincurredacquisitionandintegrationcostsof$55million,relatedprimarilytotheacquisitionsofMeasurementSpecialtiesandSEACON.Infiscal2014,weincurredacquisitionandintegrationcostsof$31million,primarilyinconnectionwiththeacquisitionofSEACON.
Restructuring and Other Charges, Net. Wearecommittedtocontinuousproductivityimprovementsandconsistentlyevaluateopportunitiestosimplifyourglobalmanufacturingfootprint,migratefacilitiestolower-costregions,reducefixedcosts,andeliminateexcesscapacity.Theseinitiativesaredesignedtohelpusmaintainourcompetitivenessintheindustry,improveouroperatingleverage,andpositionusforfuturegrowth.
Duringfiscal2016,weinitiatedarestructuringprogramassociatedwithheadcountreductionsimpactingallsegmentsandproductlineclosuresintheCommunicationsSolutionssegment.Duringfiscal2015,weinitiatedarestructuringprogramassociatedwithheadcountreductionsandproductline
31
Fiscal Measure 2016 2015 2014 Copper Lb. $ 2.49 $ 3.06 $ 3.33Gold Troyoz. 1,212 1,267 1,405Silver Troyoz. 16.08 18.51 23.43
Fiscal
Fiscal2016versus2015
Fiscal2015versus2014
2016 2015 2014 ($inmillions) Selling,general,andadministrativeexpenses $ 1,463 $ 1,504 $ 1,534 $ (41) $ (30)Asapercentageofnetsales 12.0% 12.3% 12.8% (0.3)% (0.5)%
Research,development,andengineeringexpenses $ 644 $ 627 $ 583 $ 17 $ 44Acquisitionandintegrationcosts $ 22 $ 55 $ 31 $ (33) $ 24Restructuringandothercharges,net $ 2 $ 152 $ 19 $ (150) $ 133
TableofContents
closures,primarilyimpactingtheCommunicationsSolutionsandIndustrialSolutionssegments.Duringfiscal2014,weinitiatedarestructuringprogramassociatedprimarilywithheadcountreductionsandmanufacturingsiteandproductlineclosuresintheCommunicationsSolutionssegment.
Inconnectionwiththeseinitiatives,werecordednetrestructuringchargesof$125million,$93million,and$23millioninfiscal2016,2015,and2014,respectively.Annualizedcostsavingsrelatedtoactionsinitiatedinfiscal2016areexpectedtobeapproximately$150millionandareexpectedtoberealizedbytheendoffiscal2017.Costsavingswillbereflectedprimarilyincostofsalesandselling,general,andadministrativeexpenses.Duringfiscal2017,weexpectnetrestructuringchargestobesimilartofiscal2016levels.Weexpecttotalspending,whichwillbefundedwithcashfromoperations,tobeapproximately$110millioninfiscal2017.
Duringfiscal2016,werecognizedapre-taxgainof$144milliononthesaleofourCPDbusiness.
Duringfiscal2016and2015,weincurrednetotherchargesof$21millionand$59million,respectively,primarilyinconnectionwiththedivestitureofcertainbusinesses.
SeeNote3totheConsolidatedFinancialStatementsforadditionalinformationregardingnetrestructuringandothercharges.
OperatingIncome
Thefollowingtablepresentsoperatingincomeandoperatingmargininformation:
Operatingincomeincludedthefollowing:
Seefurtherdiscussionofoperatingincomebelowunder"SegmentResults."
32
Fiscal
Fiscal2016versus2015
Fiscal2015versus2014
2016 2015 2014 ($inmillions) Operatingincome $ 1,902 $ 1,749 $ 1,805 $ 153 $ (56)Operatingmargin 15.5% 14.3% 15.1% 1.2% (0.8)%
Fiscal 2016 2015 2014 (inmillions) Acquisitionrelatedcharges: Acquisitionandintegrationcosts $ 22 $ 55 $ 31Chargesassociatedwiththeamortizationofacquisition-relatedfairvalueadjustments 10 36 4Restructuringchargesrelatedtoacquisitions — 3 —
32 94 35Restructuringandothercharges,net 2 149 19Total $ 34 $ 243 $ 54
TableofContents
Non-OperatingItems
Thefollowingtablepresentsselectnon-operatinginformation:
Other Income (Expense), Net. Infiscal2016,2015,and2014,werecordednetotherincome(expense)primarilypursuanttotheTaxSharingAgreementwithTycoInternationalandCovidien.SeeNote16totheConsolidatedFinancialStatementsforfurtherinformationregardingnetotherincome(expense)andNote12totheConsolidatedFinancialStatementsforinformationregardingtheseparationandrelatedTaxSharingAgreement.
Income Taxes. SeeNote15totheConsolidatedFinancialStatementsforinformationregardingitemsimpactingincometaxexpense(benefit)forfiscal2016,2015,and2014.
Thevaluationallowancefordeferredtaxassetswas$3,096millionand$3,237millionatfiscalyearend2016and2015,respectively.SeeNote15totheConsolidatedFinancialStatementsforfurtherinformationregardingthevaluationallowancefordeferredtaxassets.
Asoffiscalyearend2016,certainsubsidiarieshadapproximately$21billionofcumulativeundistributedearningsthathavebeenretainedindefinitelyandreinvestedinourglobalmanufacturingoperations,includingworkingcapital;property,plant,andequipment;intangibleassets;andresearchanddevelopmentactivities.SeeNote15totheConsolidatedFinancialStatementsforadditionalinformationregardingundistributedearnings.
Income from Discontinued Operations, Net of Income Taxes. Duringfiscal2015,wesoldourBNSbusinessfor$3.0billionincashandrecognizedapre-taxgainof$1.1billiononthetransaction.Duringfiscal2016,werecognizedanadditionalpre-taxgainof$29milliononthedivestiture,relatedprimarilytopensionandnetworkingcapitaladjustments.
Infiscal2006,theformershareholdersofCom-Netinitiatedalawsuitrelatedtoourfiscal2001acquisitionofCom-Net.InconnectionwiththeCom-Netcase,werecordedareserveandpre-taxchargesof$127millionduringfiscal2015.Duringfiscal2016,werecordedpre-taxcreditsof$30million,representingareleaseofexcessreserves.TheseamountsarereflectedinincomefromdiscontinuedoperationsontheConsolidatedStatementsofOperationsastheCom-NetcasewasassociatedwithourformerWirelessSystemsbusinesswhichwassoldin2009.
TheBNSandWirelessSystemsbusinessesmetthediscontinuedoperationscriteriaandwerereportedassuchinallperiodspresentedontheConsolidatedFinancialStatements.Priortoreclassificationtodiscontinuedoperations,theBNSandWirelessSystemsbusinesseswereincludedintheformerNetworkSolutionsandWirelessSystemssegments,respectively.SeeNote4totheConsolidatedFinancialStatementsforadditionalinformationregardingdiscontinuedoperations.
33
Fiscal
Fiscal2016versus2015
Fiscal2015versus2014
2016 2015 2014 (inmillions) Interestexpense $ 127 $ 136 $ 127 $ (9) $ 9Otherincome(expense),net (632) (55) 63 (577) (118)Incometaxexpense(benefit) (779) 337 146 (1,116) 191Incomefromdiscontinuedoperations,netofincometaxes 68 1,182 167 (1,114) 1,015
TableofContents
SegmentResults
TransportationSolutions
Net Sales. ThefollowingtablepresentstheTransportationSolutionssegment'snetsalesandthepercentageoftotalnetsalesbyprimaryindustryendmarket(1):
ThefollowingtableprovidesananalysisofthechangeintheTransportationSolutionssegment'snetsalescomparedtothepriorfiscalyearbyprimaryindustryendmarket:
Infiscal2016,netsalesintheTransportationSolutionssegmentincreased$152million,or2.4%,fromfiscal2015dueprimarilytoorganicnetsalesgrowthof4.9%,partiallyoffsetbythenegativeimpactofforeigncurrencytranslationof2.7%.Fiscal2016includedanadditionalweekwhichcontributed$130millioninnetsales.Ourorganicnetsalesbyprimaryindustryendmarketwereasfollows:
• Automotive—Ourorganicnetsalesincreased5.6%infiscal2016.Theincreasewasdueprimarilytogrowthof8.4%intheAsia–Pacificregionand5.9%intheEMEAregion,partiallyoffsetbyadecreaseof0.9%intheAmericasregion.IntheAsia–Pacificregion,ourgrowthwasdrivenbyincreasedelectronificationandmarketsharegainsinChina.IntheEMEAregion,ourorganicnetsalesincreasedduetoelectronificationandnewmodellaunches.TheAmericasregionwasadverselyimpactedbymarketweaknessinNorthAmericaandmacroeconomicconditionsinSouthAmerica.
• Commercialtransportation—Ourorganicnetsalesincreased2.6%infiscal2016dueprimarilytogrowthintheheavytruckmarketintheEMEAregionandChina.
• Sensors—Ourorganicnetsalesincreased3.1%infiscal2016dueprimarilytoincreasedsalesintheautomotive,aerospaceanddefense,andindustrialequipmentmarkets.
NetsalesintheTransportationSolutionssegmentincreased$261million,or4.3%,infiscal2015ascomparedtofiscal2014asaresultofsalescontributionsfromacquisitionsof9.3%andorganicnetsalesgrowthof4.1%,partiallyoffsetbythenegativeimpactofforeigncurrencytranslationof9.1%.
34
Fiscal 2016 2015 2014 ($inmillions) Automotive $ 4,912 75% $ 4,780 75% $ 4,995 82%CommercialTransportation 825 13 820 13 893 15Sensors 766 12 751 12 202 3Total $ 6,503 100% $ 6,351 100% $ 6,090 100%
(1) Industryendmarketinformationispresentedconsistentlywithourinternalmanagementreportingandmayberevisedperiodicallyasmanagementdeemsnecessary.
Fiscal 2016 2015 ChangeinNetSalesversusPriorFiscalYear ChangeinNetSalesversusPriorFiscalYear Total Translation Acquisition Organic Total Translation Acquisitions Organic ($inmillions) Automotive $ 132 2.8% $ (134) $ — $ 266 5.6% $ (215) (4.3)% $ (469) $ — $ 254 5.1%CommercialTransportation 5 0.6 (16) — 21 2.6 (73) (8.2) (66) — (7) (0.8)Sensors 15 2.0 (24) 16 23 3.1 549 271.8 (21) 567 3 1.9Total $ 152 2.4% $ (174) $ 16 $ 310 4.9% $ 261 4.3% $ (556) $ 567 $ 250 4.1%
TableofContents
MeasurementSpecialtiescontributednetsalesof$548millionduringfiscal2015.Ourorganicnetsalesbyprimaryindustryendmarketwereasfollows:
• Automotive—Ourorganicnetsalesincreased5.1%infiscal2015withgrowthof8.2%intheAsia–Pacificregion,4.4%intheEMEAregion,and0.8%intheAmericasregion.GrowthintheAsia–PacificandEMEAregionsandNorthAmericawasdrivenprimarilybyincreasedcontentpervehicle.ThisgrowthwaspartiallyoffsetbyweaknessinSouthAmericadrivenbylowerproductionvolumesinBrazil.
• Commercialtransportation—Ourorganicnetsalesdecreased0.8%infiscal2015duetolowerdemandintheagriculturemarketacrossallregions,partiallyoffsetbygrowthintheheavytruckmarketindevelopedcountries.
• Sensors—Ourorganicnetsalesincreased1.9%infiscal2015dueprimarilytoincreasedsalesintheautomotivemarketresultingfromnewproductlaunchesinChinaandincreasedvolumeinJapan,partiallyoffsetbymarketweaknessinKoreaandEasternEurope.
Operating Income. ThefollowingtablepresentstheTransportationSolutionssegment'soperatingincomeandoperatingmargininformation:
TheTransportationSolutionssegment'soperatingincomeincludedthefollowing:
OperatingincomeintheTransportationSolutionssegmentwasflatinfiscal2016ascomparedtofiscal2015.Excludingtheitemspresentedinthetableabove,operatingincomedecreasedinfiscal2016primarilyasaresultofpriceerosionandthenegativeimpactofchangesinforeigncurrencyexchangerates,partiallyoffsetbylowermaterialcosts.
Infiscal2015,operatingincomeintheTransportationSolutionssegmentdecreased$52millionascomparedtofiscal2014.Excludingtheitemspresentedinthetableabove,operatingincomeincreasedinfiscal2015dueprimarilytohighervolumeandimprovedmanufacturingproductivity,partiallyoffsetbythenegativeimpactofchangesinforeigncurrencyexchangeratesandpriceerosion.
35
Fiscal
Fiscal2016versus2015
Fiscal2015versus2014
2016 2015 2014 ($inmillions) Operatingincome $ 1,191 $ 1,193 $ 1,245 $ (2) $ (52)Operatingmargin 18.3% 18.8% 20.4% (0.5)% (1.6)%
Fiscal 2016 2015 2014 (inmillions) Acquisitionrelatedcharges: Acquisitionandintegrationcosts $ 9 $ 28 $ 4Chargesassociatedwiththeamortizationofacquisition-relatedfairvalueadjustments — 30 —Restructuringchargesrelatedtoacquisitions — 3 —
9 61 4Restructuringandothercharges,net 46 39 4Total $ 55 $ 100 $ 8
TableofContents
IndustrialSolutions
Net Sales. ThefollowingtablepresentstheIndustrialSolutionssegment'snetsalesandthepercentageoftotalnetsalesbyprimaryindustryendmarket(1):
ThefollowingtableprovidesananalysisofthechangeintheIndustrialSolutionssegment'snetsalescomparedtothepriorfiscalyearbyprimaryindustryendmarket:
NetsalesintheIndustrialSolutionssegmentincreased$36million,or1.1%,infiscal2016ascomparedtofiscal2015duetosalescontributionsfromacquisitionsof5.9%,partiallyoffsetbyorganicnetsalesdeclinesof2.8%andthenegativeimpactofforeigncurrencytranslationof2.0%.Fiscal2016includedanadditionalweekwhichcontributed$65millioninnetsales.Ourorganicnetsalesbyprimaryindustryendmarketwereasfollows:
• Industrialequipment—Ourorganicnetsalesdecreased5.2%infiscal2016asaresultofmarketweaknessintheAmericasandAsia–Pacificregions.
• Aerospace,defense,oil,andgas—Ourorganicnetsalesdecreased3.8%infiscal2016.Thedecreasewasattributabletodeclinesintheoilandgasmarket,partiallyoffsetbygrowthintheaerospaceanddefensemarket.Intheoilandgasmarket,ourorganicnetsalesdecreasewasduetocontinuedmarketweaknessresultingfromdeclinesinoilprices.Intheaerospaceanddefensemarket,ourorganicnetsalesincreaseddueprimarilytostrengthinourcommercialaerospacebusinessresultingfromcustomergrowthandmarketsharegains.
• Energy—Ourorganicnetsalesincreased3.6%infiscal2016primarilyasaresultofgrowthintheAmericasandEMEAregions.
IntheIndustrialSolutionssegment,netsalesdecreased$123million,or3.7%,infiscal2015fromfiscal2014dueprimarilytothenegativeimpactofforeigncurrencytranslationof7.8%,partiallyoffsetbysalescontributionsfromacquisitionsof4.3%.Ourorganicnetsalesbyprimaryindustryendmarketwereasfollows:
• Industrialequipment—Ourorganicnetsalesincreased0.9%infiscal2015asgrowthintheAsia–PacificandEMEAregionswaspartiallyoffsetbylowerdemandintheAmericasregion.
36
Fiscal 2016 2015 2014 ($inmillions) IndustrialEquipment $ 1,419 44% $ 1,323 42% $ 1,364 41%Aerospace,Defense,Oil,andGas 1,100 34 1,151 36 1,140 35Energy 696 22 705 22 798 24Total $ 3,215 100% $ 3,179 100% $ 3,302 100%
(1) Industryendmarketinformationispresentedconsistentlywithourinternalmanagementreportingandmayberevisedperiodicallyasmanagementdeemsnecessary.
Fiscal 2016 2015 ChangeinNetSalesversusPriorFiscalYear ChangeinNetSalesversusPriorFiscalYear Total Translation Acquisitions Organic Total Translation Acquisitions Organic ($inmillions) IndustrialEquipment $ 96 7.3%$ (14) $ 179 $ (69) (5.2)%$ (41) (3.0)%$ (96) $ 43 $ 12 0.9%Aerospace,Defense,Oil,andGas (51) (4.4) (15) 9 (45) (3.8) 11 1.0 (71) 99 (17) (1.5)Energy (9) (1.3) (34) — 25 3.6 (93) (11.7) (91) — (2) (0.3)Total $ 36 1.1%$ (63) $ 188 $ (89) (2.8)%$ (123) (3.7)%$ (258) $ 142 $ (7) (0.2)%
TableofContents
• Aerospace,defense,oil,andgas—Ourorganicnetsalesdecreased1.5%infiscal2015dueprimarilytoweaknessintheoilandgasmarketresultingfromoilpricedeclinesandmarketuncertainty,partiallyoffsetbycontinuedstrengthinourcommercialaerospacebusiness.
• Energy—Ourorganicnetsaleswereflatinfiscal2015asgrowthintheAmericasregionwasoffsetbydeclinesintheAsia–Pacificregion.
Operating Income. ThefollowingtablepresentstheIndustrialSolutionssegment'soperatingincomeandoperatingmargininformation:
TheIndustrialSolutionssegment'soperatingincomeincludedthefollowing:
OperatingincomeintheIndustrialSolutionssegmentdecreased$9millioninfiscal2016ascomparedtofiscal2015.Excludingtheitemspresentedinthetableabove,operatingincomedecreasedinfiscal2016dueprimarilytounfavorableproductmixandpriceerosion,partiallyoffsetbylowermaterialcosts.
Infiscal2015,operatingincomeintheIndustrialSolutionssegmentdecreased$79millionascomparedtofiscal2014.Excludingtheitemspresentedinthetableabove,operatingincomedecreasedinfiscal2015primarilyasaresultofthenegativeimpactofchangesinforeigncurrencyexchangeratesandpriceerosion.
37
Fiscal
Fiscal2016versus2015
Fiscal2015versus2014
2016 2015 2014 ($inmillions) Operatingincome $ 343 $ 352 $ 431 $ (9) $ (79)Operatingmargin 10.7% 11.1% 13.1% (0.4)% (2.0)%
Fiscal 2016 2015 2014 (inmillions) Acquisitionrelatedcharges: Acquisitionandintegrationcosts $ 13 $ 27 $ 27Chargesassociatedwiththeamortizationofacquisition-relatedfairvalueadjustments 10 6 4
23 33 31Restructuringandothercharges,net 31 44 7Total $ 54 $ 77 $ 38
TableofContents
CommunicationsSolutions
Net Sales. ThefollowingtablepresentstheCommunicationsSolutionssegment'snetsalesandthepercentageoftotalnetsalesbyprimaryindustryendmarket(1):
ThefollowingtableprovidesananalysisofthechangeintheCommunicationsSolutionssegment'snetsalescomparedtothepriorfiscalyearbyprimaryindustryendmarket:
Infiscal2016,netsalesintheCommunicationsSolutionssegmentdecreased$183million,or6.8%,ascomparedtofiscal2015duetosalesdeclinesresultingfromadivestitureof4.6%,organicnetsalesdeclinesof1.6%,andthenegativeimpactofforeigncurrencytranslationof0.6%.Fiscal2016includedanadditionalweekwhichcontributed$43millioninnetsales.Ourorganicnetsalesbyprimaryindustryendmarketwereasfollows:
• Dataanddevices—Ourorganicnetsalesdecreased17.8%infiscal2016asaresultofstrategicexitofcertainlowmarginproductlinesandmarketweaknessinallregions.
• Subseacommunications—Ourorganicnetsalesincreased24.8%infiscal2016duetoincreasedlevelsofprojectactivity.
• Appliances—Ourorganicnetsalesdecreased1.8%infiscal2016dueprimarilytohighinventorylevelsatdistributorsinthefirsthalfoftheyearandlowerdemandintheAsia–PacificandAmericasregions,partiallyoffsetbygrowthintheEMEAregion.
NetsalesintheCommunicationsSolutionssegmentincreased$122million,or4.7%,infiscal2015ascomparedtofiscal2014asaresultoforganicnetsalesgrowthof8.4%,partiallyoffsetbythenegativeimpactofforeigncurrencytranslationof3.7%.Ourorganicnetsalesbyprimaryindustryendmarketwereasfollows:
• Dataanddevices—Ourorganicnetsalesdecreased13.6%infiscal2015duetocontinueddeclinesinoursalesinthefeaturephoneandtabletcomputermarkets,weakdemandinthesmartphonebusiness,andtheexitofcertainlowmarginproductlines.
• Subseacommunications—Ourorganicnetsalesincreased150.5%infiscal2015asaresultofincreasedlevelsofprojectactivity.
38
Fiscal 2016 2015 2014 ($inmillions) DataandDevices $ 1,020 40% $ 1,357 50% $ 1,641 64%SubseaCommunications 885 35 709 26 283 11Appliances 615 25 637 24 657 25Total $ 2,520 100% $ 2,703 100% $ 2,581 100%
(1) Industryendmarketinformationispresentedconsistentlywithourinternalmanagementreportingandmayberevisedperiodicallyasmanagementdeemsnecessary.
Fiscal 2016 2015 ChangeinNetSalesversusPriorFiscalYear ChangeinNetSalesversusPriorFiscalYear Total Translation Divestiture Organic Total Translation Organic ($inmillions) DataandDevices $ (337) (24.8)% $ (6) $ (123) $ (208) (17.8)% $ (284) (17.3)% $ (60) $ (224) (13.6)%SubseaCommunications 176 24.8 — — 176 24.8 426 150.5 — 426 150.5Appliances (22) (3.5) (11) — (11) (1.8) (20) (3.0) (35) 15 2.3Total $ (183) (6.8)% $ (17) $ (123) $ (43) (1.6)% $ 122 4.7% $ (95) $ 217 8.4%
TableofContents
• Appliances—Ourorganicnetsalesincreased2.3%infiscal2015withincreaseddemandintheEMEAregionandareboundintheU.S.market,partiallyoffsetbylowerdemandintheAsia–Pacificregion.
Operating Income. ThefollowingtablepresentstheCommunicationsSolutionssegment'soperatingincomeandoperatingmargininformation:
TheCommunicationsSolutionssegment'soperatingincomeincludedthefollowing:
OperatingincomeintheCommunicationsSolutionssegmentincreased$164millioninfiscal2016ascomparedtofiscal2015,primarilyasaresultofthedivestitureoftheCPDbusiness.Excludingtheitemspresentedinthetableabove,operatingincomeincreasedinfiscal2016asaresultoflowermaterialcostsandsavingsattributabletorestructuringactions,partiallyoffsetbytheimpactofunfavorableproductmix,lowervolume,andpriceerosion.
Infiscal2015,operatingincomeintheCommunicationsSolutionssegmentincreased$75millionascomparedtofiscal2014.Excludingtheitemspresentedinthetableabove,operatingincomeincreasedinfiscal2015,dueprimarilytoimprovedmanufacturingproductivity,partiallyoffsetbypriceerosion.
LiquidityandCapitalResources
Thefollowingtablesummarizesourcashflowfromoperating,investing,andfinancingactivities,asreflectedontheConsolidatedStatementsofCashFlows:
Ourabilitytofundourfuturecapitalneedswillbeaffectedbyourabilitytocontinuetogeneratecashfromoperationsandmaybeaffectedbyourabilitytoaccessthecapitalmarkets,moneymarkets,orothersourcesoffunding,aswellasthecapacityandtermsofourfinancingarrangements.Webelievethatcashgeneratedfromoperationsand,totheextentnecessary,theseothersourcesofpotentialfundingwillbesufficienttomeetouranticipatedcapitalneedsfortheforeseeablefuture.Wemayuseexcesscashtopurchaseaportionofourcommonsharespursuanttoourauthorizedsharerepurchaseprogram;toacquirestrategicbusinessesorproductlines;topaydistributionsordividends
39
Fiscal
Fiscal2016versus2015
Fiscal2015versus2014
2016 2015 2014 ($inmillions) Operatingincome $ 368 $ 204 $ 129 $ 164 $ 75Operatingmargin 14.6% 7.5% 5.0% 7.1% 2.5%
Fiscal 2016 2015 2014 (inmillions)
Restructuringandothercharges(credits),net $ (75)(1) $ 66 $ 8
(1) Includespre-taxgainof$144milliononthesaleofourCPDbusinessduringfiscal2016.
Fiscal 2016 2015 2014 (inmillions) Netcashprovidedbyoperatingactivities $ 1,922 $ 1,913 $ 2,083Netcashprovidedby(usedin)investingactivities (1,581) 636 (1,075)Netcashprovidedby(usedin)financingactivities (3,030) (1,606) 65Effectofcurrencytranslationoncash 7 (71) (19)Netincrease(decrease)incashandcashequivalents $ (2,682) $ 872 $ 1,054
TableofContents
onourcommonshares;ortoreduceouroutstandingdebt,includingthroughthepossiblerepurchaseofourdebtinaccordancewithapplicablelaw.Thecostoravailabilityoffuturefundingmaybeimpactedbyfinancialmarketconditions.Wewillcontinuetomonitorfinancialmarketsandrespondasnecessarytochangingconditions.
Asoffiscalyearend2016,ourcashandcashequivalentswereheldinsubsidiarieswhicharelocatedinvariouscountriesthroughouttheworld.Undercurrentapplicablelaws,substantiallyalloftheseamountscanberepatriatedtoTycoElectronicsGroupS.A.("TEGSA"),ourLuxembourgsubsidiary,whichistheobligorofsubstantiallyallofourdebt,andtoTEConnectivityLtd.,ourSwissparentcompany;however,therepatriationoftheseamountscouldsubjectustoadditionaltaxexpense.WeprovidefortaxliabilitiesontheConsolidatedFinancialStatementswithrespecttoamountsthatweexpecttorepatriate;however,notaxliabilitiesarerecordedforamountsthatweconsidertoberetainedindefinitelyandreinvestedinourglobalmanufacturingoperations.Asoffiscalyearend2016,wehadapproximately$6.9billionofcash,cashequivalents,andintercompanydeposits,principallyinoursubsidiaries,thatwehavetheabilitytodistributetoTEGSAandTEConnectivityLtd.butweconsidertobepermanentlyreinvested.Weestimatethatuptoapproximately$1.5billionoftaxexpensewouldberecognizedontheConsolidatedFinancialStatementsifourintentiontopermanentlyreinvesttheseamountsweretochange.Ourcurrentplansdonotdemonstrateaneedtorepatriatecash,cashequivalents,andintercompanydepositsthataredesignatedaspermanentlyreinvestedinordertofundouroperations,includinginvestingandfinancingactivities.
CashFlowsfromOperatingActivities
Netcashprovidedbycontinuingoperatingactivitieswas$2,019millioninfiscal2016ascomparedto$1,619millioninfiscal2015.Theincreaseresultedprimarilyfromfavorableeffectsofchangesinaccountsreceivableandinventorylevels,partiallyoffsetbyanincreaseinnetpaymentsrelatedtopre-separationtaxmatters.
Netcashprovidedbycontinuingoperatingactivitiesdecreased$185millionto$1,619millioninfiscal2015ascomparedto$1,804millioninfiscal2014.Thedecreaseresultedprimarilyfromtheunfavorableeffectsofchangesinworkingcapitallevels,partiallyoffsetbyadecreaseinnetpaymentsrelatedtopre-separationtaxmatters.
Pensioncontributionsinfiscal2016,2015,and2014were$67million,$66million,and$87million,respectively.Weexpectpensioncontributionstobe$54millioninfiscal2017,beforeconsiderationofanyvoluntarycontributions.Therewerenovoluntarypensioncontributionsinfiscal2016,2015,and2014.
Theamountofincometaxespaid,netofrefunds,duringfiscal2016,2015,and2014was$806million,$350million,and$259million,respectively.Infiscal2016and2015,thesepaymentsincluded$471millionand$47million,respectively,fortaxdeficienciesrelatedtopre-separationtaxmatters.Alsoduringfiscal2016and2015,wereceivednetreimbursementsof$321millionand$7million,respectively,fromTycoInternationalandCovidienpursuanttotheirindemnificationsforpre-separationtaxmatters.Duringfiscal2014,wemadenetpaymentsof$179milliontoTycoInternationalandCovidienpursuanttoourindemnificationsforpre-separationtaxmatters.SeeNote12totheConsolidatedFinancialStatementsforadditionalinformationrelatedtopre-separationtaxmatters.
Inadditiontonetcashprovidedbyoperatingactivities,weusefreecashflow,anon-GAAPfinancialmeasure,asausefulmeasureofourabilitytogeneratecash.Freecashflowwas$1,585millioninfiscal2016ascomparedto$1,076millioninfiscal2015and$1,477millioninfiscal2014.Theincreaseinfreecashflowinfiscal2016ascomparedtofiscal2015wasdrivenprimarilybyfavorableeffectsofchangesinaccountsreceivableandinventorylevels.Thedecreaseinfreecashflowinfiscal2015ascomparedtofiscal2014wasdrivenprimarilybythechangesinnetcashprovidedbycontinuingoperatingactivitiesdiscussedaboveandhigherproceedsfromthesaleofproperty,plant,andequipmentinfiscal2014.
40
TableofContents
Thefollowingtablesetsforthareconciliationofnetcashprovidedbycontinuingoperatingactivities,themostcomparableGAAPfinancialmeasure,tofreecashflow.
CashFlowsfromInvestingActivities
Capitalexpenditureswere$628million,$600million,and$635millioninfiscal2016,2015,and2014,respectively.Weexpectfiscal2017capitalspendinglevelstobeapproximately5%ofnetsales.Webelieveourcapitalfundinglevelsareadequatetosupportnewprograms,andwecontinuetoinvestinourmanufacturinginfrastructuretofurtherenhanceproductivityandmanufacturingcapabilities.
Proceedsfromthesaleofproperty,plant,andequipmentforfiscal2014includedapproximately$100millionrelatedtothesaleofrealestate.
Duringfiscal2016,weacquiredfourbusinesses,includingCreganna,foracombinedcashpurchasepriceof$1.3billion,netofcashacquired.Duringfiscal2015,weacquiredMeasurementSpecialties.Thetotalvaluepaidforthetransactionwasapproximately$1.7billion,netofcashacquired,andincluded$225millionfortherepaymentofMeasurementSpecialties'debtandaccruedinterest.Alsoduringfiscal2015,weacquiredthreeadditionalbusinessesfor$241millionincash,netofcashacquired.Duringfiscal2014,weacquiredfivebusinessesfor$522millionincash,netofcashacquired.SeeadditionalinformationinNote5totheConsolidatedFinancialStatements.
Duringfiscal2016,wereceivednetcashproceedsof$333millionrelatedtothesaleofourCPDbusiness.SeeadditionalinformationinNote3totheConsolidatedFinancialStatements.
Duringfiscal2015,wereceivednetcashproceedsof$3.0billionrelatedtothesaleofourBNSbusiness.SeeadditionalinformationinNote4totheConsolidatedFinancialStatements.
CashFlowsfromFinancingActivitiesandCapitalization
Totaldebtatfiscalyearend2016and2015was$4,070millionand$3,884million,respectively.SeeNote11totheConsolidatedFinancialStatementsforadditionalinformationregardingdebt.
DuringJanuary2016,TEGSA,our100%-ownedsubsidiary,issued$350millionaggregateprincipalamountof3.700%seniornotesdueFebruary15,2026.ThenotesareTEGSA'sunsecuredseniorobligationsandrankequallyinrightofpaymentwithallexistingandanyfutureseniorindebtednessofTEGSAandseniortoanysubordinatedindebtednessthatTEGSAmayincur.
TEGSAhasafive-yearunsecuredseniorrevolvingcreditfacility("CreditFacility")withtotalcommitmentsof$1,500million.TheCreditFacilitywasamendedinDecember2015primarilytoextendthematuritydatefromAugust2018toDecember2020.TEGSAhadnoborrowingsundertheCreditFacilityatfiscalyearend2016and2015.
41
Fiscal 2016 2015 2014 (inmillions) Netcashprovidedbycontinuingoperatingactivities $ 2,019 $ 1,619 $ 1,804Excluding: Paymentsrelatedtopre-separationU.S.taxmatters,net 150 40 179PaymentsrelatedtoincometaxesonthesaleoftheBNSbusiness 36 — —
Capitalexpenditures (628) (600) (635)Proceedsfromsaleofproperty,plant,andequipment 8 17 129Freecashflow $ 1,585 $ 1,076 $ 1,477
TableofContents
TheCreditFacilitycontainsafinancialratiocovenantprovidingthatif,asofthelastdayofeachfiscalquarter,ourratioofConsolidatedTotalDebttoConsolidatedEBITDA(asdefinedintheCreditFacility)forthethenmostrecentlyconcludedperiodoffourconsecutivefiscalquartersexceeds3.75to1.0,anEventofDefault(asdefinedintheCreditFacility)istriggered.TheCreditFacilityandourotherdebtagreementscontainothercustomarycovenants.Noneofourcovenantsarepresentlyconsideredrestrictivetoouroperations.Asoffiscalyearend2016,wewereincompliancewithallofourdebtcovenantsandbelievethatwewillcontinuetobeincompliancewithourexistingcovenantsfortheforeseeablefuture.
Periodically,TEGSAissuescommercialpapertoU.S.institutionalaccreditedinvestorsandqualifiedinstitutionalbuyersinaccordancewithavailableexemptionsfromtheregistrationrequirementsoftheSecuritiesActof1933aspartofourongoingefforttomaintainfinancialflexibilityandtopotentiallydecreasethecostofborrowings.BorrowingsunderthecommercialpaperprogramarebackedbytheCreditFacility.
TEGSA'spaymentobligationsunderitsseniornotes,commercialpaper,andCreditFacilityarefullyandunconditionallyguaranteedbyitsparent,TEConnectivityLtd.
Paymentsofcommonsharedividendstoshareholderswere$509million,$502million,and$443millioninfiscal2016,2015,and2014,respectively.SeeNote18totheConsolidatedFinancialStatementsforadditionalinformationregardingdividendsandcashdistributionsonourcommonshares.
Futuredividendsonourcommonsharesorreductionsofregisteredsharecapitalfordistributiontoshareholders,ifany,mustbeapprovedbyourshareholders.Inexercisingtheirdiscretiontorecommendtotheshareholdersthatsuchdividendsordistributionsbeapproved,ourboardofdirectorswillconsiderourresultsofoperations,cashrequirementsandsurplus,financialcondition,statutoryrequirementsofapplicablelaw,contractualrestrictions,andotherfactorsthattheymaydeemrelevant.
Duringfiscal2016,ourboardofdirectorsauthorizedanincreaseof$1.0billioninthesharerepurchaseprogram.Werepurchasedapproximately43millionofourcommonsharesfor$2,610million,18millionofourcommonsharesfor$1,163million,and11millionofourcommonsharesfor$604millionunderthesharerepurchaseprogramduringfiscal2016,2015,and2014,respectively.Atfiscalyearend2016,wehad$1.1billionofavailabilityremainingunderoursharerepurchaseauthorization.
CommitmentsandContingencies
Thefollowingtableprovidesasummaryofourcontractualobligationsandcommitmentsfordebt,minimumleasepaymentobligationsundernon-cancelableleases,andotherobligationsatfiscalyearend2016:
42
PaymentsDuebyFiscalYear Total 2017 2018 2019 2020 2021 Thereafter (inmillions)
Debt(1) $ 4,061 $ 331 $ 708 $ 576 $ 1 $ 250 $ 2,195Interestpaymentsondebt(2) 1,228 152 129 102 92 86 667Operatingleases 444 106 86 66 47 41 98Purchaseobligations(3) 324 309 8 2 1 — 4Totalcontractualcashobligations(4)(5)(6) $ 6,057 $ 898 $ 931 $ 746 $ 141 $ 377 $ 2,964
(1) Debtrepresentsprincipalpayments.SeeNote11totheConsolidatedFinancialStatementsforadditionalinformationregardingdebt.
TableofContents
LegalProceedings
Inthenormalcourseofbusiness,wearesubjecttovariouslegalproceedingsandclaims,includingpatentinfringementclaims,productliabilitymatters,employmentdisputes,disputesonagreements,othercommercialdisputes,environmentalmatters,antitrustclaims,andtaxmatters,includingnon-incometaxmatterssuchasvalueaddedtax,salesandusetax,realestatetax,andtransfertax.Althoughitisnotfeasibletopredicttheoutcomeoftheseproceedings,baseduponourexperience,currentinformation,andapplicablelaw,wedonotexpectthattheoutcomeoftheseproceedings,eitherindividuallyorintheaggregate,willhaveamaterialeffectonourresultsofoperations,financialposition,orcashflows.
Off-BalanceSheetArrangements
Incertaininstances,wehaveguaranteedtheperformanceofthirdpartiesandprovidedfinancialguaranteesforuncompletedworkandfinancialcommitments.Thetermsoftheseguaranteesvarywithenddatesrangingfromfiscal2017throughthecompletionofsuchtransactions.Theguaranteeswouldbetriggeredintheeventofnonperformance,andthepotentialexposurefornonperformanceundertheguaranteeswouldnothaveamaterialeffectonourresultsofoperations,financialposition,orcashflows.
Indisposingofassetsorbusinesses,weoftenproviderepresentations,warranties,and/orindemnitiestocovervariousrisksincludingunknowndamagetoassets,environmentalrisksinvolvedinthesaleofrealestate,liabilityforinvestigationandremediationofenvironmentalcontaminationatwastedisposalsitesandmanufacturingfacilities,andunidentifiedtaxliabilitiesandlegalfeesrelatedtoperiodspriortodisposition.Wedonotexpectthattheseuncertaintieswillhaveamaterialadverseeffectonourresultsofoperations,financialposition,orcashflows.
Atfiscalyearend2016,wehadoutstandinglettersofcredit,lettersofguarantee,andsuretybondsof$324million.
Inthenormalcourseofbusiness,weareliableforcontractcompletionandproductperformance.Intheopinionofmanagement,suchobligationswillnotsignificantlyaffectourresultsofoperations,financialposition,orcashflows.
43
(2) Interestpaymentsexcludetheimpactofourinterestrateswaps.
(3) Purchaseobligationsconsistprimarilyofcommitmentsforpurchasesofgoodsandservices.
(4) Thetableabovedoesnotreflectunrecognizedincometaxbenefitsof$490millionandrelatedaccruedinterestandpenaltiesof$54million,thetimingofwhichisuncertain.SeeNote15totheConsolidatedFinancialStatementsforadditionalinformationregardingunrecognizedincometaxbenefits,interest,andpenalties.
(5) Thetableabovedoesnotreflectpensionobligationstocertainemployeesandformeremployees.Weareobligatedtomakecontributionstoourpensionplans;however,weareunabletodeterminetheamountofplancontributionsduetotheinherentuncertaintiesofobligationsofthistype,includingtiming,interestratecharges,investmentperformance,andamountsofbenefitpayments.Weexpecttocontribute$54milliontopensionplansinfiscal2017,beforeconsiderationofvoluntarycontributions.TheseplansandourestimatesoffuturecontributionsandbenefitpaymentsaremorefullydescribedinNote14totheConsolidatedFinancialStatements.
(6) Otherlong-termliabilitiesof$362millionareexcludedfromthetableaboveasweareunabletoestimatethetimingofpaymentfortheseitems.
TableofContents
CriticalAccountingPoliciesandEstimates
ThepreparationoftheConsolidatedFinancialStatementsinconformitywithGAAPrequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilities,thedisclosureofcontingentassetsandliabilities,andthereportedamountsofrevenueandexpenses.OursignificantaccountingpoliciesaresummarizedinNote2totheConsolidatedFinancialStatements.Thefollowingaccountingpoliciesareconsideredtobethemostcriticalastheyrequiresignificantjudgmentsandassumptionsthatinvolveinherentrisksanduncertainties.Management'sestimatesarebasedontherelevantinformationavailableattheendofeachperiod.
RevenueRecognition
OurrevenuerecognitionpoliciesareinaccordancewithAccountingStandardsCodification("ASC")605,RevenueRecognition.Ourrevenuesaregeneratedprincipallyfromthesaleofourproducts.Revenuefromthesaleofproductsisrecognizedatthetimetitleandtherisksandrewardsofownershippasstothecustomer.Thisgenerallyoccurswhentheproductsreachtheshippingpoint,thesalespriceisfixedanddeterminable,andcollectionisreasonablyassured.Areserveforestimatedreturnsisestablishedatthetimeofsalebasedonhistoricalreturnexperienceandisrecordedasareductionofsales.Otherallowancesincludecustomerquantityandpricediscrepancies.Areserveforotherallowancesisgenerallyestablishedatthetimeofsalebasedonhistoricalexperienceandalsoisrecordedasareductionofsales.
Contractrevenuesforconstructionrelatedprojects,whicharegeneratedintheCommunicationsSolutionssegment,arerecordedprimarilyusingthepercentage-of-completionmethod.Profitsrecognizedoncontractsinprocessarebaseduponestimatedcontractrevenueandrelatedcosttocomplete.Percentage-of-completionismeasuredbasedontheratioofactualcostsincurredtototalestimatedcosts.Revisionsincostestimatesascontractsprogresshavetheeffectofincreasingordecreasingprofitsinthecurrentperiod.Provisionsforanticipatedlossesaremadeintheperiodinwhichtheyfirstbecomedeterminable.Inaddition,provisionsforcreditlossesrelatedtoconstructionrelatedprojectsarerecordedasreductionsofrevenueintheperiodinwhichtheyfirstbecomedeterminable.
GoodwillandOtherIntangibleAssets
Intangibleassetsincludebothindeterminable-livedresidualgoodwillanddeterminable-livedidentifiableintangibleassets.Intangibleassetswithadeterminablelifeprimarilyincludeintellectualproperty,consistingofpatents,trademarks,andunpatentedtechnology,aswellascustomerrelationships.Recoverabilityestimatesrangefrom1to50yearsandcostsaregenerallyamortizedonastraight-linebasis.Anevaluationoftheremainingusefullifeofdeterminable-livedintangibleassetsisperformedonaperiodicbasisandwheneventsandcircumstanceswarrantanevaluation.
Wetestforgoodwillimpairmentatthereportingunitlevel.Areportingunitisgenerallyanoperatingsegmentoronelevelbelowanoperatingsegmentthatconstitutesabusinessforwhichdiscretefinancialinformationisavailableandregularlyreviewedbysegmentmanagement.Atfiscalyearend2016,wehadsixreportingunits,fiveofwhichcontainedgoodwill.Thereweretworeportingunitsineachofourthreesegments.Whenchangesoccurinthecompositionofoneormorereportingunits,goodwillisreassignedtothereportingunitsaffectedbasedontheirrelativefairvalues.Wereviewourreportingunitstructureeachyearaspartofourannualgoodwillimpairmenttest,ormorefrequentlybasedonchangesinourstructure.
Goodwillimpairmentisevaluatedbycomparingthecarryingvalueofeachreportingunittoitsfairvalueonthefirstdayofthefourthfiscalquarterofeachyearorwheneverwebelieveatriggeringeventrequiringamorefrequentassessmenthasoccurred.Inassessingtheexistenceofatriggeringevent,managementreliesonanumberofreportingunit-specificfactorsincludingoperatingresults,
44
TableofContents
businessplans,economicprojections,anticipatedfuturecashflows,transactions,andmarketplacedata.Thereareinherentuncertaintiesrelatedtothesefactorsandmanagement'sjudgmentinapplyingthesefactorstotheimpairmentanalysis.
Whentestingforgoodwillimpairment,weperformastepIgoodwillimpairmenttesttoidentifypotentialimpairmentbycomparingthefairvalueofareportingunitwithitscarryingamount.Ifthecarryingamountofareportingunitexceedsitsfairvalue,goodwillmaybeimpairedandastepIIgoodwillimpairmenttestisperformedtomeasuretheamountofimpairment,ifany.InthestepIIgoodwillimpairmenttest,wecomparetheimpliedfairvalueofreportingunitgoodwillwiththecarryingamountofthatgoodwill.Ifthecarryingamountofreportingunitgoodwillexceedstheimpliedfairvalueofthatgoodwill,animpairmentlossisrecognizedinanamountequaltotheexcess.Theimpliedfairvalueofgoodwillisdeterminedinamannerconsistentwithhowgoodwillisrecognizedinabusinesscombination.Weallocatethefairvalueofareportingunittoalloftheassetsandliabilitiesofthatunit,includingintangibleassets,asifthereportingunithadbeenacquiredinabusinesscombination.Anyexcessofthefairvalueofareportingunitovertheamountsassignedtoitsassetsandliabilitiesistheimpliedfairvalueofgoodwill.
FairvalueestimatesusedinthestepIgoodwillimpairmenttestsarecalculatedusinganincomeapproachbasedonthepresentvalueoffuturecashflowsofeachreportingunit.Theincomeapproachgenerallyhasbeensupportedbyguidelineanalyses(amarketapproach).Theseapproachesincorporateanumberofassumptionsincludingfuturegrowthrates,discountrates,incometaxrates,andmarketactivityinassessingfairvalueandarereportingunitspecific.Changesineconomicandoperatingconditionsimpactingtheseassumptionscouldresultingoodwillimpairmentsinfutureperiods.
Wecompletedourannualgoodwillimpairmenttestinthefourthquarteroffiscal2016anddeterminedthatnoimpairmentexisted.
IncomeTaxes
Indeterminingincomeforfinancialstatementpurposes,wemustmakecertainestimatesandjudgments.Theseestimatesandjudgmentsaffectthecalculationofcertaintaxliabilitiesandthedeterminationoftherecoverabilityofcertaindeferredtaxassets,whicharisefromtemporarydifferencesbetweentheincometaxreturnandfinancialstatementrecognitionofrevenueandexpense.
Inevaluatingourabilitytorecoverourdeferredtaxassets,weconsiderallavailablepositiveandnegativeevidenceincludingourpastoperatingresults,theexistenceofcumulativelossesinthemostrecentyears,andourforecastoftaxableincome.Inestimatingfuturetaxableincome,wedevelopassumptionsincludingtheamountoffuturestate,federal,andnon-U.S.pre-taxoperatingincome,thereversaloftemporarydifferences,andtheimplementationoffeasibleandprudenttaxplanningstrategies.Theseassumptionsrequiresignificantjudgmentabouttheforecastsoftaxableincomeandareconsistentwiththeplansandestimatesweareusingtomanagetheunderlyingbusinesses.
Wecurrentlyhaverecordedsignificantvaluationallowancesthatweintendtomaintainuntilitismorelikelythannotthedeferredtaxassetswillberealized.Ourincometaxexpenserecordedinthefuturewillbereducedtotheextentofdecreasesinourvaluationallowances.Therealizationofourremainingdeferredtaxassetsisdependentprimarilyonfuturetaxableincomeintheappropriatejurisdictions.Anyreductioninfuturetaxableincomeincludinganyfuturerestructuringactivitiesmayrequirethatwerecordanadditionalvaluationallowanceagainstourdeferredtaxassets.Anincreaseinthevaluationallowancewouldresultinadditionalincometaxexpenseinsuchperiodandcouldhaveasignificantimpactonourfutureearnings.
Changesintaxlawsandratesalsocouldaffectrecordeddeferredtaxassetsandliabilitiesinthefuture.Managementisnotawareofanysuchchangesthatwouldhaveamaterialeffectonourresultsofoperations,financialposition,orcashflows.
45
TableofContents
Inaddition,thecalculationofourtaxliabilitiesincludesestimatesforuncertaintiesintheapplicationofcomplextaxregulationsacrossmultipleglobaljurisdictionswhereweconductouroperations.UndertheuncertaintaxpositionprovisionsofASC740,IncomeTaxes,werecognizeliabilitiesfortaxandrelatedinterestforissuesintheU.S.andothertaxjurisdictionsbasedonourestimateofwhether,andtheextenttowhich,additionaltaxesandrelatedinterestwillbedue.Thesetaxliabilitiesandrelatedinterestarereflectednetoftheimpactofrelatedtaxlosscarryforwards,assuchtaxlosscarryforwardswillbeappliedagainstthesetaxliabilitiesandwillreducetheamountofcashtaxpaymentsdueupontheeventualsettlementwiththetaxauthorities.Theseestimatesmaychangeduetochangingfactsandcircumstances.Duetothecomplexityoftheseuncertainties,theultimateresolutionmayresultinasettlementthatdiffersfromourcurrentestimateofthetaxliabilitiesandrelatedinterest.ThesetaxliabilitiesandrelatedinterestarerecordedinincometaxesandaccruedandothercurrentliabilitiesontheConsolidatedBalanceSheets.
Pension
Ourdefinedbenefitpensionplanexpenseandobligationsaredevelopedfromactuarialassumptions.ThefundedstatusofourplansisrecognizedontheConsolidatedBalanceSheetsandismeasuredasthedifferencebetweenthefairvalueofplanassetsandtheprojectedbenefitobligationatthemeasurementdate.Theprojectedbenefitobligationrepresentstheactuarialpresentvalueofbenefitsprojectedtobepaiduponretirementfactoringinestimatedfuturecompensationlevels.Thefairvalueofplanassetsrepresentsthecurrentmarketvalueofcumulativecompanyandparticipantcontributionsmadetoirrevocabletrustfunds,heldforthesolebenefitofparticipants,whichareinvestedbythetrusteeofthefunds.Thebenefitsunderourdefinedbenefitpensionplansarebasedonvariousfactors,suchasyearsofserviceandcompensation.
Netperiodicpensionbenefitcostisbasedontheutilizationoftheprojectedunitcreditmethodofcalculationandischargedtoearningsonasystematicbasisovertheexpectedaverageremainingservicelivesofcurrentparticipants.
Twocriticalassumptionsindeterminingpensionexpenseandobligationsarethediscountrateandexpectedlong-termreturnonplanassets.Weevaluatetheseassumptionsatleastannually.Otherassumptionsreflectdemographicfactorssuchasretirement,mortality,andemployeeturnover.Theseassumptionsareevaluatedperiodicallyandupdatedtoreflectouractualexperience.Actualresultsmaydifferfromactuarialassumptions.Thediscountraterepresentsthemarketrateforhigh-qualityfixedincomeinvestmentsandisusedtocalculatethepresentvalueoftheexpectedfuturecashflowsforbenefitobligationstobepaidunderourpensionplans.Adecreaseinthediscountrateincreasesthepresentvalueofpensionbenefitobligations.Atfiscalyearend2016,a25basispointdecreaseinthediscountratewouldhaveincreasedthepresentvalueofourpensionobligationsby$127million;a25basispointincreasewouldhavedecreasedthepresentvalueofourpensionobligationsby$113million.Weconsiderthecurrentandexpectedassetallocationsofourpensionplans,aswellashistoricalandexpectedlong-termratesofreturnonthosetypesofplanassets,indeterminingtheexpectedlong-termrateofreturnonplanassets.A50basispointdecreaseorincreaseintheexpectedlong-termreturnonplanassetswouldhaveincreasedordecreased,respectively,ourfiscal2016pensionexpenseby$10million.
Thelong-termtargetassetallocationinourU.S.plans'mastertrustis10%equityand90%fixedincome.Assetre-allocationtomeetthattargetisoccurringoveramulti-yearperiodbasedonthefundedstatus,asdefinedbythePensionProtectionActof2006(the"PensionActFundedStatus"),oftheU.S.plans'mastertrustandmarketconditions.WeexpecttoreachourtargetallocationwhenthePensionActFundedStatusexceeds105%.BasedonthePensionActFundedStatusasoffiscalyearend2016,ourtargetassetallocationis45%equityand55%fixedincome.
46
TableofContents
AccountingPronouncements
SeeNote2totheConsolidatedFinancialStatementsforinformationregardingrecentlyissuedandrecentlyadoptedaccountingpronouncements.
Non-GAAPFinancialMeasures
Organicnetsalesgrowthandfreecashflowarenon-GAAPmeasuresandshouldnotbeconsideredreplacementsforresultsinaccordancewithGAAP.Thesenon-GAAPmeasuresmaynotbecomparabletosimilarly-titledmeasuresreportedbyothercompanies.Theprimarylimitationofthesemeasuresisthattheyexcludethefinancialimpactofitemsthatwouldotherwiseeitherincreaseordecreaseourreportedresults.Thislimitationisbestaddressedbyusingthesenon-GAAPmeasuresincombinationwiththemostdirectlycomparableGAAPmeasuresinordertobetterunderstandtheamounts,character,andimpactofanyincreaseordecreaseinreportedamounts.Thefollowingprovidesadditionalinformationregardingthesenon-GAAPmeasures.
OrganicNetSalesGrowth
Organicnetsalesgrowthisausefulmeasureofourunderlyingresultsandtrendsinthebusiness.Itisalsoasignificantcomponentinourincentivecompensationplans.Thedifferencebetweenreportednetsalesgrowth(themostcomparableGAAPmeasure)andorganicnetsalesgrowthconsistsoftheimpactfromforeigncurrencyexchangerates,andacquisitionsanddivestitures,ifany.Organicnetsalesgrowthisausefulmeasureofourperformancebecauseitexcludesitemsthatarenotcompletelyundermanagement'scontrol,suchastheimpactofchangesinforeigncurrencyexchangerates,anditemsthatdonotreflecttheunderlyinggrowthofthecompany,suchasacquisitionanddivestitureactivity.Managementusesorganicnetsalesgrowthtomonitorandevaluateperformance.Also,managementusesorganicnetsalesgrowthtogetherwithGAAPmeasuressuchasnetsalesgrowthandoperatingincomeinitsdecisionmakingprocessesrelatedtotheoperationsofourreportablesegmentsandouroverallcompany.Webelievethatinvestorsbenefitfromhavingaccesstothesamefinancialmeasuresthatmanagementusesinevaluatingoperations.Thetablespresentedin"ResultsofOperations"and"SegmentResults"aboveprovidereconciliationsoforganicnetsalesgrowthtonetsalesgrowthcalculatedunderGAAP.
FreeCashFlow
Freecashflowisausefulmeasureofourabilitytogeneratecash.Thedifferencebetweennetcashprovidedbycontinuingoperatingactivities(themostcomparableGAAPmeasure)andfreecashflowconsistsmainlyofsignificantcashoutflowsandinflowsthatwebelieveareusefultoidentify.Webelievefreecashflowprovidesusefulinformationtoinvestorsasitprovidesinsightintotheprimarycashflowmetricusedbymanagementtomonitorandevaluatecashflowsgeneratedfromouroperations.
Freecashflowisdefinedasnetcashprovidedbycontinuingoperatingactivitiesexcludingvoluntarypensioncontributionsandthecashimpactofspecialitems,ifany,minusnetcapitalexpenditures.Voluntarypensioncontributionsareexcludedbecausethisactivityisdrivenbyeconomicfinancingdecisionsratherthanoperatingactivity.Certainspecialitems,includingnetpaymentsrelatedtopre-separationtaxmatters,arealsoexcludedbymanagementinevaluatingfreecashflow.Netcapitalexpendituresconsistofcapitalexpenditureslessproceedsfromthesaleofproperty,plant,andequipment.Theseitemsaresubtractedbecausetheyrepresentlong-termcommitments.
Inthecalculationoffreecashflow,wesubtractcertaincashitemsthatareultimatelywithinmanagement'sandtheboardofdirectors'discretiontodirectandmayimplythatthereislessormorecashavailableforourprogramsthanthemostcomparableGAAPmeasureindicates.Itshouldnotbeinferredthattheentirefreecashflowamountisavailableforfuturediscretionaryexpenditures,asour
47
TableofContents
definitionoffreecashflowdoesnotconsidercertainnon-discretionaryexpenditures,suchasdebtpayments.Inaddition,wemayhaveotherdiscretionaryexpenditures,suchasdiscretionarydividends,sharerepurchases,andbusinessacquisitions,thatarenotconsideredinthecalculationoffreecashflow.
Thetablespresentedin"LiquidityandCapitalResources"aboveprovidereconciliationsoffreecashflowtocashflowsfromcontinuingoperatingactivitiescalculatedunderGAAP.
Forward-LookingInformation
CertainstatementsinthisAnnualReportare"forward-lookingstatements"withinthemeaningoftheU.S.PrivateSecuritiesLitigationReformActof1995.Thesestatementsarebasedonourmanagement'sbeliefsandassumptionsandoninformationcurrentlyavailabletoourmanagement.Forward-lookingstatementsinclude,amongothers,theinformationconcerningourpossibleorassumedfutureresultsofoperations,businessstrategies,financingplans,competitiveposition,potentialgrowthopportunities,potentialoperatingperformanceimprovements,acquisitions,divestitures,theeffectsofcompetition,andtheeffectsoffuturelegislationorregulations.Forward-lookingstatementsincludeallstatementsthatarenothistoricalfactsandcanbeidentifiedbytheuseofforward-lookingterminologysuchasthewords"believe,""expect,""plan,""intend,""anticipate,""estimate,""predict,""potential,""continue,""may,""should,"orthenegativeofthesetermsorsimilarexpressions.
Forward-lookingstatementsinvolverisks,uncertainties,andassumptions.Actualresultsmaydiffermateriallyfromthoseexpressedintheseforward-lookingstatements.Youshouldnotputunduerelianceonanyforward-lookingstatements.Wedonothaveanyintentionorobligationtoupdateforward-lookingstatementsafterwefilethisreportexceptasrequiredbylaw.
Thefollowingandotherrisks,whicharedescribedingreaterdetailin"PartI.Item1A.RiskFactors,"aswellasotherrisksdescribedinthisAnnualReport,couldcauseourresultstodiffermateriallyfromthoseexpressedinforward-lookingstatements:
• conditionsintheglobalorregionaleconomiesandglobalcapitalmarkets,andcyclicalindustryconditions(includingasaresultoftheimpactoftheproposedexitoftheUnitedKingdomfromtheEU);
• conditionsaffectingdemandforproductsintheindustriesweserve,particularlytheautomotiveindustry;
• competitionandpricingpressure;
• marketacceptanceofournewproductintroductionsandproductinnovationsandproductlifecycles;
• rawmaterialavailability,quality,andcost;
• fluctuationsinforeigncurrencyexchangerates;
• financialconditionandconsolidationofcustomersandvendors;
• relianceonthird-partysuppliers;
• risksassociatedwithcurrentandfutureacquisitionsanddivestitures;
• globalrisksofbusinessinterruptionssuchasnaturaldisastersandpolitical,economic,andmilitaryinstability;
• risksassociatedwithsecuritybreachesandotherdisruptionstoourinformationtechnologyinfrastructure;
48
TableofContents
• risksrelatedtocompliancewithcurrentandfutureenvironmentalandotherlawsandregulations;
• ourabilitytoprotectourintellectualpropertyrights;
• risksoflitigation;
• ourabilitytooperatewithinthelimitationsimposedbyourdebtinstruments;
• thepossibleeffectsonusofvariousU.S.andnon-U.S.legislativeproposalsandotherinitiativesthat,ifadopted,couldmateriallyincreaseourworldwidecorporateeffectivetaxrateandnegativelyimpactourU.S.governmentcontractsbusiness;
• variousrisksassociatedwithbeingaSwisscorporation;
• theimpactoffluctuationsinthemarketpriceofourshares;and
• theimpactofcertainprovisionsofourarticlesofassociationonunsolicitedtakeoverproposals.
Theremaybeotherrisksanduncertaintiesthatweareunabletopredictatthistimeorthatwecurrentlydonotexpecttohaveamaterialadverseeffectonourbusiness.
ITEM7A.QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISK
Inthenormalcourseofbusiness,ourfinancialpositionisroutinelysubjecttoavarietyofrisks,includingmarketrisksassociatedwithinterestrateandcurrencymovementsonoutstandingdebtandnon-U.S.dollardenominatedassetsandliabilitiesandcommoditypricemovements.Weutilizeestablishedriskmanagementpoliciesandproceduresinexecutingderivativefinancialinstrumenttransactionstomanageaportionoftheserisks.
Wedonotexecutetransactionsorholdderivativefinancialinstrumentsfortradingorspeculativepurposes.SubstantiallyallcounterpartiestoderivativefinancialinstrumentsarelimitedtomajorfinancialinstitutionswithatleastanA/A2creditrating.Thereisnosignificantconcentrationofexposureswithanyonecounterparty.
ForeignCurrencyExposures
Aspartofmanagingtheexposuretochangesinforeigncurrencyexchangerates,weutilizecross-currencyswapcontracts,foreigncurrencyforwardcontracts,andforeigncurrencyswapcontracts,aportionofwhicharedesignatedascashflowhedges.Theobjectiveofthesecontractsistominimizeimpactstocashflowsandprofitabilityduetochangesinforeigncurrencyexchangeratesonintercompanyandothercashtransactions.A10%appreciationordepreciationoftheunderlyingcurrencyinourcross-currencyswapcontracts,foreigncurrencyforwardcontracts,orforeigncurrencyswapcontractsfromthefiscalyearend2016marketrateswouldhavechangedtheunrealizedvalueofourcontractsby$112million.A10%appreciationordepreciationoftheunderlyingcurrencyinourcross-currencyswapcontracts,foreigncurrencyforwardcontracts,orforeigncurrencyswapcontractsfromthefiscalyearend2015marketrateswouldhavechangedtheunrealizedvalueofourcontractsby$109million.Suchgainsorlossesonthesecontractswouldgenerallybeoffsetbythelossesorgainsontherevaluationorsettlementoftheunderlyingtransactions.
InterestRateandInvestmentExposures
Weissuedebt,asneeded,tofundouroperationsandcapitalrequirements.Suchborrowingscanresultininterestrateexposure.Tomanagetheinterestrateexposure,weuseinterestrateswapstoconvertaportionoffixed-ratedebtintovariable-ratedebt.Weuseforwardstartinginterestrateswapsandoptionstoenterintointerestrateswapstomanageinterestrateexposureinperiodspriortothe
49
TableofContents
anticipatedissuanceoffixed-ratedebt.Wealsoutilizeinvestmentswapstomanageearningsexposureoncertainnonqualifieddeferredcompensationliabilities.
Basedonourfloatingratedebtbalancesofapproximately$300millionatfiscalyearend2016and$800millionatfiscalyearend2015,anincreaseinthelevelsoftheU.S.dollarinterestratesby0.5%,withallothervariablesheldconstant,wouldhaveresultedinanincreaseofannualinterestexpenseofapproximately$2millionand$4millioninfiscal2016and2015,respectively.
CommodityExposures
Ourworldwideoperationsandproductlinesmayexposeustorisksfromfluctuationsincommodityprices.Tolimittheeffectsoffluctuationsinthefuturemarketpricepaidandrelatedvolatilityincashflows,weutilizecommodityswapcontractsdesignatedascashflowhedges.Wecontinuallyevaluatethecommoditymarketwithrespecttoourforecastedusagerequirementsoverthenexteighteenmonthsandperiodicallyenterintocommodityswapcontractsinordertohedgeaportionofusagerequirementsoverthatperiod.Atfiscalyearend2016,ourcommodityhedges,whichrelatedtoexpectedpurchasesofgold,silver,andcopper,wereinanetgainpositionof$11millionandhadanotionalvalueof$232million.Atfiscalyearend2015,ourcommodityhedges,whichrelatedtoexpectedpurchasesofgold,silver,andcopper,wereinanetlosspositionof$33millionandhadanotionalvalueof$260million.A10%appreciationordepreciationofthepriceofatroyounceofgold,atroyounceofsilver,andapoundofcopper,fromthefiscalyearend2016priceswouldhavechangedtheunrealizedvalueofourforwardcontractsby$24million.A10%appreciationordepreciationofthepriceofatroyounceofgold,atroyounceofsilver,andapoundofcopper,fromthefiscalyearend2015priceswouldhavechangedtheunrealizedvalueofourforwardcontractsby$23million.
SeeNote13totheConsolidatedFinancialStatementsforadditionalinformationregardingfinancialinstruments.
ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA
ThefollowingConsolidatedFinancialStatementsandschedulespecifiedbythisItem,togetherwiththereportsthereonofDeloitte&ToucheLLP,arepresentedfollowingItem15andthesignaturepagesofthisreport:
FinancialStatements:
ReportsofIndependentRegisteredPublicAccountingFirm
ConsolidatedStatementsofOperationsfortheFiscalYearsEndedSeptember30,2016,September25,2015,andSeptember26,2014
ConsolidatedStatementsofComprehensiveIncomefortheFiscalYearsEndedSeptember30,2016,September25,2015,andSeptember26,2014
ConsolidatedBalanceSheetsasofSeptember30,2016andSeptember25,2015
ConsolidatedStatementsofEquityfortheFiscalYearsEndedSeptember30,2016,September25,2015,andSeptember26,2014
ConsolidatedStatementsofCashFlowsfortheFiscalYearsEndedSeptember30,2016,September25,2015,andSeptember26,2014
NotestoConsolidatedFinancialStatements
FinancialStatementSchedule:
ScheduleII—ValuationandQualifyingAccounts
50
TableofContents
AllotherfinancialstatementsandscheduleshavebeenomittedsincetheinformationrequiredtobesubmittedhasbeenincludedontheConsolidatedFinancialStatementsandrelatednotesorbecausetheyareeithernotapplicableornotrequiredundertherulesofRegulationS-X.
ITEM9A.CONTROLSANDPROCEDURES
EvaluationofDisclosureControlsandProcedures
Ourmanagement,withtheparticipationofourChiefExecutiveOfficerandChiefFinancialOfficer,evaluatedtheeffectivenessofourdisclosurecontrolsandprocedures(asdefinedinRule13a-15(e)undertheExchangeAct)asofSeptember30,2016.Basedonthatevaluation,ourChiefExecutiveOfficerandChiefFinancialOfficerconcludedthatourdisclosurecontrolsandprocedureswereeffectiveasofSeptember30,2016.
Management'sReportonInternalControlOverFinancialReporting
Ourmanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting(asdefinedinRule13a-15(f)undertheExchangeAct).Management,withtheparticipationofourChiefExecutiveOfficerandChiefFinancialOfficer,evaluatedtheeffectivenessofourinternalcontroloverfinancialreportingbasedontheframeworkinInternalControl—IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.Basedonthisevaluation,managementconcludedourinternalcontroloverfinancialreportingwaseffectiveasofSeptember30,2016.
Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewithpoliciesandproceduresmaydeteriorate.
Deloitte&ToucheLLP,anindependentregisteredpublicaccountingfirm,hasissuedanattestationreportonourinternalcontroloverfinancialreportingasofSeptember30,2016,whichisincludedinthisAnnualReport.
ChangesinInternalControlOverFinancialReporting
DuringthequarterendedSeptember30,2016,therewerenochangesinourinternalcontroloverfinancialreportingthathavemateriallyaffected,orarereasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.
51
TableofContents
PARTIII
ITEM10.DIRECTORS,EXECUTIVEOFFICERSANDCORPORATEGOVERNANCE
Informationconcerningdirectors,executiveofficers,andcorporategovernancemaybefoundunderthecaptions"AgendaItemNo.1—ElectionofDirectors,""NomineesforElection,""CorporateGovernance,""TheBoardofDirectorsandBoardCommittees,"and"ExecutiveOfficers"inourdefinitiveproxystatementforour2017AnnualGeneralMeetingofShareholders(the"2017ProxyStatement"),whichwillbefiledwiththeSECwithin120daysafterthecloseofourfiscalyear.Suchinformationisincorporatedhereinbyreference.Theinformationinthe2017ProxyStatementsetforthunderthecaption"Section16(a)BeneficialOwnershipReportingCompliance"isincorporatedhereinbyreference.
CodeofEthics
Wehaveadoptedaguidetoethicalconduct,whichappliestoallofouremployees,officers,anddirectors.OurGuidetoEthicalConductmeetstherequirementsofa"codeofethics"asdefinedbyItem406ofRegulationS-KandappliestoourChiefExecutiveOfficer,ChiefFinancialOfficer,andChiefAccountingOfficer,aswellasallotheremployeesanddirectors,asindicatedabove.OurGuidetoEthicalConductalsomeetstherequirementsofacodeofbusinessconductandethicsunderthelistingstandardsoftheNYSE.OurGuidetoEthicalConductispostedonourwebsiteatwww.te.comundertheheading"CorporateResponsibility—Governance—GuidetoEthicalConduct."WealsowillprovideacopyofourGuidetoEthicalConducttoshareholdersuponrequest.WeintendtodiscloseanyamendmentstoourGuidetoEthicalConduct,aswellasanywaiversforexecutiveofficersordirectors,onourwebsite.
ITEM11.EXECUTIVECOMPENSATION
Informationconcerningexecutivecompensationmaybefoundunderthecaptions"CompensationDiscussionandAnalysis,""ManagementDevelopmentandCompensationCommitteeReport,""CompensationCommitteeInterlocksandInsiderParticipation,""ExecutiveOfficerCompensation,"and"CompensationofNon-EmployeeDirectors"inour2017ProxyStatement.Suchinformationisincorporatedhereinbyreference.
ITEM12.SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENTANDRELATEDSTOCKHOLDERMATTERS
Theinformationinour2017ProxyStatementsetforthunderthecaption"SecurityOwnershipofCertainBeneficialOwnersandManagement"isincorporatedhereinbyreference.
52
TableofContents
EquityCompensationPlanInformation
Thefollowingtableprovidesinformationasoffiscalyearend2016withrespecttocommonsharesissuableunderourequitycompensationplansorequitycompensationplansofTycoInternationalpriortotheseparation:
53
PlanCategory
Numberofsecuritiestobeissuedupon
exerciseofoutstandingoptions,warrants
andrights(a)
Weighted-averageexercisepriceof
outstandingoptions,warrantsandrights
(b)(4)
Numberofsecuritiesremainingavailableforfutureissuanceunderequitycompensationplans(excludingsecuritiesreflectedincolumn(a))
(c)(5) Equitycompensationplansapprovedbysecurityholders: 2007StockandIncentivePlan(1) 10,853,503 $ 45.08 14,108,552
Equitycompensationplansnotapprovedbysecurityholders: EquityawardsunderTycoInternationalLtd.2004StockandIncentivePlanandotherequityincentiveplans(2) 33,128 35.45 —
Equityawardsunderthe2010StockandIncentivePlan(3) 1,299,648 55.86 2,264,490Total 12,186,279 16,373,042
(1) TheTEConnectivityLtd.2007StockandIncentivePlan,asamendedandrestated(the"2007Plan"),providesfortheawardofannualperformancebonusesandlong-termperformanceawards,includingshareoptions;restricted,performance,anddeferredshareunits;andothershare-basedawards(collectively,"Awards")toboardmembers,officers,andnon-officeremployees.The2007Planprovidesforamaximumof59,843,452commonsharestobeissuedasAwards,subjecttoadjustmentasprovidedunderthetermsofthe2007Plan.
(2) IncludescommonsharesthatmaybeissuedbyTEConnectivitypursuanttotheSeparationandDistributionAgreementundershareoptionawardstocurrentandformeremployeesanddirectorsofTycoInternational,whichmayincludeindividualscurrentlyorformerlyemployedbyorservingwithTEConnectivity,TycoInternational,orCovidiensubsequenttotheseparation.
(3) InconnectionwiththeacquisitionofADCinfiscal2011,weassumedequityawardsissuedunderplanssponsoredbyADCandtheremainingpoolofsharesavailableforgrantundertheplans.Subsequenttotheacquisition,weregistered6,764,455sharesrelatedtotheplansviaFormsS-3andS-8andrenamedtheprimaryADCplantheTEConnectivityLtd.2010StockandIncentivePlan(the"2010Plan").Grantsunderthe2010PlanaresettledinTEConnectivitycommonshares.
(4) Doesnottakeintoaccountrestricted,performance,ordeferredshareunitawardsthatdonothaveexerciseprices.
(5) The2007Planandthe2010Planapplyweightingsof1.80and1.21,respectively,tooutstandingnonvestedrestricted,performance,anddeferredshareunits.Theremainingsharesissuableunderboththe2007Planandthe2010Planareincreasedbyforfeituresandcancellations,amongotherfactors.
TableofContents
ITEM13.CERTAINRELATIONSHIPSANDRELATEDTRANSACTIONS,ANDDIRECTORINDEPENDENCE
Theinformationinour2017ProxyStatementsetforthunderthecaptions"CorporateGovernance,""TheBoardofDirectorsandBoardCommittees,"and"CertainRelationshipsandRelatedTransactions"isincorporatedhereinbyreference.
ITEM14.PRINCIPALACCOUNTANTFEESANDSERVICES
Theinformationinour2017ProxyStatementsetforthunderthecaption"AgendaItemNo.7—ElectionofAuditors—AgendaItemNo.7.1"isincorporatedhereinbyreference.
54
TableofContents
PARTIV
ITEM15.EXHIBITSANDFINANCIALSTATEMENTSCHEDULES
(a) 1.FinancialStatements.SeeItem8.
2. FinancialStatementSchedule.SeeItem8.
3. ExhibitIndex:
55
IncorporatedbyReferenceHereinExhibit
Number Description Form Exhibit FilingDate
2.1 SeparationandDistributionAgreementamongTycoInternationalLtd.,CovidienLtd.andTycoElectronicsLtd.,datedasofJune29,2007
CurrentReportonForm8-K
2.1 July5,2007
2.2 StockandAssetPurchaseAgreement,datedasof
January27,2015,byandamongTEConnectivityLtd.,CommScopeHoldingCompany,Inc.andCommScope,Inc.
CurrentReportonForm8-K
2.1 January29,2015
2.3 † SharePurchaseAgreementdatedasofFebruary1,
2016byandbetweenTEConnectivityLtd.andCregstarHoldcoLimited
QuarterlyReportonForm10-QforthequarterlyperiodendedMarch25,2016
2.1 April21,2016
3.1 ArticlesofAssociationofTEConnectivityLtd.,as
amendedandrestated CurrentReportonForm8-K
3.1 May10,2016
3.2 OrganizationalRegulationsofTEConnectivityLtd.,
asamendedandrestated CurrentReportonForm8-K
3.2 March6,2015
4.1(a) IndentureamongTycoElectronicsGroupS.A.,Tyco
ElectronicsLtd.andDeutscheBankTrustCompanyAmericas,astrustee,datedasofSeptember25,2007
AnnualReportonForm10-KforthefiscalyearendedSeptember28,2007
4.1(a) December14,2007
4.1(b) SecondSupplementalIndentureamongTyco
ElectronicsGroupS.A.,TycoElectronicsLtd.andDeutscheBankTrustCompanyAmericas,astrustee,datedasofSeptember25,2007
AnnualReportonForm10-KforthefiscalyearendedSeptember28,2007
4.1(c) December14,2007
4.1(c) ThirdSupplementalIndentureamongTyco
ElectronicsGroupS.A.,TycoElectronicsLtd.andDeutscheBankTrustCompanyAmericas,astrustee,datedasofSeptember25,2007
AnnualReportonForm10-KforthefiscalyearendedSeptember28,2007
4.1(d) December14,2007
4.1(d) FifthSupplementalIndentureamongTyco
ElectronicsGroupS.A.,TycoElectronicsLtd.andDeutscheBankTrustCompanyAmericas,astrustee,datedasofDecember20,2010
CurrentReportonForm8-K
4.1 December20,2010
4.1(e) SeventhSupplementalIndentureamongTyco
ElectronicsGroupS.A.,TEConnectivityLtd.andDeutscheBankTrustCompanyAmericas,astrustee,datedasofFebruary3,2012
CurrentReportonForm8-K
4.2 February3,2012
4.1(f) EighthSupplementalIndentureamongTyco
ElectronicsGroupS.A.,TEConnectivityLtd.andDeutscheBankTrustCompanyAmericas,astrustee,datedasofNovember25,2013
CurrentReportonForm8-K
4.1 November25,2013
TableofContents
56
IncorporatedbyReferenceHereinExhibit
Number Description Form Exhibit FilingDate
4.1(g) NinthSupplementalIndentureamongTycoElectronicsGroupS.A.,TEConnectivityLtd.andDeutscheBankTrustCompanyAmericas,astrustee,datedasofJuly31,2014
CurrentReportonForm8-K
4.1 July31,2014
4.1(h) TenthSupplementalIndentureamongTyco
ElectronicsGroupS.A.,TEConnectivityLtd.andDeutscheBankTrustCompanyAmericas,astrustee,datedJuly31,2014
CurrentReportonForm8-K
4.2 July31,2014
4.1(i) TwelfthSupplementalIndentureamongTyco
ElectronicsGroupS.A.,TEConnectivityLtd.andDeutscheBankTrustCompanyAmericas,astrustee,datedasofFebruary27,2015
CurrentReportonForm8-K
4.1 February27,2015
4.1(j) ThirteenthSupplementalIndentureamongTyco
ElectronicsGroupS.A.,asissuer,TEConnectivityLtd.,asguarantor,andDeutscheBankTrustCompanyAmericas,astrustee,datedasofJanuary28,2016
CurrentReportonForm8-K
4.1 January28,2016
10.1 TaxSharingAgreementamongTyco
InternationalLtd.,CovidienLtd.andTycoElectronicsLtd.,datedasofJune29,2007
CurrentReportonForm8-K
10.1 July5,2007
10.2 Five-YearSeniorCreditAgreementamongTyco
ElectronicsGroupS.A.,asborrower,TEConnectivityLtd.,asguarantor,thelenderspartiestheretoandDeutscheBankAGNewYorkBranch,asadministrativeagent,datedasofJune24,2011
CurrentReportonForm8-K
10.1 June27,2011
10.3 FirstAmendmenttotheFive-YearSeniorCredit
AgreementdatedasofAugust2,2013amongTycoElectronicsGroupS.A.,asborrower,TEConnectivityLtd.,asguarantor,thelenderspartiestheretoandDeutscheBankAGNewYorkBranch,asadministrativeagent
CurrentReportonForm8-K
10.1 August2,2013
10.4 SecondAmendmenttotheFive-YearSeniorCredit
AgreementdatedasofDecember9,2015byandamongTycoElectronicsGroupS.A.,asborrower,TEConnectivityLtd.,asguarantor,thelenderspartiesthereto,andDeutscheBankAGNewYorkBranch,asexistingadministrativeagent,andBankofAmerica,N.A.,asadministrativeagent
CurrentReportonForm8-K
10.1 December9,2015
10.5 ‡* TEConnectivityLtd.2007StockandIncentivePlan
(asamendedandrestated)
10.6 ‡ TEConnectivityLtd.EmployeeStockPurchasePlan
(asamendedandrestated) AnnualReportonForm10-KforthefiscalyearendedSeptember28,2012
10.4 November13,2012
10.7 ‡ FormofFounders'GrantOptionAwardTermsand
Conditions CurrentReportonForm8-K
10.7 July5,2007
10.8 ‡ FormofOptionAwardTermsandConditions QuarterlyReporton
Form10-QforthequarterlyperiodendedDecember24,2010
10.3 January24,2011
TableofContents
57
IncorporatedbyReferenceHereinExhibit
Number Description Form Exhibit FilingDate
10.9 ‡ FormofRestrictedUnitAwardTermsand
Conditions QuarterlyReportonForm10-QforthequarterlyperiodendedDecember24,2010
10.4 January24,2011
10.10 ‡ FormofPerformanceStockUnitAwardTermsand
Conditions QuarterlyReportonForm10-QforthequarterlyperiodendedDecember28,2012
10.1 January25,2013
10.11 ‡* FormofPerformanceStockUnitAwardTermsand
ConditionsforPerformanceCyclesStartinginandafterFiscalYear2016
10.12 ‡ TEConnectivityChangeinControlSeverancePlan
forCertainU.S.Executives(asamendedandrestated)
AnnualReportonForm10-KforthefiscalyearendedSeptember25,2015
10.10 November10,2015
10.13 ‡ TEConnectivitySeverancePlanforU.S.Executives
(asamendedandrestated) AnnualReportonForm10-KforthefiscalyearendedSeptember25,2015
10.11 November10,2015
10.14 ‡ TycoElectronicsLtd.DeferredCompensationPlan
forDirectors AnnualReportonForm10-KforthefiscalyearendedSeptember28,2007
10.16 December14,2007
10.15 ‡ TycoElectronicsCorporationSupplementalSavings
andRetirementPlan AnnualReportonForm10-KforthefiscalyearendedSeptember25,2009
10.13 November18,2009
10.16 ‡ TycoElectronicsLtd.UKSavingsRelatedShare
Plan AnnualReportonForm10-KforthefiscalyearendedSeptember28,2007
10.23 December14,2007
10.17 * FormofIndemnificationAgreement 10.18 ‡ TEConnectivityLtd.2010StockandIncentivePlan
(asamendedandrestated) AnnualReportonForm10-KforthefiscalyearendedSeptember26,2014
10.16 November12,2014
10.19 ‡ EmploymentAgreementbetweenThomasJ.Lynch
andTycoElectronicsCorporationdatedDecember15,2015
CurrentReportonForm8-K
10.1 December16,2015
10.20 ‡ EmploymentAgreementbetweenTerrenceR.Curtin
andTycoElectronicsCorporationdatedDecember15,2015
CurrentReportonForm8-K
10.2 December16,2015
10.21 ‡ EmploymentAgreementbetweenJosephB.Donahue
andTycoElectronicsCorporationdatedDecember15,2015
CurrentReportonForm8-K
10.4 December16,2015
10.22 ‡ EmploymentAgreementbetweenRobertN.
ShaddockandTycoElectronicsCorporationdatedDecember15,2015
CurrentReportonForm8-K
10.5 December16,2015
TableofContents
58
IncorporatedbyReferenceHereinExhibit
Number Description Form Exhibit FilingDate
10.23 ‡ EmploymentAgreementbetweenStevenT.MerktandTycoElectronicsCorporationdatedDecember15,2015
CurrentReportonForm8-K
10.6 December16,2015
10.24 ‡ EmploymentAgreementbetweenHeathA.Mittsand
TycoElectronicsCorporationdatedSeptember30,2016
CurrentReportonForm8-K
10.1 October3,2016
21.1 * SubsidiariesofTEConnectivityLtd. 23.1 * ConsentofIndependentRegisteredPublic
AccountingFirm
24.1 * PowerofAttorney 31.1 * CertificationbytheChiefExecutiveOfficerpursuant
toSection302oftheSarbanes-OxleyActof2002
31.2 * CertificationbytheChiefFinancialOfficerpursuant
toSection302oftheSarbanes-OxleyActof2002
32.1 ** CertificationbytheChiefExecutiveOfficerand
ChiefFinancialOfficerpursuanttoSection906oftheSarbanes-OxleyActof2002
101 * FinancialstatementsfromtheAnnualReporton
Form10-KofTEConnectivityLtd.forthefiscalyearendedSeptember30,2016,filedonNovember15,2016,formattedinXBRL:(i)theConsolidatedStatementsofOperations,(ii)theConsolidatedStatementsofComprehensiveIncome,(iii)theConsolidatedBalanceSheets,(iv)theConsolidatedStatementsofEquity,(v)theConsolidatedStatementsofCashFlows,and(vi)theNotestoConsolidatedFinancialStatements
† TheschedulestotheSharePurchaseAgreementhavebeenomittedfromthisfilingpursuanttoItem601(b)(2)ofRegulationS-K.WewillfurnishcopiesofsuchschedulestotheSECuponitsrequest;provided,however,thatwemayrequestconfidentialtreatmentpursuanttoRule24b-2oftheSecuritiesExchangeActof1934foranyschedulesofurnished.
‡ Managementcontractorcompensatoryplanorarrangement
* Filedherewith
** Furnishedherewith
TableofContents
SIGNATURES
PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized.
Date:November15,2016
PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisreporthasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrantandinthecapacitiesandonthedatesindicated.
59
TECONNECTIVITYLTD.
By:
/s/HEATHA.MITTS
HeathA.MittsExecutiveVicePresidentandChiefFinancialOfficer(PrincipalFinancialOfficer)
Signature Title Date
/s/THOMASJ.LYNCH
ThomasJ.Lynch ChiefExecutiveOfficerandDirector(PrincipalExecutiveOfficer) November15,2016
/s/TERRENCER.CURTIN
TerrenceR.Curtin PresidentandDirector November15,2016
/s/HEATHA.MITTS
HeathA.MittsExecutiveVicePresidentandChiefFinancialOfficer(PrincipalFinancialOfficer)
November15,2016
/s/ROBERTJ.OTT
RobertJ.OttSeniorVicePresidentandCorporateController(PrincipalAccountingOfficer)
November15,2016
*
PierreR.Brondeau Director November15,2016
*
CarolA.Davidson Director November15,2016
TableofContents
60
Signature Title Date
*
JuergenW.Gromer Director November15,2016
*
WilliamA.Jeffrey Director November15,2016
*
YongNam Director November15,2016
*
DanielJ.Phelan Director November15,2016
*
PaulaA.Sneed Director November15,2016
*
MarkC.Trudeau Director November15,2016
*
JohnC.VanScoter Director November15,2016
*
LauraH.Wright Director November15,2016
* JohnS.Jenkins,Jr.,bysigninghisnamehereto,doessignthisdocumentonbehalfoftheabovenotedindividuals,pursuanttopowersofattorneydulyexecutedbysuchindividuals,whichhavebeenfiledasExhibit24.1tothisReport.
By: /s/JOHNS.JENKINS,JR.
JohnS.Jenkins,Jr.Attorney-in-fact
TableofContents
TECONNECTIVITYLTD.
INDEXTOCONSOLIDATEDFINANCIALSTATEMENTS
61
Page ReportsofIndependentRegisteredPublicAccountingFirm 62
ConsolidatedStatementsofOperationsfortheFiscalYearsEndedSeptember30,2016,September25,2015,andSeptember26,2014
65
ConsolidatedStatementsofComprehensiveIncomefortheFiscalYearsEndedSeptember30,2016,September25,2015,andSeptember26,2014
66
ConsolidatedBalanceSheetsasofSeptember30,2016andSeptember25,2015 67
ConsolidatedStatementsofEquityfortheFiscalYearsEndedSeptember30,2016,September25,2015,andSeptember26,2014
68
ConsolidatedStatementsofCashFlowsfortheFiscalYearsEndedSeptember30,2016,September25,2015,andSeptember26,2014
69
NotestoConsolidatedFinancialStatements 70
ScheduleII—ValuationandQualifyingAccounts 127
TableofContents
REPORTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
TotheBoardofDirectorsandShareholdersofTEConnectivityLtd.:
WehaveauditedtheaccompanyingconsolidatedbalancesheetsofTEConnectivityLtd.andsubsidiaries(the"Company")asofSeptember30,2016andSeptember25,2015,andtherelatedconsolidatedstatementsofoperations,comprehensiveincome,equity,andcashflowsforeachofthethreefiscalyearsintheperiodendedSeptember30,2016.OurauditsalsoincludedthefinancialstatementschedulelistedintheIndexatItem15.TheseconsolidatedfinancialstatementsandfinancialstatementschedulearetheresponsibilityoftheCompany'smanagement.Ourresponsibilityistoexpressanopinionontheconsolidatedfinancialstatementsandfinancialstatementschedulebasedonouraudits.
WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditsprovideareasonablebasisforouropinion.
Inouropinion,suchconsolidatedfinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionoftheCompanyasofSeptember30,2016andSeptember25,2015,andtheresultsofitsoperationsanditscashflowsforeachofthethreefiscalyearsintheperiodendedSeptember30,2016,inconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.Also,inouropinion,suchfinancialstatementschedule,whenconsideredinrelationtothebasicconsolidatedfinancialstatementstakenasawhole,presentsfairly,inallmaterialrespects,theinformationsetforththerein.
Wehavealsoaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates),theCompany'sinternalcontroloverfinancialreportingasofSeptember30,2016,basedonthecriteriaestablishedinInternalControl—IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommissionandourreportdatedNovember15,2016expressedanunqualifiedopinionontheCompany'sinternalcontroloverfinancialreporting.
/s/Deloitte&ToucheLLP
Philadelphia,PennsylvaniaNovember15,2016
62
TableofContents
REPORTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
TotheBoardofDirectorsandShareholdersofTEConnectivityLtd.:
WehaveauditedtheinternalcontroloverfinancialreportingofTEConnectivityLtd.andsubsidiaries(the"Company")asofSeptember30,2016,basedoncriteriaestablishedinInternalControl—IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.TheCompany'smanagementisresponsibleformaintainingeffectiveinternalcontroloverfinancialreportingandforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedintheaccompanyingManagement'sReportonInternalControlOverFinancialReporting.OurresponsibilityistoexpressanopinionontheCompany'sinternalcontroloverfinancialreportingbasedonouraudit.
WeconductedourauditinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,testingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk,andperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditprovidesareasonablebasisforouropinion.
Acompany'sinternalcontroloverfinancialreportingisaprocessdesignedby,orunderthesupervisionof,thecompany'sprincipalexecutiveandprincipalfinancialofficers,orpersonsperformingsimilarfunctions,andeffectedbythecompany'sboardofdirectors,management,andotherpersonneltoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany'sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany'sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Becauseoftheinherentlimitationsofinternalcontroloverfinancialreporting,includingthepossibilityofcollusionorimpropermanagementoverrideofcontrols,materialmisstatementsduetoerrororfraudmaynotbepreventedordetectedonatimelybasis.Also,projectionsofanyevaluationoftheeffectivenessoftheinternalcontroloverfinancialreportingtofutureperiodsaresubjecttotheriskthatthecontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
Inouropinion,theCompanymaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofSeptember30,2016,basedonthecriteriaestablishedinInternalControl—IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.
Wehavealsoaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates),theconsolidatedfinancialstatementsandfinancialstatementscheduleoftheCompanyasofandforthefiscalyearendedSeptember30,2016,andourreportdated
63
TableofContents
November15,2016expressedanunqualifiedopiniononthoseconsolidatedfinancialstatementsandfinancialstatementschedule.
/s/Deloitte&ToucheLLP
Philadelphia,PennsylvaniaNovember15,2016
64
TableofContents
TECONNECTIVITYLTD.
CONSOLIDATEDSTATEMENTSOFOPERATIONS
FiscalYearsEndedSeptember30,2016,September25,2015,andSeptember26,2014
SeeNotestoConsolidatedFinancialStatements.
65
Fiscal 2016 2015 2014 (inmillions,exceptpersharedata) Netsales $ 12,238 $ 12,233 $ 11,973Costofsales 8,205 8,146 8,001Grossmargin 4,033 4,087 3,972
Selling,general,andadministrativeexpenses 1,463 1,504 1,534Research,development,andengineeringexpenses 644 627 583Acquisitionandintegrationcosts 22 55 31Restructuringandothercharges,net 2 152 19Operatingincome 1,902 1,749 1,805
Interestincome 19 17 19Interestexpense (127) (136) (127)Otherincome(expense),net (632) (55) 63Incomefromcontinuingoperationsbeforeincometaxes 1,162 1,575 1,760
Incometax(expense)benefit 779 (337) (146)Incomefromcontinuingoperations 1,941 1,238 1,614
Incomefromdiscontinuedoperations,netofincometaxes 68 1,182 167Netincome $ 2,009 $ 2,420 $ 1,781
Basicearningspershare: Incomefromcontinuingoperations $ 5.30 $ 3.06 $ 3.94Incomefromdiscontinuedoperations 0.19 2.92 0.41Netincome 5.49 5.98 4.34
Dilutedearningspershare: Incomefromcontinuingoperations $ 5.26 $ 3.01 $ 3.87Incomefromdiscontinuedoperations 0.18 2.88 0.40Netincome 5.44 5.89 4.27
Dividendspaidpercommonshare $ 1.40 $ 1.24 $ 1.08
Weighted-averagenumberofsharesoutstanding: Basic 366 405 410Diluted 369 411 417
TableofContents
TECONNECTIVITYLTD.
CONSOLIDATEDSTATEMENTSOFCOMPREHENSIVEINCOME
FiscalYearsEndedSeptember30,2016,September25,2015,andSeptember26,2014
SeeNotestoConsolidatedFinancialStatements.
66
Fiscal 2016 2015 2014 (inmillions) Netincome $ 2,009 $ 2,420 $ 1,781Othercomprehensiveloss: Currencytranslation (92) (312) (211)Adjustmentstounrecognizedpensionandpostretirementbenefitcosts,netofincometaxes (88) (46) (123)Gainsoncashflowhedges,netofincometaxes 11 2 14Othercomprehensiveloss (169) (356) (320)
Comprehensiveincome. $ 1,840 $ 2,064 $ 1,461
TableofContents
TECONNECTIVITYLTD.
CONSOLIDATEDBALANCESHEETS
AsofSeptember30,2016andSeptember25,2015
SeeNotestoConsolidatedFinancialStatements.
67
FiscalYearEnd 2016 2015
(inmillions,except
sharedata) Assets Currentassets: Cashandcashequivalents $ 647 $ 3,329Accountsreceivable,netofallowancefordoubtfulaccountsof$17and$18,respectively 2,046 2,120Inventories 1,596 1,615Prepaidexpensesandothercurrentassets 486 476Deferredincometaxes — 345Totalcurrentassets 4,775 7,885
Property,plant,andequipment,net 3,052 2,920Goodwill 5,492 4,824Intangibleassets,net 1,879 1,555Deferredincometaxes 2,111 2,144ReceivablefromTycoInternationalplcandCovidienplc 12 964Otherassets 287 297
TotalAssets $ 17,608 $ 20,589LiabilitiesandShareholders'Equity Currentliabilities: Short-termdebt $ 331 $ 498Accountspayable 1,090 1,143Accruedandothercurrentliabilities 1,437 1,749Deferredrevenue 208 185Totalcurrentliabilities 3,066 3,575
Long-termdebt 3,739 3,386Long-termpensionandpostretirementliabilities 1,502 1,327Deferredincometaxes 207 329Incometaxes 247 1,954Otherliabilities 362 433
TotalLiabilities 9,123 11,004Commitmentsandcontingencies(Note12) Shareholders'Equity: Commonshares,CHF0.57parvalue,382,835,381sharesauthorizedandissued,and414,064,381sharesauthorizedandissued,respectively 168 182
Contributedsurplus 1,801 4,359Accumulatedearnings 8,682 6,673Treasuryshares,atcost,27,554,005and20,071,089shares,respectively (1,624) (1,256)Accumulatedothercomprehensiveloss (542) (373)TotalShareholders'Equity 8,485 9,585TotalLiabilitiesandShareholders'Equity $ 17,608 $ 20,589
TableofContents
TECONNECTIVITYLTD.
CONSOLIDATEDSTATEMENTSOFEQUITY
FiscalYearsEndedSeptember30,2016,September25,2015,andSeptember26,2014
SeeNotestoConsolidatedFinancialStatements.
68
CommonShares
TreasuryShares
TEConnectivity
Ltd.Shareholders'
Equity
AccumulatedOther
ComprehensiveIncome(Loss)
ContributedSurplus
AccumulatedEarnings
Non-controllingInterests
TotalEquity
Shares Amount Shares Amount (inmillions) BalanceatSeptember27,2013 429 $ 189 (17) $ (720) $ 6,136 $ 2,472 $ 303 $ 8,380 $ 6 $ 8,386Netincome — — — — — 1,781 — 1,781 — 1,781Othercomprehensiveloss — — — — — — (320) (320) — (320)Share-basedcompensationexpense — — — — 84 — — 84 — 84
Dividendsapproved — — — — (473) — — (473) — (473)Exerciseofshareoptions — — 5 156 — — — 156 — 156Restrictedshareawardvestingsandotheractivity — — 2 125 (122) — — 3 — 3
Repurchaseofcommonshares — — (11) (604) — — — (604) — (604)Cancellationoftreasuryshares (10) (5) 10 399 (394) — — — — —BalanceatSeptember26,2014 419 $ 184 (11) $ (644) $ 5,231 $ 4,253 $ (17) $ 9,007 $ 6 $ 9,013Netincome — — — — — 2,420 — 2,420 — 2,420Othercomprehensiveloss — — — — — — (356) (356) — (356)Share-basedcompensationexpense — — — — 95 — — 95 — 95
Dividendsapproved — — — — (526) — — (526) — (526)Exerciseofshareoptions — — 3 103 — — — 103 — 103Restrictedshareawardvestingsandotheractivity — — 1 143 (138) — — 5 (6) (1)
Repurchaseofcommonshares — — (18) (1,163) — — — (1,163) — (1,163)Cancellationoftreasuryshares (5) (2) 5 305 (303) — — — — —BalanceatSeptember25,2015 414 $ 182 (20) $ (1,256) $ 4,359 $ 6,673 $ (373) $ 9,585 $ — $ 9,585Netincome — — — — — 2,009 — 2,009 — 2,009Othercomprehensiveloss — — — — — — (169) (169) — (169)Share-basedcompensationexpense — — — — 91 — — 91 — 91
Dividendsapproved — — — — (512) — — (512) — (512)Exerciseofshareoptions — — 2 90 — — — 90 — 90Restrictedshareawardvestingsandotheractivity — — 2 146 (145) — — 1 — 1
Repurchaseofcommonshares — — (43) (2,610) — — — (2,610) — (2,610)Cancellationoftreasuryshares (31) (14) 31 2,006 (1,992) — — — — —BalanceatSeptember30,2016 383 $ 168 (28) $ (1,624) $ 1,801 $ 8,682 $ (542) $ 8,485 $ — $ 8,485
TableofContents
TECONNECTIVITYLTD.
CONSOLIDATEDSTATEMENTSOFCASHFLOWS
FiscalYearsEndedSeptember30,2016,September25,2015,andSeptember26,2014
SeeNotestoConsolidatedFinancialStatements.
69
Fiscal 2016 2015 2014 (inmillions) CashFlowsFromOperatingActivities: Netincome $ 2,009 $ 2,420 $ 1,781Incomefromdiscontinuedoperations,netofincometaxes (68) (1,182) (167)
Incomefromcontinuingoperations 1,941 1,238 1,614Adjustmentstoreconcileincomefromcontinuingoperationstonetcashprovidedbyoperatingactivities: Depreciationandamortization 585 616 551Non-cashrestructuringcharges 41 21 16Deferredincometaxes 178 40 (281)Provisionforlossesonaccountsreceivableandinventories 17 36 34Taxsharing(income)expense 632 52 (65)Share-basedcompensationexpense 91 89 77Gainondivestiture (144) — —Other 61 105 50Changesinassetsandliabilities,netoftheeffectsofacquisitionsanddivestitures: Accountsreceivable,net 116 (210) (182)Inventories 16 (220) (98)Prepaidexpensesandothercurrentassets 282 36 (14)Accountspayable (100) (22) 71Accruedandothercurrentliabilities (4) (155) (280)Deferredrevenue 26 12 113Incometaxes (1,764) (52) 167Other 45 33 31Netcashprovidedbycontinuingoperatingactivities 2,019 1,619 1,804Netcashprovidedby(usedin)discontinuedoperatingactivities (97) 294 279Netcashprovidedbyoperatingactivities 1,922 1,913 2,083
CashFlowsFromInvestingActivities: Capitalexpenditures (628) (600) (635)Proceedsfromsaleofproperty,plant,andequipment 8 17 129Acquisitionofbusinesses,netofcashacquired (1,336) (1,725) (522)Proceedsfromdivestitureofbusiness,netofcashretainedbysoldbusiness 333 — 3Proceedsfromdivestitureofdiscontinuedoperations,netofcashretainedbysoldoperations (19) 2,957 —Other 61 12 (13)
Netcashprovidedby(usedin)continuinginvestingactivities (1,581) 661 (1,038)Netcashusedindiscontinuedinvestingactivities — (25) (37)Netcashprovidedby(usedin)investingactivities (1,581) 636 (1,075)
CashFlowsFromFinancingActivities: Netincrease(decrease)incommercialpaper 330 (328) (23)Proceedsfromissuanceofdebt 352 617 1,322Repaymentofdebt (501) (473) (360)Proceedsfromexerciseofshareoptions 90 103 156Repurchaseofcommonshares (2,787) (1,023) (578)Paymentofcommonsharedividendstoshareholders (509) (502) (443)Transfers(to)fromdiscontinuedoperations (97) 269 242Other (5) — (9)
Netcashprovidedby(usedin)continuingfinancingactivities (3,127) (1,337) 307Netcashprovidedby(usedin)discontinuedfinancingactivities 97 (269) (242)Netcashprovidedby(usedin)financingactivities (3,030) (1,606) 65
Effectofcurrencytranslationoncash 7 (71) (19)Netincrease(decrease)incashandcashequivalents (2,682) 872 1,054Cashandcashequivalentsatbeginningoffiscalyear 3,329 2,457 1,403Cashandcashequivalentsatendoffiscalyear $ 647 $ 3,329 $ 2,457SupplementalCashFlowInformation: Interestpaid $ 117 $ 128 $ 118Incometaxespaid,netofrefunds 806 350 259
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
1.BasisofPresentation
TheConsolidatedFinancialStatementsreflecttheconsolidatedoperationsofTEConnectivityLtd.anditssubsidiariesandhavebeenpreparedinUnitedStates("U.S.")dollarsinaccordancewithaccountingprinciplesgenerallyacceptedintheU.S.("GAAP").
Description of the Business
TEConnectivityLtd.("TEConnectivity"orthe"Company,"whichmaybereferredtoas"we,""us,"or"our")isaglobaltechnologyleader.Wedesignandmanufactureconnectivityandsensorsolutionsthatareessentialintoday'sincreasinglyconnectedworld.Wehelpourcustomerssolvetheneedforintelligent,efficient,andhigh-performingproductsandsolutions.
Weoperatethroughthreereportablesegments:
• TransportationSolutions.TheTransportationSolutionssegmentisaleaderinconnectivityandsensortechnologies.Ourproducts,whichmustwithstandharshconditions,areusedintheautomotive,commercialtransportation,andsensorsmarkets.
• IndustrialSolutions.TheIndustrialSolutionssegmentisaleadingsupplierofproductsthatconnectanddistributepower,data,andsignals.Ourproductsareusedintheindustrialequipment;aerospace,defense,oil,andgas;andenergymarkets.
• CommunicationsSolutions.TheCommunicationsSolutionssegmentisaleadingsupplierofelectroniccomponentsforthedataanddevicesandappliancesmarkets.Wearealsoaleaderindeveloping,manufacturing,installing,andmaintainingsomeoftheworld'smostadvancedsubseafiberopticcommunicationssystems.
Use of Estimates
ThepreparationoftheConsolidatedFinancialStatementsinconformitywithGAAPrequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilities,thedisclosureofcontingentassetsandliabilities,andthereportedamountsofrevenuesandexpenses.SignificantestimatesintheseConsolidatedFinancialStatementsincluderestructuringandothercharges,assetsacquiredandliabilitiesassumedinacquisitions,allowancesfordoubtfulaccountsreceivable,estimatesoffuturecashflowsanddiscountratesassociatedwithassetimpairments,usefullivesfordepreciationandamortization,losscontingencies,netrealizablevalueofinventories,estimatedcontractrevenueandrelatedcosts,legalcontingencies,taxreservesanddeferredtaxassetvaluationallowances,andthedeterminationofdiscountandotherrateassumptionsforpensionbenefitcost.Actualresultscoulddiffermateriallyfromtheseestimates.
Fiscal Year
Wehavea52or53-weekfiscalyearthatendsonthelastFridayofSeptember.Forfiscalyearsinwhichthereare53weeks,thefourthquarterreportingperiodincludes14weeks.Fiscal2016wasa53weekyearandendedonSeptember30,2016.Fiscal2015and2014were52weeksinlengthandendedonSeptember25,2015andSeptember26,2014,respectively.
70
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
2.SummaryofSignificantAccountingPolicies
Principles of Consolidation
Weconsolidateentitiesinwhichweownorcontrolmorethan50%ofthevotingsharesorotherwisehavetheabilitytocontrolthroughsimilarrights.Allintercompanytransactionshavebeeneliminated.TheresultsofcompaniesacquiredordisposedofareincludedontheConsolidatedFinancialStatementsfromtheeffectivedateofacquisitionoruptothedateofdisposal.
Revenue Recognition
Ourrevenuesaregeneratedprincipallyfromthesaleofourproducts.Revenuefromthesaleofproductsisrecognizedatthetimetitleandtherisksandrewardsofownershippasstothecustomer.Thisgenerallyoccurswhentheproductsreachtheshippingpoint,thesalespriceisfixedanddeterminable,andcollectionisreasonablyassured.
Contractrevenuesforconstructionrelatedprojects,whicharegeneratedintheCommunicationsSolutionssegment,arerecordedprimarilyusingthepercentage-of-completionmethod.Profitsrecognizedoncontractsinprocessarebaseduponestimatedcontractrevenueandrelatedcosttocomplete.Percentage-of-completionismeasuredbasedontheratioofactualcostsincurredtototalestimatedcosts.Revisionsincostestimatesascontractsprogresshavetheeffectofincreasingordecreasingprofitsinthecurrentperiod.Provisionsforanticipatedlossesaremadeintheperiodinwhichtheyfirstbecomedeterminable.Inaddition,provisionsforcreditlossesrelatedtoconstructionrelatedprojectsarerecordedasreductionsofrevenueintheperiodinwhichtheyfirstbecomedeterminable.
Wegenerallywarrantthatourproductswillconformtoour,ormutuallyagreedto,specificationsandthatourproductswillbefreefrommaterialdefectsinmaterialsandworkmanshipforalimitedtime.Welimitourwarrantytothereplacementorrepairofdefectiveparts,orarefundorcreditofthepriceofthedefectiveproduct.Weacceptreturnedgoodsonlywhenthecustomermakesaverifiedclaimandwehaveauthorizedthereturn.Generally,areserveforestimatedreturnsisestablishedatthetimeofsalebasedonhistoricalreturnexperienceandisrecordedasareductionofsales.
Additionally,certainofourlong-termcontractsintheCommunicationsSolutionssegmenthavewarrantyobligations.Estimatedwarrantycostsforeachcontractaredeterminedbasedonthecontracttermsandtechnology-specificconsiderations.Thesecostsareincludedintotalestimatedcontractcostsandareaccruedovertheconstructionperiodoftherespectivecontractsunderpercentage-of-completionaccounting.
Weprovidecertaindistributorswithaninventoryallowanceforreturnsorscrapequaltoapercentageofqualifiedpurchases.Areserveforestimatedreturnsandscrapallowancesisestablishedatthetimeofthesale,basedonanagreeduponfixedpercentageofsalestodistributors,andisrecordedasareductionofsales.
Otherallowancesincludecustomerquantityandpricediscrepancies.Areserveforotherallowancesisgenerallyestablishedatthetimeofsalebasedonhistoricalexperienceandisrecordedasareductionofsales.Webelievewecanreasonablyandreliablyestimatetheamountsoffutureallowances.
71
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
2.SummaryofSignificantAccountingPolicies(Continued)
Inventories
Inventoriesarerecordedatthelowerofcostormarketvalueusingthefirst-in,first-outcostmethod,exceptforinventoriedcostsincurredintheperformanceoflong-termcontractsprimarilybytheCommunicationsSolutionssegment.
Property, Plant, and Equipment, Net
Property,plant,andequipmentisrecordedatcostlessaccumulateddepreciation.Maintenanceandrepairexpendituresarechargedtoexpensewhenincurred.Depreciationiscalculatedusingthestraight-linemethodovertheestimatedusefullivesoftheassets,whichare10to20yearsforlandimprovements,5to40yearsforbuildingsandimprovements,and1to15yearsformachineryandequipment.
Weperiodicallyevaluate,wheneventsandcircumstanceswarrant,thenetrealizablevalueofproperty,plant,andequipmentandotherlong-livedassets,relyingonanumberoffactorsincludingoperatingresults,businessplans,economicprojections,andanticipatedfuturecashflows.Whenindicatorsofpotentialimpairmentarepresent,thecarryingvaluesoftheassetgroupareevaluatedinrelationtotheoperatingperformanceandestimatedfutureundiscountedcashflowsoftheunderlyingassetgroup.Impairmentofthecarryingvalueisrecognizedwheneveranticipatedfutureundiscountedcashflowestimatesarelessthanthecarryingvalueoftheasset.Fairvalueestimatesarebasedonassumptionsconcerningtheamountandtimingofestimatedfuturecashflowsanddiscountrates,reflectingvaryingdegreesofperceivedrisk.
Goodwill and Other Intangible Assets
Intangibleassetsincludebothindeterminable-livedresidualgoodwillanddeterminable-livedidentifiableintangibleassets.Intangibleassetswithadeterminablelifeprimarilyincludeintellectualproperty,consistingofpatents,trademarks,andunpatentedtechnology,aswellascustomerrelationships.Recoverabilityestimatesrangefrom1to50yearsandcostsaregenerallyamortizedonastraight-linebasis.Anevaluationoftheremainingusefullifeofdeterminable-livedintangibleassetsisperformedonaperiodicbasisandwheneventsandcircumstanceswarrantanevaluation.
Atfiscalyearend2016,wehadsixreportingunits,fiveofwhichcontainedgoodwill.Thereweretworeportingunitsineachofourthreesegments.Whenchangesoccurinthecompositionofoneormorereportingunits,goodwillisreassignedtothereportingunitsaffectedbasedontheirrelativefairvalues.
Goodwillimpairmentisevaluatedbycomparingthecarryingvalueofeachreportingunittoitsfairvalueonthefirstdayofthefourthfiscalquarterofeachyearorwheneverwebelieveatriggeringeventrequiringamorefrequentassessmenthasoccurred.Inassessingtheexistenceofatriggeringevent,managementreliesonanumberofreportingunit-specificfactorsincludingoperatingresults,businessplans,economicprojections,anticipatedfuturecashflows,transactions,andmarketplacedata.Thereareinherentuncertaintiesrelatedtothesefactorsandmanagement'sjudgmentinapplyingthesefactorstotheimpairmentanalysis.
Whentestingforgoodwillimpairment,weperformastepIgoodwillimpairmenttesttoidentifypotentialimpairmentbycomparingthefairvalueofareportingunitwithitscarryingamount.Ifthecarryingamountofareportingunitexceedsitsfairvalue,goodwillmaybeimpairedandastepII
72
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
2.SummaryofSignificantAccountingPolicies(Continued)
goodwillimpairmenttestisperformedtomeasuretheamountofimpairment,ifany.InthestepIIgoodwillimpairmenttest,wecomparetheimpliedfairvalueofreportingunitgoodwillwiththecarryingamountofthatgoodwill.Ifthecarryingamountofreportingunitgoodwillexceedstheimpliedfairvalueofthatgoodwill,animpairmentlossisrecognizedinanamountequaltotheexcess.Theimpliedfairvalueofgoodwillisdeterminedinamannerconsistentwithhowgoodwillisrecognizedinabusinesscombination.Weallocatethefairvalueofareportingunittoalloftheassetsandliabilitiesofthatunit,includingintangibleassets,asifthereportingunithadbeenacquiredinabusinesscombination.Anyexcessofthefairvalueofareportingunitovertheamountsassignedtoitsassetsandliabilitiesistheimpliedfairvalueofgoodwill.
FairvalueestimatesusedinthestepIgoodwillimpairmenttestsarecalculatedusinganincomeapproachbasedonthepresentvalueoffuturecashflowsofeachreportingunit.Theincomeapproachgenerallyhasbeensupportedbyguidelineanalyses(amarketapproach).Theseapproachesincorporateanumberofassumptionsincludingfuturegrowthrates,discountrates,incometaxrates,andmarketactivityinassessingfairvalueandarereportingunitspecific.Changesineconomicandoperatingconditionsimpactingtheseassumptionscouldresultingoodwillimpairmentsinfutureperiods.
Research and Development
Researchanddevelopmentexpendituresareexpensedwhenincurredandareincludedinresearch,development,andengineeringexpensesontheConsolidatedStatementsofOperations.Researchanddevelopmentexpensesincludesalaries,directcostsincurred,andbuildingandoverheadexpenses.Theamountsexpensedinfiscal2016,2015,and2014were$566million,$540million,and$484million,respectively.
Income Taxes
IncometaxesarecomputedinaccordancewiththeprovisionsofAccountingStandardsCodification("ASC")740,IncomeTaxes.DeferredtaxliabilitiesandassetsarerecognizedfortheexpectedfuturetaxconsequencesofeventsthathavebeenreflectedontheConsolidatedFinancialStatements.Deferredtaxliabilitiesandassetsaredeterminedbasedonthedifferencesbetweenthebookandtaxbasesofparticularassetsandliabilitiesandoperatinglosscarryforwardsusingtaxratesineffectfortheyearsinwhichthedifferencesareexpectedtoreverse.Avaluationallowanceisprovidedtooffsetdeferredtaxassetsif,basedupontheavailableevidence,itismorelikelythannotthatsomeorallofthedeferredtaxassetswillnotberealized.
Thecalculationofourtaxliabilitiesincludesestimatesforuncertaintiesintheapplicationofcomplextaxregulationsacrossmultipleglobaljurisdictionswhereweconductouroperations.UndertheuncertaintaxpositionprovisionsofASC740,werecognizeliabilitiesfortaxandrelatedinterestforissuesintheU.S.andothertaxjurisdictionsbasedonourestimateofwhether,andtheextenttowhich,additionaltaxesandrelatedinterestwillbedue.Thesetaxliabilitiesandrelatedinterestarereflectednetoftheimpactofrelatedtaxlosscarryforwards,assuchtaxlosscarryforwardswillbeappliedagainstthesetaxliabilitiesandwillreducetheamountofcashtaxpaymentsdueupontheeventualsettlementwiththetaxauthorities.Theseestimatesmaychangeduetochangingfactsandcircumstances.Duetothecomplexityoftheseuncertainties,theultimateresolutionmayresultinasettlementthatdiffersfromourcurrentestimateofthetaxliabilitiesandrelatedinterest.
73
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
2.SummaryofSignificantAccountingPolicies(Continued)
Financial Instruments
Ourfinancialinstrumentsconsistprimarilyofcashandcashequivalents,accountsreceivable,accountspayable,debt,andderivativefinancialinstruments.
WeaccountforderivativefinancialinstrumentcontractsontheConsolidatedBalanceSheetsatfairvalue.ForinstrumentsnotdesignatedashedgesunderASC815,DerivativesandHedging,thechangesintheinstruments'fairvaluearerecognizedcurrentlyinearnings.Forinstrumentsdesignatedascashflowhedges,theeffectiveportionofchangesinthefairvalueofaderivativeisrecordedinothercomprehensiveincome(loss)andreclassifiedintoearningsinthesameperiodorperiodsduringwhichtheunderlyinghedgeditemaffectsearnings.Ineffectiveportionsofacashflowhedge,includingamountsexcludedfromthehedgingrelationship,arerecognizedcurrentlyinearnings.Changesinthefairvalueofinstrumentsdesignatedasfairvaluehedgesaffectthecarryingvalueoftheassetorliabilityhedged,withchangesinboththederivativeinstrumentandthehedgedassetorliabilitybeingrecognizedcurrentlyinearnings.
Wedeterminethefairvalueofourfinancialinstrumentsbyusingmethodsandassumptionsthatarebasedonmarketconditionsandrisksexistingateachbalancesheetdate.Standardmarketconventionsareusedtodeterminethefairvalueoffinancialinstruments,includingderivatives.
ThecashflowsrelatedtoderivativefinancialinstrumentsarereportedintheoperatingactivitiessectionoftheConsolidatedStatementsofCashFlows.
Ourderivativefinancialinstrumentspresentcertainmarketandcounterpartyrisks.Concentrationofcounterpartyriskismitigated,however,byouruseoffinancialinstitutionsworldwide,substantiallyallofwhichhavelong-termStandard&Poor's,Moody's,and/orFitchcreditratingsofA/A2orhigher.Inaddition,weutilizeonlyconventionalderivativefinancialinstruments.Weareexposedtopotentiallossesifacounterpartyfailstoperformaccordingtothetermsofitsagreement.Withrespecttocounterpartynetassetpositionsrecognizedatfiscalyearend2016,wehaveassessedthelikelihoodofcounterpartydefaultasremote.Wecurrentlyprovideguaranteesfromawholly-ownedsubsidiarytothecounterpartiestoourcommodityswapderivativesandexchangecashcollateralwiththecounterpartiestoourcross-currencyswapcontracts.Thelikelihoodofperformanceontheguaranteeshasbeenassessedasremote.Forallotherderivativefinancialinstruments,wearenotrequiredtoprovide,nordowerequirecounterpartiestoprovide,collateralorothersecurity.
Fair Value Measurements
ASC820,FairValueMeasurementsandDisclosures,specifiesafairvaluehierarchybasedupontheobservableinputsutilizedinvaluationofcertainassetsandliabilities.Observableinputs(highestlevel)reflectmarketdataobtainedfromindependentsources,whileunobservableinputs(lowestlevel)reflectinternallydevelopedmarketassumptions.Fairvaluemeasurementsareclassifiedunderthefollowinghierarchy:
• Level1.Quotedpricesinactivemarketsforidenticalassetsandliabilities.
• Level2.Quotedpricesinactivemarketsforsimilarassetsandliabilities,orotherinputsthatareobservablefortheassetorliability,eitherdirectlyorindirectly,forsubstantiallythefulltermoftheassetorliability.
74
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
2.SummaryofSignificantAccountingPolicies(Continued)
• Level3.Unobservableinputsthataresupportedbylittleornomarketactivityandthataresignificanttothefairvalueoftheassetsandliabilities.Thisincludescertainpricingmodels,discountedcashflowsmethodologies,andsimilartechniquesthatusesignificantunobservableinputs.
Financialassetsandliabilitiesmeasuredatfairvalueonarecurringbasisaregenerallyvaluedusinglevel2inputs.
Financialinstrumentsotherthanderivativeinstrumentsincludecashandcashequivalents,accountsreceivable,accountspayable,anddebt.TheseinstrumentsarerecordedontheConsolidatedBalanceSheetsatbookvalue.Forcashandcashequivalents,accountsreceivable,andaccountspayable,webelievebookvalueapproximatesfairvalueduetotheshort-termnatureoftheseinstruments.SeeNote11fordisclosureofthefairvalueofdebt.Thefollowingisadescriptionofthevaluationmethodologiesusedfortherespectivefinancialinstruments:
• Cashandcashequivalents.Cashandcashequivalentsarevaluedatbookvalue,whichweconsidertobeequivalenttounadjustedquotedprices(level1).
• Accountsreceivable.Accountsreceivablearevaluedbasedonthenetvalueexpectedtoberealized.Thenetrealizablevaluegenerallyrepresentsanobservablecontractualagreement(level2).
• Accountspayable.Accountspayablearevaluedbasedonthenetvalueexpectedtobepaid,generallysupportedbyanobservablecontractualagreement(level2).
• Debt.Thefairvalueofdebt,includingbothcurrentandnon-currentmaturities,isderivedfromquotedmarketpricesorotherpricingdeterminationsbasedontheresultsofmarketapproachvaluationmodelsusingobservablemarketdatasuchasrecentlyreportedtrades,bidandofferinformation,andbenchmarksecurities(level2).
Pension
ThefundedstatusofourdefinedbenefitpensionplansisrecognizedontheConsolidatedBalanceSheetsandismeasuredasthedifferencebetweenthefairvalueofplanassetsandtheprojectedbenefitobligationatthemeasurementdate.Theprojectedbenefitobligationrepresentstheactuarialpresentvalueofbenefitsprojectedtobepaiduponretirementfactoringinestimatedfuturecompensationlevels.Thefairvalueofplanassetsrepresentsthecurrentmarketvalueofcumulativecompanyandparticipantcontributionsmadetoirrevocabletrustfunds,heldforthesolebenefitofparticipants,whichareinvestedbythetrusteeofthefunds.Thebenefitsunderourdefinedbenefitpensionplansarebasedonvariousfactors,suchasyearsofserviceandcompensation.
Netperiodicpensionbenefitcostisbasedontheutilizationoftheprojectedunitcreditmethodofcalculationandischargedtoearningsonasystematicbasisovertheexpectedaverageremainingservicelivesofcurrentparticipants.
Themeasurementofbenefitobligationsandnetperiodicbenefitcostisbasedonestimatesandassumptionsdeterminedbyourmanagement.Thesevaluationsreflectthetermsoftheplansanduseparticipant-specificinformationsuchascompensation,age,andyearsofservice,aswellascertainassumptions,includingestimatesofdiscountrates,expectedreturnonplanassets,rateofcompensationincreases,interestcreditingrates,andmortalityrates.
75
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
2.SummaryofSignificantAccountingPolicies(Continued)
Share-Based Compensation
Wedeterminethefairvalueofshareawardsonthedateofgrant.ShareoptionsarevaluedusingtheBlack-Scholes-Mertonvaluationmodel;restrictedshareawardsandperformanceawardsarevaluedusingourend-of-daysharepriceonthedateofgrant.Thefairvalueisexpensedratablyovertheexpectedserviceperiod,withanallowancemadeforestimatedforfeituresbasedonhistoricalemployeeactivity.Estimatesregardingtheattainmentofperformancecriteriaarereviewedperiodically;thecumulativeimpactofachangeinestimateregardingtheattainmentofperformancecriteriaisrecordedintheperiodinwhichthatchangeismade.
Earnings Per Share
Basicearningspershareiscomputedbydividingnetincomebythebasicweighted-averagenumberofcommonsharesoutstanding.Dilutedearningspershareiscomputedbydividingnetincomebytheweighted-averagenumberofcommonsharesoutstandingadjustedforthepotentiallydilutiveimpactofshare-basedcompensationarrangements.
Currency Translation
Forournon-U.S.dollarfunctionalcurrencysubsidiaries,assetsandliabilitiesaretranslatedintoU.S.dollarsusingfiscalyearendexchangerates.Salesandexpensesaretranslatedataveragemonthlyexchangerates.Foreigncurrencytranslationgainsandlossesareincludedasacomponentofaccumulatedothercomprehensiveincome(loss)withinequity.
Gainsandlossesresultingfromforeigncurrencytransactions,whichareincludedinearnings,wereimmaterialinfiscal2016,2015,and2014.
Restructuring Charges
Restructuringactivitiesinvolveemployee-relatedterminationcosts,facilityexitcosts,andassetimpairmentsresultingfromreductions-in-force,migrationoffacilitiesorproductlinesfromhigher-costtolower-costcountries,orconsolidationoffacilitieswithincountries.Werecognizeterminationcostsbasedonrequirementsestablishedbyseverancepolicy,governmentlaw,orpreviousactions.Facilityexitcostsgenerallyreflectthecosttoterminateafacilityleasebeforetheendofitsterm(measuredatfairvalueatthetimeweceaseusingthefacility)orcoststhatwillcontinuetobeincurredunderthefacilityleasewithoutfutureeconomicbenefittous.Restructuringactivitiesoftenresultinthedisposalorabandonmentofassetsthatrequireanaccelerationofdepreciationorimpairmentreflectingtheexcessoftheassets'carryingvaluesoverfairvalue.
Therecognitionofrestructuringcostsrequirethatwemakecertainjudgmentsandestimatesregardingthenature,timing,andamountofcostsassociatedwiththeplannedexitactivity.Totheextentouractualresultsdifferfromourestimatesandassumptions,wemayberequiredtorevisetheestimatedliabilities,requiringtherecognitionofadditionalrestructuringcostsorthereductionofliabilitiesalreadyrecognized.Attheendofeachreportingperiod,weevaluatetheremainingaccruedbalancestoensurethesebalancesareproperlystatedandtheutilizationofthereservesarefortheirintendedpurposeinaccordancewithdevelopedexitplans.
76
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
2.SummaryofSignificantAccountingPolicies(Continued)
Acquisitions
Weaccountforacquiredbusinessesusingtheacquisitionmethodofaccounting.Thismethodrequires,amongotherthings,thatmostassetsacquiredandliabilitiesassumedberecognizedatfairvalueasoftheacquisitiondate.Weallocatethepurchasepriceofacquiredbusinessestothetangibleandintangibleassetsacquiredandliabilitiesassumedbasedonestimatedfairvalues,orasrequiredbyASC805,BusinessCombinations.Theexcessofthepurchasepriceovertheidentifiableassetsacquiredandliabilitiesassumedisrecordedasgoodwill.Wemayengageindependentthird-partyappraisalfirmstoassistusindeterminingthefairvaluesofassetsacquiredandliabilitiesassumed.Suchvaluationsrequiremanagementtomakesignificantestimatesandassumptions,especiallywithrespecttointangibleassets.
Contingent Liabilities
Werecordalosscontingencywhentheavailableinformationindicatesitisprobablethatwehaveincurredaliabilityandtheamountofthelossisreasonablyestimable.Whenarangeofpossiblelosseswithequallikelihoodexists,werecordthelowendoftherange.Thelikelihoodofalosswithrespecttoaparticularcontingencyisoftendifficulttopredict,anddeterminingameaningfulestimateofthelossorarangeoflossmaynotbepracticablebasedoninformationavailable.Inaddition,itisnotuncommonforsuchmatterstoberesolvedovermanyyears,duringwhichtimerelevantdevelopmentsandnewinformationmustcontinuouslybeevaluatedtodeterminewhetheralossisprobableandareasonableestimateofthatlosscanbemade.Whenalossisprobablebutareasonableestimatecannotbemade,orwhenalossisatleastreasonablypossible,disclosureisprovided.
Recently Issued Accounting Pronouncements
InMarch2016,theFinancialAccountingStandardsBoard("FASB")issuedanupdatetoASC718,Compensation—StockCompensation,tosimplifyvariousaspectsofaccountingforshare-basedpaymentstoemployees.Thisupdateiseffectiveforusinthefirstquarteroffiscal2018;however,weexpecttoearlyadoptthisupdateinthefirstquarteroffiscal2017.Weexpecttheimpactofadoptionoftheprovisionaddressingaccountingforexcesstaxbenefitsanddeficiencieswillincreasenoncurrentdeferredtaxassetsandretainedearningsbyapproximately$170million.AdoptionoftheremainingprovisionsoftheupdatewillnothaveamaterialimpactonourConsolidatedFinancialStatements.
InFebruary2016,theFASBissuedASC842,Leases,requiringlesseestorecognizealeaseliabilityandaright-of-useassetformostleases.Thisguidanceiseffectiveforusinthefirstquarteroffiscal2020.Wewilladoptthenewstandardusingamodifiedretrospectivetransitionapproachwhichrequiresapplicationofthenewguidanceforallperiodspresented.Wearecurrentlyassessingtheimpactthatadoptionwillhaveonourfinancialposition.
InMay2014,theFASBissuedASC606,RevenuefromContractswithCustomers.ThisguidancesupersedesASC605,RevenueRecognition,andintroducesasingle,comprehensive,five-steprevenuerecognitionmodel.ASC606alsoenhancesdisclosuresrelatedtorevenuerecognition.InAugust2015,theFASBdeferredtheeffectivedateofASC606byoneyear.ASC606iseffectiveforusinthefirstquarteroffiscal2019andallowsforeitherafullretrospectiveoramodifiedretrospectiveapproachatadoption.WearecontinuingtoassesstheimpactofadoptingASC606,butdonotexpectadoptiontohaveamaterialimpactonourresultsofoperationsorfinancialposition.
77
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
2.SummaryofSignificantAccountingPolicies(Continued)
Recently Adopted Accounting Pronouncements
InNovember2015,theFASBissuedanupdatetoASC740requiringthatdeferredtaxassetsandliabilitiesbeclassifiedasnon-currentinaclassifiedstatementoffinancialposition.Weelectedtoearlyadoptthisupdateonaprospectivebasisduringfiscal2016.Priorperiodamountswerenotretrospectivelyadjusted.
InApril2015,theFASBissuedanupdatetoASC835,Interest,requiringthatdebtissuancecostsrelatedtoarecognizeddebtliabilitybepresentedonthebalancesheetasadirectdeductionfromthecarryingamountofthatdebtliability,consistentwithdebtdiscounts.Weelectedtoearlyadoptthisupdateduringfiscal2016.TheupdatewasappliedonaretrospectivebasisanddidnothaveamaterialimpactontheConsolidatedFinancialStatements.
3.RestructuringandOtherCharges,Net
Netrestructuringandotherchargesconsistedofthefollowing:
RestructuringCharges,Net
Netrestructuringchargesbysegmentwereasfollows:
78
Fiscal 2016 2015 2014 (inmillions) Restructuringcharges,net $ 125 $ 93 $ 23Gainondivestiture (144) — —Othercharges(credits),net 21 59 (4)
$ 2 $ 152 $ 19
Fiscal 2016 2015 2014 (inmillions) TransportationSolutions $ 39 $ 6 $ 7IndustrialSolutions 28 29 7CommunicationsSolutions 58 58 9Restructuringcharges,net $ 125 $ 93 $ 23
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
3.RestructuringandOtherCharges,Net(Continued)
Activityinourrestructuringreservesissummarizedasfollows:
79
BalanceatBeginningofFiscalYear Charges
ChangesinEstimate
CashPayments
Non-CashItems
CurrencyTranslation
andOther(1)
BalanceatEndofFiscalYear
(inmillions) Fiscal2016Activity: Fiscal2016Actions: Employeeseverance $ — $ 86 $ — $ (32) $ — $ — $ 54Facilityandotherexitcosts — 3 — (3) — — —Property,plant,andequipment — 41 — — (41) — —Total — 130 — (35) (41) — 54
Fiscal2015Actions: Employeeseverance 45 3 (4) (31) — — 13Facilityandotherexitcosts 1 — — (1) — — —Total 46 3 (4) (32) — — 13
Fiscal2014Actions: Employeeseverance 4 — — (2) — — 2
Pre-FiscalFiscal2014Actions: Employeeseverance 20 — (6) (6) — 2 10Facilityandotherexitcosts 14 2 — (4) — — 12Total 34 2 (6) (10) — 2 22
Totalfiscal2016activity $ 84 $ 135 $ (10) $ (79) $ (41) $ 2 $ 91Fiscal2015Activity: Fiscal2015Actions: Employeeseverance $ — $ 68 $ — $ (23) $ — $ — $ 45Facilityandotherexitcosts — 3 — (2) — — 1Property,plant,andequipment — 21 — — (21) — —Total — 92 — (25) (21) — 46
Fiscal2014Actions: Employeeseverance 16 — — (7) — (5) 4Facilityandotherexitcosts 1 — — (1) — — —Total 17 — — (8) — (5) 4
Pre-Fiscal2014Actions: Employeeseverance 75 2 (4) (47) — (6) 20Facilityandotherexitcosts 22 3 — (12) — 1 14Total 97 5 (4) (59) — (5) 34
Totalfiscal2015activity $ 114 $ 97 $ (4) $ (92) $ (21) $ (10) $ 84
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
3.RestructuringandOtherCharges,Net(Continued)
Fiscal 2016 Actions
Duringfiscal2016,weinitiatedarestructuringprogramassociatedwithheadcountreductionsimpactingallsegmentsandproductlineclosuresintheCommunicationsSolutionssegment.Inconnectionwiththisprogram,duringfiscal2016,werecordedrestructuringchargesof$130million.Weexpecttocompleteallrestructuringactionscommencedduringfiscal2016bytheendoffiscal2019andtoincurtotalchargesofapproximately$171millionwithremainingchargesrelatedprimarilytoemployeeseverance.
Thefollowingtablesummarizesexpected,incurred,andremainingchargesforthefiscal2016programbysegment:
Fiscal 2015 Actions
Duringfiscal2015,weinitiatedarestructuringprogramassociatedwithheadcountreductionsandproductlineclosures,primarilyimpactingtheCommunicationsSolutionsandIndustrialSolutionssegments.Inconnectionwiththisprogram,duringfiscal2016and2015,werecordednetrestructuring
80
BalanceatBeginningofFiscalYear Charges
ChangesinEstimate
CashPayments
Non-CashItems
CurrencyTranslation
andOther(1)
BalanceatEndofFiscalYear
(inmillions) Fiscal2014Activity: Fiscal2014Actions: Employeeseverance $ — $ 10 $ — $ (13) $ — $ 19 $ 16Facilityandotherexitcosts — — — — — 1 1Property,plant,andequipment — 9 — — (9) — —Total — 19 — (13) (9) 20 17
Pre-Fiscal2014Actions: Employeeseverance 210 10 (20) (134) — 9 75Facilityandotherexitcosts 27 6 1 (13) — 1 22Property,plant,andequipment — 7 — — (7) — —Total 237 23 (19) (147) (7) 10 97
Totalfiscal2014activity $ 237 $ 42 $ (19) $ (160) $ (16) $ 30 $ 114
(1) Includesnetchargesassociatedwithdiscontinuedoperationsof$36millioninfiscal2014.
TotalExpectedCharges
ChargesIncurredinFiscal2016
RemainingExpectedCharges
(inmillions) TransportationSolutions $ 45 $ 38 $ 7IndustrialSolutions 30 28 2CommunicationsSolutions 96 64 32Total $ 171 $ 130 $ 41
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
3.RestructuringandOtherCharges,Net(Continued)
creditsof$1millionandchargesof$92million,respectively.Wedonotexpecttoincuranyadditionalchargesrelatedtorestructuringprogramscommencedinfiscal2015.
Fiscal 2014 Actions
Duringfiscal2014,weinitiatedarestructuringprogramassociatedprimarilywithheadcountreductionsandmanufacturingsiteandproductlineclosuresintheCommunicationsSolutionssegment.Inconnectionwiththisprogram,werecordednetrestructuringchargesof$19millioninfiscal2014.Wedonotexpecttoincuranyadditionalchargesrelatedtorestructuringprogramscommencedinfiscal2014.
Pre-Fiscal 2014 Actions
Duringfiscal2016,2015,and2014,werecordednetrestructuringcreditsof$4million,chargesof$1million,andchargesof$4million,respectively,relatedtopre-fiscal2014actions.Wedonotexpecttoincuranyadditionalchargesrelatedtopre-fiscal2014actions.
Total Restructuring Reserves
RestructuringreservesincludedontheConsolidatedBalanceSheetswereasfollows:
GainonDivestiture
Duringfiscal2016,wesoldourCircuitProtectionDevices("CPD")businessfornetcashproceedsof$333million.Werecognizedapre-taxgainof$144milliononthetransaction.TheCPDbusinesswasreportedinourCommunicationsSolutionssegment.
OtherCharges(Credits),Net
Duringfiscal2016,weincurredcostsof$21million,associatedprimarilywiththedivestitureofcertainbusinesses.
Duringfiscal2015,inconnectionwiththesaleourBroadbandNetworkSolutions("BNS")business,weincurredcostsof$61million,consistingprimarilyof$36millionoflegalandprofessionalfeesand$18millionofchargesassociatedwiththeexitofafacility.Theseamountsarenotdirectlyrelatedtothebusinesssold,andaccordinglyhavebeenrecordedincontinuingoperations.SeeNote4foradditionalinformationregardingthedivestitureofBNS.
81
FiscalYearEnd 2016 2015 (inmillions) Accruedandothercurrentliabilities $ 64 $ 60Otherliabilities 27 24Restructuringreserves $ 91 $ 84
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
4.DiscontinuedOperations
Thefollowingtablepresentscertaincomponentsofincomefromdiscontinuedoperations,netofincometaxes:
Duringfiscal2015,wesoldourBNSbusinessfor$3.0billionincashandrecognizedapre-taxgainof$1.1billiononthetransaction.IntheU.S.,incometaxesassociatedwiththegainonthesaleofassetswerelargelyoffsetbyincometaxbenefitsrealizedonthesaleofseveralsubsidiaries.Incertainnon-U.S.jurisdictions,thesalewasexemptfromincometaxes.Duringfiscal2016,werecognizedanadditionalpre-taxgainof$29milliononthedivestiture,relatedprimarilytopensionandnetworkingcapitaladjustments.
Infiscal2006,theformershareholdersofCom-Netinitiatedalawsuitrelatedtoourfiscal2001acquisitionofCom-Net.InOctober2015,theCourtofCommonPleasinAlleghenyCounty,Pennsylvaniaenteredfinaljudgmentinfavorofthesellersandagainstusfor$127millionpluscosts.InJuly2016,weenteredintosettlementagreementswiththesellerspursuanttowhichweagreedtopaythesellersanaggregateamountof$96million,paymentofwhichwasmadeinfiscal2016,settlingallmattersindispute.
InconnectionwiththeCom-Netcase,werecordedareserveandpre-taxchargesof$127millionduringfiscal2015.Duringfiscal2016,inconnectionwiththesettlements,werecordedpre-taxcreditsof$30million,representingareleaseofexcessreserves.TheseamountsarereflectedinincomefromdiscontinuedoperationsontheConsolidatedStatementsofOperationsastheCom-NetcasewasassociatedwithourformerWirelessSystemsbusinesswhichwassoldin2009.
TheBNSandWirelessSystemsbusinessesmetthediscontinuedoperationscriteriaandwerereportedassuchinallperiodspresentedontheConsolidatedFinancialStatements.Priortoreclassificationtodiscontinuedoperations,theBNSandWirelessSystemsbusinesseswereincludedintheformerNetworkSolutionsandWirelessSystemssegments,respectively.
5.Acquisitions
Fiscal 2016 Acquisitions
Duringfiscal2016,weacquiredfourbusinesses,includingtheCregannaMedicalgroup,foracombinedcashpurchasepriceof$1.3billion,netofcashacquired.TheacquisitionshavebeenreportedaspartofourIndustrialSolutionsandTransportationSolutionssegmentsfromthedateofacquisition.
Wehavepreliminarilyallocatedthepurchasepriceofacquiredbusinessestotangibleandidentifiableintangibleassetsacquiredandliabilitiesassumedbasedontheirestimatedfairvalues.We
82
Fiscal 2016 2015 2014 (inmillions) Netsalesfromdiscontinuedoperations $ — $ 1,595 $ 1,939
Pre-taxincomefromdiscontinuedoperations $ 30 $ 118 $ 224Pre-taxgainonsaleofdiscontinuedoperations 29 1,105 —Incometax(expense)benefit 9 (41) (57)Incomefromdiscontinuedoperations,netofincometaxes $ 68 $ 1,182 $ 167
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
5.Acquisitions(Continued)
areintheprocessofcompletingthevaluationofidentifiableintangibleassets,fixedassets,pre-acquisitioncontingencies,andincometaxes.Accordingly,thefairvaluessetforthbelowaresubjecttoadjustmentuponfinalizationofthevaluations.Theamountofthesepotentialadjustmentscouldbesignificant.Weexpecttocompletethepurchasepriceallocationfortheseacquisitionsduringfiscal2017.
Thefollowingtablesummarizesthepreliminaryallocationofthepurchasepricetothefairvalueofidentifiableassetsacquiredandliabilitiesassumedatthedateofacquisition,inaccordancewiththeacquisitionmethodofaccounting:
Thefairvaluesassignedtointangibleassetswerepreliminarilydeterminedthroughtheuseoftheincomeapproach,specificallytherelieffromroyaltyandthemulti-periodexcessearningsmethods.Bothvaluationmethodsrelyonmanagementjudgment,includingexpectedfuturecashflowsresultingfromexistingcustomerrelationships,customerattritionrates,contributoryeffectsofotherassetsutilizedinthebusiness,peergroupcostofcapitalandroyaltyrates,andotherfactors.Usefullivesforintangibleassetsweredeterminedbasedupontheremainingusefuleconomiclivesoftheintangibleassetsthatareexpectedtocontributedirectlyorindirectlytofuturecashflows.
Acquiredintangibleassetsconsistedofthefollowing:
83
(inmillions) Cashandcashequivalents $ 75Othercurrentassets 88Goodwill 836Intangibleassets 530Othernon-currentassets 39Totalassetsacquired 1,568
Currentliabilities 35Deferredincometaxes 107Othernon-currentliabilities 15Totalliabilitiesassumed 157Netassetsacquired 1,411
Cashandcashequivalentsacquired (75)Netcashpaid $ 1,336
Amount
Weighted-AverageAmortization
Period (inmillions) (inyears) Customerrelationships $ 300 18Developedtechnology 170 11Tradenamesandtrademarks 45 25Customerorderbacklog 15 3Total $ 530 16
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
5.Acquisitions(Continued)
Theacquiredintangibleassetsarebeingamortizedonastraight-linebasisovertheirexpectedusefullives.
Goodwillof$836millionwasrecognizedinthesetransactions,representingtheexcessofthepurchasepriceoverthefairvalueofthetangibleandintangibleassetsacquiredandliabilitiesassumed.Thisgoodwillisattributableprimarilytocostsavingsandothersynergiesrelatedtooperationalefficienciesincludingtheconsolidationofmanufacturing,marketing,andgeneralandadministrativefunctions.ThegoodwillhasbeenallocatedtotheIndustrialSolutionsandTransportationSolutionssegmentsandisnotdeductiblefortaxpurposes.However,priortobeingacquiredbyus,oneofthefiscal2016acquisitionscompletedcertainacquisitionsthatresultedingoodwillwithanestimatedvalueof$15millionthatisdeductibleprimarilyforU.S.taxpurposes,whichwewilldeductthrough2025.
Fiscal2016acquisitionscontributednetsalesof$167millionandoperatingincomeof$8milliontoourConsolidatedStatementofOperationsduringfiscal2016.Theoperatingincomeincluded$10millionofacquisitioncosts,$7millionassociatedwiththeamortizationofacquisition-relatedfairvalueadjustmentsrelatedtoacquiredinventoriesandcustomerorderbacklog,and$2millionofintegrationcosts.
Fiscal 2015 Acquisitions
InOctober2014,weacquired100%oftheoutstandingsharesofMeasurementSpecialties,Inc.("MeasurementSpecialties"),aleadingglobaldesignerandmanufacturerofsensorsandsensor-basedsystems,for$86.00incashpershare.Thetotalvaluepaidwasapproximately$1.7billion,netofcashacquired,andincluded$225millionfortherepaymentofMeasurementSpecialties'debtandaccruedinterest.MeasurementSpecialtiesoffersabroadportfoliooftechnologiesincludingpressure,vibration,force,temperature,humidity,ultrasonic,position,andfluidsensors,forawiderangeofapplicationsandindustries.ThisbusinesshasbeenreportedaspartofourTransportationSolutionssegmentfromthedateofacquisition.
84
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
5.Acquisitions(Continued)
Thefollowingtablesummarizestheallocationofthepurchasepricetothefairvalueofidentifiableassetsacquiredandliabilitiesassumedatthedateofacquisition,inaccordancewiththeacquisitionmethodofaccounting:
Thefairvaluesassignedtointangibleassetsweredeterminedthroughtheuseoftheincomeapproach,specificallytherelieffromroyaltyandthemulti-periodexcessearningsmethods.Thevaluationoftangibleassetswasderivedusingacombinationoftheincome,market,andcostapproaches.Usefullivesforintangibleassetsweredeterminedbasedupontheremainingusefuleconomiclivesoftheintangibleassetsthatareexpectedtocontributedirectlyorindirectlytofuturecashflows.
Acquiredintangibleassetsconsistedofthefollowing:
85
(inmillions) Cashandcashequivalents $ 37Accountsreceivable 84Inventories 110Othercurrentassets 20Property,plant,andequipment 95Goodwill 1,064Intangibleassets 547Othernon-currentassets 9Totalassetsacquired 1,966
Short-termdebt 20Accountspayable 48Othercurrentliabilities 67Long-termdebt 203Deferredincometaxes 98Othernon-currentliabilities 9Totalliabilitiesassumed 445Netassetsacquired 1,521
Cashandcashequivalentsacquired (37)Netcashpaid $ 1,484
Amount
Weighted-AverageAmortization
Period (inmillions) (inyears) Customerrelationships $ 370 18Developedtechnology 161 9Tradenamesandtrademarks 4 1Customerorderbacklog 12 <1Total $ 547 15
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
5.Acquisitions(Continued)
Theacquiredintangibleassetsarebeingamortizedonastraight-linebasisovertheirexpectedusefullives.
Goodwillof$1,064millionwasrecognizedinthetransaction,representingtheexcessofthepurchasepriceoverthefairvalueofthetangibleandintangibleassetsacquiredandliabilitiesassumed.Thisgoodwillisattributableprimarilytocostsavingsandothersynergiesrelatedtooperationalefficienciesincludingtheconsolidationofmanufacturing,marketing,andgeneralandadministrativefunctions.ThegoodwillhasbeenallocatedtotheTransportationSolutionssegmentandisnotdeductiblefortaxpurposes.However,priortoitsmergerwithus,MeasurementSpecialtiescompletedcertainacquisitionsthatresultedingoodwillwithanestimatedvalueof$23millionthatisdeductibleprimarilyforU.S.taxpurposes,whichwewilldeductthrough2030.
Duringfiscal2015,MeasurementSpecialtiescontributednetsalesof$548milliontoourConsolidatedStatementofOperations.Duetothecomminglednatureofouroperations,itisnotpracticabletoseparatelyidentifyoperatingincomeofMeasurementSpecialtiesonastand-alonebasis.
Duringfiscal2015,weacquiredthreeadditionalbusinessesfor$241millionincash,netofcashacquired.
Fiscal 2014 Acquisitions
Duringfiscal2014,weacquiredfivebusinesses,includingtheSEACONGroup("SEACON"),aleadingproviderofunderwaterconnectortechnologyandsystems,for$522millionincash,netofcashacquired.
Pro Forma Financial Information
Thefollowingunauditedproformafinancialinformationreflectsourconsolidatedresultsofoperationshadthefiscal2016acquisitionsoccurredatthebeginningoffiscal2015andtheMeasurementSpecialtiesacquisitionoccurredatthebeginningoffiscal2014:
Theproformafinancialinformationforthefiscal2016acquisitionswasbasedonourpreliminaryallocationofthepurchasepriceandthereforeissubjecttoadjustmentuponfinalizationofthepurchasepriceallocation.Theproformaadjustments,whichwerenotsignificant,includedinterestexpensebasedonproformachangesinourcombinedcapitalstructure,chargesrelatedtoacquiredcustomerorderbacklog,chargesrelatedtotheamortizationofthefairvalueofacquiredintangibleassets,chargesrelatedtothefairvalueadjustmenttoacquisition-dateinventories,andacquisitionandothercosts,andtherelatedtaxeffects.
Proformaresultsdonotincludeanyanticipatedsynergiesorotheranticipatedbenefitsoftheseacquisitions.Accordingly,theunauditedproformafinancialinformationisnotnecessarilyindicativeofeitherfutureresultsofoperationsorresultsthatmighthavebeenachievedhadtheseacquisitionsoccurredatthebeginningoftheprecedingfiscalyears.
86
ProFormaforFiscal 2016 2015 2014 (inmillions,exceptpersharedata) Netsales $ 12,471 $ 12,613 $ 12,429Netincome 2,038 2,448 1,744Dilutedearningspershare 5.52 $ 5.96 $ 4.18
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
6.Inventories
Inventoriesconsistedofthefollowing:
7.Property,Plant,andEquipment,Net
Netproperty,plant,andequipmentconsistedofthefollowing:
Depreciationexpensewas$436million,$463million,and$467millioninfiscal2016,2015,and2014,respectively.
87
FiscalYearEnd 2016 2015 (inmillions) Rawmaterials $ 241 $ 261Workinprogress 504 535Finishedgoods 669 773Inventoriedcostsonlong-termcontracts 182 46Inventories $ 1,596 $ 1,615
FiscalYearEnd 2016 2015 (inmillions) Landandimprovements $ 159 $ 163Buildingsandimprovements 1,272 1,261Machineryandequipment 6,890 6,692Constructioninprocess 567 521Grossproperty,plant,andequipment 8,888 8,637Accumulateddepreciation (5,836) (5,717)Property,plant,andequipment,net $ 3,052 $ 2,920
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
8.Goodwill
Thechangesinthecarryingamountofgoodwillbysegmentwereasfollows:
Duringfiscal2016,weacquiredfourbusinessesandrecognizedgoodwillof$836million,whichbenefitedtheIndustrialSolutionsandTransportationSolutionssegments.Duringfiscal2015,wecompletedtheacquisitionofMeasurementSpecialtiesandrecognizedgoodwillof$1,064million,whichbenefitedtheTransportationSolutionssegment.SeeNote5foradditionalinformationregardingacquisitions.
Duringfiscal2016,netgoodwillof$117millionwaswritten-offinconnectionwiththesaleofourCPDbusiness.SeeNote3foradditionalinformationregardingthedivestitureofCPD.
Wecompletedourannualgoodwillimpairmenttestinthefourthquarteroffiscal2016anddeterminedthatnoimpairmentexisted.
9.IntangibleAssets,Net
Intangibleassetsconsistedofthefollowing:
88
Transportation
Solutions IndustrialSolutions
CommunicationsSolutions Total
(inmillions)
Fiscalyearend2014(1) $ 834 $ 2,165 $ 727 $ 3,726Acquisitions 1,066 145 — 1,211Currencytranslation (37) (57) (19) (113)
Fiscalyearend2015(1) 1,863 2,253 708 4,824Acquisitions 60 776 — 836Divestitureofbusiness — — (117) (117)Currencytranslation (20) (24) (7) (51)
Fiscalyearend2016(1) $ 1,903 $ 3,005 $ 584 $ 5,492
(1) Atfiscalyearend2016,2015,and2014,accumulatedimpairmentlossesfortheTransportationSolutionsandIndustrialSolutionssegmentswere$2,191millionand$669million,respectively.AccumulatedimpairmentlossesfortheCommunicationsSolutionssegmentwere$1,514millionatfiscalyearend2016and$1,626millionatfiscalyearend2015and2014.
FiscalYearEnd 2016 2015
GrossCarryingAmount
AccumulatedAmortization
NetCarryingAmount
GrossCarryingAmount
AccumulatedAmortization
NetCarryingAmount
(inmillions) Customerrelationships $ 1,332 $ (212) $ 1,120 $ 1,053 $ (148) $ 905Intellectualproperty 1,300 (563) 737 1,150 (524) 626Other 36 (14) 22 37 (13) 24Total $ 2,668 $ (789) $ 1,879 $ 2,240 $ (685) $ 1,555
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
9.IntangibleAssets,Net(Continued)
Duringfiscal2016,thegrosscarryingamountofintangibleassetsincreasedby$530millionasaresultoftheacquisitionoffourbusinesses.SeeNote5foradditionalinformationregardingacquisitions.
Intangibleassetamortizationexpensewas$149million,$153million,and$84millionforfiscal2016,2015,and2014,respectively.Theaggregateamortizationexpenseonintangibleassetsisexpectedtobeasfollows:
10.AccruedandOtherCurrentLiabilities
Accruedandothercurrentliabilitiesconsistedofthefollowing:
89
(inmillions) Fiscal2017 $ 170Fiscal2018 170Fiscal2019 167Fiscal2020 160Fiscal2021 157Thereafter 1,055Total $ 1,879
FiscalYearEnd 2016 2015 (inmillions) Accruedpayrollandemployeebenefits $ 431 $ 424Dividendspayabletoshareholders 263 260Incometaxespayable 149 198Sharerepurchaseprogrampayable — 177Restructuringreserves 64 60Interestpayable 56 53Deferredincometaxes — 33Other 474 544Accruedandothercurrentliabilities $ 1,437 $ 1,749
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
11.Debt
Debtwasasfollows:
DuringJanuary2016,TycoElectronicsGroupS.A.("TEGSA"),our100%-ownedsubsidiary,issued$350millionaggregateprincipalamountof3.700%seniornotesdueFebruary15,2026.ThenotesareTEGSA'sunsecuredseniorobligationsandrankequallyinrightofpaymentwithallexistingandanyfutureseniorindebtednessofTEGSAandseniortoanysubordinatedindebtednessthatTEGSAmayincur.
TEGSAhasafive-yearunsecuredseniorrevolvingcreditfacility("CreditFacility")withtotalcommitmentsof$1,500million.TheCreditFacilitywasamendedinDecember2015primarilytoextendthematuritydatefromAugust2018toDecember2020.TEGSAhadnoborrowingsundertheCreditFacilityatfiscalyearend2016and2015.
BorrowingsundertheCreditFacilitybearinterestatarateperannumequalto,attheoptionofTEGSA,(1)LIBORplusanapplicablemarginbaseduponthesenior,unsecured,long-termdebtratingofTEGSA,or(2)analternatebaserateequaltothehighestof(i)BankofAmerica,N.A.'sbaserate,(ii)thefederalfundseffectiverateplus1/2of1%,and(iii)one-monthLIBORplus1%,plus,ineachcase,anapplicablemarginbaseduponthesenior,unsecured,long-termdebtratingofTEGSA.TEGSAisrequiredtopayanannualfacilityfeerangingfrom5.0to12.5basispointsbasedupontheamountofthelenders'commitmentsundertheCreditFacilityandtheapplicablecreditratingsofTEGSA.
90
FiscalYearEnd 2016 2015 (inmillions) Commercialpaper,ataweighted-averageinterestrateof0.69%atfiscalyearend2016 $ 330 $ —Seniorfloatingratenotesdue2016(1) — 5006.55%seniornotesdue2017 708 7082.375%seniornotesdue2018 325 3252.35%seniornotesdue2019 250 2504.875%seniornotesdue2021 250 2503.50%seniornotesdue2022 500 5001.100%euro-denominatedseniornotesdue2023 618 6143.45%seniornotesdue2024 250 2503.700%seniornotesdue2026 350 —7.125%seniornotesdue2037 477 477Other 3 —Totalprincipaldebt 4,061 3,874
Unamortizeddiscountsanddebtissuancecosts (26) (27)Effectsoffairvaluehedge-designatedinterestrateswaps 35 37Totaldebt $ 4,070 $ 3,884
(1) Theseniorfloatingratenotesdue2016boreinterestatarateofthree-monthLondoninterbankofferedrate("LIBOR")plus0.20%peryear.
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
11.Debt(Continued)
TheCreditFacilitycontainsafinancialratiocovenantprovidingthatif,asofthelastdayofeachfiscalquarter,ourratioofConsolidatedTotalDebttoConsolidatedEBITDA(asdefinedintheCreditFacility)forthethenmostrecentlyconcludedperiodoffourconsecutivefiscalquartersexceeds3.75to1.0,anEventofDefault(asdefinedintheCreditFacility)istriggered.TheCreditFacilityandourotherdebtagreementscontainothercustomarycovenants.
Periodically,TEGSAissuescommercialpapertoU.S.institutionalaccreditedinvestorsandqualifiedinstitutionalbuyersinaccordancewithavailableexemptionsfromtheregistrationrequirementsoftheSecuritiesActof1933aspartofourongoingefforttomaintainfinancialflexibilityandtopotentiallydecreasethecostofborrowings.BorrowingsunderthecommercialpaperprogramarebackedbytheCreditFacility.
TEGSA'spaymentobligationsunderitsseniornotes,commercialpaper,andCreditFacilityarefullyandunconditionallyguaranteedbyitsparent,TEConnectivityLtd.
Principalpaymentsrequiredfordebtareasfollows:
Thefairvalueofourdebt,basedonindicativevaluations,wasapproximately$4,424millionand$4,115millionatfiscalyearend2016and2015,respectively.
12.CommitmentsandContingencies
LegalProceedings
Inthenormalcourseofbusiness,wearesubjecttovariouslegalproceedingsandclaims,includingpatentinfringementclaims,productliabilitymatters,employmentdisputes,disputesonagreements,othercommercialdisputes,environmentalmatters,antitrustclaims,andtaxmatters,includingnon-incometaxmatterssuchasvalueaddedtax,salesandusetax,realestatetax,andtransfertax.Althoughitisnotfeasibletopredicttheoutcomeoftheseproceedings,baseduponourexperience,currentinformation,andapplicablelaw,wedonotexpectthattheoutcomeoftheseproceedings,eitherindividuallyorintheaggregate,willhaveamaterialeffectonourresultsofoperations,financialposition,orcashflows.
IncomeTaxMatters
Tax Sharing Agreement
Infiscal2007,webecameanindependent,publiclytradedcompanyowningtheformerelectronicsbusinessesofTycoInternationalplc("TycoInternational").OnJune29,2007,TycoInternational
91
(inmillions) Fiscal2017 $ 331Fiscal2018 708Fiscal2019 576Fiscal2020 1Fiscal2021 250Thereafter 2,195Total $ 4,061
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
12.CommitmentsandContingencies(Continued)
distributedallofourshares,aswellasitssharesofitsformerhealthcarebusinesses("Covidien"),toitscommonshareholders(the"separation").Asaresultofsubsequenttransactions,TycoInternationalandCovidiennowoperateaspartofJohnsonControlsInternationalplcandMedtronicplc,respectively.
Uponseparation,weenteredintoaTaxSharingAgreement,underwhichwesharedresponsibilityforcertainofour,TycoInternational's,andCovidien'sincometaxliabilitiesbasedonasharingformulaforperiodspriortoandincludingJune29,2007.We,TycoInternational,andCovidienshared31%,27%,and42%,respectively,ofU.S.incometaxliabilitiesthatarosefromadjustmentsmadebytaxauthoritiestoour,TycoInternational's,andCovidien'sU.S.incometaxreturns.PursuanttotheTaxSharingAgreement,weenteredintocertainguaranteecommitmentsandindemnificationswithTycoInternationalandCovidien.
1997-2000 Audit Years
InOctober2012,theInternalRevenueService("IRS")issuedspecialagreementForms870-AD,effectivelysettlingitsauditofalltaxmattersfortheyears1997through2000,excludingoneissueinvolvingthetaxtreatmentofcertainintercompanydebttransactions.TheIRSfieldexaminationassertedthatcertainintercompanyloansoriginatedduringtheyears1997through2000didnotconstitutedebtforU.S.federalincometaxpurposesanddisallowedapproximately$2.7billionofrelatedinterestdeductionsrecognizedduringtheperiodonTycoInternational'sU.S.incometaxreturns.Inaddition,iftheIRSwereultimatelysuccessfulinassertingitsclaim,itlikelywouldhavedisallowedanadditional$6.6billionofinterestdeductionsreflectedonU.S.incometaxreturnsinyearssubsequenttofiscal2000.TycoInternationaldisagreedwiththeIRSpositionandfiledpetitionsintheU.S.TaxCourtcontestingtheIRS'sproposedadjustments.
InJanuary2016,TycoInternationalenteredintoStipulationsofSettledIssues(the"Stipulations")withtheIRSintendedtoresolvealldisputesrelatedtotheintercompanydebtmatterdiscussedabove.TheStipulationswerecontingentupontheAppealsDivisionoftheIRSapplyingthesamesettlementorframeworktoallintercompanydebtissuesonappealforsubsequentauditcycles(years2001through2007).
Duringthesecondquarteroffiscal2016,wemadeapre-paymenttotheIRSof$443million,fordeficienciesforwhichwearetheprimaryobligor,tostoptheaccretionofdeficiencyinterest.Concurrentwithremittingthispayment,wewerereimbursed$305millionbyTycoInternationalandCovidienpursuanttotheirindemnificationsforpre-separationtaxmatters.Inaddition,wepaid$2milliontoCovidienforourshareofdeficienciesforwhichCovidienwastheprimaryobligor.Asaresult,ournetcashpaymentinconnectionwiththedisputeddebtmatterwas$140millionduringthesecondquarteroffiscal2016.
InMay2016,theU.S.TaxCourtenteredordersconsistentwiththeStipulationsanddismissedthepetitionsassettledandtheAppealsDivisionoftheIRSissuedspecialagreementForms870-ADthateffectivelysettledthemattersonappealonthesametermsasthosesetforthintheStipulations.Asaresult,wehaveresolvedallaspectsofthedisputeddebtmatterbeforetheU.S.TaxCourt(forthe1997through2000auditcycle)andbeforetheAppealsDivisionoftheIRSforsubsequentauditcycles(2001through2007).Inaddition,weexpectthetermsoftheresolutionforthedisputeddebtmatterwillbeconsistentlyappliedbytheIRStoallofourU.S.incometaxreturnsfiledsubsequenttofiscal2007.
92
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
12.CommitmentsandContingencies(Continued)
Asaresultofthesedevelopments,infiscal2016,werecognizedanincometaxbenefitof$1,135million,representingareductionintaxreserves,andotherexpenseof$604million,representingareductionofassociatedindemnificationreceivables,pursuanttotheTaxSharingAgreementwithTycoInternationalandCovidien.TheU.S.taxlossandcreditcarryforwardsfinalizedasaresultofthesettlementofthedisputeddebtmatterwereassessedforrealizabilityinfiscal2016andincludedinourvaluationallowanceanalysis.SeeNote15forfurtherinformationregardingthevaluationallowancefordeferredtaxassets.
2001-2007 Audit Years
Infiscal2015,theIRSissuedgeneralagreementForms870,effectivelysettlingitsauditsoftaxmattersfortheyears2001through2007,excludingthedisputeddebtmatterwhichwassubsequentlyresolvedduringfiscal2016.Asaresultofthesedevelopments,infiscal2015,werecognizedanincometaxbenefitof$201million,representingareductionintaxreservesforthemattersthatwereeffectivelysettled,andotherexpenseof$84million,representingareductionofassociatedindemnificationreceivables,pursuanttotheTaxSharingAgreementwithTycoInternationalandCovidien.
2008-2010 Audit Years
Infiscal2015,theIRSissuedgeneralagreementForms870,effectivelysettlingitsauditsoftaxmattersfortheyears2008through2010,excludingthedisputeddebtmatter.Asdiscussedabove,weexpectthetermsoftheresolutionforthedisputeddebtmatterwillbeconsistentlyappliedbytheIRStoallofourU.S.incometaxreturnsfiledsubsequenttofiscal2007.Asaresultofthesedevelopments,infiscal2015,werecognizedanincometaxbenefitof$63million,representingareductionintaxreservesforthemattersthatwereeffectivelysettled.
EnvironmentalMatters
Weareinvolvedinvariousstagesofinvestigationandcleanuprelatedtoenvironmentalremediationmattersatanumberofsites.Theultimatecostofsitecleanupisdifficulttopredictgiventheuncertaintiesregardingtheextentoftherequiredcleanup,theinterpretationofapplicablelawsandregulations,andalternativecleanupmethods.Asoffiscalyearend2016,weconcludedthatitwasprobablethatwewouldincurremedialcostsintherangeof$17millionto$42million,andthatthebestestimatewithinthisrangewas$20million.Webelievethatanypotentialpaymentofsuchestimatedamountswillnothaveamaterialadverseeffectonourresultsofoperations,financialposition,orcashflows.
93
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
12.CommitmentsandContingencies(Continued)
Leases
Wehavefacility,land,vehicle,andequipmentleasesthatexpireatvariousdates.Rentalexpenseundertheseleaseswas$143million,$141million,and$130millionforfiscal2016,2015,and2014,respectively.Atfiscalyearend2016,theminimumleasepaymentobligationsundernon-cancelableleaseobligationswereasfollows:
Guarantees
Indisposingofassetsorbusinesses,weoftenproviderepresentations,warranties,and/orindemnitiestocovervariousrisksincludingunknowndamagetoassets,environmentalrisksinvolvedinthesaleofrealestate,liabilityforinvestigationandremediationofenvironmentalcontaminationatwastedisposalsitesandmanufacturingfacilities,andunidentifiedtaxliabilitiesandlegalfeesrelatedtoperiodspriortodisposition.Wedonotexpectthattheseuncertaintieswillhaveamaterialadverseeffectonourresultsofoperations,financialposition,orcashflows.
Atfiscalyearend2016,wehadoutstandinglettersofcredit,lettersofguarantee,andsuretybondsof$324million.
Inthenormalcourseofbusiness,weareliableforcontractcompletionandproductperformance.Intheopinionofmanagement,suchobligationswillnotsignificantlyaffectourresultsofoperations,financialposition,orcashflows.
Wegenerallyrecordestimatedproductwarrantycostswhencontractrevenuesarerecognizedunderthepercentage-of-completionmethodforconstructionrelatedcontracts;otherwarrantyreservesarenotsignificant.Theestimationisbasedprimarilyonhistoricalexperienceandactualwarrantyclaims.Amountsaccruedforwarrantyclaimsatfiscalyearend2016and2015were$48millionand$35million,respectively.
13.FinancialInstrumentsandFairValueMeasurements
Weusederivativeandnon-derivativefinancialinstrumentstomanagecertainexposurestoforeigncurrency,interestrate,investment,andcommodityrisks.
TheeffectsofderivativeinstrumentsontheConsolidatedStatementsofOperationswereimmaterialforfiscal2016,2015,and2014.
94
(inmillions) Fiscal2017 $ 106Fiscal2018 86Fiscal2019 66Fiscal2020 47Fiscal2021 41Thereafter 98Total $ 444
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
13.FinancialInstrumentsandFairValueMeasurements(Continued)
Foreign Exchange Risks and Hedges of Net Investment
Aspartofmanagingtheexposuretochangesinforeigncurrencyexchangerates,weutilizecross-currencyswapcontracts,foreigncurrencyforwardcontracts,andforeigncurrencyswapcontracts,aportionofwhicharedesignatedascashflowhedges.Theobjectiveofthesecontractsistominimizeimpactstocashflowsandprofitabilityduetochangesinforeigncurrencyexchangeratesonintercompanyandothercashtransactions.Weexpectthatsignificantlyallofthebalanceinaccumulatedothercomprehensiveincome(loss)associatedwiththecashflowhedge-designatedinstrumentsaddressingforeignexchangeriskswillbereclassifiedintotheConsolidatedStatementofOperationswithinthenexttwelvemonths.
Duringfiscal2015,weenteredintocross-currencyswapcontractswithanaggregatenotionalvalueof€1,000milliontoreduceourexposuretoforeigncurrencyexchangeriskassociatedwithcertainintercompanyloans.Underthetermsofthesecontracts,whichhavebeendesignatedascashflowhedges,wemakequarterlyinterestpaymentsineurosat3.50%perannumandreceiveinterestinU.S.dollarsataweighted-averagerateof5.33%perannum.Uponthematuritiesofthesecontractsinfiscal2022,wewillpaytheprincipalamountoftheloansineurosandreceiveU.S.dollarsfromourcounterparties.
Wehedgeournetinvestmentincertainforeignoperationsusingintercompanynon-derivativefinancialinstrumentsdenominatedinthesamecurrencies.Theaggregatenotionalvalueofthesehedgeswas$3,480millionand$3,880millionatfiscalyearend2016and2015,respectively.Foreignexchangelossesof$45millionandforeignexchangegainsof$353millionand$156millioninfiscal2016,2015,and2014,respectively,wererecordedascurrencytranslation,acomponentofaccumulatedothercomprehensiveincome(loss),offsettingforeignexchangegainsandlossesattributabletothetranslationofthenetinvestment.SeeNote19foradditionalinformation.
Interest Rate and Investment Risk Management
Weissuedebt,asneeded,tofundouroperationsandcapitalrequirements.Suchborrowingscanresultininterestrateexposure.Tomanagetheinterestrateexposure,weuseinterestrateswapstoconvertaportionoffixed-ratedebtintovariable-ratedebt.Weuseforwardstartinginterestrateswapsandoptionstoenterintointerestrateswapstomanageinterestrateexposureinperiodspriortotheanticipatedissuanceoffixed-ratedebt.Wealsoutilizeinvestmentswapstomanageearningsexposureoncertainnonqualifieddeferredcompensationliabilities.
Commodity Hedges
Aspartofmanagingtheexposuretocertaincommoditypricefluctuations,weutilizecommodityswapcontractsdesignatedascashflowhedges.Theobjectiveofthesecontractsistominimizeimpactstocashflowsandprofitabilityduetochangesinpricesofcommoditiesusedinproduction.
Atfiscalyearend2016and2015,ourcommodityhedgeshadnotionalvaluesof$232millionand$260million,respectively.Weexpectthatsignificantlyallofthebalanceinaccumulatedothercomprehensiveincome(loss)associatedwiththecommodityhedgeswillbereclassifiedintotheConsolidatedStatementofOperationswithinthenexttwelvemonths.
95
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
13.FinancialInstrumentsandFairValueMeasurements(Continued)
Fair Value Measurements
Financialinstrumentsrecordedatfairvalueonarecurringbasis,whichconsistofderivativeinstrumentsandmarketablesecurities,wereimmaterialatfiscalyearend2016and2015.
14.RetirementPlans
Defined Benefit Pension Plans
WehaveanumberofcontributoryandnoncontributorydefinedbenefitretirementplanscoveringcertainofourU.S.andnon-U.S.employees,designedinaccordancewithlocalcustomsandpractice.
ThenetperiodicpensionbenefitcostforallU.S.andnon-U.S.definedbenefitpensionplanswasasfollows:
96
U.S.Plans Non-U.S.Plans Fiscal Fiscal 2016 2015 2014 2016 2015 2014 ($inmillions) Servicecost $ 9 $ 9 $ 7 $ 48 $ 45 $ 46Interestcost 50 48 50 52 58 71Expectedreturnonplanassets (59) (67) (63) (68) (72) (67)Amortizationofnetactuarialloss 40 25 25 36 33 23Other — — — (6) (5) (3)Netperiodicpensionbenefitcost $ 40 $ 15 $ 19 $ 62 $ 59 $ 70
Weighted-averageassumptionsusedtodeterminenetpensionbenefitcostduringthefiscalyear:
Discountrate 4.38% 4.34% 4.84% 2.50% 2.77% 3.38%Expectedreturnonplanassets 6.97% 7.20% 7.16% 5.98% 6.46% 5.96%Rateofcompensationincrease —% —% —% 2.81% 2.86% 2.84%
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
14.RetirementPlans(Continued)
ThefollowingtablerepresentsthechangesinbenefitobligationandplanassetsandthenetamountrecognizedontheConsolidatedBalanceSheetsforallU.S.andnon-U.S.definedbenefitpensionplans:
97
U.S.Plans Non-U.S.Plans Fiscal Fiscal 2016 2015 2016 2015 ($inmillions) Changeinbenefitobligation: Benefitobligationatbeginningoffiscalyear $ 1,170 $ 1,143 $ 2,188 $ 2,276Servicecost 9 9 48 45Interestcost 50 48 52 58Actuarialloss 102 42 368 87Benefitsandadministrativeexpensespaid (81) (74) (85) (71)Currencytranslation — — (63) (213)Other — 2 27 6
Benefitobligationatendoffiscalyear 1,250 1,170 2,535 2,188Changeinplanassets: Fairvalueofplanassetsatbeginningoffiscalyear 879 978 1,167 1,177Actualreturnonplanassets 130 (26) 261 72Employercontributions 1 1 66 65Benefitsandadministrativeexpensespaid (81) (74) (85) (71)Currencytranslation — — (59) (90)Other — — 21 14
Fairvalueofplanassetsatendoffiscalyear 929 879 1,371 1,167Fundedstatus $ (321) $ (291) $ (1,164) $ (1,021)
AmountsrecognizedontheConsolidatedBalanceSheets: Accruedandothercurrentliabilities $ (5) $ (5) $ (20) $ (19)Long-termpensionandpostretirementliabilities (316) (286) (1,144) (1,002)Netamountrecognized $ (321) $ (291) $ (1,164) $ (1,021)
Weighted-averageassumptionsusedtodeterminepensionbenefitobligationatfiscalyearend:
Discountrate 3.58% 4.38% 1.44% 2.50%Rateofcompensationincrease —% —% 2.52% 2.81%
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
14.RetirementPlans(Continued)
Thepre-taxamountsrecognizedinaccumulatedothercomprehensiveincome(loss)forallU.S.andnon-U.S.definedbenefitpensionplanswereasfollows:
Infiscal2016,unrecognizedactuariallossesrecordedinaccumulatedothercomprehensiveincome(loss)wereprimarilytheresultoflowerdiscountratespartiallyoffsetbyfavorableassetperformanceforbothU.S.andnon-U.S.definedbenefitpensionplansascomparedtofiscal2015.Infiscal2015,unrecognizedactuariallossesrecordedinaccumulatedothercomprehensiveincome(loss)forU.S.definedbenefitpensionplansweredueprimarilytoachangeinthemortalityassumptionandlowerthanexpectedassetperformance.Unrecognizedactuariallossesrecordedinaccumulatedothercomprehensiveincome(loss)fornon-U.S.definedbenefitpensionplansinfiscal2015wereprincipallytheresultoflowerdiscountratesascomparedtofiscal2014.
Theestimatedamortizationofactuariallossesfromaccumulatedothercomprehensiveincome(loss)intonetperiodicpensionbenefitcostforU.S.andnon-U.S.definedbenefitpensionplansinfiscal2017isexpectedtobe$40millionand$43million,respectively.Theestimatedamortizationofpriorservicecreditfromaccumulatedothercomprehensiveincome(loss)intonetperiodicpensionbenefitcostfornon-U.S.definedbenefitpensionplansinfiscal2017isexpectedtobe$7million.
Indeterminingtheexpectedreturnonplanassets,weconsidertherelativeweightingofplanassetsbyclassandindividualassetclassperformanceexpectations.
TheinvestmentstrategiesforU.S.andnon-U.S.pensionplansaregovernedlocally.Ourinvestmentstrategyforourpensionplansistomanagetheplansonagoingconcernbasis.Currentinvestmentpolicyistoachieveareasonablereturnonassets,subjecttoaprudentlevelofportfoliorisk,forthepurposeofenhancingthesecurityofbenefitsforparticipants.Projectedreturnsarebased
98
U.S.Plans Non-U.S.Plans Fiscal Fiscal 2016 2015 2016 2015 (inmillions) Changeinnetloss: Unrecognizednetlossatbeginningoffiscalyear $ 436 $ 325 $ 711 $ 748Currentyearchangerecordedinaccumulatedothercomprehensiveincome(loss) 32 136 164 18Amortizationreclassifiedtoearnings (40) (25) (36) (55)
Unrecognizednetlossatendoffiscalyear $ 428 $ 436 $ 839 $ 711Changeinpriorservicecredit: Unrecognizedpriorservicecreditatbeginningoffiscalyear $ — $ — $ (66) $ (67)Currentyearchangerecordedinaccumulatedothercomprehensiveincome(loss) — — (10) (4)Amortizationreclassifiedtoearnings(1) — — 6 5
Unrecognizedpriorservicecreditatendoffiscalyear $ — $ — $ (70) $ (66)
(1) Amortizationofpriorservicecreditisincludedinotherintheabovetablesummarizingthecomponentsofnetperiodicpensionbenefitcost.
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
14.RetirementPlans(Continued)
primarilyonproformaassetallocation,expectedlong-termreturns,andforward-lookingestimatesofactiveportfolioandinvestmentmanagement.
Thelong-termtargetassetallocationinourU.S.plans'mastertrustis10%equityand90%fixedincome.Assetre-allocationtomeetthattargetisoccurringoveramulti-yearperiodbasedonthefundedstatus,asdefinedbythePensionProtectionActof2006(the"PensionActFundedStatus"),oftheU.S.plans'mastertrustandmarketconditions.WeexpecttoreachourtargetallocationwhenthePensionActFundedStatusexceeds105%.BasedonthePensionActFundedStatusasoffiscalyearend2016,ourtargetassetallocationis45%equityand55%fixedincome.
Targetweighted-averageassetallocationandweighted-averageassetallocationforU.S.andnon-U.S.pensionplanswereasfollows:
Ourcommonsharesarenotadirectinvestmentofourpensionfunds;however,thepensionfundsmayindirectlyincludeourshares.Theaggregateamountofourcommonshareswouldnotbeconsideredmaterialrelativetothetotalpensionfundassets.
Ourfundingpolicyistomakecontributionsinaccordancewiththelawsandcustomsofthevariouscountriesinwhichweoperateaswellastomakediscretionaryvoluntarycontributionsfromtimetotime.Weexpecttomaketheminimumrequiredcontributionsof$6millionand$48milliontoourU.S.andnon-U.S.pensionplans,respectively,infiscal2017.Wemayalsomakevoluntarycontributionsatourdiscretion.
Benefitpayments,whichreflectfutureexpectedservice,asappropriate,areexpectedtobepaidasfollows:
99
U.S.Plans Non-U.S.Plans
Target
FiscalYearEnd
2016
FiscalYearEnd
2015 Target
FiscalYearEnd
2016
FiscalYearEnd
2015 Assetcategory: Equitysecurities 45% 45% 45% 41% 41% 45%Debtsecurities 55 55 55 38 33 29Insurancecontractsandotherinvestments — — — 19 24 24Realestateinvestments — — — 2 2 2Total 100% 100% 100% 100% 100% 100%
U.S.Plans Non-U.S.Plans (inmillions) Fiscal2017 $ 73 $ 72Fiscal2018 70 73Fiscal2019 71 76Fiscal2020 72 77Fiscal2021 74 80Fiscal2022-2026 373 458
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
14.RetirementPlans(Continued)
SetforthbelowistheaccumulatedbenefitobligationforallU.S.andnon-U.S.pensionplansaswellasadditionalinformationrelatedtoplanswithanaccumulatedbenefitobligationinexcessofplanassetsandplanswithaprojectedbenefitobligationinexcessofplanassets.
WevalueourpensionassetsbasedonthefairvaluehierarchyofASC820,FairValueMeasurementsandDisclosures.DetailsofthefairvaluehierarchyaredescribedinNote2.Thefollowingtablepresentsourdefinedbenefitpensionplans'assetcategoriesandtheirassociatedfairvaluewithinthefairvaluehierarchy:
100
U.S.Plans Non-U.S.Plans FiscalYearEnd FiscalYearEnd 2016 2015 2016 2015 (inmillions) Accumulatedbenefitobligation $ 1,250 $ 1,170 $ 2,389 $ 2,041Pensionplanswithaccumulatedbenefitobligationsinexcessofplanassets: Accumulatedbenefitobligation 1,250 1,170 2,380 1,994Fairvalueofplanassets 929 879 1,361 1,119
Pensionplanswithprojectedbenefitobligationsinexcessofplanassets: Projectedbenefitobligation 1,250 1,170 2,534 2,188Fairvalueofplanassets 929 879 1,371 1,167
FiscalYearEnd2016 U.S.Plans Non-U.S.Plans Level1 Level2 Level3 Total Level1 Level2 Level3 Total (inmillions) Equity: U.S.equitysecurities(1) $ 248 $ — $ — $ 248 $ 64 $ — $ — $ 64Non-U.S.equitysecurities(1) 190 — — 190 62 — — 62Commingledequityfunds(2) — — — — — 456 — 456
Fixedincome: Governmentbonds(3) — 67 — 67 — 226 — 226Corporatebonds(4) — 397 — 397 — 13 — 13Commingledbondfunds(5) — — — — — 262 — 262
Other(6) — 11 — 11 — 177 91 268Subtotal $ 438 $ 475 $ — 913 $ 126 $ 1,134 $ 91 1,351Itemstoreconciletofairvalueofplanassets(7) 16 20Fairvalueofplanassets $ 929 $ 1,371
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
14.RetirementPlans(Continued)
101
FiscalYearEnd2015 U.S.Plans Non-U.S.Plans Level1 Level2 Level3 Total Level1 Level2 Level3 Total (inmillions) Equity: U.S.equitysecurities(1) $ 245 $ — $ — $ 245 $ 60 $ — $ — $ 60Non-U.S.equitysecurities(1) 149 — — 149 54 — — 54Commingledequityfunds(2) — — — — — 421 — 421
Fixedincome: Governmentbonds(3) — 64 — 64 — 202 — 202Corporatebonds(4) — 404 — 404 — 13 — 13Commingledbondfunds(5) — — — — — 171 — 171
Other(6) — 3 — 3 — 142 84 226Subtotal $ 394 $ 471 $ — 865 $ 114 $ 949 $ 84 1,147Itemstoreconciletofairvalueofplanassets(7) 14 20Fairvalueofplanassets $ 879 $ 1,167
(1) U.S.andnon-U.S.equitysecuritiesarevaluedattheclosingpricereportedonthestockexchangeonwhichtheindividualsecuritiesaretraded.
(2) Commingledequityfundsarepooledinvestmentsinmultipleequity-typesecurities.Fairvalueiscalculatedastheclosingpriceoftheunderlyinginvestments,anobservablemarketcondition,dividedbythenumberofsharesofthefundoutstanding.
(3) Governmentbondsaremarkedtofairvaluebasedonquotedmarketpricesormarketapproachvaluationmodelsusingobservablemarketdatasuchasquotes,spreads,anddatapointsforyieldcurves.
(4) Corporatebondsaremarkedtofairvaluebasedonquotedmarketpricesormarketapproachvaluationmodelsusingobservablemarketdatasuchasquotes,spreads,anddatapointsforyieldcurves.
(5) Commingledbondfundsarepooledinvestmentsinmultipledebt-typesecurities.Fairvalueiscalculatedastheclosingpriceoftheunderlyinginvestments,anobservablemarketcondition,dividedbythenumberofsharesofthefundoutstanding.
(6) Otherinvestmentsarecomposedofinsurancecontracts,derivatives,short-terminvestments,structuredproductssuchascollateralizedobligationsandmortgage-andasset-backedsecurities,realestateinvestments,andhedgefunds.Insurancecontractsarevaluedusingcashsurrendervalue,orfacevalueofthecontractifacashsurrendervalueisunavailable(level2),asthesevaluesrepresenttheamountthattheplanwouldreceiveonterminationoftheunderlyingcontract.Derivatives,short-terminvestments,andstructuredproductsaremarkedtofairvalueusingmodelsthataresupportedbyobservablemarketbaseddata(level2).Realestateinvestmentsincludeinvestmentsincommingledrealestatefundsandarevaluedatnetassetvaluewhichiscalculatedusingunobservableinputsthataresupportedbylittleornomarketactivity(level3).Hedgefundsarevaluedattheirnetassetvaluewhichiscalculatedusingunobservableinputsthataresupportedbylittleornomarketactivity(level3).
(7) Itemstoreconciletofairvalueofplanassetsincludeamountsreceivableforsecuritiessold,amountspayableforsecuritiespurchased,andanycashbalances,consideredtobecarriedatbookvalue,thatareheldintheplans.
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
14.RetirementPlans(Continued)
ChangesinLevel3assetsinnon-U.S.planswereprimarilytheresultofpurchasesinfiscal2016and2015.
Defined Contribution Retirement Plans
Wemaintainseveraldefinedcontributionretirementplans,themostsignificantofwhichislocatedintheU.S.Theseplansinclude401(k)matchingprograms,aswellasqualifiedandnonqualifiedprofitsharingandsharebonusretirementplans.Expenseforthedefinedcontributionplansiscomputedasapercentageofparticipants'compensationandwas$59million,$60million,and$61millionforfiscal2016,2015,and2014,respectively.
Deferred Compensation Plans
Wemaintainnonqualifieddeferredcompensationplans,whichpermiteligibleemployeestodeferaportionoftheircompensation.Arecordkeepingaccountissetupforeachparticipantandtheparticipantchoosesfromavarietyofmeasurementfundsforthedeemedinvestmentoftheiraccounts.Themeasurementfundscorrespondtoanumberoffundsinour401(k)plansandtheaccountbalancefluctuateswiththeinvestmentreturnsonthosefunds.Totaldeferredcompensationliabilitieswere$132millionand$118millionatfiscalyearend2016and2015,respectively.SeeNote13foradditionalinformationregardingourriskmanagementstrategyrelatedtodeferredcompensationliabilities.
Postretirement Benefit Plans
Inadditiontoprovidingpensionand401(k)benefits,wealsoprovidecertainhealthcarecoveragecontinuationforqualifyingretireesfromthedateofretirementtoage65.Theaccumulatedpostretirementbenefitobligationwas$45millionand$40millionatfiscalyearend2016and2015,respectively,andtheunderfundedstatusofthepostretirementbenefitplanswasincludedprimarilyinlong-termpensionandpostretirementliabilitiesontheConsolidatedBalanceSheets.Activityduringfiscal2016,2015,and2014wasnotsignificant.
102
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
15.IncomeTaxes
Significantcomponentsoftheincometaxexpense(benefit)wereasfollows:
TheU.S.andnon-U.S.componentsofincomefromcontinuingoperationsbeforeincometaxeswereasfollows:
103
Fiscal 2016 2015 2014 (inmillions) Currentincometaxexpense(benefit): U.S.: Federal $ (1,115) $ (67) $ 128State (163) 12 (3)
Non-U.S. 321 352 302 (957) 297 427
Deferredincometaxexpense(benefit): U.S.: Federal 173 87 (311)State 20 5 (3)
Non-U.S. (15) (52) 33 178 40 (281)
Incometaxexpense(benefit) $ (779) $ 337 $ 146
Fiscal 2016 2015 2014 (inmillions) U.S. $ (115) $ (31) $ (133)Non-U.S. 1,277 1,606 1,893Incomefromcontinuingoperationsbeforeincometaxes $ 1,162 $ 1,575 $ 1,760
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
15.IncomeTaxes(Continued)
ThereconciliationbetweenU.S.federalincometaxesatthestatutoryrateandincometaxexpense(benefit)wasasfollows:
Theincometaxbenefitforfiscal2016includeda$1,135millionincometaxbenefitrelatedtotheeffectivesettlementoftaxmattersfortheyears1997through2000whichresolvedallaspectsofthedisputeddebtmatterwiththeIRSthroughtheyear2007,partiallyoffsetbya$91millionincometaxchargerelatedtoanincreasetothevaluationallowanceforcertainU.S.deferredtaxassets.Additionally,thetaxbenefitforfiscal2016includedan$83millionnetincometaxbenefitrelatedtotaxsettlementsincertainothertaxjurisdictions,partiallyoffsetbyanincometaxchargerelatedtocertainlegalentityrestructurings.SeeNote12foradditionalinformationregardingsettlementswiththeIRS.
TheincreasetothevaluationallowancefordeferredtaxassetsprimarilyrelatestocertainU.S.federalandstatetaxlossandcreditcarryforwards.BasedonourforecastoftaxableincomeforcertainU.S.taxreportinggroups,U.S.taxlossandcreditcarryforwardsfinalizedasaresultofsettlementofthedisputeddebtmatterwiththeIRS,andcertaintaxplanningactionsandstrategies,webelieveditwasmorelikelythannotthataportionofourdeferredtaxassetswouldnotberealized.
Theincometaxexpenseforfiscal2015includeda$264millionincometaxbenefitrelatedtotheeffectivesettlementofallundisputedtaxmattersfortheyears2001through2010,partiallyoffsetbya$216millionincometaxchargeassociatedwiththetaximpactsofcertainintercompanylegalentityrestructuringsmadeinconnectionwithourintegrationofMeasurementSpecialties.Also,incometaxexpenseforfiscal2015includedanincometaxchargeof$29millionassociatedwiththetaximpactsofcertainintercompanydividendsrelatedtotherestructuringandsaleofBNS.
104
Fiscal 2016 2015 2014 (inmillions) NotionalU.S.federalincometaxexpenseatthestatutoryrate $ 407 $ 551 $ 616Adjustmentstoreconciletotheincometaxexpense(benefit): U.S.stateincometaxexpense(benefit),net (93) 11 (4)Other(income)expense—TaxSharingAgreement(1) 221 18 (23)Taxlawchanges (3) 10 (1)Taxcredits (10) (9) (8)Non-U.S.netearnings(2) (342) (275) (287)Nondeductiblecharges 2 2 3Changeinaccruedincometaxliabilities (1,056) (183) 112Valuationallowance 97 (3) (239)Legalentityrestructuring 39 211 —Divestitures (31) — —Other (10) 4 (23)
Incometaxexpense(benefit) $ (779) $ 337 $ 146
(1) Otherincome(expense),netpursuanttotheTaxSharingAgreementwithTycoInternationalandCovidienisnottaxableordeductible.
(2) Excludesnondeductiblechargesandotheritemswhichareseparatelypresented.
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
15.IncomeTaxes(Continued)
Theincometaxexpenseforfiscal2014includedanincometaxbenefitof$282millionrecognizedinconnectionwithareductioninthevaluationallowanceassociatedwithcertaintaxlosscarryforwardsrelatingtoADCTelecommunications,Inc.("ADC"),partiallyoffsetbyanincometaxchargerelatedtoadjustmentstoprioryearincometaxreturns.
Infiscal2014,weacquiredSEACON,anditsU.S.operationswerecombinedwithourADCU.S.federalconsolidatedtaxgroup.Inaddition,theADCU.S.taxgroupwascombinedwithotherU.S.legalentitiesandassets.WereassessedtherealizationoftherevisedADCU.S.taxgroup'staxlossandcreditcarryforwards.Basedonourforecastoftaxableincomeofthereorganizedcombinedtaxgroup,webelieveditwasmorelikelythannotthatataxbenefitwouldberealizedonadditionalU.S.federalandstatenetoperatinglosses.Accordingly,wereducedthevaluationallowanceandrecordedataxbenefitof$282million.
Deferredincometaxesresultfromtemporarydifferencesbetweentheamountofassetsandliabilitiesrecognizedforfinancialreportingandtaxpurposes.Thecomponentsofthenetdeferredincometaxassetwereasfollows:
105
FiscalYearEnd 2016 2015 (inmillions) Deferredtaxassets: Accruedliabilitiesandreserves $ 286 $ 262Taxlossandcreditcarryforwards 4,656 4,856Inventories 46 57Pensionandpostretirementbenefits 349 295Deferredrevenue 11 17Interest 470 394Unrecognizedincometaxbenefits 10 378Other 32 4
5,860 6,263Deferredtaxliabilities: Intangibleassets (761) (809)Property,plant,andequipment (15) (1)Other (84) (89)
(860) (899)Netdeferredtaxassetbeforevaluationallowance 5,000 5,364Valuationallowance (3,096) (3,237)Netdeferredtaxasset $ 1,904 $ 2,127
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
15.IncomeTaxes(Continued)
Ourtaxlossandcreditcarryforwards(taxeffected)atfiscalyearend2016wereasfollows:
Thevaluationallowancefordeferredtaxassetsof$3,096millionand$3,237millionatfiscalyearend2016and2015,respectively,relatesprincipallytotheuncertaintyoftheutilizationofcertaindeferredtaxassets,primarilytaxloss,capitalloss,andcreditcarryforwardsinvariousjurisdictions.WebelievethatwewillgeneratesufficientfuturetaxableincometorealizetheincometaxbenefitsrelatedtotheremainingnetdeferredtaxassetsontheConsolidatedBalanceSheet.Atfiscalyearend2016,approximately$169millionofthevaluationallowancerelatestoshare-basedcompensationandwillberecordedtoequityifcertainnetoperatinglossesandtaxcreditcarryforwardsareutilized.
Wehaveprovidedincometaxesforearningsthatarecurrentlydistributedaswellasthetaxesassociatedwithseveralsubsidiaries'earningsthatareexpectedtobedistributedinthefuture.NoadditionalprovisionhasbeenmadeforSwissornon-Swissincometaxesontheundistributedearningsofsubsidiariesorforunrecognizeddeferredtaxliabilitiesfortemporarydifferencesrelatedtobasisdifferencesininvestmentsinsubsidiaries,assuchearningsareexpectedtobepermanentlyreinvested,theinvestmentsareessentiallypermanentinduration,orwehaveconcludedthatnoadditionaltaxliabilitywillariseasaresultofthedistributionofsuchearnings.Asoffiscalyearend2016,certainsubsidiarieshadapproximately$21billionofcumulativeundistributedearningsthathavebeenretainedindefinitelyandreinvestedinourglobalmanufacturingoperations,includingworkingcapital;property,plant,andequipment;intangibleassets;andresearchanddevelopmentactivities.Aliabilitycouldariseifourintentiontopermanentlyreinvestsuchearningsweretochangeandamountsaredistributedbysuchsubsidiariesorifsuchsubsidiariesareultimatelydisposed.Itisnotpracticabletoestimatetheadditionalincometaxesrelatedtopermanentlyreinvestedearningsorthebasisdifferencesrelatedtoinvestmentsinsubsidiaries.Asoffiscalyearend2016,wehadapproximately$6.9billionofcash,cashequivalents,andintercompanydeposits,principallyinoursubsidiaries,thatwehavetheabilitytodistributetoTEGSA,ourLuxembourgsubsidiary,whichistheobligorofsubstantiallyallofourdebt,andtoTEConnectivityLtd.,ourSwissparentcompany,butweconsidertobepermanentlyreinvested.Weestimatethatuptoapproximately$1.5billionoftaxexpensewouldberecognizedonthe
106
ExpirationPeriod
Through2021
Fiscal2022Through2036
NoExpiration Total
(inmillions) U.S.Federal: Netoperatinglosscarryforwards $ — $ 1,404 $ — $ 1,404Taxcreditcarryforwards 15 124 70 209Capitallosscarryforwards 36 — — 36
U.S.State: Netoperatinglosscarryforwards. 53 55 — 108Taxcreditcarryforwards 12 15 7 34
Non-U.S.: Netoperatinglosscarryforwards 12 5 2,813 2,830Taxcreditcarryforwards — 1 — 1Capitallosscarryforwards 7 — 27 34
Totaltaxlossandcreditcarryforwards $ 135 $ 1,604 $ 2,917 $ 4,656
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
15.IncomeTaxes(Continued)
ConsolidatedFinancialStatementsifourintentiontopermanentlyreinvesttheseamountsweretochange.Ourcurrentplansdonotdemonstrateaneedtorepatriatecash,cashequivalents,andintercompanydepositsthataredesignatedaspermanentlyreinvestedinordertofundouroperations,includinginvestingandfinancingactivities.
Uncertain Tax Position Provisions of ASC 740
Asoffiscalyearend2016,wehadtotalunrecognizedincometaxbenefitsof$490million.Ifrecognizedinfutureyears,$370millionofthesecurrentlyunrecognizedincometaxbenefitswouldimpactincometaxexpense(benefit)andtheeffectivetaxrate.Asoffiscalyearend2015,wehadtotalunrecognizedincometaxbenefitsof$1,368million.Ifrecognizedinfutureyears,$1,291millionoftheseunrecognizedincometaxbenefitswouldimpactincometaxexpense(benefit)andtheeffectivetaxrate.Thefollowingtablesummarizestheactivityrelatedtounrecognizedincometaxbenefits:
Werecordaccruedinterestaswellaspenaltiesrelatedtouncertaintaxpositionsaspartofincometaxexpense(benefit).Asoffiscalyearend2016and2015,wehad$54millionand$1,076million,respectively,ofaccruedinterestandpenaltiesrelatedtouncertaintaxpositionsontheConsolidatedBalanceSheets,recordedprimarilyinincometaxes.Thedecreaseintheaccruedinterestandpenaltiesfromfiscalyearend2015wasdueprimarilytotheeffectivesettlementoftaxmattersfortheyears1997through2000whichresolvedallaspectsofthedisputeddebtmatterwiththeIRSthroughtheyear2007.Duringfiscal2016,2015,and2014,werecognizedincometaxbenefitsof$765million,expenseof$7million,andexpenseof$99million,respectively,relatedtointerestandpenaltiesontheConsolidatedStatementsofOperations.
Wefileincometaxreturnsonaunitary,consolidated,orstand-alonebasisinmultiplestateandlocaljurisdictions,whichgenerallyhavestatutesoflimitationsrangingfrom3to4years.Variousstateandlocalincometaxreturnsarecurrentlyintheprocessofexaminationoradministrativeappeal.
Ournon-U.S.subsidiariesfileincometaxreturnsinthecountriesinwhichtheyhaveoperations.Generally,thesecountrieshavestatutesoflimitationsrangingfrom3to10years.Variousnon-U.S.subsidiaryincometaxreturnsarecurrentlyintheprocessofexaminationbytaxingauthorities.
107
Fiscal 2016 2015 2014 (inmillions) Balanceatbeginningoffiscalyear $ 1,368 $ 1,595 $ 1,617Additionsrelatedtopriorperiodstaxpositions 75 24 22Reductionsrelatedtopriorperiodstaxpositions (817) (291) (57)Additionsrelatedtocurrentperiodtaxpositions 124 97 32Acquisitions 4 — 7Settlements (205) (29) (14)Reductionsduetolapseofapplicablestatuteoflimitations (59) (28) (12)
Balanceatendoffiscalyear $ 490 $ 1,368 $ 1,595
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
15.IncomeTaxes(Continued)
Asoffiscalyearend2016,underapplicablestatutes,thefollowingtaxyearsremainedsubjecttoexaminationinthemajortaxjurisdictionsindicated:
Inmostjurisdictions,taxingauthoritiesretaintheabilitytoreviewpriortaxyearsandtoadjustanynetoperatinglossandtaxcreditcarryforwardsfromtheseyearsthatareutilizedinasubsequentperiod.
Althoughitisdifficulttopredictthetimingorresultsofourworldwideexaminations,weestimatethatuptoapproximately$90millionofunrecognizedincometaxbenefits,excludingtheimpactrelatingtoaccruedinterestandpenalties,couldberesolvedwithinthenexttwelvemonths.
WearenotawareofanyothermattersthatwouldresultinsignificantchangestotheamountofunrecognizedincometaxbenefitsreflectedontheConsolidatedBalanceSheetasoffiscalyearend2016.
16.OtherIncome(Expense),Net
Infiscal2016,2015,and2014,werecordednetotherexpenseof$632million,netotherexpenseof$55million,andnetotherincomeof$63million,respectively,primarilypursuanttotheTaxSharingAgreementwithTycoInternationalandCovidien.Thenetotherexpenseinfiscal2016included$604millionrelatedtotheeffectivesettlementoftaxmattersfortheyears1997through2000whichresolvedallaspectsofthedisputeddebtmatterwiththeIRSthroughtheyear2007and$46millionrelatedtoataxsettlementinanotherjurisdiction.Thenetotherexpenseinfiscal2015included$84millionrelatedtotheeffectivesettlementofundisputedtaxmattersfortheyears2001through2007.SeeNote12forfurtherinformationregardingtheTaxSharingAgreementandsettlementswiththeIRS.Thenetotherincomeinfiscal2014included$18millionofincomerelatedtoourshareofasettlementagreemententeredintobyTycoInternationalwithaformersubsidiary,CITGroupInc.,whicharosefromapre-separationclaimforwhichwewereentitledto31%onceresolved.
108
Jurisdiction OpenYears China 2006through2016CzechRepublic 2013through2016Germany 2013through2016HongKong 2010through2016Ireland 2011through2016Italy 2010through2016Japan 2010through2016Korea 2011through2016Luxembourg 2011through2016Netherlands 2012through2016Singapore 2011through2016Spain 2012through2016Switzerland 2011through2016UnitedKingdom 2015through2016U.S.—federalandstateandlocal 1998through2016
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
17.EarningsPerShare
Theweighted-averagenumberofsharesoutstandingusedinthecomputationofbasicanddilutedearningspersharewereasfollows:
Therewerethreemillionandonemillionshareoptionsthatwerenotincludedinthecomputationofdilutedearningspershareforfiscal2016and2015,respectively,becausetheinstruments'underlyingexercisepricesweregreaterthantheaveragemarketpricesofourcommonsharesandinclusionwouldbeantidilutive.
18.Equity
Common Shares
WeareorganizedunderthelawsofSwitzerland.TherightsofholdersofoursharesaregovernedbySwisslaw,ourSwissarticlesofassociation,andourSwissorganizationalregulations.Accordingly,theparvalueofourcommonsharesisstatedinSwissfrancs("CHF").WecontinuetousetheU.S.dollar,however,asourreportingcurrencyontheConsolidatedFinancialStatements.
Subjecttocertainconditionsspecifiedinourarticlesofassociation,weareauthorizedtoincreaseourconditionalsharecapitalbyissuingnewsharesinaggregatenotexceeding50%ofourauthorizedshares.InMarch2016,ourshareholdersapprovedforaperiodoftwoyearsendingonMarch2,2018,ourboardofdirectors'authorizationtoissueadditionalnewshares,subjecttocertainconditionsspecifiedinthearticlesofassociation,inaggregatenotexceeding50%oftheamountofourauthorizedshares.
Common Shares Held in Treasury
Atfiscalyearend2016,approximately28millioncommonshareswereheldintreasury,ofwhich2millionwereownedbyoneofoursubsidiaries.Atfiscalyearend2015,approximately20millioncommonshareswereheldintreasury,ofwhich6millionwereownedbyoneofoursubsidiaries.SharesheldbothdirectlybyusandbyoursubsidiaryarepresentedastreasurysharesontheConsolidatedBalanceSheets.
Infiscal2016,2015,and2014,ourshareholdersapprovedthecancellationof31million,5million,and10millionshares,respectively,purchasedunderoursharerepurchaseprogram.ThesecapitalreductionsbycancellationofsharesweresubjecttoanoticeperiodandfilingwiththecommercialregisterinSwitzerland.
Contributed Surplus
ContributedsurplusestablishedforSwisstaxandstatutorypurposes("SwissContributedSurplus"),subjecttocertainconditions,isafreelydistributablereserve.DistributionstoshareholdersfromSwiss
109
Fiscal 2016 2015 2014 (inmillions) Basic 366 405 410Dilutiveimpactofshare-basedcompensationarrangements 3 6 7
Diluted 369 411 417
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
18.Equity(Continued)
ContributedSurplusarefreefromwithholdingtax.Asoffiscalyearend2016and2015,SwissContributedSurpluswasCHF7,878millionandCHF8,392million,respectively(equivalentto$6,992millionand$7,505million,respectively).
Dividends and Distributions to Shareholders
UnderSwisslaw,subjecttocertainconditions,distributionstoshareholdersmadeintheformofareductionofregisteredsharecapitalorfromreservesfromcapitalcontributions(equivalenttoSwissContributedSurplus)areexemptfromSwisswithholdingtax.Distributionsordividendsonoursharesmustbeapprovedbyourshareholders.
Ourshareholdersapprovedthefollowingdividendsonourcommonshares:
Uponshareholders'approvalofadividendpaymentorcashdistributionintheformofacapitalreduction,werecordaliabilitywithacorrespondingchargetocontributedsurplusorcommonshares.Atfiscalyearend2016and2015,theunpaidportionofthedividendsrecordedinaccruedandothercurrentliabilitiesontheConsolidatedBalanceSheetstotaled$263millionand$260million,respectively.
Share Repurchase Program
Duringfiscal2016,ourboardofdirectorsauthorizedanincreaseof$1.0billioninthesharerepurchaseprogram.Commonsharesrepurchasedunderthesharerepurchaseprogramwereasfollows:
110
ApprovalDate PaymentType AnnualPaymentPerShare PaymentDatesMarch2013 Dividendpaymentoutofcontributed
surplus CHF0.96(equivalentto$1.00),payableinfourquarterlyinstallmentsof
$0.25 Thirdquarteroffiscal
2013Fourthquarteroffiscal
2013Firstquarteroffiscal2014
Secondquarteroffiscal2014
March2014 Dividendpaymentoutofcontributedsurplus
CHF1.04(equivalentto$1.16),payableinfourquarterlyinstallmentsof$0.29
Thirdquarteroffiscal2014
Fourthquarteroffiscal2014
Firstquarteroffiscal2015Secondquarteroffiscal
2015
March2015 Dividendpaymentoutofcontributedsurplus
$1.32(equivalenttoCHF1.27),payableinfourquarterlyinstallmentsof$0.33
Thirdquarteroffiscal2015
Fourthquarteroffiscal2015
Firstquarteroffiscal2016Secondquarteroffiscal
2016
March2016 Dividendpaymentoutofcontributedsurplus
$1.48(equivalenttoCHF1.48),payableinfourquarterlyinstallmentsof$0.37
Thirdquarteroffiscal2016
Fourthquarteroffiscal2016
Firstquarteroffiscal2017Secondquarteroffiscal
2017
Fiscal 2016 2015 2014 (inmillions) Numberofcommonsharesrepurchased 43 18 11Amountrepurchased $ 2,610 $ 1,163 $ 604
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
18.Equity(Continued)
Atfiscalyearend2016,wehad$1.1billionofavailabilityremainingunderoursharerepurchaseauthorization.
19.AccumulatedOtherComprehensiveIncome(Loss)
Thechangesineachcomponentofaccumulatedothercomprehensiveincome(loss)wereasfollows:
111
Currency
Translation(1)
UnrecognizedPensionand
PostretirementBenefitCosts
Gains(Losses)onCashFlowHedges
AccumulatedOther
ComprehensiveIncome(Loss)
(inmillions) Balanceatfiscalyearend2013 $ 931 $ (569) $ (59) $ 303Othercomprehensivelossbeforereclassifications (216) (211) (35) (462)Amountsreclassifiedfromaccumulatedothercomprehensiveincome(loss) 5 44 49 98
Incometaxbenefit — 44 — 44Netothercomprehensiveincome(loss),netoftax (211) (123) 14 (320)
Balanceatfiscalyearend2014 720 (692) (45) (17)Othercomprehensivelossbeforereclassifications (536) (147) (44) (727)Amountsreclassifiedfromaccumulatedothercomprehensiveincome(loss) 224(2) 75 45 344
Incometaxbenefit — 26 1 27Netothercomprehensiveincome(loss),netoftax (312) (46) 2 (356)
Balanceatfiscalyearend2015 408 (738) (43) (373)Othercomprehensivelossbeforereclassifications (69) (190) (14) (273)Amountsreclassifiedfromaccumulatedothercomprehensiveincome(loss) (23) 70 32 79
Incometax(expense)benefit — 32 (7) 25Netothercomprehensiveincome(loss),netoftax (92) (88) 11 (169)
Balanceatfiscalyearend2016 $ 316 $ (826) $ (32) $ (542)
(1) Includeshedgesofnetinvestmentforeignexchangegainsorlosseswhichoffsetforeignexchangelossesorgainsattributabletothetranslationofthenetinvestments.
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
19.AccumulatedOtherComprehensiveIncome(Loss)(Continued)
20.SharePlans
Ourequitycompensationplans,ofwhichtheTEConnectivityLtd.2007StockandIncentivePlan,asamendedandrestated,istheprimaryplan,providefortheawardofannualperformancebonusesandlong-termperformanceawards,includingshareoptions;restricted,performance,anddeferredshareunits;andothershare-basedawards(collectively,"Awards")andallowfortheuseofunissuedsharesortreasurysharestobeusedtosatisfysuchAwards.Asoffiscalyearend2016,ourplansprovidedforamaximumof67millionsharestobeissuedasAwards,subjecttoadjustmentasprovidedunderthetermsoftheplans.Atotalof16millionsharesremainedavailableforissuanceunderourplansasoffiscalyearend2016.
Share-Based Compensation Expense
Totalshare-basedcompensationexpense,whichwasincludedprimarilyinselling,general,andadministrativeexpensesontheConsolidatedStatementsofOperations,wasasfollows:
Werecognizedarelatedtaxbenefitassociatedwithourshare-basedcompensationarrangementsof$29million,$29million,and$24millioninfiscal2016,2015,and2014,respectively.
Restricted Share Awards
Restrictedshareawards,whicharegenerallyintheformofrestrictedshareunits,aregrantedsubjecttocertainrestrictions.Conditionsofvestingaredeterminedatthetimeofgrant.Allrestrictionsonanawardwilllapseupondeathordisabilityoftheemployee.Iftheemployeesatisfiesretirementrequirements,aportionoftheawardmayvest,dependingonthetermsandconditionsoftheparticulargrant.Recipientsofrestrictedshareunitshavenovotingrights,butdoreceivedividendequivalents.Forgrantsthatvestthroughpassageoftime,thefairvalueoftheawardatthetimeofthegrantisamortizedtoexpenseovertheperiodofvesting.Thefairvalueofrestrictedshareawardsisdeterminedbasedontheclosingvalueofoursharesonthegrantdate.Restrictedshareawardsgenerallyvestinincrementsoveraperiodoffouryearsasdeterminedbythemanagementdevelopmentandcompensationcommittee.
112
(2) RepresentsnetcurrencytranslationreclassifiedasaresultofthesaleofBNS.ThisnetlossisincludedinincomefromdiscontinuedoperationsontheConsolidatedStatementofOperations.SeeNote4foradditionalinformationregardingthedivestitureofBNS.
Fiscal 2016 2015 2014 (inmillions) Share-basedcompensationexpense $ 91 $ 89 $ 77
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
20.SharePlans(Continued)
Asummaryofrestrictedshareawardactivityispresentedbelow:
Theweighted-averagegrant-datefairvalueofrestrictedshareawardsgrantedduringfiscal2016,2015,and2014was$64.88,$62.45,and$52.21,respectively.
Thetotalfairvalueofrestrictedshareawardsthatvestedduringfiscal2016,2015,and2014was$51million,$58million,and$52million,respectively.
Asoffiscalyearend2016,therewas$74millionofunrecognizedcompensationcostrelatedtononvestedrestrictedshareawards.Thecostisexpectedtoberecognizedoveraweighted-averageperiodof1.6years.
Performance Share Awards
Performanceshareawards,whicharegenerallyintheformofperformanceshareunits,aregrantedwithpay-outsubjecttovestingrequirementsandcertainperformanceconditionsthataredeterminedatthetimeofgrant.Basedonourperformance,thepay-outofperformanceshareunitscanrangefrom0%to200%ofthenumberofunitsoriginallygranted.Thegrant-datefairvalueofperformanceshareawardsisexpensedovertheperiodofperformanceonceachievementoftheperformancecriteriaisdeemedprobable.Recipientsofperformanceshareunitshavenovotingrightsbutdoreceivedividendequivalents.Performanceshareawardsgenerallyvestafteraperiodofthreeyearsasdeterminedbythemanagementdevelopmentandcompensationcommittee.
Asummaryofperformanceshareawardactivityispresentedbelow:
Theweighted-averagegrant-datefairvalueofperformanceshareawardsgrantedduringfiscal2016,2015,and2014was$55.15,$61.65,and$51.63,respectively.
Thetotalfairvalueofperformanceshareawardsthatvestedduringfiscal2016was$15million.Thetotalfairvalueofperformanceshareawardsthatvestedinfiscal2015and2014wasinsignificant.
113
Shares
Weighted-AverageGrant-DateFairValue
Nonvestedatfiscalyearend2015 2,790,934 $ 51.01Granted 886,663 64.88Vested (1,116,283) 45.46Forfeited (274,310) 54.53
Nonvestedatfiscalyearend2016 2,287,004 $ 58.47
Shares
Weighted-AverageGrant-DateFairValue
Outstandingatfiscalyearend2015 700,828 $ 47.32Granted 425,861 55.15Vested (444,429) 34.46Forfeited (55,635) 56.98
Outstandingatfiscalyearend2016 626,625 $ 60.56
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
20.SharePlans(Continued)
Asoffiscalyearend2016,therewas$18millionofunrecognizedcompensationcostrelatedtononvestedperformanceshareawards.Thecostisexpectedtoberecognizedoveraweighted-averageperiodof1.2years.
Share Options
Shareoptionsaregrantedtopurchaseourcommonsharesatpriceswhichareequaltoorgreaterthanthemarketpriceofthecommonsharesonthedatetheoptionisgranted.Conditionsofvestingaredeterminedatthetimeofgrant.Allrestrictionsontheawardwilllapseupondeathordisabilityoftheemployee.Iftheemployeesatisfiesretirementrequirements,aportionoftheawardmayvest,dependingonthetermsandconditionsoftheparticulargrant.Optionsgenerallyvestandbecomeexercisableinequalannualinstallmentsoveraperiodoffouryearsandexpiretenyearsafterthedateofgrant.
Asummaryofshareoptionawardactivityispresentedbelow:
Theweighted-averageexercisepriceofshareoptionawardsgrantedduringfiscal2016,2015,and2014was$65.70,$61.70,and$51.78,respectively.
Thetotalintrinsicvalueofoptionsexercisedduringfiscal2016,2015,and2014was$67million,$107million,and$136million,respectively.Wereceivedcashrelatedtotheexerciseofoptionsof$90million,$103million,and$156millioninfiscal2016,2015,and2014,respectively.TherelatedexcesscashtaxbenefitclassifiedasafinancingcashinflowontheConsolidatedStatementsofCashFlowsforfiscal2016,2015,and2014wasnotmaterial.
Asoffiscalyearend2016,therewas$36millionofunrecognizedcompensationcostrelatedtononvestedshareoptionsgrantedunderourshareoptionplans.Thecostisexpectedtoberecognizedoveraweighted-averageperiodof1.6years.
Share-Based Compensation Assumptions
Thegrant-datefairvalueofeachshareoptiongrantwasestimatedusingtheBlack-Scholes-Mertonoptionpricingmodel.Useofavaluationmodelrequiresmanagementtomakecertainassumptionswith
114
Shares
Weighted-AverageExercisePrice
Weighted-AverageRemainingContractual
Term
AggregateIntrinsicValue
(inyears) (inmillions) Outstandingatfiscalyearend2015 10,124,875 $ 40.05 Granted 1,860,800 65.70 Exercised (2,480,662) 35.68 Expired (61,592) 44.20 Forfeited (339,041) 57.18
Outstandingatfiscalyearend2016 9,104,380 $ 45.79 6.3 $ 172Vestedandexpectedtovestatfiscalyearend2016 8,739,461 $ 45.26 6.3 $ 170Exercisableatfiscalyearend2016 5,189,559 $ 36.16 4.9 $ 147
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
20.SharePlans(Continued)
respecttoselectedmodelinputs.Weemployourhistoricalsharevolatilitywhencalculatingthegrant-datefairvalueofourshareoptiongrantsusingtheBlack-Scholes-Mertonoptionpricingmodel.Currently,wedonothaveexchange-tradedoptionsofsufficientdurationtoemployanimpliedvolatilityassumptioninthecalculationandthereforerelysolelyonthehistoricalvolatilitycalculation.Theaverageexpectedlifewasbasedonthecontractualtermoftheoptionandexpectedemployeeexerciseandpost-vestingemploymentterminationbehavior.Therisk-freeinterestratewasbasedonU.S.Treasuryzero-couponissueswitharemainingtermthatapproximatedtheexpectedlifeassumedatthedateofgrant.Theexpectedannualdividendpersharewasbasedonourexpecteddividendrate.Therecognizedshare-basedcompensationexpensewasnetofestimatedforfeitures,whicharebasedonvoluntaryterminationbehavioraswellasananalysisofactualoptionforfeitures.
Theweighted-averagegrant-datefairvalueofoptionsgrantedandtheweighted-averageassumptionsweusedintheBlack-Scholes-Mertonoptionpricingmodelwereasfollows:
21.SegmentandGeographicData
Weoperatethroughthreereportablesegments:TransportationSolutions,IndustrialSolutions,andCommunicationsSolutions.SeeNote1foradescriptionofthesegmentsinwhichweoperate.Weaggregateouroperatingsegmentsintoreportablesegmentsbaseduponsimilareconomiccharacteristicsandbusinessgroupingsofproducts,services,andcustomers.
Segmentperformanceisevaluatedbasedonnetsalesandoperatingincome.Generally,weconsiderallexpensestobeofanoperatingnatureand,accordingly,allocatethemtoeachreportablesegment.Costsspecifictoasegmentarechargedtothesegment.Corporateexpenses,suchasheadquartersadministrativecosts,areallocatedtothesegmentsbasedonsegmentoperatingincome.Intersegmentsaleswerenotmaterialandwererecordedatsellingpricesthatapproximatemarketprices.Corporateassetsareallocatedtothesegmentsbasedonsegmentassets.
115
Fiscal 2016 2015 2014 Weighted-averagegrant-datefairvalue $ 14.26 $ 18.77 $ 16.81
Assumptions: Expectedsharepricevolatility 26% 36% 39%Riskfreeinterestrate 2.0% 2.0% 1.8%Expectedannualdividendpershare $ 1.32 $ 1.16 $ 1.00Expectedlifeofoptions(inyears) 5.7 6.0 6.0
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
21.SegmentandGeographicData(Continued)
Netsalesandoperatingincomebysegmentwereasfollows:
Nosinglecustomeraccountedforasignificantamountofournetsalesinfiscal2016,2015,and2014.
Aswearenotorganizedbyproductorservice,itisnotpracticabletodisclosenetsalesbyproductorservice.
Depreciationandamortizationandcapitalexpenditureswereasfollows:
Segmentassetsandareconciliationofsegmentassetstototalassetswereasfollows:
116
NetSales OperatingIncome Fiscal Fiscal 2016 2015 2014 2016 2015 2014 (inmillions) TransportationSolutions $ 6,503 $ 6,351 $ 6,090 $ 1,191 $ 1,193 $ 1,245IndustrialSolutions 3,215 3,179 3,302 343 352 431CommunicationsSolutions 2,520 2,703 2,581 368(1) 204 129Total $ 12,238 $ 12,233 $ 11,973 $ 1,902 $ 1,749 $ 1,805
(1) Includespre-taxgainof$144milliononthesaleofourCPDbusinessduringfiscal2016.
DepreciationandAmortization CapitalExpenditures Fiscal Fiscal 2016 2015 2014 2016 2015 2014 (inmillions) TransportationSolutions $ 337 $ 347 $ 285 $ 429 $ 400 $ 379IndustrialSolutions 131 123 102 107 104 143CommunicationsSolutions 117 146 164 92 96 113Total $ 585 $ 616 $ 551 $ 628 $ 600 $ 635
SegmentAssets FiscalYearEnd 2016 2015 2014 (inmillions) TransportationSolutions $ 3,501 $ 3,310 $ 3,062IndustrialSolutions 1,720 1,720 1,735CommunicationsSolutions 1,473 1,625 1,689Totalsegmentassets(1) 6,694 6,655 6,486
Othercurrentassets 1,133 4,150 5,311Othernon-currentassets 9,781 9,784 8,335Totalassets $ 17,608 $ 20,589 $ 20,132
(1) Segmentassetsarecomposedofaccountsreceivable,inventories,andproperty,plant,andequipment.
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
21.SegmentandGeographicData(Continued)
Netsalesandnetproperty,plant,andequipmentbygeographicregionwereasfollows:
117
NetSales(1) Property,Plant,andEquipment,Net
Fiscal FiscalYearEnd 2016 2015 2014 2016 2015 2014 (inmillions) Americas: U.S. $ 3,901 $ 3,817 $ 3,119 $ 922 $ 887 $ 837OtherAmericas 298 321 396 93 87 97TotalAmericas 4,199 4,138 3,515 1,015 974 934
Europe/MiddleEast/Africa: Switzerland 2,979 2,992 3,483 62 55 54Germany 127 117 126 334 313 330OtherEurope/MiddleEast/Africa 1,010 883 615 630 588 642TotalEurope/MiddleEast/Africa 4,116 3,992 4,224 1,026 956 1,026
Asia–Pacific: China 2,165 2,367 2,331 491 529 492OtherAsia–Pacific 1,758 1,736 1,903 520 461 468TotalAsia–Pacific 3,923 4,103 4,234 1,011 990 960
Total $ 12,238 $ 12,233 $ 11,973 $ 3,052 $ 2,920 $ 2,920
(1) Netsalestoexternalcustomersisattributedtoindividualcountriesbasedonthelegalentitythatrecordsthesale.
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
22.QuarterlyFinancialData(unaudited)
Summarizedquarterlyfinancialdatawasasfollows:
118
Fiscal 2016 2015
First
Quarter
SecondQuarter
(1)
ThirdQuarter
(2)
FourthQuarter
(3)
FirstQuarter
(4) SecondQuarter
ThirdQuarter
FourthQuarter
(5) (inmillions,exceptpersharedata) Netsales $ 2,833 $ 2,952 $ 3,121 $ 3,332 $ 3,049 $ 3,082 $ 3,118 $ 2,984Grossmargin 945 962 1,022 1,104 1,020 1,051 1,048 968Acquisitionandintegrationcosts 5 3 11 3 24 14 8 9Restructuringandothercharges(credits),net 40 (99) 31 30 25 38 19 70
Incomefromcontinuingoperations 324 389 791 437 435 316 351 136Income(loss)fromdiscontinuedoperations,netofincometaxes 29 (9) 48 — 37 283 (42) 904
Netincome $ 353 $ 380 $ 839 $ 437 $ 472 $ 599 $ 309 $ 1,040
Basicearningspershare: Incomefromcontinuingoperations $ 0.84 $ 1.07 $ 2.22 $ 1.23 $ 1.07 $ 0.78 $ 0.86 $ 0.34Netincome 0.92 1.04 2.35 1.23 1.16 1.47 0.76 2.60
Dilutedearningspershare: Incomefromcontinuingoperations $ 0.83 $ 1.06 $ 2.19 $ 1.22 $ 1.05 $ 0.77 $ 0.85 $ 0.34Netincome 0.91 1.03 2.32 1.22 1.14 1.45 0.75 2.57
(1) Resultsforthesecondquarteroffiscal2016includedapre-taxgainof$146milliononthesaleofourCPDbusiness.
(2) Resultsforthethirdquarteroffiscal2016includeda$1,135millionincometaxbenefitassociatedwiththeeffectivesettlementoftaxmattersfortheyears1997through2000whichresolvedallaspectsofthedisputeddebtmatterwiththeIRSthroughtheyear2007andtherelatedimpactof$604milliontootherexpensepursuanttotheTaxSharingAgreementwithTycoInternationalandCovidien.Inaddition,resultsforthethirdquarteroffiscal2016includeda$91millionincometaxchargerelatedtoanincreasetothevaluationallowanceforcertainU.S.deferredtaxassets,andan$83millionnetincometaxbenefitrelatedtotaxsettlementsincertainothertaxjurisdictionsandtherelatedimpactof$46milliontootherexpensepursuanttotheTaxSharingAgreementwithTycoInternationalandCovidien.
(3) Resultsforthefourthquarteroffiscal2016includedanadditionalweek.SeeNote1foradditionalinformationregardingourfiscalyearend.
(4) Resultsforthefirstquarteroffiscal2015included$27millionofchargesfromtheamortizationofacquisition-relatedfairvalueadjustmentstoacquiredinventoriesandcustomerorderbacklogassociatedprimarilywithMeasurementSpecialties.Resultsforthefirstquarteroffiscal2015alsoincludeda$189millionincometaxbenefitassociatedwiththeeffectivesettlementofallundisputedtaxmattersfortheyears2001through2007andtherelatedimpactof$83milliontootherexpensepursuanttotheTaxSharingAgreementwithTycoInternationalandCovidien.
(5) Resultsforthefourthquarteroffiscal2015includeda$216millionincometaxchargeassociatedwiththetaximpactsofcertainintercompanylegalentityrestructuringsmadeinconnectionwithourintegrationofMeasurementSpecialtiesanda$63millionincometaxbenefitassociatedwiththeeffectivesettlementofallundisputedtaxmattersfortheyears2008through2010.Inaddition,inthefourthquarteroffiscal2015,income(loss)fromdiscontinuedoperations,netofincometaxesincludedthegainonthesaleofourBNSbusiness.
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
23.TycoElectronicsGroupS.A.
TycoElectronicsGroupS.A.("TEGSA"),aLuxembourgcompanyandour100%-ownedsubsidiary,isaholdingcompanythatowns,directlyorindirectly,allofouroperatingsubsidiaries.TEGSAistheobligorunderourseniornotes,commercialpaper,andCreditFacility,whicharefullyandunconditionallyguaranteedbyitsparent,TEConnectivityLtd.ThefollowingtablespresentcondensedconsolidatingfinancialinformationforTEConnectivityLtd.,TEGSA,andallothersubsidiariesthatarenotprovidingaguaranteeofdebtbutwhichrepresentassetsofTEGSA,usingtheequitymethodofaccounting.
CondensedConsolidatingStatementofOperationsFortheFiscalYearEndedSeptember30,2016
119
TEConnectivity
Ltd. TEGSA Other
Subsidiaries ConsolidatingAdjustments Total
(inmillions) Netsales $ — $ — $ 12,238 $ — $ 12,238Costofsales — — 8,205 — 8,205Grossmargin — — 4,033 — 4,033
Selling,general,andadministrativeexpenses,net(1) 168 95 1,200 — 1,463Research,development,andengineeringexpenses — — 644 — 644Acquisitionandintegrationcosts — — 22 — 22Restructuringandothercharges(credits),net 2 (1) 1 — 2Operatingincome(loss) (170) (94) 2,166 — 1,902
Interestincome — — 19 — 19Interestexpense — (126) (1) — (127)Otherexpense,net — — (632) — (632)Equityinnetincomeofsubsidiaries 2,139 2,261 — (4,400) —Equityinnetincomeofsubsidiariesofdiscontinuedoperations 67 168 — (235) —
Intercompanyinterestincome(expense),net (28) 98 (70) — —Incomefromcontinuingoperationsbeforeincometaxes 2,008 2,307 1,482 (4,635) 1,162
Incometaxbenefit — — 779 — 779Incomefromcontinuingoperations 2,008 2,307 2,261 (4,635) 1,941
Income(loss)fromdiscontinuedoperations,netofincometaxes(2) 1 (101) 168 — 68Netincome 2,009 2,206 2,429 (4,635) 2,009
Othercomprehensiveloss (169) (169) (143) 312 (169)Comprehensiveincome $ 1,840 $ 2,037 $ 2,286 $ (4,323) $ 1,840
(1) TEGSAselling,general,andadministrativeexpensesincludelossesof$80millionrelatedtointercompanytransactions.Theselossesareoffsetbycorrespondinggainsrecordedbyothersubsidiaries.
(2) IncludestheinternalallocationofgainsandlossesassociatedwiththedivestitureofourBNSbusiness.
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
23.TycoElectronicsGroupS.A.(Continued)
CondensedConsolidatingStatementofOperationsFortheFiscalYearEndedSeptember25,2015
120
TEConnectivity
Ltd. TEGSA Other
Subsidiaries ConsolidatingAdjustments Total
(inmillions) Netsales $ — $ — $ 12,233 $ — $ 12,233Costofsales — — 8,146 — 8,146Grossmargin — — 4,087 — 4,087
Selling,general,andadministrativeexpenses,net(1) 163 835 506 — 1,504Research,development,andengineeringexpenses — — 627 — 627Acquisitionandintegrationcosts — — 55 — 55Restructuringandothercharges,net — — 152 — 152Operatingincome(loss) (163) (835) 2,747 — 1,749
Interestincome — — 17 — 17Interestexpense — (135) (1) — (136)Otherexpense,net — — (55) — (55)Equityinnetincomeofsubsidiaries 1,398 2,318 — (3,716) —Equityinnetincomeofsubsidiariesofdiscontinuedoperations 1,182 365 — (1,547) —
Intercompanyinterestincome(expense),net 3 50 (53) — —Incomefromcontinuingoperationsbeforeincometaxes 2,420 1,763 2,655 (5,263) 1,575
Incometaxexpense — — (337) — (337)Incomefromcontinuingoperations 2,420 1,763 2,318 (5,263) 1,238
Incomefromdiscontinuedoperations,netofincometaxes — 817 365 — 1,182Netincome 2,420 2,580 2,683 (5,263) 2,420
Othercomprehensiveloss (356) (356) (368) 724 (356)Comprehensiveincome $ 2,064 $ 2,224 $ 2,315 $ (4,539) $ 2,064
(1) TEGSAselling,general,andadministrativeexpensesincludelossesof$846millionrelatedtointercompanytransactions.Theselossesareoffsetbycorrespondinggainsrecordedbyothersubsidiaries.
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
23.TycoElectronicsGroupS.A.(Continued)
CondensedConsolidatingStatementofOperationsFortheFiscalYearEndedSeptember26,2014
121
TEConnectivity
Ltd. TEGSA Other
Subsidiaries ConsolidatingAdjustments Total
(inmillions) Netsales $ — $ — $ 11,973 $ — $ 11,973Costofsales — — 8,001 — 8,001Grossmargin — — 3,972 — 3,972
Selling,general,andadministrativeexpenses,net(1) 131 1,877 (474) — 1,534Research,development,andengineeringexpenses — — 583 — 583Acquisitionandintegrationcosts — — 31 — 31Restructuringandothercharges,net — — 19 — 19Operatingincome(loss) (131) (1,877) 3,813 — 1,805
Interestincome — — 19 — 19Interestexpense — (126) (1) — (127)Otherincome(expense),net 18 (3) 48 — 63Equityinnetincomeofsubsidiaries 1,729 3,672 — (5,401) —Equityinnetincomeofsubsidiariesofdiscontinuedoperations 167 167 — (334) —
Intercompanyinterestincome(expense),net (2) 63 (61) — —Incomefromcontinuingoperationsbeforeincometaxes 1,781 1,896 3,818 (5,735) 1,760
Incometaxexpense — — (146) — (146)Incomefromcontinuingoperations 1,781 1,896 3,672 (5,735) 1,614
Incomefromdiscontinuedoperations,netofincometaxes — — 167 — 167Netincome 1,781 1,896 3,839 (5,735) 1,781
Othercomprehensiveloss (320) (320) (328) 648 (320)Comprehensiveincome $ 1,461 $ 1,576 $ 3,511 $ (5,087) $ 1,461
(1) TEGSAselling,general,andadministrativeexpensesincludelossesof$1,874millionrelatedtointercompanytransactions.Theselossesareoffsetbycorrespondinggainsrecordedbyothersubsidiaries.
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
23.TycoElectronicsGroupS.A.(Continued)
CondensedConsolidatingBalanceSheetAsofSeptember30,2016
122
TEConnectivity
Ltd. TEGSA Other
Subsidiaries ConsolidatingAdjustments Total
(inmillions) Assets Currentassets: Cashandcashequivalents $ — $ — $ 647 $ — $ 647Accountsreceivable,net — — 2,046 — 2,046Inventories — — 1,596 — 1,596Intercompanyreceivables 37 1,314 48 (1,399) —Prepaidexpensesandothercurrentassets 3 17 466 — 486Totalcurrentassets 40 1,331 4,803 (1,399) 4,775
Property,plant,andequipment,net — — 3,052 — 3,052Goodwill — — 5,492 — 5,492Intangibleassets,net — — 1,879 — 1,879Deferredincometaxes — — 2,111 — 2,111Investmentinsubsidiaries 10,053 19,425 — (29,478) —Intercompanyloansreceivable 22 3,739 10,313 (14,074) —ReceivablefromTycoInternationalplcandCovidienplc — — 12 — 12Otherassets — 14 273 — 287TotalAssets $ 10,115 $ 24,509 $ 27,935 $ (44,951) $ 17,608
LiabilitiesandShareholders'Equity Currentliabilities: Short-termdebt $ — $ 330 $ 1 $ — $ 331Accountspayable 1 — 1,089 — 1,090Accruedandothercurrentliabilities 266 57 1,114 — 1,437Deferredrevenue — — 208 — 208Intercompanypayables 1,363 — 36 (1,399) —Totalcurrentliabilities 1,630 387 2,448 (1,399) 3,066
Long-termdebt — 3,737 2 — 3,739Intercompanyloanspayable — 10,314 3,760 (14,074) —Long-termpensionandpostretirementliabilities — — 1,502 — 1,502Deferredincometaxes — — 207 — 207Incometaxes — — 247 — 247Otherliabilities — 18 344 — 362TotalLiabilities 1,630 14,456 8,510 (15,473) 9,123TotalShareholders'Equity 8,485 10,053 19,425 (29,478) 8,485TotalLiabilitiesandShareholders'Equity $ 10,115 $ 24,509 $ 27,935 $ (44,951) $ 17,608
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
23.TycoElectronicsGroupS.A.(Continued)
CondensedConsolidatingBalanceSheetAsofSeptember25,2015
123
TEConnectivity
Ltd. TEGSA Other
Subsidiaries ConsolidatingAdjustments Total
(inmillions) Assets Currentassets: Cashandcashequivalents $ — $ — $ 3,329 $ — $ 3,329Accountsreceivable,net — — 2,120 — 2,120Inventories — — 1,615 — 1,615Intercompanyreceivables 813 389 66 (1,268) —Prepaidexpensesandothercurrentassets 4 4 468 — 476Deferredincometaxes — — 345 — 345Totalcurrentassets 817 393 7,943 (1,268) 7,885
Property,plant,andequipment,net — — 2,920 — 2,920Goodwill — — 4,824 — 4,824Intangibleassets,net — — 1,555 — 1,555Deferredincometaxes — — 2,144 — 2,144Investmentinsubsidiaries 9,505 19,645 — (29,150) —Intercompanyloansreceivable 22 2,328 8,110 (10,460) —ReceivablefromTycoInternationalplcandCovidienplc — — 964 — 964Otherassets — 27 270 — 297TotalAssets $ 10,344 $ 22,393 $ 28,730 $ (40,878) $ 20,589
LiabilitiesandShareholders'Equity Currentliabilities: Short-termdebt $ — $ 498 $ — $ — $ 498Accountspayable 2 — 1,141 — 1,143Accruedandothercurrentliabilities 442 75 1,232 — 1,749Deferredrevenue — — 185 — 185Intercompanypayables 311 824 133 (1,268) —Totalcurrentliabilities 755 1,397 2,691 (1,268) 3,575
Long-termdebt — 3,385 1 — 3,386Intercompanyloanspayable 4 8,106 2,350 (10,460) —Long-termpensionandpostretirementliabilities — — 1,327 — 1,327Deferredincometaxes — — 329 — 329Incometaxes — — 1,954 — 1,954Otherliabilities — — 433 — 433TotalLiabilities 759 12,888 9,085 (11,728) 11,004TotalShareholders'Equity 9,585 9,505 19,645 (29,150) 9,585TotalLiabilitiesandShareholders'Equity $ 10,344 $ 22,393 $ 28,730 $ (40,878) $ 20,589
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
23.TycoElectronicsGroupS.A.(Continued)
CondensedConsolidatingStatementofCashFlowsFortheFiscalYearEndedSeptember30,2016
124
TEConnectivity
Ltd. TEGSA Other
Subsidiaries ConsolidatingAdjustments Total
(inmillions) CashFlowsFromOperatingActivities: Netcashprovidedby(usedin)continuingoperatingactivities(1) $ (37) $ 211 $ 2,181 $ (336) $ 2,019
Netcashusedindiscontinuedoperatingactivities — — (97) — (97)
Netcashprovidedby(usedin)operatingactivities (37) 211 2,084 (336) 1,922CashFlowsFromInvestingActivities: Capitalexpenditures — — (628) — (628)Proceedsfromsaleofproperty,plant,andequipment — — 8 — 8Acquisitionofbusinesses,netofcashacquired — — (1,336) — (1,336)Proceedsfromdivestitureofbusiness,netofcashretainedbysoldbusiness — 199 134 — 333
Proceedsfromdivestitureofdiscontinuedoperations,netofcashretainedbysoldoperations(2) — (120) 101 — (19)
Intercompanydistributionreceipts(1) 1,082 1,729 — (2,811) —Changeinintercompanyloans — (1,244) — 1,244 —Other — — 61 — 61Netcashprovidedby(usedin)investingactivities 1,082 564 (1,660) (1,567) (1,581)
CashFlowsFromFinancingActivities: Changesinparentcompanyequity(3) 410 300 (710) — —Netincreaseincommercialpaper — 330 — — 330Proceedsfromissuanceofdebt — 349 3 — 352Repaymentofdebt — (500) (1) — (501)Proceedsfromexerciseofshareoptions — — 90 — 90Repurchaseofcommonshares (2,780) — (7) — (2,787)Paymentofcommonsharedividendstoshareholders (513) — 4 — (509)Intercompanydistributions(1) — (1,250) (1,897) 3,147 —Loanactivitywithparent 1,838 — (594) (1,244) —Transferstodiscontinuedoperations — — (97) — (97)Other — (4) (1) — (5)Netcashusedincontinuingfinancingactivities (1,045) (775) (3,210) 1,903 (3,127)Netcashprovidedbydiscontinuedfinancingactivities — — 97 — 97Netcashusedinfinancingactivities (1,045) (775) (3,113) 1,903 (3,030)
Effectofcurrencytranslationoncash — — 7 — 7Netdecreaseincashandcashequivalents — — (2,682) — (2,682)Cashandcashequivalentsatbeginningoffiscalyear — — 3,329 — 3,329Cashandcashequivalentsatendoffiscalyear $ — $ — $ 647 $ — 647
(1) Duringfiscal2016,othersubsidiariesmadedistributionstoTEGSAintheamountof$1,897millionandTEGSAmadedistributionstoTEConnectivityLtd.intheamountof$1,250million.Cashflowsarepresentedbaseduponthenatureofthedistributions.
(2) IncludestheinternalallocationofproceedsbetweenTEGSAandothersubsidiariesassociatedwiththedivestitureofourBNSbusiness.
(3) Changesinparentcompanyequityincludescashflowsrelatedtocertainintercompanyequityandfundingtransactions,andotherintercompanyactivity.
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
23.TycoElectronicsGroupS.A.(Continued)
CondensedConsolidatingStatementofCashFlowsFortheFiscalYearEndedSeptember25,2015
125
TEConnectivity
Ltd. TEGSA Other
Subsidiaries ConsolidatingAdjustments Total
(inmillions) CashFlowsFromOperatingActivities: Netcashprovidedbycontinuingoperatingactivities(1) $ 1,186 $ 1,270 $ 1,824 $ (2,661) $ 1,619Netcashprovidedbydiscontinuedoperatingactivities — — 294 — 294
Netcashprovidedbyoperatingactivities 1,186 1,270 2,118 (2,661) 1,913CashFlowsFromInvestingActivities: Capitalexpenditures — — (600) — (600)Proceedsfromsaleofproperty,plant,andequipment — — 17 — 17Acquisitionofbusinesses,netofcashacquired — — (1,725) — (1,725)Proceedsfromdivestitureofdiscontinuedoperations,netofcashretainedbysoldoperations — 709 2,248 — 2,957
Changeinintercompanyloans — (1,304) — 1,304 —Other — — 12 — 12Netcashprovidedby(usedin)continuinginvestingactivities — (595) (48) 1,304 661
Netcashusedindiscontinuedinvestingactivities — — (25) — (25)
Netcashprovidedby(usedin)investingactivities — (595) (73) 1,304 636CashFlowsFromFinancingActivities: Changesinparentcompanyequity(2) 80 624 (704) — —Netdecreaseincommercialpaper — (328) — — (328)Proceedsfromissuanceofdebt — 617 — — 617Repaymentofdebt — (250) (223) — (473)Proceedsfromexerciseofshareoptions — — 103 — 103Repurchaseofcommonshares (916) — (107) — (1,023)Paymentofcommonsharedividendstoshareholders (515) — 13 — (502)Intercompanydistributions(1) — (1,335) (1,326) 2,661 —Loanactivitywithparent 165 — 1,139 (1,304) —Transfersfromdiscontinuedoperations — — 269 — 269Other — (4) 4 — —Netcashusedincontinuingfinancingactivities (1,186) (676) (832) 1,357 (1,337)Netcashusedindiscontinuedfinancingactivities — — (269) — (269)
Netcashusedinfinancingactivities (1,186) (676) (1,101) 1,357 (1,606)Effectofcurrencytranslationoncash — — (71) — (71)Netincrease(decrease)incashandcashequivalents — (1) 873 — 872Cashandcashequivalentsatbeginningoffiscalyear — 1 2,456 — 2,457Cashandcashequivalentsatendoffiscalyear $ — $ — $ 3,329 $ — $ 3,329
(1) Duringfiscal2015,othersubsidiariesmadedistributionstoTEGSAintheamountof$1,326millionandTEGSAmadedistributionstoTEConnectivityLtd.intheamountof$1,335million.Cashflowsarepresentedbaseduponthenatureofthedistributions.
(2) Changesinparentcompanyequityincludescashflowsrelatedtocertainintercompanyequityandfundingtransactions,andotherintercompanyactivity.
TableofContents
TECONNECTIVITYLTD.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
23.TycoElectronicsGroupS.A.(Continued)
CondensedConsolidatingStatementofCashFlowsFortheFiscalYearEndedSeptember26,2014
126
TEConnectivity
Ltd. TEGSA Other
Subsidiaries ConsolidatingAdjustments Total
(inmillions) CashFlowsFromOperatingActivities: Netcashprovidedby(usedin)continuingoperatingactivities(1) $ (296) $ 1,829 $ 2,153 $ (1,882) $ 1,804
Netcashprovidedbydiscontinuedoperatingactivities — — 279 — 279Netcashprovidedby(usedin)operatingactivities (296) 1,829 2,432 (1,882) 2,083
CashFlowsFromInvestingActivities: Capitalexpenditures — — (635) — (635)Proceedsfromsaleofproperty,plant,andequipment — — 129 — 129Acquisitionofbusinesses,netofcashacquired — — (522) — (522)Proceedsfromdivestitureofbusiness,netofcashretainedbysoldbusiness — — 3 — 3
Intercompanydistributionreceipts(1) — 99 — (99) —Changeinintercompanyloans — 347 — (347) —Other — — (13) — (13)Netcashprovidedby(usedin)continuinginvestingactivities — 446 (1,038) (446) (1,038)
Netcashusedindiscontinuedinvestingactivities — — (37) — (37)
Netcashprovidedby(usedin)investingactivities — 446 (1,075) (446) (1,075)CashFlowsFromFinancingActivities: Changesinparentcompanyequity(2) 67 (3,259) 3,192 — —Netdecreaseincommercialpaper — (23) — — (23)Proceedsfromissuanceofdebt — 1,322 — — 1,322Repaymentofdebt — (303) (57) — (360)Proceedsfromexerciseofshareoptions — — 156 — 156Repurchaseofcommonshares (127) — (451) — (578)Paymentofcommonsharedividendstoshareholders (452) — 9 — (443)Intercompanydistributions(1) — — (1,981) 1,981 —Loanactivitywithparent 808 — (1,155) 347 —Transfersfromdiscontinuedoperations — — 242 — 242Other — (11) 2 — (9)Netcashprovidedby(usedin)continuingfinancingactivities 296 (2,274) (43) 2,328 307
Netcashusedindiscontinuedfinancingactivities — — (242) — (242)
Netcashprovidedby(usedin)financingactivities 296 (2,274) (285) 2,328 65
Effectofcurrencytranslationoncash — — (19) — (19)Netincreaseincashandcashequivalents — 1 1,053 — 1,054Cashandcashequivalentsatbeginningoffiscalyear — — 1,403 — 1,403Cashandcashequivalentsatendoffiscalyear $ — $ 1 $ 2,456 $ — $ 2,457
(1) Duringfiscal2014,othersubsidiariesmadedistributionstoTEGSAintheamountof$1,981million.Cashflowsarepresentedbaseduponthenatureofthedistributions.
(2) Changesinparentcompanyequityincludescashflowsrelatedtocertainintercompanyequityandfundingtransactions,andotherintercompanyactivity.
TableofContents
TECONNECTIVITYLTD.
SCHEDULEII—VALUATIONANDQUALIFYINGACCOUNTS
FiscalYearsEndedSeptember30,2016,September25,2015,andSeptember26,2014
127
Description Balanceat
BeginningofYear
AdditionsChargedtoCostsandExpenses
Acquisitions,Divestitures,andOther Deductions
BalanceatEndofYear
(inmillions) Fiscal2016: Allowancefordoubtfulaccountsreceivable $ 18 $ — $ 1 $ (2) $ 17Valuationallowanceondeferredtaxassets 3,237 283 1 (425) 3,096
Fiscal2015: Allowancefordoubtfulaccountsreceivable $ 14 $ 2 $ 3 $ (1) $ 18Valuationallowanceondeferredtaxassets 1,706 1,627 1 (97) 3,237
Fiscal2014: Allowancefordoubtfulaccountsreceivable $ 29 $ 2 $ — $ (17) $ 14Valuationallowanceondeferredtaxassets 1,801 285 — (380) 1,706
Exhibit 10.5
TE CONNECTIVITY LTD.
2007 STOCK AND INCENTIVE PLAN(AMENDED AND RESTATED AS OF SEPTEMBER 16, 2014)
ARTICLE IPURPOSE
1.1 Purpose. ThepurposesofthisTEConnectivityLtd.2007StockandIncentivePlan(AmendedandRestatedasofSeptember16,2014)(the“Plan”)
aretopromotetheinterestsofTEConnectivityLtd.(andanysuccessorthereto)by(i)aidingintherecruitmentandretentionofDirectorsandEmployees,(ii)providingincentivestosuchDirectorsandEmployeesbymeansofperformance-relatedincentivestoachieveshort-termandlong-termperformancegoals,(iii)providingDirectorsandEmployeesanopportunitytoparticipateinthegrowthandfinancialsuccessoftheCompany,and(iv)promotingthegrowthandsuccessoftheCompany’sbusinessbyaligningthefinancialinterestsofDirectorsandEmployeeswiththatoftheotherstockholdersoftheCompany.Towardtheseobjectives,thePlanprovidesforthegrantofStockOptions,StockAppreciationRights,AnnualPerformanceBonuses,LongTermPerformanceAwardsandotherStock-BasedAwards.
1.2 Effective Dates; Shareholder Approval. ThePlanwasoriginallyeffectiveJune29,2007,thedateofthedividenddistributionofTEConnectivityLtd.sharestotheTycoInternationalLtd.shareholdersofrecordonthedistributiondate.ThePlanwasapprovedbytheTEConnectivityLtd.BoardofDirectorsonJune4,2007andadoptedbyTycoInternationalLtd.,astheCompany’ssoleshareholder,onJune4,2007.AnamendmentandrestatementtothePlantoensureitscompliancewithSection409AoftheCodeandtomakecertainotherclarifyingchangeswasadoptedbytheBoardofDirectorsoftheCompanyonJanuary13,2009andapprovedbytheCompany’sshareholdersonJune22,2009.InordertoprovidefortheissuanceofadditionalsharesunderthePlan,anamendedandrestatedPlanwasadoptedbytheBoardofDirectorsoftheCompanyonNovember17,2009andwasapprovedbytheCompany’sshareholdersonMarch10,2010.ThePlanwasfurtheramendedandrestatedonSeptember29,2010.InordertoprovidefortheissuanceofadditionalsharesunderthePlan,anamendedandrestatedPlanwasadoptedbytheBoardofDirectorsoftheCompanyonNovember15,2011andwasapprovedbytheCompany’sshareholdersonMarch17,2012.ThisamendedandrestatedPlanwasadoptedbytheBoardofDirectorsoftheCompanyonSeptember16,2014forthepurposeofaddingcertainadministrativeamendments.ThisPlandocumentalsoincludesamendmentsapprovedbytheBoardonDecember2,2015.
ARTICLE IIDEFINITIONS
ForpurposesofthePlan,thefollowingtermshavethefollowingmeanings,unlessanotherdefinitionisclearlyindicatedbyparticularusageandcontext:
“Acquired Company ”meansanybusiness,corporationorotherentityacquiredbytheCompanyoranySubsidiary.
“Acquired Grantee ”meansthegranteeofastock-basedawardofanAcquiredCompanyandmayincludeacurrentorformerDirectorofan
AcquiredCompany.
“Annual Performance Bonus ”meansanAwardofcashorSharesgrantedunderSection4.4ofthePlanthatispaidsolelyonaccountoftheattainmentofaspecifiedperformancetargetinrelationtooneormorePerformanceMeasures.
“Award ”meansanyformofincentiveorperformanceawardgrantedunderthePlan,whethersinglyorincombination,toaParticipantbythe
CommitteepursuanttoanytermsandconditionsthattheCommitteemayestablishandsetforthintheapplicableAwardCertificate.AwardsgrantedunderthePlanmayconsistof:
(a)“Stock Options ”awardedpursuanttoSection4.3;
(b)“Stock Appreciation Rights ”awardedpursuanttoSection4.3;
(c)“Annual Performance Bonuses ”awardedpursuanttoSection4.4;
(d)“Long Term Performance Awards ”awardedpursuanttoSection4.5;
1
(e)“Other Stock-Based Awards ”awardedpursuanttoSection4.6;
(f)“Director Awards ”awardedpursuanttoSection4.7;and
(g)“Substitute Awards ”awardedpursuanttoSection4.8.
“Award Certificate ”meansthedocumentissued,eitherinwritingoranelectronicmedium,bytheCommitteeoritsdesigneetoaParticipant
evidencingthegrantofanAward.
“Board ”meanstheBoardofDirectorsoftheCompany.
“Cause ”meansmisconductthatiswillfullyorwantonlyharmfultotheCompanyoranyofitsSubsidiaries,monetarilyorotherwise,including,withoutlimitation,conductthatviolatestheCompany’sCodeofethicalConduct.
“Change in Control ”meansthefirsttooccurofanyofthefollowingevents:
(a)any“person”(asdefinedinSection13(d)and14(d)oftheExchangeAct,excludingforthispurpose,(i)theCompanyorany
Subsidiaryor(ii)anyemployeebenefitplanoftheCompanyoranySubsidiary(oranypersonorentityorganized,appointedorestablishedbytheCompanyfororpursuanttothetermsofanysuchplanthatacquiresbeneficialownershipofvotingsecuritiesoftheCompany),isorbecomesthe“beneficialowner”(asdefinedinRule13d-3undertheExchangeAct)directlyorindirectlyofsecuritiesoftheCompanyrepresentingmorethan30percentofthecombinedvotingpoweroftheCompany’sthenoutstandingsecurities;provided,however,thatnoChangeinControlwillbedeemedtohaveoccurredasaresultofachangeinownershippercentageresultingsolelyfromanacquisitionofsecuritiesbytheCompany;or
(b)personswho,asoftheEffectiveDateconstitutetheBoard(the“IncumbentDirectors”)ceaseforanyreason(including
withoutlimitation,asaresultofatenderoffer,proxycontest,mergerorsimilartransaction)toconstituteatleastamajoritythereof,providedthatanypersonbecomingaDirectoroftheCompanysubsequenttotheEffectiveDateshallbeconsideredanIncumbentDirectorifsuchperson’selectionornominationforelectionwasapprovedbyavoteofatleast50percentoftheIncumbentDirectors;butprovidedfurther,thatanysuchpersonwhoseinitialassumptionofofficeisinconnectionwithanactualorthreatenedproxycontestrelatingtotheelectionofmembersoftheBoardorotheractualorthreatenedsolicitationofproxiesorconsentsbyoronbehalfofa“person”(asdefinedinSection13(d)and14(d)oftheExchangeAct)otherthantheBoard,includingbyreasonofagreementintendedtoavoidorsettleanysuchactualorthreatenedcontestorsolicitation,shallnotbeconsideredanIncumbentDirector;or
(c)consummationofareorganization,mergerorconsolidationorsaleorotherdispositionofatleast80percentoftheassetsof
theCompany(a“BusinessCombination”),ineachcase,unless,followingsuchBusinessCombination,allorsubstantiallyalloftheindividualsandentitieswhowerethebeneficialownersofoutstandingvotingsecuritiesoftheCompanyimmediatelypriortosuchBusinessCombinationbeneficiallyowndirectlyorindirectlymorethan50percentofthecombinedvotingpowerofthethenoutstandingvotingsecuritiesentitledtovotegenerallyintheelectionofdirectors,ofthecompanyresultingfromsuchBusinessCombination(including,withoutlimitation,acompanywhich,asaresultofsuchtransaction,ownstheCompanyorallorsubstantiallyalloftheCompany’sassetseitherdirectlyorthroughoneormoreSubsidiaries)insubstantiallythesameproportionsastheirownership,immediatelypriortosuchBusinessCombination,oftheoutstandingvotingsecuritiesoftheCompany;or
(d)consummationofacompleteliquidationordissolutionoftheCompany;
provided,however,thatifandtotheextentthatanyprovisionofthisPlanoranAwardCertificatewouldcauseapaymentofdeferredcompensationthatissubjecttoCodeSection409A(a)(2)tobemadeupontheoccurrenceofa“ChangeinControl,”orwouldchangethetimingand/orformofanypaymentofdeferredcompensationthatissubjecttoCodeSection409A(a)(2)uponaspecifieddateoreventoccurringaftera“ChangeinControl”orupona“ChangeinControlTermination,”thensuchpaymentshallnotbemade,orsuchchangeintimingorformofpaymentshallnotoccur,unlesssuch“ChangeinControl”isalsoa“changeinownershiporeffectivecontrol”oftheCompanywithinthemeaningofCode
2
Section409A(2)(A)(v)andapplicableregulationsandrulingsthereunderandsuchpayment,orsuchassociateddateorevent,occursnolaterthantwoyearsafterthedateofsuch“ChangeinControl.”
“Change in Control Termination ”meansaParticipant’sinvoluntaryterminationofemploymentthatoccursduringthe12monthperiod
immediatelyfollowingaChangeinControl.Forthispurpose,aParticipant’sinvoluntaryterminationofemploymentincludesonlythefollowing:
(a)terminationoftheParticipant’semploymentbytheCompanyforanyreasonotherthanforCause,Disabilityordeath;
(b)terminationoftheParticipant’semploymentbytheParticipantafteroneofthefollowingevents,providedthattheParticipant’sterminationofemploymentoccurswithinonehundredandeighty(180)daysaftertheoccurrenceofanysuchevent:
i.theCompany(1)assignsorcausestobeassignedtotheParticipantdutiesinconsistentinanymaterialrespectwith
hisorherpositionasineffectimmediatelypriortotheChangeinControl;(2)makesorcausestobemadeanymaterialadversechangeintheParticipant’sposition,authority,dutiesorresponsibilities;or(3)takesorcausestobetakenanyotheractionwhich,inthereasonablejudgmentoftheParticipant,wouldcausehimorhertoviolatehisorherethicalorprofessionalobligations(afterwrittennoticeofsuchjudgmenthasbeenprovidedbytheParticipanttotheCompanyandtheCompanyhasbeengivena15-dayperiodwithinwhichtocuresuchaction),orwhichresultsinasignificantdiminutioninsuchposition,authority,dutiesorresponsibilities;or
ii.theCompany,withouttheParticipant’sconsent,(1)requirestheParticipanttorelocatetoaprincipalplaceof
employmentmorethanfifty(50)milesfromhisorherexistingplaceofemployment;or(2)reducestheParticipant’sbasesalary,annualbonus,orretirement,welfare,stockincentive,perquisite(ifany)andotherbenefitstakenasawhole.
“Code ”meanstheUnitedStatesInternalRevenueCodeof1986,asamended.
“Committee ”meanstheManagementDevelopmentandCompensationCommitteeoftheBoardoranysuccessorcommitteeorsubcommitteeof
theBoard,whichcommitteeiscomprisedsolelyoftwoormorepersonswhoareoutsidedirectorswithinthemeaningofSection162(m)(4)(C)(i)oftheCodeandtheapplicableregulationsandnonemployeedirectorswithinthemeaningofRule16b-3(b)(3)undertheExchangeAct.
“Common Stock ”meansthecommonstockoftheCompany,$.20(U.S.)parvalue,andsuchothersecuritiesorpropertyasmaybecomesubject
toAwardspursuanttoanadjustmentmadeunderSection5.3ofthePlan.
“Company ”meansTEConnectivityLtd.,aSwisscompany,oranysuccessorthereto.
“Deferred Stock Unit ”meansaUnitgrantedunderSection4.6toacquireSharesuponTerminationofDirectorshiporTerminationofEmployment,subjecttoanyrestrictionsthattheCommittee,initsdiscretion,maydetermine.
“Director ”meansamemberoftheBoardwhoisa“non-employeedirector”withinthemeaningofRule16b-3(b)(3)undertheExchangeAct.
“Director Shares ”meanstheawardoffully-vestedSharestoaDirectorunderSection4.6aspartoftheDirector’sannualcompensation,or
undersuchcircumstancesasaredeemedappropriatebytheBoard.
“Disabled ”or“Disability ”meanstheinabilityoftheDirectororEmployeetoperformthematerialdutiespertainingtosuchDirector’sdirectorshiporsuchEmployee’semploymentduetoaphysicalormentalinjury,infirmityorincapacityfor180days(includingweekendsandholidays)inany365-dayperiod.TheexistenceornonexistenceofaDisabilityshallbedeterminedbyanindependentphysicianselectedbytheCompanyandreasonablyacceptabletotheDirectororEmployee.Notwithstandingtheabove,ifandtotheextentthatanyprovisionofthisPlanoranAwardCertificatewouldcauseapaymentofdeferredcompensationthatissubjecttoCodeSection409A(a)(2)tobemadeupontheoccurrenceofa“Disability”oruponapersonbecoming“Disabled,”orwouldcauseachangeinthetimingorformofpaymentofsuchdeferredcompensationupontheoccurrenceofa“Disability”oruponapersonbecoming“Disabled,”thensuchpaymentshallnotbemade,orsuchchangeintiming
3
orformofpaymentshallnotoccur,unlesssuch“Disability”orconditionofbeing“Disabled”satisfiestherequirementsofCodeSection409A(2)(C)andapplicableregulationsandrulingsthereunder.
“Dividend Equivalent ”meansanamountequaltothecashdividendortheFairMarketValueofthestockdividendthatwouldbepaidoneach
ShareunderlyinganAwardiftheShareweredulyissuedandoutstandingonthedateonwhichthedividendispayable.DividendEquivalentswillnotbeawardedinconnectionwithstockoptionorStockAppreciationRightsAwards.
“Effective Date ”meansSeptember16,2014.TheoriginaleffectivedateoftheTEConnectivityLtd.StockandIncentivePlanwas,June29,
2007,thedateofthedividenddistributionofTEConnectivityLtd.sharestotheTycoInternationalLtd.shareholdersofrecordonthedistributiondate.
“Employee ”meansanyindividualwhoperformsservicesasanofficeroremployeeoftheCompanyoraSubsidiary.
“Exchange Act ”meanstheUnitedStatesSecuritiesExchangeActof1934,asamended.
“Exercise Price ”meansthepriceofaShare,asfixedbytheCommittee,whichmaybepurchasedunderaStockOptionorwithrespecttowhichtheamountofanypaymentpursuanttoaStockAppreciationRightisdetermined.
“Fair Market Value ”ofaSharemeanstheclosingsalespriceontheNewYorkStockExchangeonthedateasofwhichthedeterminationof
FairMarketValueisbeingmadeor,ifnosaleisreportedforsuchday,onthenextprecedingdayonwhichasaleofShareswasreported.Notwithstandinganythingtothecontraryherein,theFairMarketValueofaSharewillinnoeventbedeterminedtobelessthanparvalue.
“Fair Market Value Stock Option ”meansaStockOptiontheExercisePriceofwhichisfixedbytheCommitteeatapriceequaltotheFair
MarketValueofaShareonthedateofgrant.
“GAAP ”meansUnitedStatesgenerallyacceptedaccountingprinciples.
“Incentive Stock Option ”meansaStockOptiongrantedunderSection4.3ofthePlanthatmeetstherequirementsofSection422oftheCodeandanyrelatedregulationsandisdesignatedintheAwardCertificatetobeanIncentiveStockOption.
“Key Employee ”meansanEmployeewhoisa“coveredemployee”withinthemeaningofSection162(m)(3)oftheCode.
“Long Term Performance Award ”meansanAwardgrantedunderSection4.5ofthePlanthatispaidsolelyonaccountoftheattainmentofa
specifiedperformancetargetinrelationtooneormorePerformanceMeasuresorotherperformancecriteriaasselectedinthediscretionoftheCommittee.
“Non-Employee Director ”meansanymemberoftheBoard,electedorappointed,whoisnototherwiseanEmployeeoftheCompanyoraSubsidiary.AnindividualwhoiselectedtotheBoardatanannualmeetingofthestockholdersoftheCompanywillbedeemedtobeamemberoftheBoardasofthedateofthemeeting.
“Nonqualified Stock Option ”meansanyStockOptiongrantedunderSection4.3ofthePlanthatisnotanIncentiveStockOption.
“Participant ”meansaDirector,EmployeeorAcquiredGranteewhohasbeengrantedanAwardunderthePlan.
“Performance Cycle ”means,withrespecttoanyAwardthatvestsbasedonPerformanceMeasures,theperiodof12monthsorlongerover
whichthelevelofperformancewillbeassessed.ThefirstPerformanceCycleunderthePlanwillbeginonsuchdateasissetbytheCommittee,initsdiscretion.
4
“Performance Measure ”means,withrespecttoanyAnnualPerformanceBonusorLongTermPerformanceAward,thebusinesscriteria
selectedbytheCommitteetomeasurethelevelofperformanceoftheCompanyduringthePerformanceCycle.TheCommitteemayselectasthePerformanceMeasureforaPerformanceCycleanyoneorcombinationofthefollowingCompanymeasures,asinterpretedbytheCommittee,whichmeasures(totheextentapplicable)willbedeterminedinaccordancewithGAAP:
(a)Netoperatingprofitaftertaxes;
(b)Netoperatingprofitaftertaxes,perShare;
(c)Returnoninvestedcapital;
(d)Returnonassetsornetassets;
(e)Totalshareholderreturn;
(f)Relativetotalshareholderreturn(ascomparedwithapeergroupoftheCompany);
(g)Earningsbeforeincometaxes;
(h)EarningsperShare;
(i)Netincome;
(j)Freecashflow;
(k)FreecashflowperShare;
(l)Revenue(oranycomponentthereof);or
(m)Revenuegrowth.
“Performance Unit ”meansaLongTermPerformanceAwarddenominatedindollarUnits.
“Plan ”meanstheTEConnectivityLtd.2007StockandIncentivePlan(AmendedandRestatedasofSeptember16,2014),asitmaybe
amendedfromtimetotime.
“Premium-Priced Stock Option ”meansaStockOptiontheExercisePriceofwhichisfixedbytheCommitteeatapricethatexceedstheFairMarketValueofaShareonthedateofgrant.
“Reporting Person ”meansaDirectororanEmployeewhoissubjecttothereportingrequirementsofSection16(a)oftheExchangeAct.
“Restricted Stock ”meansSharesissuedpursuanttoSection4.6thataresubjecttoanyrestrictionsthattheCommittee,initsdiscretion,may
impose.
“Restricted Unit ”meansaUnitgrantedunderSection4.6toacquireSharesoranequivalentamountincash,whichUnitissubjecttoanyrestrictionsthattheCommittee,initsdiscretion,mayimpose.
“Retirement ”meansTerminationofEmploymentonorafteraParticipanthasattainedagefifty-five(55)andhascompletedatleastfiveyears
ofservicewiththeCompanyanditsSubsidiaries.
“Securities Act ”meanstheUnitedStatesSecuritiesActof1933,asamended.
“Share ”meansashareofCommonStock.
“Stock Appreciation Right ”meansarightgrantedunderSection4.3ofthePlantoanamountincashorSharesequaltoanydifferencebetweentheFairMarketValueoftheSharesasofthedateonwhichtherightisexercisedandtheExercisePrice,wheretheamountofSharesattributabletoeachStockAppreciationRightissetforthonorbeforethegrantdate.
5
“Stock-Based Award ”meansanAwardgrantedunderSection4.6ofthePlananddenominatedinShares.
“Stock Option ”meansarightgrantedunderSection4.3ofthePlantopurchasefromtheCompanyastatednumberofSharesataspecified
price.StockOptionsawardedunderthePlanmaybeintheformofIncentiveStockOptionsorNonqualifiedStockOptions.
“Subsidiary ”meansasubsidiarycompany(whereverincorporated)oftheCompany;provided,thatinthecaseofanyAwardthatprovidesdeferredcompensationsubjecttoCodeSection409A,“Subsidiary”shallnotincludeanysubsidiarycompanyasdefinedaboveunlesssuchcompanyiswithinacontrolledgroupofcorporationswiththeCompanyasdefinedinCodeSections1563(a)(1),(2)and(3)wherethephrase“atleast50%”issubstitutedineachplace“atleast80%”appearsoriswiththeCompanypartofagroupoftradesorbusinessesundercommoncontrolasdefinedinCodeSection414(c)andTreas.Reg.§1.414(c)-2wherethephrase“atleast50%”issubstitutedineachplace“atleast80%”appears,provided,however,thatwhentherelevantdeterminationistobebaseduponlegitimatebusinesscriteria(asdescribedinTreas.Reg.§1.409A-1(b)(5)(iii)(E)and§1.409A-1(h)(3)),thephrase“atleast20%”shallbesubstitutedineachplace“atleast50%”appearsasdescribedabovewithrespecttobothacontrolledgroupofcorporationsandtradesorbusinessundercommoncontrol.
“Target Amount ”meanstheamountofPerformanceUnitsthatwillbepaidifthePerformanceMeasureisfully(100%)attained,asdetermined
bytheCommittee.
“Target Vesting Percentage ”meansthepercentageofperformance-basedRestrictedUnitsorSharesofRestrictedStockthatwillvestifthePerformanceMeasureisfully(100%)attained,asdeterminedbytheCommittee.
“Termination of Directorship ”meansthedateofcessationofaDirector’smembershipontheBoardforanyreason,withorwithoutCause,as
determinedbytheCompany;provided,thatifandtotheextentthatanyprovisionofthisPlanoranAwardCertificatewouldcauseapaymentofdeferredcompensationthatissubjecttoCodeSection409A(a)(2)tobemadeupontheoccurrenceofaTerminationofDirectorshiporwouldchangethetimingand/orformofanypaymentofdeferredcompensationthatissubjecttoCodeSection409A(a)(2)uponaperson’sTerminationofDirectorship,thensuchpaymentshallnotbemade,orsuchchangeintimingand/orformofpaymentshallnotoccur,unlesssuchTerminationofDirectorshipwouldbedeemeda“separationfromservice”withinthemeaningofCodeSection409A(a)(2)(A)(i)andapplicableregulationsandrulingsthereunder,andshallnotincludeanyservicesprovidedinthecapacityofanemployeeorotherwise.
“Termination of Employment ”meansthedateofcessationofanEmployee’semploymentrelationshipwiththeCompanyoraSubsidiaryfor
anyreason,withorwithoutCause,asdeterminedbytheCompany;provided,thatifandtotheextentthatanyprovisionofthisPlanoranAwardCertificatewouldcauseapaymentofdeferredcompensationthatissubjecttoCodeSection409A(a)(2)tobemadeupontheoccurrenceofaTerminationofEmploymentorwouldchangethetimingand/orformofanypaymentofdeferredcompensationthatissubjecttoCodeSection409A(a)(2)uponaperson’sTerminationofEmployment,thensuchpaymentshallnotbemadeorsuchchangeintimingand/orformofpaymentshallnotoccur,unlesssuchTerminationofEmploymentwouldbedeemeda“separationfromservice”withinthemeaningofCodeSection409A(a)(2)(A)(i)andapplicableregulationsandrulingsthereunder.EffectiveDecember2,2015,forpurposesofthePlan,aTerminationofEmploymentwillnotbedeemedtohaveoccurredinthecaseofanEmployeewhohasterminatedtheemploymentrelationshipwiththeCompanybutcontinuestoprovideservicestotheCompanyasamemberoftheBoardinanon-executiveboardposition.Insuchcase,theEmployee’sterminationdateforpurposesofthevesting,exerciseandotherapplicableprovisionsofthePlanshallmeantheTerminationofDirectorship.
“Unit ”means,forpurposesofPerformanceUnits,thepotentialrighttoanAwardequaltoaspecifiedamountdenominatedinsuchformasis
deemedappropriateinthediscretionoftheCommitteeand,forpurposesofRestrictedUnitsorDeferredStockUnits,thepotentialrighttoacquireoneShare.
ARTICLE III
ADMINISTRATION
3.1 Committee. ThePlanwillbeadministeredbytheCommittee.
3.2 Authority of the Committee. TheCommitteeor,totheextentrequiredbyapplicablelaw,theBoardwillhavetheauthority,initssoleandabsolutediscretionandsubjecttothetermsofthePlan,to:
6
(a)InterpretandadministerthePlanandanyinstrumentoragreementrelatingtothePlan;
(b)PrescribetherulesandregulationsthatitdeemsnecessaryfortheproperoperationandadministrationofthePlan,andamendor
rescindanyexistingrulesorregulationsrelatingtothePlan;
(c)SelectEmployeestoreceiveAwardsunderthePlan;
(d)DeterminetheformofanAward,thenumberofSharessubjecttoeachAward,allthetermsandconditionsofanAward,including,withoutlimitation,theconditionsonexerciseorvesting,thedesignationofStockOptionsasIncentiveStockOptionsorNonqualifiedStockOptions,andthecircumstancesinwhichanAwardmaybesettledincashorSharesormaybecancelled,forfeitedorsuspended,andthetermsoftheAwardCertificate;
(e)DeterminewhetherAwardswillbegrantedsingly,incombinationorintandem;
(f)EstablishandinterpretPerformanceMeasures(or,asapplicable,otherperformancecriteria)inconnectionwithAnnualPerformance
BonusesandLongTermPerformanceAwards,evaluatethelevelofperformanceoveraPerformanceCycleandcertifythelevelofperformanceattainedwithrespecttoPerformanceMeasures(orotherperformancecriteria,asapplicable);
(g)ExceptasprovidedinSection6.1,waiveoramendanyterms,conditions,restrictionsorlimitationsonanAward,exceptthatthe
prohibitionontherepricingofStockOptionsandStockAppreciationRights,asdescribedinSection4.3(g),maynotbewaivedandfurtherprovidedthatanysuchwaiveroramendmentshalleithercomplywiththerequirementsofSection409AorpreserveanyexemptionfromtheapplicationofCodeSection409A;
(h)MakeanyadjustmentstothePlan(includingbutnotlimitedtoadjustmentofthenumberofSharesavailableunderthePlanorany
Award)andanyAwardgrantedunderthePlanasmaybeappropriatepursuanttoSection5.3;
(i)DetermineandsetforthintheapplicableAwardCertificatethecircumstancesunderwhichAwardsmaybedeferredandtheextenttowhichadeferralwillbecreditedwithDividendEquivalentsandinterestthereon;
(j)DeterminewhetheraNonqualifiedStockOptionorRestrictedSharemaybetransferabletofamilymembers,afamilytrustorafamily
partnership;
(k)EstablishanysubplansandmakeanymodificationstothePlanortoAwardsmadehereunder(includingtheestablishmentoftermsandconditionsnototherwiseinconsistentwiththetermsofthePlan)thattheCommitteemaydeterminetobenecessaryoradvisableforgrantsmadeincountriesoutsidetheUnitedStatestocomplywith,ortoachievefavorabletaxtreatmentunder,applicableforeignlawsorregulations;
(l)AppointsuchagentsasitshalldeemappropriateforproperadministrationofthePlan;and
(m)TakeanyandallotheractionsitdeemsnecessaryoradvisablefortheproperoperationoradministrationofthePlan.
3.3 Effect of Determinations. AlldeterminationsoftheCommitteewillbefinal,bindingandconclusiveonallpersonshavinganinterestinthePlan.
3.4 Delegation of Authority. TheBoardor,ifpermittedunderapplicablecorporatelaw,theCommittee,initsdiscretionandconsistentwithapplicable
lawandregulations,maydelegatetotheChiefExecutiveOfficeroftheCompanyoranyotherofficerorgroupofofficersasitdeemstobeadvisable,theauthoritytoselectEmployeestoreceiveanAwardandtodeterminethenumberofSharesunderanysuchAward,subjecttoanytermsandconditionsthattheBoardortheCommitteemayestablish.WhentheBoardortheCommitteedelegatesauthoritypursuanttotheforegoingsentence,itwilllimit,initsdiscretion,thenumberofSharesoraggregatevaluethatmaybesubjecttoAwardsthatthedelegatemaygrant.OnlytheCommitteewillhaveauthoritytograntandadministerAwardstoDirectors,KeyEmployeesandotherReportingPersonsortodelegatesoftheCommittee,andtoestablishandcertifyPerformanceMeasures.
7
3.5 Employment of Advisors. TheCommitteemayemployattorneys,consultants,accountantsandotheradvisors,andtheCommittee,theCompanyand
theofficersanddirectorsoftheCompanymayrelyupontheadvice,opinionsorvaluationsoftheadvisorsemployed.
3.6 No Liability. NomemberoftheCommitteeoranypersonactingasadelegateoftheCommitteewithrespecttothePlanwillbeliableforanylossesresultingfromanyaction,interpretationorconstructionmadeingoodfaithwithrespecttothePlanoranyAwardgrantedunderthePlan.
ARTICLE IVAWARDS
4.1 Eligibility. AllParticipantsandEmployeesareeligibletobedesignatedtoreceiveAwardsgrantedunderthePlan,exceptasotherwiseprovidedin
thisArticleIV.
4.2 Form of Awards. AwardswillbeintheformdeterminedbytheCommittee,initsdiscretion,andwillbeevidencedbyanAwardCertificate.AwardsmaybegrantedsinglyorincombinationorintandemwithotherAwards.
4.3 Stock Options and Stock Appreciation Rights. TheCommitteemaygrantStockOptionsandStockAppreciationRightsunderthePlantothoseEmployeeswhomtheCommitteemayfromtimetotimeselect,intheamountsandpursuanttotheothertermsandconditionsthattheCommittee,initsdiscretion,maydetermineandsetforthintheAwardCertificate,subjecttotheprovisionsbelow:
(a) Form. StockOptionsgrantedunderthePlanwill,atthediscretionoftheCommitteeandassetforthintheAwardCertificate,beintheformofIncentiveStockOptions,NonqualifiedStockOptionsoracombinationofthetwo.IfanIncentiveStockOptionandaNonqualifiedStockOptionaregrantedtothesameParticipantunderthePlanatthesametime,theformofeachwillbeclearlyidentified,andtheywillbedeemedtohavebeengrantedinseparategrants.InnoeventwilltheexerciseofoneAwardaffecttherighttoexercisetheotherAward.StockAppreciationRightsmaybegrantedeitheraloneorinconnectionwithconcurrentlyorpreviouslygrantedNonqualifiedStockOptions.
(b) Exercise Price. TheCommitteewillsettheExercisePriceofFairMarketValueStockOptionsorStockAppreciationRightsgrantedunder
thePlanatapricethatisequaltotheFairMarketValueofaShareonthedateofgrant,subjecttoadjustmentasprovidedinSection5.3.TheCommitteewillsettheExercisePriceofPremium-PricedStockOptionsatapricethatishigherthantheFairMarketValueofaShareasofthedateofgrant,providedthatsuchpriceisnohigherthan150percentofsuchFairMarketValue.TheExercisePriceofIncentiveStockOptionswillbeequaltoorgreaterthan110percentoftheFairMarketValueofaShareasofthedateofgrantiftheParticipantreceivingtheStockOptionsownsstockpossessingmorethan10percentofthetotalcombinedvotingpowerofallclassesofstockoftheCompanyoranysubsidiaryorparentcorporationoftheCompany,asdefinedinSection424oftheCode.TheExercisePriceofaStockAppreciationRightgrantedintandemwithaStockOptionwillequaltheExercisePriceoftherelatedStockOption.TheCommitteewillsetforththeExercisePriceofaStockOptionorStockAppreciationRightintheAwardCertificate.StockOptionsgrantedunderthePlanwill,atthediscretionoftheCommitteeandassetforthintheAwardCertificate,beFairMarketValueStockOptions,Premium-PricedStockOptionsoracombinationofFairMarketValueStockOptionsandPremium-PricedStockOptions.
(c) Term and Timing of Exercise. EachStockOptionorStockAppreciationRightgrantedunderthePlanwillbeexercisableinwholeorin
part,subjecttothefollowingconditions,unlessdeterminedotherwisebytheCommittee:
(i)TheCommitteewilldetermineandsetforthintheAwardCertificatethedateonwhichanyAwardofStockOptionsorStockAppreciationRightstoaParticipantmayfirstbeexercised.UnlesstheapplicableAwardCertificateprovidesotherwise,aStockOptionorStockAppreciationRightwillbecomeexercisableinequalannualinstallmentsoveraperiodoffouryearsbeginningimmediatelyafterthedateonwhichtheStockOptionorStockAppreciationRightwasgranted.TherighttoexerciseaStockOptionorStockAppreciationRightwilllapsenolaterthan10yearsafterthedateofgrant,excepttotheextentnecessarytocomplywithapplicablelawsoutsideoftheUnitedStatesortopreservethetaxadvantagesoftheAwardoutsidetheUnitedStates.
8
(ii)UnlesstheapplicableAwardCertificateprovidesotherwise,uponthedeathorDisabilityofaParticipantwhohasoutstanding
StockOptionsorStockAppreciationRights,theunvestedStockOptionsorStockAppreciationRightswillvest.UnlesstheapplicableAwardCertificateprovidesotherwise,theParticipant’sStockOptionsandStockAppreciationRightswilllapse,andwillnotthereafterbeexercisable,upontheearlierof(A)theiroriginalexpirationdateor(B)thedatethatisthreeyearsafterthedateonwhichtheParticipantdiesorincursaDisability.
(iii)UnlesstheapplicableAwardCertificateprovidesotherwise,upontheRetirementofaParticipant,aprorataportionofthe
Participant’sStockOptionsandStockAppreciationRightswillvestsothatthetotalnumberofvestedStockOptionsorStockAppreciationRightsheldbytheParticipantatTerminationofEmployment(includingthosethathavealreadyvestedasofsuchdate)willbeequalto(A)thetotalnumberofStockOptionsorStockAppreciationRightsoriginallygrantedtotheParticipantundereachAwardmultipliedby(ii)afraction,thenumeratorofwhichistheperiodoftime(inwholemonths)thathaveelapsedsincethedateofgrant,andthedenominatorofwhichisfouryears(orsuchotherapplicablevestingtermasissetforthintheAwardCertificate).UnlesstheAwardCertificateprovidesotherwise,suchParticipant’sStockOptionsandStockAppreciationRightswilllapse,andwillnotthereafterbeexercisable,upontheearlierof(A)theiroriginalexpirationdateor(B)thedatethatisthreeyearsafterthedateofTerminationofEmployment.
(iv)UpontheTerminationofEmploymentofaParticipantthatdoesnotmeettherequirementsofparagraphs(ii)or(iii)above,or
asotherwiseprovidedinSection5.4(ChangeinControl),anyunvestedStockOptionsorStockAppreciationRightswillbeforfeitedunlesstheAwardCertificateprovidesotherwise.AnyStockOptionsorStockAppreciationRightsthatarevestedasofsuchTerminationofEmploymentwilllapse,andwillnotthereafterbeexercisable,upontheearlierof(A)theiroriginalexpirationdateor(B)thedatethatisninety(90)daysafterthedateofsuchTerminationofEmploymentunlesstheAwardCertificateprovidesotherwise.
(v)StockOptionsandStockAppreciationRightsofadeceasedParticipantmaybeexercisedonlybytheestateoftheParticipant
orbythepersongivenauthoritytoexercisetheStockOptionsorStockAppreciationRightsbytheParticipant’swillorbyoperationoflaw.IfaStockOptionorStockAppreciationRightisexercisedbytheexecutororadministratorofadeceasedParticipant,orbythepersonorpersonstowhomtheStockOptionorStockAppreciationRighthasbeentransferredbytheParticipant’swillortheapplicablelawsofdescentanddistribution,theCompanywillbeundernoobligationtodeliverSharesorcashuntiltheCompanyissatisfiedthatthepersonexercisingtheStockOptionorStockAppreciationRightisthedulyappointedexecutororadministratorofthedeceasedParticipantorthepersontowhomtheStockOptionorStockAppreciationRighthasbeentransferredbytheParticipant’swillorbyapplicablelawsofdescentanddistribution.
(vi)AStockAppreciationRightgrantedintandemwithaStockOptionissubjecttothesametermsandconditionsastherelated
StockOptionandwillbeexercisableonlytotheextentthattherelatedStockOptionisexercisable.
(d) Payment of Exercise Price. TheExercisePriceofaStockOptionmustbepaidinfullwhentheStockOptionisexercised.Stockcertificateswillberegisteredanddeliveredonlyuponreceiptofpayment.PaymentoftheExercisePricemaybemadeincashorbycertifiedcheck,bankdraft,wiretransfer,orpostalorexpressmoneyorder,providedthattheformatisapprovedbytheCompanyoradesignatedthird-partyadministrator.TheCommittee,initsdiscretionmayalsoallowpaymenttobemadebyanyofthefollowingmethods,assetforthintheAwardCertificate:
(i)DeliveringaproperlyexecutedexercisenoticetotheCompanyoritsagent,togetherwithirrevocableinstructionstoabroker
todelivertotheCompany,withinthetypicalsettlementcycleforthesaleofequitysecuritiesontherelevanttradingmarket(orotherwiseinaccordancewiththeprovisionsofRegulationTissuedbytheFederalReserveBoard),theamountofsaleproceedswithrespecttotheportionoftheSharestobeacquiredhavingaFairMarketValueonthedateofexerciseequaltothesumoftheapplicableportionoftheExercisePricebeingsopaid;
(ii)Tendering(actuallyorbyattestation)totheCompanypreviouslyacquiredSharesthathavebeenheldbytheParticipantforat
leastsixmonths,subjecttoparagraph(iv),andthathaveaFairMarketValueonthedaypriortothedateofexerciseequaltotheapplicableportionoftheExercisePrice
9
beingsopaid,providedthattheBoardhasspecificallyapprovedtherepurchaseofsuchShares(unlesssuchapprovalisnotrequiredbythetermsofthebye-lawsoftheCompany)andtheCommitteehasdeterminedthat,asofthedateofrepurchase,theCompanyis,andaftertherepurchasewillcontinuetobe,abletopayitsliabilitiesastheybecomedue;or
(iii)ProvidedsuchpaymentmethodhasbeenexpresslyauthorizedbytheBoardortheCommitteeinadvanceandsubjecttoany
requirementsofapplicablelawandregulations,instructingtheCompanytoreducethenumberofSharesthatwouldotherwisebeissuedbysuchnumberofSharesashaveintheaggregateaFairMarketValueonthedateofexerciseequaltotheapplicableportionoftheExercisePricebeingsopaid.
(iv)TheCommittee,inconsiderationofapplicableaccountingstandards,maywaiveanyholdingperiodonSharesrequiredto
tenderpursuanttoclause(ii).
(e) Incentive Stock Options. IncentiveStockOptionsgrantedunderthePlanwillbesubjecttothefollowingadditionalconditions,limitationsandrestrictions:
(i)Eligibility. IncentiveStockOptionsmaybegrantedonlytoEmployeesoftheCompanyoraSubsidiarythatisasubsidiaryor
parentcorporationoftheCompany,withinthemeaningofSection424oftheCode.
(ii)Timing of Grant. NoIncentiveStockOptionwillbegrantedunderthePlanafterthe10-yearanniversaryofthedateonwhichthePlanisadoptedbytheBoardor,ifearlier,thedateonwhichthePlanisapprovedbytheCompany’sstockholders.
(iii)Amount of Award. SubjecttoSection5.3ofthePlan,nomorethan10millionSharesmaybeavailableforgrantintheform
ofIncentiveStockOptions.TheaggregateFairMarketValue(asofthedateofgrant)oftheShareswithrespecttowhichtheIncentiveStockOptionsawardedtoanyEmployeefirstbecomeexercisableduringanycalendaryearmaynotexceed$100,000(U.S.).Forpurposesofthis$100,000(U.S.)limit,theEmployee’sIncentiveStockOptionsunderthisPlanandallotherplansmaintainedbytheCompanyanditsSubsidiarieswillbeaggregated.TotheextentanyIncentiveStockOptionwouldexceedthe$100,000(U.S.)limit,theIncentiveStockOptionwillafterwardsbetreatedasaNonqualifiedStockOptionforallpurposestotheextentrequiredbytheCodeandunderlyingregulationsandrulings.
(iv)Timing of Exercise. IftheCommitteeexercisesitsdiscretionintheAwardCertificatetopermitanIncentiveStockOptionto
beexercisedbyaParticipantmorethanthreemonthsaftertheParticipanthasceasedbeinganEmployee(ormorethan12monthsiftheParticipantispermanentlyandtotallydisabled,withinthemeaningofSection22(e)oftheCode),theIncentiveStockOptionwillafterwardsbetreatedasaNonqualifiedStockOptiontotheextentrequiredbytheCodeandunderlyingregulationsandrulings.Forpurposesofthisparagraph(iv),anEmployee’semploymentrelationshipwillbetreatedascontinuingintactwhiletheEmployeeisonmilitaryleave,sickleaveoranotherapprovedleaveofabsenceiftheperiodofleavedoesnotexceed90days,oralongerperiodtotheextentthattheEmployee’srighttoreemploymentwiththeCompanyoraSubsidiaryisguaranteedbystatuteorbycontract.Iftheperiodofleaveexceeds90daysandtheEmployee’srighttoreemploymentisnotguaranteedbystatuteorcontract,theemploymentrelationshipwillbedeemedtohaveceasedonthe91stdayoftheleave.
(v)Transfer Restrictions. InnoeventwilltheCommitteepermitanIncentiveStockOptiontobetransferredbyanEmployee
otherthanbywillorthelawsofdescentanddistribution,andanyIncentiveStockOptionawardedunderthisPlanwillbeexercisableonlybytheEmployeeduringtheEmployee’slifetime.
(f) Exercise of Stock Appreciation Rights. UponexerciseofaParticipant’sStockAppreciationRights,theCompanywillpaycashorSharesor
acombinationofcashandShares,inthediscretionoftheCommitteeandasdescribedintheAwardCertificate.CashpaymentswillbeequaltotheexcessoftheFairMarketValueofaShareonthedateofexerciseovertheExercisePrice,foreachShareforwhichaStockAppreciationRightwasexercised.IfSharesarepaidfortheStockAppreciationRight,theParticipantwillreceiveanumberofwholeSharesequaltothequotientofthecashpaymentamountdividedbytheFairMarketValueofaShareonthedateofexercise.
10
(g) No Repricing. ExceptasotherwiseprovidedinSection5.3,innoeventwilltheCommittee(i)decreasetheExercisePriceofaStock
OptionorStockAppreciationRightafterthedateofgrantor(ii)canceloutstandingStockOptionsorStockAppreciationRightsinexchangeforacashpaymentorforagrantofreplacementStockOptionsorStockAppreciationRightswithalowerExercisePricethanthatofthereplacedStockOptionsorStockAppreciationRightsorotherAwards,withoutfirstobtainingtheapprovaloftheholdersofamajorityoftheShareswhoarepresentinpersonorbyproxyatameetingoftheCompany’sstockholdersandentitledtovote.
4.4 Annual Performance Bonuses. TheCommitteemaygrantAnnualPerformanceBonusesunderthePlanintheformofcashorSharestothe
ReportingPersonsthattheCommitteemayfromtimetotimeselect,intheamountsandpursuanttothetermsandconditionsthattheCommitteemaydetermineandsetforthintheAwardCertificate,subjecttotheprovisionsbelow:
(a) Performance Cycles. AnnualPerformanceBonuseswillbeawardedinconnectionwitha12-monthPerformanceCycle,whichwillbethefiscalyearoftheCompany.
(b) Eligible Participants. Within90daysafterthecommencementofaPerformanceCycle,theCommitteewilldeterminetheReporting
PersonswhowillbeeligibletoreceiveanAnnualPerformanceBonusunderthePlan.
(c) Performance Measures; Targets; Award Criteria.
(i)Within90daysafterthecommencementofaPerformanceCycle,theCommitteewillfixandestablishinwriting(A)thePerformance
MeasuresthatwillapplytothatPerformanceCycle;(B)theTargetAmountpayabletoeachParticipant;and(C)subjecttosubsection(d)below,thecriteriaforcomputingtheamountthatwillbepaidwithrespecttoeachlevelofattainedperformance.TheCommitteewillalsosetforththeminimumlevelofperformance,basedonobjectivefactors,thatmustbeattainedduringthePerformanceCyclebeforeanyAnnualPerformanceBonuswillbepaidandthepercentageoftheTargetAmountthatwillbecomepayableuponattainmentofvariouslevelsofperformancethatequalorexceedtheminimumrequiredlevel.
(ii)TheCommitteemay,initsdiscretion,selectPerformanceMeasuresthatmeasuretheperformanceoftheCompanyoroneormore
businessunits,divisionsorSubsidiariesoftheCompany.TheCommitteemayselectPerformanceMeasuresthatareabsoluteorrelativetotheperformanceofoneormorecomparablecompaniesoranindexofcomparablecompanies.
(iii)TheCommittee,initsdiscretion,may,onacase-by-casebasis,reduce,butnotincrease,theamountpayabletoanyKeyEmployeewith
respecttoanygivenPerformanceCycle,provided,however,thatnoreductionwillresultinanincreaseintheamountpayableunderanyAnnualPerformanceBonusofanotherKeyEmployee.
(d) Payment, Certification. NoAnnualPerformanceBonuswillvestwithrespecttoanyReportingPersonuntiltheCommitteecertifiesin
writingthelevelofperformanceattainedforthePerformanceCycleinrelationtotheapplicablePerformanceMeasures.InapplyingPerformanceMeasures,theCommitteemay,initsdiscretion,excludeunusualorinfrequentlyoccurringitems(includinganyeventlistedinSection5.3andthecumulativeeffectofchangesinthelaw,regulationsoraccountingrules),andmaydeterminenolaterthanninety(90)daysafterthecommencementofanyapplicablePerformanceCycletoexcludeotheritems,eachdeterminedinaccordancewithGAAP(totheextentapplicable)andasidentifiedinthefinancialstatements,notestothefinancialstatementsordiscussionandanalysisofmanagement.
(e) Form of Payment. AnnualPerformanceBonuseswillbepaidincashorShares.AllsuchPerformanceBonusesshallbepaidnolaterthan
the15thdayofthethirdmonthfollowingtheendofthecalendaryear(or,iflater,followingtheendoftheCompany’sfiscalyear)inwhichsuchPerformanceBonusesarenolongersubjecttoasubstantialriskofforfeiture(asdeterminedforpurposesofSection409AoftheCode),excepttotheextentthataParticipanthaselectedtodeferpaymentunderthetermsofadulyauthorizeddeferredcompensationarrangementinwhichcasethetermsofsucharrangementshallgovern.
(f) Section 162(m) of the Code. ItistheintentoftheCompanythatAnnualPerformanceBonusesbe“performance-basedcompensation”for
purposesofSection162(m)oftheCode,thatthisSection4.4beinterpretedinamannerthatsatisfiestheapplicablerequirementsofSection162(m)(C)oftheCodeandrelatedregulations,andthatthePlanbeoperatedsothattheCompanymaytakeafulltaxdeductionforAnnualPerformanceBonuses.IfanyprovisionofthisPlanoranyAnnualPerformanceBonuswouldotherwisefrustrateorconflictwiththisintent,theprovisionwillbeinterpretedanddeemedamendedsoastoavoidthisconflict.
11
(g) Retirement, Death, Disability and Other Events. IfaParticipantwouldbeentitledtoanAnnualPerformanceBonusbutforthefactthatthe
Participant’semploymentwiththeCompanyterminatedpriortotheendofthePerformanceCycleasaresultoftheParticipant’sRetirement,deathorDisability,orsuchothereventasdesignatedbytheCommittee,theParticipantmay,intheCommittee’sdiscretion,receiveanAnnualPerformanceBonusAward,proratedfortheportionofthePerformanceCyclethattheParticipantcompletedandwhichispayableatthesametimeaftertheendofthePerformanceCyclethatpaymentstootherAnnualPerformanceBonusAwardrecipientsaremade.
4.5 Long Term Performance Awards. TheCommitteemaygrantLongTermPerformanceAwardsunderthePlanintheformofPerformanceUnits,
RestrictedUnitsorRestrictedStocktoanyEmployeewhotheCommitteemayfromtimetotimeselect,intheamountsandpursuanttothetermsandconditionsthattheCommitteemaydetermineandsetforthintheAwardCertificate,subjecttotheprovisionsbelow:
(a) Performance Cycles. LongTermPerformanceAwardswillbeawardedinconnectionwithaPerformanceCycle,asdeterminedbytheCommitteeinitsdiscretion,provided,however,thataPerformanceCyclemaybenoshorterthan12monthsandnolongerthan5years.
(b) Eligible Participants. Within90daysafterthecommencementofaPerformanceCycle,theCommitteewilldeterminetheEmployeeswho
willbeeligibletoreceiveaLongTermPerformanceAwardforthePerformanceCycle,providedthattheCommitteemaydeterminetheeligibilityofanyEmployeeotherthanaKeyEmployeeaftertheexpirationofthe90-dayperiod.
(c) Performance Measures; Targets; Award Criteria.
(i)Within90daysafterthecommencementofaPerformanceCycle,theCommitteewillfixandestablishinwriting(A)the
PerformanceMeasuresthatwillapplytothatPerformanceCycle;(B)withrespecttoPerformanceUnits,theTargetAmountpayabletoeachParticipant;(C)withrespecttoRestrictedUnitsandRestrictedStock,theTargetVestingPercentageforeachParticipant;and(D)subjecttosubsection(d)below,thecriteriaforcomputingtheamountthatwillbepaidorwillvestwithrespecttoeachlevelofattainedperformance.TheCommitteewillalsosetforththeminimumlevelofperformance,basedonobjectivefactors,thatmustbeattainedduringthePerformanceCyclebeforeanyLongTermPerformanceAwardwillbepaidorvest,andthepercentageofPerformanceUnitsthatwillbecomepayableandthepercentageofperformance-basedRestrictedUnitsorSharesofRestrictedStockthatwillvestuponattainmentofvariouslevelsofperformancethatequalorexceedtheminimumrequiredlevel.
(ii)TheCommitteemay,initsdiscretion,selectPerformanceMeasuresthatmeasuretheperformanceoftheCompanyoroneor
morebusinessunits,divisionsorSubsidiariesoftheCompany.TheCommitteemayselectPerformanceMeasuresthatareabsoluteorrelativetotheperformanceofoneormorecomparablecompaniesoranindexofcomparablecompanies.
(iii)TheCommittee,initsdiscretion,may,onacase-by-casebasis,reduce,butnotincrease,theamountofLongTerm
PerformanceAwardspayabletoanyKeyEmployeewithrespecttoanygivenPerformanceCycle,provided,however,thatnoreductionwillresultinanincreaseinthedollaramountornumberofSharespayableunderanyLongTermPerformanceAwardofanotherKeyEmployee.
(iv)WithrespecttoEmployeeswhoarenotKeyEmployees,theCommitteemayestablish,initsdiscretion,performancecriteria
otherthanthePerformanceMeasuresthatwillbeapplicableforthePerformanceCycle.
(d) Payment, Certification. NoLongTermPerformanceAwardwillvestwithrespecttoanyEmployeeuntiltheCommitteecertifiesinwritingthelevelofperformanceattainedforthePerformanceCycleinrelationtotheapplicablePerformanceMeasures.LongTermPerformanceAwardsawardedtoParticipantswhoarenotKeyEmployeeswillbebasedonthePerformanceMeasures,orotherapplicableperformancecriteria,andpaymentformulasthattheCommittee,initsdiscretion,mayestablishforthesepurposes.ThesePerformanceMeasures,orotherperformancecriteria,andformulasmaybethesameasordifferentthanthePerformanceMeasuresandformulasthatapplytoKeyEmployees.
12
InapplyingPerformanceMeasures,theCommitteemay,initsdiscretion,excludeunusualorinfrequentlyoccurringitems(includinganyevent
listedinSection5.3)andthecumulativeeffectofchangesinthelaw,regulationsoraccountingrules,andmaydeterminenolaterthanninety(90)daysafterthecommencementofanyapplicablePerformanceCycletoexcludeotheritems,eachdeterminedinaccordancewithGAAP(totheextentapplicable)andasidentifiedinthefinancialstatements,notestothefinancialstatementsordiscussionandanalysisofmanagement.
(e) Form of Payment. LongTermPerformanceAwardsintheformofPerformanceUnitsmaybepaidincashorfullShares,inthediscretion
oftheCommittee,andassetforthintheAwardCertificate.Performance-basedRestrictedUnitsandRestrictedStockwillbepaidinfullShares.PaymentwithrespecttoanyfractionalSharewillbeincashinanamountbasedontheFairMarketValueoftheShareasofthedatethePerformanceUnitbecomespayable.AllsuchLongTermPerformanceAwardsshallbepaidnolaterthanthe15thdayofthethirdmonthfollowingtheendofthecalendaryear(or,iflater,followingtheendoftheCompany’sfiscalyear)inwhichsuchLongTermPerformanceAwardsarenolongersubjecttoasubstantialriskofforfeiture(asdeterminedforpurposesofCodeSection409A),excepttotheextentthataParticipanthaselectedtodeferpaymentunderthetermsofadulyauthorizeddeferredcompensationarrangement,inwhichcasethetermsofsucharrangementshallgovern.
(f) Section 162(m) of the Code. ItistheintentoftheCompanythatLongTermPerformanceAwardsmadetoKeyEmployeesbe
“performance-basedcompensation”forpurposesofSection162(m)oftheCode,thatthisSection4.5beinterpretedinamannerthatsatisfiestheapplicablerequirementsofSection162(m)(C)oftheCodeandrelatedregulationswithrespecttoLongTermPerformanceawardsmadetoKeyEmployees,andthatthePlanbeoperatedsothattheCompanymaytakeafulltaxdeductionforLongTermPerformanceAwards.IfanyprovisionofthisPlanoranyLongTermPerformanceAwardwouldotherwisefrustrateorconflictwiththisintent,theprovisionwillbeinterpretedanddeemedamendedsoastoavoidthisconflict.
(g) Retirement, Death, Disability and Other Events. IfaParticipantwouldbeentitledtoaLongTermPerformanceAwardbutforthefactthat
theParticipant’semploymentwiththeCompanyterminatedpriortotheendofthePerformanceCycleasaresultoftheParticipant’sRetirement,deathorDisability,orsuchothereventasdesignatedbytheCommittee,theParticipantmay,intheCommittee’sdiscretion,receiveaLongTermPerformanceAward,proratedfortheportionofthePerformanceCyclethattheParticipantcompletedandpayableatthesametimeaftertheendofthePerformanceCyclethatpaymentstootherLongTermPerformanceAwardrecipientsaremade.
4.6 Other Stock-Based Awards. TheCommitteemay,fromtimetotime,grantAwards(otherthanStockOptions,StockAppreciationRights,Annual
PerformanceBonusesorLongTermPerformanceAwards)toanyEmployeewhotheCommitteemayfromtimetotimeselect,whichAwardsconsistof,oraredenominatedin,payablein,valuedinwholeorinpartbyreferenceto,orotherwiserelatedto,Shares.TheseAwardsmayinclude,amongotherforms,RestrictedStock,RestrictedUnits,orDeferredStockUnits.TheCommitteewilldetermine,initsdiscretion,thetermsandconditionsthatwillapplytoAwardsgrantedpursuanttothisSection4.6,whichtermsandconditionswillbesetforthintheapplicableAwardCertificate.
(a) Vesting. UnlesstheAwardCertificateprovidesotherwise,restrictionsonStock-BasedAwardsgrantedunderthisSection4.6willlapseinequalannualinstallmentsoveraperiodoffouryearsbeginningimmediatelyafterthedateofgrant.IftherestrictionsonStock-BasedAwardshavenotlapsedorbeensatisfiedasoftheParticipant’sTerminationofEmployment,theShareswillbeforfeitedbytheParticipantiftheterminationisforanyreasonotherthantheRetirement,deathorDisabilityoftheParticipantoraChangeinControl.UnlesstheAwardCertificateprovidesotherwise,(i)allrestrictionsonStock-BasedAwardsgrantedpursuanttothisSection4.6willlapseuponthedeathorDisabilityoftheParticipant,(ii)intheeventofRetirement,theAwardwillvestproratawithrespecttotheportionofthefour-yearvestingterm(orsuchothervestingtermasissetforthintheAwardCertificate)thattheParticipanthascompletedasoftheParticipant’sTerminationofEmploymentandprovidedthattheParticipanthassatisfiedallotherapplicableconditionsestablishedbytheCommitteewithrespecttosuchproratavesting,and(iii)intheeventofaChangeinControl,Stock-BasedAwardswillbetreatedinaccordancewithSection5.4.Innoeventmaythevestingperiodofatime-basedfull-valueshareawardbelessthanthreeyears(oneitheraclifforgradedvestingbasis),exceptthattheCommitteemayawardupto10percentofthesharesauthorizedforissuanceunderSection5.1withavestingperiodoflessthanthreeyearsundersuchcircumstancesasitdeemsappropriate.
(b) Grant of Restricted Stock. TheCommitteemaygrantRestrictedStocktoanyEmployee,whichShareswillberegisteredinthenameoftheParticipantandheldfortheParticipantbytheCompany.TheParticipantwillhaveallrightsofastockholderwithrespecttotheShares,includingtherighttovoteandtoreceivedividendsorotherdistributions,exceptthattheSharesmaybesubjecttoavestingscheduleandwillbeforfeitediftheParticipantattemptstosell,transfer,assign,pledgeorotherwiseencumberordisposeoftheSharesbeforetherestrictionsaresatisfiedorlapse.
13
(c) Grant of Restricted Units. TheCommitteemaygrantRestrictedUnitstoanyEmployee,whichUnitswillbepaidincashorwholeSharesora
combinationofcashandShares,asdeterminedinthediscretionoftheCommittee.TheCommitteewilldeterminethetermsandconditionsapplicabletothegrantofRestrictedUnits,whichtermsandconditionswillbesetforthintheAwardCertificate.ForeachRestrictedUnitthatvests,oneSharewillbepaidoranamountincashequaltotheFairMarketValueofaShare,assetforthintheAwardCertificate,willbedeliveredtotheParticipantontheapplicabledeliverydate.
(d) Grant of Deferred Stock Units. TheCommitteemaygrantDeferredStockUnitstoanyEmployee,whichUnitswillbepaidinwholeSharesupontheEmployee’sTerminationofEmploymentiftherestrictionsontheUnitshavelapsed.OneSharewillbepaidforeachDeferredStockUnitthatbecomespayable.
(e) Dividends and Dividend Equivalents. AtthediscretionoftheCommitteeandassetforthintheapplicableAwardCertificate,dividendsissuedonSharesmaybepaidimmediatelyorwithheldanddeferredintheParticipant’saccount.IntheeventofapaymentofdividendsonCommonStock,theCommitteemaycreditRestrictedUnitswithDividendEquivalentsinaccordancewithtermsandconditionsestablishedinthediscretionoftheCommittee.DividendEquivalentswillbesubjecttosuchvestingtermsasisdeterminedbytheCommitteeandmaybedistributedimmediatelyorwithheldanddeferredintheParticipant’saccountasdeterminedbytheCommitteeandsetforthintheapplicableAwardCertificate.DeferredStockUnitsmay,inthediscretionoftheCommitteeandassetforthintheAwardCertificate,becreditedwithDividendEquivalentsoradditionalDeferredStockUnits.ThenumberofanyDeferredStockUnitscreditedtoaParticipant’saccountuponthepaymentofadividendwillbeequaltothequotientproducedbydividingthecashvalueofthedividendbytheFairMarketValueofoneShareasofthedatethedividendispaid.TheCommitteewilldetermineanytermsandconditionsondeferralofadividendorDividendEquivalent,includingtherateofinteresttobecreditedondeferralandwhetherinterestwillbecompounded.
4.7 Director Awards.
(a)TheCommitteemaygrantDeferredStockUnitstoeachDirectorinsuchanamountastheBoard,initsdiscretion,mayapproveinadvance.EachsuchDeferredStockUnitwillvestasdeterminedbytheCommitteeandsetforthintheAwardCertificateandwillbepaidinShareswithin30daysfollowingtherecipient’sTerminationofDirectorship,subjecttodeferralunderanyapplicabledeferredcompensationplanapprovedbytheCommittee,inwhichcasethetermsofsucharrangementshallgovern.DividendEquivalentsoradditionalDeferredStockUnitswillbecreditedtoeachDirector’saccountwhendividendsarepaidonCommonStocktotheshareholders,andwillbepaidtotheDirectoratthesametimethattheDeferredStockUnitsarepaidtotheDirector.
(b)TheCommitteemaygrantDirectorSharestoeachDirectorinsuchamountsastheBoard,initsdiscretion,mayapproveinadvance.
(c)TheCommitteemay,initsdiscretion,grantStockOptions,StockAppreciationRightsandotherStock-BasedAwardstoDirectors.
4.8 Substitute Awards. TheCommitteemaymakeAwardsunderthePlantoAcquiredGranteesthroughtheassumptionof,orinsubstitutionfor,outstandingStock-BasedAwardspreviouslygrantedtosuchAcquiredGrantees.SuchassumedorsubstitutedAwardswillbesubjecttothetermsandconditionsoftheoriginalawardsmadebytheAcquiredCompany,withsuchadjustmentsthereinastheCommitteeconsidersappropriatetogiveeffecttotherelevantprovisionsofanyagreementfortheacquisitionoftheAcquiredCompany,providedthatanysuchadjustmentwithrespecttoNonqualifiedStockOptionsandStockAppreciationRightsshallsatisfytherequirementsofTreas.Reg.§1.409A-1(b)(5)(v)(D)andotherwiseensurethatsuchawardscontinuetobeexemptfromCodeSection409AandprovidedthatanyadjustmenttoAwardsthataresubjecttoCodeSection409AisincompliancewithCodeSection409Aandtheregulationsandrulingsthereunder.AnygrantofIncentiveStockOptionspursuanttothisSection4.8willbemadeinaccordancewithSection424oftheCodeandanyfinalregulationspublishedthereunder.
4.9 Limit on Individual Grants. SubjecttoSections5.1and5.3,noEmployeemaybegrantedmorethan6millionSharesoveranycalendaryearpursuanttoAwardsofStockOptions,StockAppreciationRightsandperformance-basedRestrictedStockandRestrictedUnits,exceptthatanincentiveAwardofnomorethan10millionSharesmaybemadepursuanttoStockOptions,StockAppreciationRightsandperformance-basedRestrictedStockandRestrictedUnitstoanypersonwhohasbeenhiredwithinthecalendaryearasaKeyEmployee.ThemaximumamountthatmaybepaidincashorSharespursuanttoAnnualPerformanceBonusesorLongTermPerformanceAwardspaidinPerformanceUnitstoanyoneEmployeeis$10million(U.S.)foranyPerformanceCycleof12months.ForanylongerPerformanceCycle,thismaximumwillbeadjustedproportionally.
14
4.10 Termination for Cause; Clawback. (a)Notwithstandinganythingtothecontraryherein,ifaParticipantincursaTerminationofDirectorshipor
TerminationofEmploymentforCause,thenallStockOptions,StockAppreciationRights,AnnualPerformanceBonuses,LongTermPerformanceAwards,RestrictedUnits,RestrictedStockandotherStock-BasedAwardswillimmediatelybecancelled.TheexerciseofanyStockOptionorStockAppreciationRightorthepaymentofanyAwardmaybedelayed,intheCommittee’sdiscretion,intheeventthatapotentialterminationforCauseispending,subjecttoensuringanexemptionfromorcompliancewithCodeSection409Aandtheunderlyingregulationsandrulings.IfaParticipantincursaTerminationofEmploymentforCause,ortheCompanybecomesaware(aftertheParticipant’sTerminationofEmployment)ofconductonthepartoftheParticipantthatwouldbegroundsforaTerminationofEmploymentforCause,thentheParticipantwillberequiredtodelivertotheCompany(i)Shares(or,inthediscretionoftheCommittee,cash)inanamountthatisequalinvaluetotheamountofanyprofittheParticipantrealizedupontheexerciseofanOptionduringtheperiodbeginningsix(6)monthspriortotheParticipant’sTerminationofEmploymentandendingonthetwo(2)yearanniversaryofsuchTerminationofEmployment;and(ii)thenumberofShares(or,inthediscretionoftheCommittee,thecashvalueofsaidshares)theParticipantreceivedforRestrictedShares,RestrictedUnitsorotherStock-BasedAwardsthatvestedduringtheperioddescribedin(i)above.
(b)Inaddition,theCommitteeshallhavetheauthoritytoestablishanyothertermsandconditionsapplicabletoAwards(includingthemandatoryreturnofalloranyportionofthevaluepreviouslyrealizedbyaParticipantuponthevestingorexerciseofanAward)asaredeemednecessaryand/orappropriatetorecoveramountsmistakenlypaidtoParticipants(asaresultofincorrectfinancialdataorotherwise),includingprovisionsintendedtocomplywithapplicablerulesadoptedortobeadoptedbytheSecuritiesandExchangeCommission,NewYorkStockExchangeoranyothergovernmentalagencyorstockexchangehavingtheauthoritytoestablishrulesaffectingthepaymentofcompensationunderthisPlan.
ARTICLE VSHARES SUBJECT TO THE PLAN; ADJUSTMENTS
5.1 Shares Available. TheSharesissuableunderthePlanwillbeauthorizedbutunissuedShares,and,totheextentpermissibleunderapplicablelaw,
SharesacquiredbytheCompany,anySubsidiaryoranyotherpersonorentitydesignatedbytheCompany.TheoriginalnumberofsharesissuableunderthePlanonandaftertheoriginaleffectivedateofthePlan(June29,2007)wasfivepercent(5%)oftheSharesoutstandingasofthatdate.OnMarch10,2010,theshareholdersoftheCompanyauthorizedanadditionalfifteenmillion(15,000,000)sharesissuableunderthePlan.OnMarch7,2012,theshareholdersoftheCompanyauthorizedanadditionaltwentymillion(20,000,000)sharesissuableunderthePlan.ThetotalnumberofShareswithrespecttowhichAwardsmaybeissuedunderthePlanonandaftertheEffectiveDatemayequal,butnotexceed,thetotalnumberofsharesremainingfromtheoriginalnumberofsharesissuableunderthePlan,plustheadditionalfifteenmillion(15,000,000)sharesauthorizedonMarch10,2010,plustheadditionaltwentymillion(20,000,000)sharesauthorizedonMarch7,2012,subjecttoadjustmentinaccordancewithSection5.3;providedthatwhenSharesareissuedpursuanttoagrantofRestrictedStock,RestrictedUnits,DeferredStockUnits,PerformanceUnitsoraspaymentofanAnnualPerformanceBonusorotherStock-BasedAward,thetotalnumberofSharesremainingavailableforgrantwillbedecreasedbyamarginofatleast1.8perShareissued.Inaddition,inthecaseofthesettlementofanystock-settledStockAppreciationRight,thetotalnumberofSharesavailableforgrantwillbedecreasedbythetotalnumberofSharesequalinvaluetothetotalvalueoftheStockAppreciationRightonthedayofsettlement.Nomorethan10millionSharesofthetotalSharesissuableunderthePlanmaybeavailableforgrantintheformofIncentiveStockOptions.
5.2 Counting Rules. ThefollowingSharesrelatedtoAwardsunderthisPlanmayagainbeavailableforissuanceunderthePlan,inadditiontotheSharesdescribedinSection5.1:
(a)SharesrelatedtoAwardspaidincash;
(b)SharesrelatedtoAwardsthatexpire,areforfeitedorcancelledorterminateforanyotherreasonwithoutissuanceofShares,andprovidedthateachsuchforfeited,cancelledorterminatedSharethatwasoriginallyissuedpursuanttoagrantofRestrictedStock,RestrictedUnits,DeferredStockUnits,PerformanceUnitsoraspaymentofanAnnualPerformanceBonusorotherStock-BasedAwardshallbecountedas1.8Share;
(c)AnySharesissuedinconnectionwithAwardsthatareassumed,convertedorsubstitutedasaresultoftheacquisitionofanAcquired
CompanybytheCompanyoracombinationoftheCompanywithanothercompany;and
(d)AnySharesofRestrictedStockthatarereturnedtotheCompanyuponaParticipant’sTerminationofEmployment.
15
5.3 Adjustments. IntheeventofachangeintheoutstandingSharesbyreasonofastocksplit,reversestocksplit,dividendorotherdistribution(whether
intheformofcash,Shares,othersecuritiesorotherproperty),extraordinarycashdividend,recapitalization,merger,consolidation,split-up,spin-off,reorganization,combination,repurchaseorexchangeofSharesorothersecuritiesorsimilarcorporatetransactionorevent,theCommitteeshallmakeanappropriateadjustmenttopreventdilutionorenlargementofthebenefitsorpotentialbenefitsintendedtobemadeavailableunderthePlan.AnysuchadjustmentwithrespecttoNonqualifiedStockOptionsandStockAppreciationRightsshallsatisfytherequirementsofTreas.Reg.§1.409A-1(b)(5)(v)(D)andotherwiseensurethatsuchawardscontinuetobeexemptfromCodeSection409A,andanyadjustmenttoAwardsthataresubjecttoCodeSection409AshallcomplywithCodeSection409Aandtheregulationsandrulingsthereunder.AnyadjustmentmadebytheCommitteeunderthisSection5.3willbeconclusiveandbindingforallpurposesunderthePlan.
5.4 Change in Control.
(a)UnlessotherwiseprovidedunderthetermsofanapplicableAwardCertificate,(i)alloutstandingStockOptionsandStockAppreciationRightswillbecomeexercisableasoftheeffectivedateofaParticipant’sChangeinControlTerminationiftheAwardsarenototherwisevested,andallconditionswillbewaivedwithrespecttooutstandingRestrictedStock,RestrictedUnitsandotherStock-BasedAwards(otherthanLongTermPerformanceAwards)andDeferredStockUnits,and(ii)eachParticipantwhohasbeengrantedanAnnualPerformanceBonusorLongTermPerformanceAwardthatisoutstandingasofthedateofsuchParticipant’sChangeinControlTerminationwillbedeemedtohaveachievedalevelofperformance,asoftheChangeinControlTermination,thatwouldcauseall(100%)oftheParticipant’sTargetAmountstobecomepayableandallrestrictionsontheParticipant’sRestrictedUnitsandSharesofRestrictedStocktolapse.UnlesstheCommitteedeterminesotherwiseinitsdiscretion(eitherwhentheawardisgrantedoranytimethereafter),intheeventthatAwardsoutstandingasofthedateofaChangeinControlthatarepayableinsharesofCompanyCommonStockwillnotbesubstitutedwithcomparableawardspayableorredeemableinsharesofpublicly-tradedstockaftertheChangeinControl,eachsuchoutstandingAward(i)willbecomefullyvested(attarget,whereapplicable)immediatelypriortotheChangeinControland(ii)eachsuchAwardthatisaStockOptionwillbesettledincash,withouttheParticipant’sconsent,foranamountequaltotheamountthatcouldhavebeenattainedupontheexerciseofsuchAwardimmediatelypriortotheChangeinControlhadsuchAwardbeenexercisableorpayableatsuchtime.
(b)InadditiontotheotheractionsdescribedinSection5.4(a),intheeventofaChangeinControltheCommitteemaytakeanyoneormoreofthefollowingactionswithrespecttoanyoralloutstandingAwards,withouttheconsentoftheParticipant:(i)theCommitteemaydeterminethatoutstandingStockOptionsandStockAppreciationRightsshallbefullyexercisable,andrestrictionsonRestrictedStock,RestrictedUnits,DeferredStockUnitsandotherStock-BasedAwardsshalllapse,asofthedateoftheChangeinControlorsuchothertime(priortoaParticipant’sChangeinControlTermination)astheCommitteedetermines,(ii)theCommitteemayrequirethataParticipantsurrendertheiroutstandingStockOptionsandStockAppreciationRightsinexchangeforoneormorepaymentsbytheCompany,incashorCommonStockasdeterminedbytheCommittee,inanamountequaltotheamountbywhichthethenFairMarketValueofthesharesofCommonStocksubjecttotheParticipant’sunexercisedStockOptionsandStockAppreciationRightsexceedstheexerciseprice,ifany,andonsuchtermsastheCommitteedetermines,(iii)aftergivingParticipantsanopportunitytoexercisetheiroutstandingStockOptionsandStockAppreciationRights,theCommitteemayterminateanyorallunexercisedStockOptionsandStockAppreciationRightsatsuchtimeastheCommitteedeemsappropriate,(iv)theCommitteemaydeterminethatAnnualPerformanceBonusesand/orLongTermPerformanceAwardswillbepaidoutattheirtargetlevel,incashorCommonStockasdeterminedbytheCommittee,or(v)theCommitteemaydeterminethatAwardsthatremainoutstandingaftertheChangeinControlshallbeconvertedtosimilargrantsof,orassumedby,thesurvivingcorporation(oraparentorsubsidiaryofthesurvivingcorporationorsuccessor).Suchacceleration,surrender,termination,settlementorconversionshalltakeplaceasofthedateoftheChangeinControlorsuchotherdateastheCommitteemayspecify.TheCommitteemayspecifyhowanAwardwillbetreatedintheeventofaChangeinControleitherwhentheAwardisgrantedoratanytimethereafter,exceptasotherwiseprovidedherein.
5.5 Fractional Shares. NofractionalShareswillbeissuedunderthePlan.ExceptasotherwiseprovidedinSection4.5(e),ifaParticipantacquirestherighttoreceiveafractionalShareunderthePlan,theParticipantwillreceive,inlieuofthefractionalShare,afullShareasofthedateofsettlement,unlessotherwiseprovidedbytheCommittee.
16
ARTICLE VI
AMENDMENT AND TERMINATION
6.1 Amendment. ThePlanmaybeamendedatanytimeandfromtimetotimebytheBoardwithouttheapprovalofstockholdersoftheCompany,exceptthatnomaterialrevisiontothetermsofthePlanwillbeeffectiveuntiltheamendmentisapprovedbythestockholdersoftheCompany.Arevisionis“material”forthispurposeif,amongotherchanges,itmateriallyincreasesthenumberofSharesthatmaybeissuedunderthePlan(otherthananincreasepursuanttoSection5.3ofthePlan),expandsthetypesofAwardsavailableunderthePlan,materiallyexpandstheclassofpersonseligibletoreceiveAwardsunderthePlan,materiallyextendsthetermofthePlan,materiallydecreasestheExercisePriceatwhichStockOptionsorStockAppreciationRightsmaybegranted,reducestheExercisePriceofoutstandingStockOptionsorStockAppreciationRights,orresultsinthereplacementofoutstandingStockOptionsandStockAppreciationRightswithnewAwardsthathaveanExercisePricethatislowerthantheExercisePriceofthereplacedStockOptionsandStockAppreciationRights.NoamendmentofthePlanoranyoutstandingAwardmadewithouttheParticipant’swrittenconsentmayadverselyaffectanyrightofaParticipantwithrespecttoanoutstandingAward.
6.2 Termination. ThePlanwillterminateupontheearlierofthefollowingdatesoreventstooccur:
(a)theadoptionofaresolutionoftheBoardterminatingthePlan;or
(b)thedaybeforethe10thanniversaryoftheadoptionofthePlanbytheCompany’sshareholderasdescribedinSection1.2.NoAwardswillbegrantedunderthisPlanafterithasterminated.TheterminationofthePlan,however,willnotalterorimpairanyoftherightsorobligationsofanypersonunderanyAwardpreviouslygrantedunderthePlanwithoutsuchperson’sconsent.AftertheterminationofthePlan,anypreviouslygrantedAwardswillremainineffectandwillcontinuetobegovernedbythetermsofthePlanandtheapplicableAwardCertificate.
ARTICLE VIIGENERAL PROVISIONS
7.1 Nontransferability of Awards. NoAwardunderthePlanwillbesubjectinanymannertoalienation,anticipation,sale,assignment,pledge,
encumbranceortransfer,andnootherpersonswillotherwiseacquireanyrightstherein,exceptasprovidedbelow.
(a)AnyAwardmaybetransferredby(i)willorbythelawsofdescentordistributionor(ii)underrulestobeestablishedbytheCompany,toaParticipant’sspouseorformerspouseinaccordancewithadomesticrelationsorderordomesticsettlementagreementassociatedwiththedissolutionoftheParticipant’smarriage.
(b)TheCommitteemayprovideintheapplicableAwardCertificatethatalloranypartofaNonqualifiedOptionorSharesofRestrictedStockmay,subjecttothepriorwrittenconsentoftheCommittee,betransferredtoafamilymember.Forpurposesofthissubsection(b),“familymember”includesanychild,stepchild,grandchild,parent,stepparent,grandparent,spouse,formerspouse,sibling,niece,nephew,mother-in-law,father-in-law,son-in-law,daughter-in-law,brother-in-law,orsister-in-lawoftheParticipant,includingadoptiverelationships,anypersonsharingtheParticipant’shousehold(otherthanatenantoremployee),atrustinwhichthesepersonshavemorethan50percentofthebeneficialinterest,afoundationinwhichthesepersons(ortheParticipant)controlthemanagementofassets,andanyotherentityinwhichthesepersons(ortheParticipant)ownmorethan50percentofthevotinginterests.AnytransferredAwardwillbesubjecttoallofthesametermsandconditionsasprovidedinthePlanandtheapplicableAwardCertificate.TheParticipantortheParticipant’sestatewillremainliableforanywithholdingtaxthatmaybeimposedbyanyfederal,stateorlocaltaxauthority.TheCommitteemay,initsdiscretion,disallowallorapartofanytransferofanAwardpursuanttothissubsection(b)unlessanduntiltheParticipantmakesarrangementssatisfactorytotheCommitteeforthepaymentofanywithholdingtax.TheParticipantmustimmediatelynotifytheCommittee,intheformandmannerrequiredbytheCommittee,ofanyproposedtransferofanAwardpursuanttothissubsection(b).NotransferwillbeeffectiveuntiltheCommitteeconsentstothetransferinwriting.
(c)ExceptasotherwiseprovidedintheapplicableAwardCertificate,anyNonqualifiedStockOptiontransferredbyaParticipantpursuanttothissubsection(c)maybeexercisedbythetransfereeonlytotheextentthattheAwardwouldhavebeenexercisablebytheParticipanthadnotransferoccurred.ThetransferofSharesuponexerciseoftheAwardwillbeconditionedonthepaymentofanywithholdingtax.
17
(d)RestrictedStockmaybefreelytransferredaftertherestrictionslapseoraresatisfiedandtheSharesaredelivered,provided,however,that
RestrictedStockawardedtoanaffiliateoftheCompanymaybetransferredonlypursuanttoRule144undertheSecuritiesAct,orpursuanttoaneffectiveregistrationforresaleundertheSecuritiesAct.Forpurposesofthissubsection(d),“affiliate”willhavethemeaningassignedtothattermunderRule144.
(e)InnoeventmayaParticipanttransferanIncentiveStockOptionotherthanbywillorthelawsofdescentanddistribution.
7.2 Withholding of Taxes. TheCommittee,initsdiscretion,maysatisfyaParticipant’staxwithholdingobligationsbyanyofthefollowingmethodsoranymethodasitdeterminestobeinaccordancewiththelawsofthejurisdictioninwhichtheParticipantresides,hasdomicileorperformsservices.
(a) Stock Options and Stock Appreciation Rights. AsaconditiontothedeliveryofSharespursuanttotheexerciseofaStockOptionorStockAppreciationRight,theCommitteemayrequirethattheParticipant,atthetimeofexercise,paytotheCompanybycash,certifiedcheck,bankdraft,wiretransferorpostalorexpressmoneyorderanamountsufficienttosatisfyanyapplicabletaxwithholdingobligations.TheCommitteemayalso,initsdiscretion,acceptpaymentoftaxwithholdingobligationsthroughanyoftheExercisePricepaymentmethodsdescribedinSection4.3(d).
(b) Other Awards Payable in Shares. TheParticipantshallsatisfytheParticipant’staxwithholdingobligationsarisinginconnectionwiththereleaseofrestrictionsonRestrictedUnits,RestrictedStockandotherStock-BasedAwardsbypaymenttotheCompanyincashorbycertifiedcheck,bankdraft,wiretransferorpostalorexpressmoneyorder,providedthattheformatisapprovedbytheCompanyoradesignatedthird-partyadministrator.However,subjecttoanyrequirementsofapplicablelaw,theCompanymayalsosatisfytheParticipant’staxwithholdingobligationsbyothermethods,includingsellingorwithholdingSharesthatwouldotherwisebeavailablefordelivery,providedthattheBoardortheCommitteehasspecificallyapprovedsuchpaymentmethodinadvance.
(c) Cash Awards. TheCompanymaysatisfyaParticipant’staxwithholdingobligationarisinginconnectionwiththepaymentofanyAwardincashbywithholdingcashfromsuchpayment.
7.3 Special Forfeiture Provision. TheCommitteemay,initsdiscretion,provideinanAwardCertificatethattheParticipantmaynot,withintwoyearsoftheParticipant’sTerminationofEmploymentwiththeCompany,enterintoanyemploymentorconsultationarrangement(includingserviceasanagent,partner,stockholder,consultant,officerordirector)withanyentityorpersonengagedinanybusinessinwhichtheCompanyoranySubsidiaryisengagedwithoutpriorwrittenapprovaloftheCommitteeif,inthesolejudgmentoftheCommittee,thebusinessiscompetitivewiththeCompanyoranySubsidiaryorbusinessunitorsuchemploymentorconsultationarrangementwouldpresentariskthattheParticipantwouldlikelydiscloseCompanyproprietaryinformation(asdeterminedbytheCommittee).IftheCommitteemakesadeterminationthatthisprohibitionhasbeenviolated,theParticipant(i)willforfeitallrightsunderanyoutstandingStockOptionorStockAppreciationRightthatwasgrantedsubjecttotheAwardCertificateandwillreturntotheCompanytheamountofanyprofitrealizeduponanexerciseofallAwardsduringtheperiod,astheCommitteedeterminesandsetsforthintheAwardCertificate,beginningnoearlierthansixmonthspriortotheParticipant’sTerminationofEmployment,and(ii)willforfeitandreturntotheCompanyanyAnnualPerformanceBonuses,PerformanceUnits,SharesofRestrictedStock,RestrictedUnits(includinganycreditedDividendEquivalents),DeferredStockUnits,andotherStock-BasedAwardsthatareoutstandingonthedateoftheParticipant’sTerminationofEmployment,subjecttotheAwardCertificate,andhavenotvestedorthathadvestedandremainsubjecttothisSection7.3duringaperiod,astheCommitteedeterminesandsetsforthintheAwardCertificate,beginningnoearlierthansixmonthspriortotheParticipant’sTerminationofEmployment.
7.4 No Implied Rights. TheestablishmentandoperationofthePlan,includingtheeligibilityofaParticipanttoparticipateinthePlan,willnotbeconstruedasconferringanylegalorotherrightuponanyDirectorforanycontinuationofdirectorshiporanyEmployeeforthecontinuationofemploymentthroughtheendofanyPerformanceCycleorotherperiod.TheCompanyexpresslyreservestheright,whichmaybeexercisedatanytimeandintheCompany’ssolediscretion,todischargeanyindividualortreathimorherwithoutregardtotheeffectsuchdischargemighthaveuponhimorherasaParticipantinthePlan.
7.5 No Obligation to Exercise Awards. ThegrantofaStockOptionorStockAppreciationRightwillimposenoobligationupontheParticipanttoexercisetheAward.
7.6 No Rights as Stockholders. AParticipantwhoisgrantedanAwardunderthePlanwillhavenorightsasastockholderoftheCompanywithrespecttotheAwardunlessanduntilcertificatesfortheSharesunderlyingtheAwardareregisteredintheParticipant’snameand(otherthaninthecaseofRestrictedStock)deliveredtotheParticipant.TherightofanyParticipanttoreceiveanAwardbyvirtueofparticipationinthePlanwillbenogreaterthantherightofanyunsecuredgeneralcreditoroftheCompany.
18
7.7 Indemnification of Committee. TheCompanywillindemnify,tothefullestextentpermittedbylaw,eachpersonmadeorthreatenedtobemadea
partytoanycivilorcriminalactionorproceedingbyreasonofthefactthattheperson,ortheexecutororadministratoroftheperson’sestate,isorwasamemberoftheCommitteeoradelegateoftheCommittee.
7.8 No Required Segregation of Assets. NeithertheCompanynoranySubsidiarywillberequiredtosegregateanyassetsthatmayatanytimeberepresentedbyAwardsgrantedpursuanttothePlan.
7.9 Nature of Payments. AllAwardsmadepursuanttothePlanareinconsiderationofservicesfortheCompanyoraSubsidiary.AnygainrealizedpursuanttoAwardsunderthePlanconstitutesaspecialincentivepaymenttotheParticipantandwillnotbetakenintoaccountascompensationforpurposesofanyotheremployeebenefitplanoftheCompanyoraSubsidiary,exceptastheCommitteeotherwiseprovides.TheadoptionofthePlanwillhavenoeffectonAwardsmadeortobemadeunderanyotherbenefitplancoveringanemployeeoftheCompanyoraSubsidiaryoranypredecessororsuccessoroftheCompanyoraSubsidiary.
7.10 Securities Law Compliance. AwardsunderthePlanareintendedtosatisfytherequirementsofRule16b-3undertheExchangeAct.IfanyprovisionofthisPlanoranygrantofanAwardwouldotherwisefrustrateorconflictwiththisintent,thatprovisionwillbeinterpretedanddeemedamendedsoastoavoidconflict.NoParticipantwillbeentitledtoagrant,exercise,transferorpaymentofanyAwardifthegrant,exercise,transferorpaymentwouldviolatetheprovisionsoftheSarbanes-OxleyActof2002oranyotherapplicablelaw.
7.11 Section 409A Compliance. TotheextenttheCommitteedeterminesthatanyAwardgrantedunderthePlanissubjecttoSection409AoftheCode,theAwardCertificateevidencingsuchAwardwillincorporatethetermsandconditionsrequiredbySection409AoftheCode.Totheextentapplicable,thePlanandtheAwardCertificatewillbeinterpretedinaccordancewithSection409AoftheCodeandDepartmentofTreasuryregulationsandotherinterpretiveguidanceissuedthereunder,includingwithoutlimitationanysuchregulationsorotherguidancethatmaybeissuedaftertheEffectiveDate.NotwithstandinganyprovisionofthePlan,intheeventthattheCommitteedeterminesthatanyAwardmaybesubjecttoSection409AoftheCode,theCommitteemayadoptsuchamendmentstothePlanand/ortheapplicableAwardCertificateoradoptpoliciesandproceduresortakeanyotheractionoractions,includinganactionoramendmentwithretroactiveeffect,thattheCommitteedeterminesisnecessaryorappropriateto(i)exempttheAwardfromtheapplicationofSection409AoftheCodeor(ii)complywiththerequirementsofSection409AoftheCode.AnyAwardthatprovidesforapaymenttoanyParticipantwhoisa“specifiedemployee”ofdeferredcompensationthatissubjecttoCodeSection409A(a)(2)andthatbecomespayableupon,orthatisacceleratedupon,suchParticipant’sTerminationofEmployment,shallalsoprovidethatnosuchpaymentshallbemadeonorbeforethedatewhichissixmonthsfollowingsuchParticipant’sTerminationofEmployment(or,ifearlier,suchParticipant’sdeath).AspecifiedemployeeforthispurposeshallbedeterminedbytheCommitteeoritsdelegateinaccordancewiththeprovisionsofCodeSection409Aandtheregulationsandrulingsthereunder.
7.12 Governing Law, Severability. ThePlanandalldeterminationsmadeandactionstakenunderthePlanwillbegovernedbythelawofSwitzerlandandconstruedaccordingly.IfanyprovisionofthePlanisheldunlawfulorotherwiseinvalidorunenforceableinwholeorinpart,theunlawfulness,invalidityorunenforceabilitywillnotaffectanyotherpartsofthePlan,whichpartswillremaininfullforceandeffect.
19
Exhibit 10.11
TE Connectivity Ltd. 2007 Stock and Incentive Plan
TERMS AND CONDITIONS
OFPERFORMANCE STOCK UNIT AWARD
PERFORMANCESTOCKUNITAWARDmadeasof.
1.Grant of Award. TEConnectivityLtd.(the“Company”)hasgrantedyouTEConnectivityPerformanceStockUnits,subjecttothe
provisionsofthisAwardAgreement.TheCompanywillholdthePerformanceStockUnitsinabookkeepingaccountonyourbehalfuntiltheybecomepayableorareforfeitedorcancelled.
2.Payment Amount. EachPerformanceStockUnitrepresentsone(1)ShareofCommonStock.
3.Form of Payment. VestedPerformanceStockUnitswillberedeemedsolelyforShares,subjecttoSection15.
4.Performance Stock Units/Dividends. PerformanceStockUnitsareapromisetodeliverCommonStockuponaspecifieddeliverydate,providedthatcertainvestingandperformancerequirementsaremet,asdescribedinthisAgreementandAppendixA.ForeachPerformanceStockUnitthatisgrantedtoyouunderthisAward(basedonthetargetnumberofunitsawarded),youwillbecreditedwithaDividendEquivalentUnit(DEU)foranycashorstockdividendsdistributedbytheCompanyonCompanyCommonStock.DEUswillbecalculatedatthesamedividendratepaidtootherholdersofCommonStock.ThenumberofDEUsthatwillvestandbedeliveredtoyouintheformofShareswilldependontheactualnumberofunderlyingPerformanceStockUnitsthatareearnedandvested,asmorefullydescribedinthisAgreementandAppendixA.Thus,thenumberofSharesdeliveredinconjunctionwiththeDEUscreditedtoyourPerformanceStockUnitawardwillbeadjusted(upwardordownward)toreflecttheactualnumberofPerformanceStockUnitsthatareearnedandvested.
5.Time of Delivery. ExceptasotherwiseprovidedforinthisAwardAgreement,vestedPerformanceStockUnitsandDividendEquivalentUnitsshallbedeliveredtoparticipantsintheformofSharesassoonasisadministrativelyfeasiblefollowingthespecified“DeliveryDate”,asdescribedinparagraph6below.
6.Normal Vesting. SubjecttotheattainmentoftheperformancemetricsdescribedinAppendixA,yourPerformanceStockUnitAwardwillvestonthelaterof(a)thethirdanniversaryoftheGrantDateor(b)the“CertificationDate”fortheperformanceresultsofthe“PerformanceCycle”,asmorefullydescribedinAppendixA.Exceptasprovidedinparagraphs8,9,10and11below,theDeliveryDateoftheShareswillbeaftertheNovember30thfollowing
1
theendofthePerformanceCycle(asdefinedinAppendixA),butinanycase,noearlierthantheCertificationDatefollowingthecloseofthePerformanceCycleandnolaterthan90daysaftersuchNovember30th.NocreditwillbegivenforperiodsfollowingTerminationofEmployment.
7.Termination of Employment. AnyPerformanceStockUnitsandDEUsthathavenotvestedasofyourTerminationofEmployment,otherthanassetforthinparagraphs8, 9, 10 and 11, willimmediatelybeforfeited,andyourrightswithrespecttothosePerformanceStockUnitsandDEUswillend.
8.Death or Disability. IfyoudieorbecomeDisabled,yourPerformanceStockUnitAwardwillvestinfullat100%oftheoriginaltargetsharesgrantedtoyou.SuchvestedPerformanceStockUnitswillbedeliveredtoyouassoonasadministrativelypracticablefollowingthedateofDeathorDisabilityevent,butinnocaseafterthelateroftheendofthecalendaryearinwhichthedeathorDisabilityoccursortwoandahalfmonthsfollowingthedeathorDisabilitydate.Ifyouaredeceased,thepaymentofyourvestedPerformanceStockUnits,consistentwiththedeliverytimingdescribedintheprecedingsentence,willbemadetoyourestateaftertheCommitteeoritsdesigneehasdeterminedthatthepayeeisthedulyappointedexecutororadministratorofyourestate.
9.Retirement. IfyourTerminationofemploymentoccursafteryouhaveattainedage55andhavecompletedatleastfiveyearsofservice,andyouhaveperformedsatisfactorily,asdeterminedinthesolediscretionofyourmanager,andarenotterminatedforCause,(a)yourPerformanceStockUnitAwardwillvestprorata(standardroundingtothenearestUnit,infull-monthincrements)basedon(i)thenumberofwholemonthsthatyouhavecompletedfromthefirstdayofthePerformanceCyclethroughyourTerminationofEmploymentdividedbythirty-six(36),times(ii)thenumberofPerformanceStockUnitsthatareactuallyearnedforthePerformanceCycleinaccordancewiththetermsofAppendixA;and(b)anyremainingPerformanceStockUnitswillbeimmediatelyforfeited.SuchvestedPerformanceStockUnitswillbedeliveredtoyouaftertheNovember30thfollowingthethirdanniversaryofthegrantdate,butinanycase,noearlierthantheCertificationDatefortheperformanceresultsfollowingthecloseofthefiscalyearinwhichyourTerminationofEmploymentoccursandnolaterthan90daysaftersuchNovember30th.Notwithstandingthetermsofthisparagraph9,aTerminationofEmploymentwithin12monthsoftheGrantDatewillresultintheimmediateforfeitureofyourPerformanceStockUnitAward,exceptasotherwiseprovidedforinparagraphs8,10,or11.
10.Change in Control. ExceptasmaybeotherwiseprovidedbytheCommittee,ifyouremploymentisterminatedfollowingaChangeinControl,asdefinedinthePlan,yourPerformanceStockUnitAwardwillbecomevestedasdescribedbelow,providedthat:
(a)youremploymentisterminatedbytheCompanyoraSubsidiaryforanyreasonotherthanCause,DisabilityorDeathinthetwelve-monthperiodfollowingtheChangeinControl;or
(b)youterminateyouremploymentwiththeCompanyoryouremployingSubsidiarywithinthetwelve-monthperiodfollowingtheChangeinControlasaresultof,andwithin180daysfollowing,theoccurrenceofoneofthefollowingevents:
2
i.theCompanyoryouremployingSubsidiary(1)assignsorcausestobeassignedtoyoudutiesinconsistentinanymaterialrespectwithyourpositionasineffectimmediatelypriortotheChangeinControl;(2)makesorcausestobemadeanymaterialadversechangeinyourposition,authority,dutiesorresponsibilities;or(3)takesorcausestobetakenanyotheractionwhich,inyourreasonablejudgment,wouldcauseyoutoviolateyourethicalorprofessionalobligations(afterwrittennoticeofsuchjudgmenthasbeenprovidedbyyoutotheCompanyandtheCompanyhasbeengivena15-dayperiodwithinwhichtocuresuchaction),orwhichresultsinasignificantdiminutioninsuchposition,authority,dutiesorresponsibilities;or
ii.theCompanyoryouremployingsubsidiary,withoutyourconsent,(1)requiresyoutorelocatetoaprincipalplaceofemploymentmorethanfifty(50)milesfromyourexistingplaceofemployment;or(2)reducesyourbasesalary,annualbonus,orretirement,welfare,stockincentive,perquisite(ifany)andotherbenefitstakenasawhole.
Ifyoumeettherequirementsdescribedintheprevioussentence,yourPerformanceStockUnitAwardwillvestinfullat100%ofyouroriginaltargetshares(oranyotherequityorcompensationawardgrantedinreplacementofyourPerformanceStockUnitAwardasaresultoftheChangeinControl,asapplicable).SuchvestedPerformanceStockUnits(orotherequityorcompensationawardgrantedinreplacementofyourPerformanceStockUnitAwardasaresultoftheChangeinControl,asapplicable)willbedeliveredonthelaterof(1)assoonasadministrativelypracticableafteryourTerminationofEmploymentfollowingtheChangeinControleventor(2)thedatethatissixmonthsfollowingyourTerminationofEmployment.
11.Termination of Employment with a TE Affiliate as a Result of a Divestiture or Outsourcing. IfthebusinessinwhichyouareemployedisbeingseparatedfromtheCompanyasaresultofaDispositionofAssets,DispositionofaSubsidiaryoranOutsourcingAgreement,and,asoftheclosingdateoftheapplicabletransactionyouaredesignatedinthetransactiondocuments(eitherindividuallyorbyclassification)asaBusinessEmployee(orsimilardesignation)whowillbeterminatingemploymentwiththeCompanyeitherbecause(i)youwillremainwiththeseparatedbusinessafterthetransactionorbetransferredtotheemploymentofthebuyerorOutsourcingAgentasaresultofthetransaction,or(ii)youwillnotbeofferedcontinuedemploymentbytheCompany,buyerorOutsourcingAgentafterthecloseofthetransaction,then(a)yourPerformanceStockUnitAwardwillvestprorata(standardroundingtothenearestUnit,infull-monthincrements)ontheclosingdatebasedon(i)thenumberofwholemonthsfromthefirstdayoftheperformancecyclethroughtheclosingdateoftheapplicabletransactiondividedbythirtysix(36),times(ii)thetargetnumberofPerformanceStockUnitsthatwereoriginallygrantedand(b)anyremainingPerformanceStockUnitswillbeforfeited.InthecaseofaDivestiturethroughaDispositionofAssetsoranOutsourcingAgreementforparticipantswhohavenotreachedRetirementeligibility(asdescribedinparagraph9.above)asofthecloseoftheDispositionofAssetsortheOutsourcingAgreementdate,suchvestedPerformanceStockUnitswillbedeliveredassoonasadministrativelypracticablefollowingthecloseoftheDivestiture.InnoeventwillsuchvestedsharesbedeliveredafterthelateroftheendofthecalendaryearinwhichtheDivestituretakesplaceorthedatethatistwoandahalfmonthsaftertheDivestitureclosingdate.InthecaseofaDivestiture
3
throughaDispositionofAssetsoranOutsourcingAgreementforparticipantswhohavereachedRetirementeligibility(asdescribedinparagraph9.above)asofthecloseDispositionofAssetsortheOutsourcingAgreementdate,suchvestedPerformanceStockUnitswillbedeliveredafterthethirdNovember30thfollowingthegrantdate,butinanycase,noearlierthantheCertificationDatefortheperformanceresultsfollowingthecloseofthefiscalyearinwhichyourTerminationoccursandnolaterthan90daysaftersuchNovember30 .InthecaseofaDivestiturethroughaDispositionofaSubsidiary,thevestedPerformanceStockUnitswillbedeliveredassoonasadministrativelypracticablefollowingthecloseoftheDivestiture.InnoeventwillsuchvestedsharesbedeliveredafterthelateroftheendofthecalendaryearinwhichtheDivestituretakesplaceorthedatethatistwoandahalfmonthsaftertheDivestitureclosingdate.Ifyoubecomeentitledtothepro-ratedvestingdescribedinthisSection11,youwillnotbeentitledtoanyfurthervestinginyourPerformanceStockUnitAwardunlessyouaretransferredtoemploymentwiththeCompanyinapositionoutsideofthebusinessthatisbeingseparatedfromtheCompany(withtheintentofcontinuedemploymentwiththeCompanyoutsideoftheseparatedbusiness)aftertheclosingdateoftheapplicabletransaction,butpriortoyourterminationofemploymentasaresultoftheDispositionofAssets,DispositionofaSubsidiaryoranOutsourcingAgreement.
Notwithstandingtheforegoing,youwillnotbeeligibleforthepro-ratavestingif,(i)yourTerminationofEmploymentoccursonorpriortotheclosingdateofsuchDispositionofAssetsorDispositionofaSubsidiary,asapplicable,oronsuchlaterdateasisspecificallyprovidedintheapplicabletransactionagreementorrelatedagreements,orontheeffectivedateofsuchOutsourcingAgreementapplicabletoyou(the“ApplicableEmploymentDate”),and(ii)youareofferedComparableEmploymentwiththebuyer,successorcompanyoroutsourcingagent,asapplicable,butdonotcommencesuchemploymentontheApplicableEmploymentDate.
ForthepurposesofthisSection11,(a)“ComparableEmployment”shallmeanemploymentatabasesalaryrateandbonustargetthatisatleastequaltothebasesalaryrateandbonustargetineffectimmediatelypriortoyourterminationofemploymentandatalocationthatisnomorethan50milesfromyourjoblocationineffectimmediatelypriortoyourterminationofemployment;(b)“DispositionofAssets”shallmeanthedispositionbytheCompanyoraSubsidiaryofalloraportionoftheassetsusedbytheCompanyorSubsidiaryinatradeorbusinesstoanunrelatedcorporationorentity;(c)“DispositionofaSubsidiary”shallmeanthedispositionbytheCompanyoraSubsidiaryofitsinterestinasubsidiaryorcontrolledentitytoanunrelatedindividualorentity,providedthatsuchsubsidiaryorentityceasestobeanaffiliatedcompanyasaresultofsuchdisposition;and(d)“OutsourcingAgreement”shallmeanawrittenagreementbetweentheCompanyoraSubsidiaryandanunrelatedthirdparty(“OutsourcingAgent”)pursuanttowhichtheCompanytransferstheperformanceofservicespreviouslyperformedbyemployeesoftheCompanyorSubsidiarytotheOutsourcingAgent,andtheOutsourcingAgreementincludesanobligationoftheOutsourcingAgenttoofferemploymenttoanyemployeewhoseemploymentisbeingterminatedasaresultoforinconnectionwithsaidOutsourcingAgreement.
12.Responsibility for Taxes. RegardlessofanyactiontheCompanyoryouremployer(the“Employer”)takeswithrespecttoanyorallincometax,socialinsurance,payrolltax,paymentonaccountorothertax-relateditemsrelatedtoyourparticipationinthePlanandlegallyapplicabletoyou(“Tax-RelatedItems”),byacceptingtheAward,youacknowledgethat
4
th
theultimateliabilityforallTax-RelatedItemsisandremainsyourresponsibilityandmayexceedtheamountactuallywithheldbytheCompanyortheEmployer.YoufurtheracknowledgethattheCompanyand/ortheEmployerdonotcommittoandareundernoobligationtostructurethetermsofthegrantoranyaspectofthePerformanceStockUnitstoreduceoreliminateyourliabilityforTax-RelatedItemsorachieveanyparticulartaxresult.Further,ifyouhavebecomesubjecttotaxinmorethanonejurisdictionbetweenthedateofgrantandthedateofanyrelevanttaxableevent,youacknowledgethattheCompanyand/ortheEmployer(orformeremployer,asapplicable)mayberequiredtowithholdoraccountforTax-RelatedItemsinmorethanonejurisdiction.
Priortoanyrelevanttaxableortaxwithholdingevent,asapplicable,youwillpayormakeadequatearrangementssatisfactorytotheCompanyand/ortheEmployertosatisfyallTax-RelatedItems.Inthisregard,youauthorizetheCompanyand/ortheEmployer,ortheirrespectiveagents,attheirdiscretion,tosatisfytheobligationswithregardtoallTax-RelatedItemsbyoneoracombinationofthefollowing:
(1)withholdingfromyourwagesorothercashcompensationpaidtoyoubytheCompanyand/ortheEmployer;or
(2)withholdingfromproceedsofthesaleofSharesacquireduponvestingofthePerformanceStockUnitseitherthroughavoluntarysaleorthroughamandatorysalearrangedbytheCompany(onyourbehalfpursuanttothisauthorization);or
(3)withholdinginSharestobeissueduponvestingofthePerformanceStockUnits.
Toavoidnegativeaccountingtreatment,theCompanymaywithholdoraccountforTax-RelatedItemsbyconsideringapplicableminimumstatutory
withholdingamountsorotherapplicablewithholdingrates.IftheobligationforTax-RelatedItemsissatisfiedbywithholdinginShares,fortaxpurposes,youaredeemedtohavebeenissuedthefullnumberofSharessubjecttothevestedPerformanceStockUnits,notwithstandingthatanumberoftheSharesareheldbacksolelyforthepurposeofpayingtheTax-RelatedItemsdueasaresultofanyaspectofyourparticipationinthePlan.
Finally,youshallpaytotheCompanyortheEmployeranyamountofTax-RelatedItemsthattheCompanyortheEmployermayberequiredtowithholdoraccountforasaresultofyourparticipationinthePlanthatcannotbesatisfiedbythemeanspreviouslydescribed.TheCompanymayrefusetoissueordelivertheSharesortheproceedsofthesaleofSharesifyoufailtocomplywithyourobligationsinconnectionwiththeTax-RelatedItems.
Fortaxwithholdingpurposes,thevalueofvestedShareswillbebasedonthefairmarketvaluedefinedastheaverageofthehighandlowofthestockpricereportedonthedateofdeliveryorsuchotherreasonableandpermissibledateasdeterminedbythePlanAdministrator.
13.Transfer of Award. YoumaynottransferanyinterestinPerformanceStockUnitsexcept(a)bywillorthelawsofdescentanddistributionor(b)underrulesestablishedbytheCompany,toyourspouseorformerspouseinaccordancewiththetermsofadomestic
5
relationsorderorsettlementagreementassociatedwiththedissolutionofyourmarriagetothatspouseorformerspouse.AnyotherattempttodisposeofyourinterestinPerformanceStockUnitswillbenullandvoid.
14.Covenant; Forfeiture of Award; Agreement to Reimburse Company.
(a)IfyouhavebeenterminatedforCause,anyunvestedPerformanceStockUnitsshallbeimmediatelyforfeitedand,inaddition,youherebyagreeandpromiseimmediatelytodelivertotheCompanythenumberofShares(or,inthediscretionoftheCommittee,thecashvalueofsaidshares)youreceivedforPerformanceStockUnitsthatvestedduringtheperiodsix(6)monthspriortoyourTerminationofEmploymentthroughthedateofTerminationofEmployment.
(b)If,afteryourTerminationofEmployment,theCommitteedeterminesinitssolediscretionthatwhileyouwereaCompanyorSubsidiaryemployeeyouengagedinactivitythatwouldhaveconstitutedgroundsfortheCompanyorSubsidiarytoterminateyouremploymentforCause,thenyouherebyagreeandpromiseimmediatelytodelivertotheCompanythenumberofShares(or,inthediscretionoftheCommittee,thecashvalueofsaidshares)youreceivedforPerformanceStockUnitsthatvestedduringtheperiodsix(6)monthspriortoyourTerminationofEmploymentthroughthedateofTerminationofEmployment.
(c)IftheCommitteedetermines,initssolediscretion,thatatanytimeafteryourTerminationofEmploymentandpriortothesecondanniversaryofyourTerminationofEmploymentyou(i)disclosedbusinessconfidentialorproprietaryinformationrelatedtoanybusinessoftheCompanyorSubsidiaryor(ii)haveenteredintoanemploymentorconsultationarrangement(includinganyarrangementforemploymentorserviceasanagent,partner,stockholder,consultant,officerordirector)withanyentityorpersonengagedinabusinessand(A)suchemploymentorconsultationarrangementwouldlikely(intheCommittee’ssolediscretion)resultinthedisclosureofbusinessconfidentialorproprietaryinformationrelatedtoanybusinessoftheCompanyoraSubsidiarytoabusinessthatiscompetitivewithanyCompanyorSubsidiarybusinessastowhichyouhavehadaccesstobusinessstrategicorconfidentialinformation,and(B)theCommitteehasnotapprovedthearrangementinwriting,thenyouherebyagreeandpromiseimmediatelytodelivertotheCompanythenumberofShares(or,inthediscretionoftheCommittee,thecashvalueofsaidshares)youreceivedforPerformanceStockUnitsthatvestedduringtheperiodsix(6)monthspriortoyourTerminationofEmploymentthroughthedateofTerminationofEmployment.
(d)TheCommitteeshallbeentitledtorequirethatyourepayallorpartofanyamountreceived(whetherincashorstock)pursuanttothetermsofthisAward(i)totheextentitdeemsitnecessaryorappropriatetocomplywithanyfuturerulesoftheSecuritiesandExchangeCommission,NewYorkStockExchangeoranyothergovernmentalagency,astheymaybeamendedfromtimetotime,or(ii)totheextentotherwisedeemedappropriatebytheCommitteetorecoveranyoverpaymentormistakenpaymentthatwasbasedondeficientfinancialinformation,andyouherebyagreeandpromisetopromptlyremittotheCompanyanysuchamount.
6
15.Adjustments. Intheeventofanystocksplit,reversestocksplit,dividendorotherdistribution(whetherintheformofcash,Shares,other
securitiesorotherproperty),extraordinarycashdividend,recapitalization,merger,consolidation,split-up,spin-off,reorganization,combination,repurchaseorexchangeofSharesorothersecurities,theissuanceofwarrantsorotherrightstopurchaseSharesorothersecurities,orothersimilarcorporatetransactionorevent,theCommitteeshalladjustthenumberandkindofSharescoveredbythePerformanceStockUnitsandotherrelevantprovisionstotheextentnecessarytopreventdilutionorenlargementofthebenefitsorpotentialbenefitsintendedtobeprovidedbythePerformanceStockUnits.
16.Restrictions on Payment of Shares. PaymentofSharesforyourPerformanceStockUnitsissubjecttotheconditionsthat,totheextentrequiredatthetimeofdelivery,(a)theSharesunderlyingthePerformanceStockUnitswillbedulylisted,uponofficialnoticeofredemption,upontheNYSE,and(b)aRegistrationStatementundertheSecuritiesActof1933withrespecttotheShareswillbeeffective.TheCompanywillnotberequiredtodeliveranyCommonStockuntilallapplicablefederalandstatelawsandregulationshavebeencompliedwithandalllegalmattersinconnectionwiththeissuanceanddeliveryoftheShareshavebeenapprovedbycounseloftheCompany.
17.Disposition of Securities. ByacceptingtheAward,youacknowledgethatyouhavereadandunderstandtheCompany’sinsidertradingpolicy,andareawareofandunderstandyourobligationsunderfederalsecuritieslawsinrespectoftradingintheCompany’ssecurities.TheCompanywillhavetherighttorecover,orreceivereimbursementfor,anycompensationorprofitrealizedonthedispositionofSharesreceivedforPerformanceStockUnitstotheextentthattheCompanyhasarightofrecoveryorreimbursementunderapplicablesecuritieslaws.
18.Plan Terms Govern. TheredemptionofPerformanceStockUnits,thedispositionofanySharesreceivedforPerformanceStockUnits,andthetreatmentofanygainonthedispositionoftheseSharesaresubjecttothetermsofthePlanandanyrulesthattheCommitteemayprescribe.ThePlandocument,asmaybeamendedfromtimetotime,isincorporatedintothisAwardAgreement.CapitalizedtermsusedinthisAwardAgreementhavethemeaningsetforthinthePlan,unlessotherwisestatedinthisAwardAgreement.IntheeventofanyconflictbetweenthetermsofthePlanandthetermsofthisAwardAgreement,thePlanwillcontrol.ByacceptingtheAward,youacknowledgereceiptofthePlanandtheprospectus,asineffectonthedateofthisAwardAgreement.
19.Data Privacy .ByacceptingtheAward,youherebyexplicitlyandunambiguouslyconsenttothecollection,useandtransfer,inelectronicorotherform,ofyourpersonaldataasdescribedinthisAwardAgreementandanyothergrantmaterialsbyandamong,asapplicable,yourEmployer,theCompanyanditsSubsidiaries(orformerSubsidiariesasaredeemednecessary)fortheexclusivepurposeofimplementing,administeringandmanagingyourparticipationinthePlan.
YouunderstandthattheCompanyandtheEmployermayholdcertainpersonalinformationaboutyou,including,butnotlimitedto,yourname,homeaddressandtelephonenumber,dateofbirth,socialinsurancenumberorotheridentificationnumber,salary,nationality,jobtitle,anySharesordirectorshipsheldintheCompany,detailsofallPerformanceStockUnits
7
oranyotherentitlementtoSharesawarded,canceled,exercised,vested,unvestedoroutstandinginyourfavor,fortheexclusivepurposeofimplementing,administeringandmanagingthePlan(“Data”).
YouunderstandthatDatamaybetransferredtoanythirdpartiesassistingtheCompanywiththeimplementation,administrationandmanagementofthePlan.YouunderstandthattheserecipientsoftheDatamaybelocatedintheUnitedStatesorelsewhere,andthattherecipients’country(e.g.,theUnitedStates)mayhavedifferentdataprivacylawsandprotectionsthanyourcountry.YouunderstandthatyoumayrequestalistwiththenamesandaddressesofanypotentialrecipientsoftheDatabycontactingyourlocalHumanResourcesRepresentative.YouauthorizetheCompanyandtherecipientsassistingtheCompany(presentlyorinthefuture)withimplementing,administeringandmanagingthePlantoreceive,possess,use,retainandtransfertheData,inelectronicorotherform,forthesolepurposeofimplementing,administeringandmanagingyourparticipationinthePlan.YouunderstandthatDatawillbeheldonlyaslongasisnecessarytoimplement,administerandmanageyourparticipationinthePlan.Youunderstandthatyoumay,atanytime,viewData,requestadditionalinformationaboutthestorageandprocessingofData,requireanynecessaryamendmentstoDataorrefuseorwithdrawtheconsentsherein,inanycasewithoutcost,bycontactinginwritingyourlocalHumanResourcesRepresentative.Youunderstand,however,thatrefusingorwithdrawingyourconsentmayaffectyourabilitytoparticipateinthePlan.Formoreinformationontheconsequencesofyourrefusaltoconsentorwithdrawalofconsent,youunderstandthatyoumaycontactyourlocalHumanResourcesRepresentative.
20.Nature of Grant .ByacceptingtheAward,youacknowledgethat:
(a)thePlanisestablishedvoluntarilybytheCompany,itisdiscretionaryinnatureanditmaybemodified,amended,suspendedorterminatedbytheCompanyatanytime;
(b)thegrantofthePerformanceStockUnitsisvoluntaryandoccasionalanddoesnotcreateanycontractualorotherrighttoreceivefuturegrantsofPerformanceStockUnits,orbenefitsinlieuofPerformanceStockUnits,evenifPerformanceStockUnitshavebeengrantedrepeatedlyinthepast;
(c)alldecisionswithrespecttofuturePerformanceStockUnitgrants,ifany,willbeatthesolediscretionoftheCompany;
(d)yourparticipationinthePlanshallnotcreatearighttofurtheremploymentwiththeEmployerandshallnotinterferewiththeabilityoftheEmployertoterminateyouremploymentrelationshipatanytime;
(e)youarevoluntarilyparticipatinginthePlan;
(f)thePerformanceStockUnitsandtheSharessubjecttothePerformanceStockUnitsareextraordinaryitemsthatdonotconstitutepartofyourordinaryongoingcompensation;
(g)thePerformanceStockUnitsandtheSharessubjecttothePerformanceStockUnitsarenotintendedtoreplaceanypensionrightsorcompensation;
(h)thePerformanceStockUnitsandtheSharessubjecttothePerformanceStockUnitsarenotpartofnormalorexpectedcompensationorsalaryforanypurposes,
8
including,butnotlimitedto,calculatinganyseverance,resignation,termination,redundancy,dismissal,endofservicepayments,bonuses,long-serviceawards,pensionorretirementorwelfarebenefitsorsimilarpaymentsandinnoeventshouldbeconsideredascompensationfor,orrelatinginanywayto,pastservicesfortheCompany,theEmployeroranySubsidiaryoftheCompany;
(i)thePerformanceStockUnitgrantandyourparticipationinthePlanwillnotbeinterpretedtoformanemploymentcontractorrelationshipwiththeCompanyoranySubsidiaryoftheCompany;
(j)thefuturevalueoftheunderlyingSharesisunknownandcannotbepredictedwithcertainty;
(k)inconsiderationofthegrantofthePerformanceStockUnits,noclaimorentitlementtocompensationordamagesshallarisefromforfeitureofthePerformanceStockUnitsresultingfromterminationofyouremploymentwiththeCompanyortheEmployer(foranyreasonwhatsoeverandwhetherornotinbreachoflocallaborlaws)andyouirrevocablyreleasetheCompanyandtheEmployerfromanysuchclaimthatmayarise;if,notwithstandingtheforegoing,anysuchclaimisfoundbyacourtofcompetentjurisdictiontohavearisen,youshallbedeemedirrevocablytohavewaivedyourentitlementtopursuesuchclaim;
(l)thePerformanceStockUnitsandthebenefitsunderthePlan,ifany,willnotautomaticallytransfertoanothercompanyinthecaseofamerger,take-overortransferofliability;
(m)paymentofyourPerformanceStockUnitsisnotsecuredbyatrust,insurancecontractorotherfundingmedium,andyoudonothaveanyinterestinanyfundorspecificassetoftheCompanybyreasonofthisAwardortheaccountestablishedonyourbehalf;and
(n)youhavenorightsasastockholderoftheCompanypursuanttothePerformanceStockUnitsuntilSharesareactuallydeliveredtoyou.
21.No Advice Regarding Grant. TheCompanyisnotprovidinganytax,legalorfinancialadvice,noristheCompanymakinganyrecommendationsregardingyourparticipationinthePlanoryouracquisitionorsaleoftheunderlyingShares.Youareherebyadvisedtoconsultwithyourownpersonaltax,legalandfinancialadvisorsregardingyourparticipationinthePlanbeforetakinganyactionrelatedtothePlan.
22.Incorporation of Other Agreements. ThisAwardAgreementandthePlanconstitutetheentireunderstandingbetweenyouandtheCompanyregardingthePerformanceStockUnits.ThisAwardAgreementsupersedesanyprioragreements,commitmentsornegotiationsconcerningthePerformanceStockUnits.
23.Severability. TheinvalidityorunenforceabilityofanyprovisionofthisAwardwillnotaffectthevalidityorenforceabilityoftheotherprovisionsoftheAgreement,whichwillremaininfullforceandeffect.Moreover,ifanyprovisionisfoundtobeexcessivelybroadinduration,scopeorcoveredactivity,theprovisionwillbeconstruedsoastobeenforceabletothemaximumextentcompatiblewithapplicablelaw.
9
24.Delayed Payment. NotwithstandinganythinginthisAwardAgreementtothecontrary,iftheEmployee(i)issubjecttoUSFederalincometax
onanypartofthepaymentofthePerformanceStockUnits,(ii)isa“specifiedemployee”withinthemeaningofsection409A(a)(2)(B)oftheInternalRevenueCodeandtheregulationsthereunder,and(iii)isorwillbecomeeligibleforRetirementpriortotheNormalVestingofsomeorallofthePerformanceStockUnits,thenanypaymentofPerformanceStockUnitsthatismadeonaccountofhisseparationfromservicewithinthemeaningofsection409A(a)(2)(A)(i)oftheInternalRevenueCodeandtheregulationsthereundershallbedelayeduntilsixmonthsfollowingsuchseparationfromservice.
25.Language. IfyouhavereceivedthisAwardAgreementoranyotherdocumentrelatedtothePlantranslatedintoalanguageotherthanEnglishandifthemeaningofthetranslatedversionisdifferentthantheEnglishversion,theEnglishversionwillcontrol.
26.Electronic Delivery. TheCompanymay,initssolediscretion,decidetodeliveranydocumentsrelatedtocurrentorfutureparticipationinthePlanbyelectronicmeans.YouherebyconsenttoreceivesuchdocumentsbyelectronicdeliveryandagreetoparticipateinthePlanthroughanon-lineorelectronicsystemestablishedandmaintainedbytheCompanyorathirdpartydesignatedbytheCompany.
27.Imposition of Other Requirements .TheCompanyreservestherighttoimposeotherrequirementsonyourparticipationinthePlan,includingbutnotlimitedtosuchrequirementsasdescribedinAppendixA,ifapplicable,onthePerformanceStockUnitsandonanySharesacquiredunderthePlan,totheextenttheCompanydeterminesitisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan,andtorequireyoutosignanyadditionalagreementsorundertakingsthatmaybenecessarytoaccomplishtheforegoing.ByacceptingthisAward,youagreetothefollowing:
(i)youhavecarefullyread,fullyunderstandandagreetoallofthetermsandconditionsdescribedinthisAwardAgreementandthePlan;and
(ii)youunderstandandagreethatthisAwardAgreementandthePlanconstitutetheentireunderstandingbetweenyouandtheCompanyregardingtheAward,andthatanyprioragreements,commitmentsornegotiationsconcerningthePerformanceStockUnitsarereplacedandsuperseded.
ThomasJ.LynchChiefExecutiveOfficer,TEConnectivity
10
APPENDIX A
PERFORMANCE METRICS APPLICABLE TO
FISCAL YEAR 2016 PERFORMANCE STOCK UNIT AWARDS
1.Purpose—ThisdocumentisAppendixAtothe“TermsandConditionsofPerformanceStockUnitAward”document(your“PSUawardagreement”)whichreflectsthetermsandconditionsofyourFiscalYear2016performancestockunit(“PSU”)awardgrantedonNovember9,2015.ThepurposeofthisAppendixistodescribethetermsunderwhichyouwillearnPSUsgrantedtoyouunderyourFiscalYear2016PSUawardthroughtheapplicablethree-yearperformancecycle.(NotethattheearnedPSUswillnotbedeliveredtoyouunlessyoumeettheapplicablevestingrequirementsdescribedinyourPSUawardagreement.)ForpurposesofyourFiscalYear2016PSUaward,the“PerformanceCycle”isthethree(3)fiscal-yearperiodbeginningwiththefirstdayoffiscalyear2016andendingonthelastdayoffiscalyear2018.
2.Vesting—ThevestingtermsapplicabletoyourFiscalYear2016PSUawardaredescribedinyourPSUawardagreement.ThisAppendixdescribes
howmanyPSUsyouwillearnoverthethree(3)fiscalyearsofthePerformanceCycleundertheCompanyPerformanceMetric,whichwillvestandbedeliveredtoyouintheformofSharesifyoumeettheapplicablevestingrequirementsdescribedinyourPSUawardagreement.
3.PerformanceMetric—TheperformancemetricwhichwillbemeasuredtodeterminehowmanyPSUsyouwillearnoverthethree(3)fiscalyearsof
thePerformanceCycleisrelativeearningspershare(“EPS”)growth.
·Theperformancemetricistheaveragethree-yeargrowthrateof“adjustedEPS”,whichisadjusteddilutedEPSfromcontinuingoperations,evaluatedoverthree(3)years.BloombergNewsreferstothismetricas“DilutedEPSbeforeAbnormalItems”.IndeterminingtheCompany’srelativeperformance,theCompanywillusetheDilutedEPSbeforeAbnormalItemsdatapublishedinBloombergforthecompaniesincludedinthebenchmarkdescribedbelow.
TheCompany’srelativeEPSperformancewillbecalculatedbyrankingitsthree-yearEPSgrowthversusthethree-yearEPSgrowthofalleligibleS&P500Non-Financialcompanies.ThecalculationoftheCompany’srelativeEPSgrowthperformancewillbeconductedunderwrittenproceduresadoptedbytheManagementDevelopmentandCompensationCommittee(the“MDCC”)oftheBoardofDirectorsatthetimethe
11
FiscalYear2016PSUawardsweregranted.(TheapprovedcalculationprocedureswillbemadeavailabletoyouuponwrittenrequestsenttoExecutiveCompensation,AttentionDirectorofExecutiveCompensation,1050WestlakesDrive,Berwyn,PAUSA19312.)
4.DeterminationofPSUsEarned—ThenumberofPSUsearnedoverthethree(3)fiscalyearPerformanceCyclewillbedeterminedbasedonthe
Company’srelativeEPSgrowthperformanceforthecycle.Theperformancemetric,asdeterminedattheendofthethree(3)fiscalyearperformancecycle,willbeappliedtothetargetamountofPSUsgrantedtoyouundertheaward.DependingontheCompany’srelativeEPSgrowthperformancefortheperformancecycle,youcanearnfrom0%to200%ofthePSUsgrantedtoyou,basedonthefollowingscale:
Threshold
Target
MaximumPerformance Zone (relativeEPSgrowth%ranking)
25
50th
75
PSUs Earned (%ofPSUseligibletobeearned)
50%
100%
200%
Performancebelowthe25 percentileresultsinzeroPSUsearnedforthefiscalyear.Performancebetweenthe25thand75 percentilewillbeinterpolated.Performanceabovethe75 percentileiscappedat200%.
5.CertificationDate—ThedateonwhichtheMDCCoftheBoardofDirectorscertifiesperformanceresultsforeachfiscalyearinthePerformance
CycleistheCertificationDateforpurposesofthePSUawardagreement.
6.PSUsEarned—OncetheMDCCdeterminesthenumberofPSUsthatyouhaveearnedwithinthePerformanceCycleundertheCompanyPerformanceMetric,thatnumberofunitswillbecreditedtoyourPSUaccount.
7.MDCCDiscretion—AlldecisionsregardingtheinterpretationofyourPSUawardandthecalculationofPSUsearnedunderyourPSUaward,
includingwithoutlimitation,anyandallmattersrelatingtothecalculationoftheCompany’srelativeEPSgrowthperformance,willbemadeinthesoleandabsolutediscretionoftheMDCC.AlldeterminationsoftheMDCCwillbefinal,bindingandconclusiveonallparties.
8.GoverningDocument—ThisAppendixAispartofandincorporatedintothetermsofyourPSUawardagreementandshouldbereadincontextof
theawardagreement.
12
th th
th th
th
Exhibit 10.17
INDEMNIFICATION AGREEMENT
THISAGREEMENTisenteredinto,effectiveasof[•],byandbetweenTEConnectivityLtd..,aSwisscorporation(the“Company”),and(“Indemnitee”).
WHEREAS,itisessentialtotheCompanytoretainandattractasdirectorsandofficersthemostcapablepersonsavailable;
WHEREAS,Indemniteeisadirectorand/orofficeroftheCompany;
WHEREAS,boththeCompanyandIndemniteerecognizetheincreasedriskoflitigationandotherclaimscurrentlybeingassertedagainstdirectorsandofficersofcorporations;
WHEREAS,theArticlesofAssociationoftheCompanyrequiretheCompanytoindemnifyitsdirectorsandofficerstothefullestextentpermittedbylaw,andpermittheCompanytoadvanceexpensesrelatingtothedefenseofindemnificationmatters,andtheIndemniteehasbeenservingandcontinuestoserveasadirectorand/orofficeroftheCompanyinpartinrelianceontheCompany’sArticlesofAssociation;
WHEREAS,therecognitionofIndemnitee’sneedfor(i)substantialprotectionagainstpersonalliabilitybasedonIndemnitee’srelianceuponaforesaidArticlesofAssociation,(ii)specificcontractualassurancethattheprotectionpromisedbytheArticlesofAssociationwillbeavailabletoIndemnitee(regardlessof,amongotherthings,anyamendmenttoorrevocationoftheArticlesofAssociationoranychangeinthecompositionoftheCompany’sBoardofDirectorsoracquisitiontransactionrelatingtotheCompany),theCompanywishestoprovideinthisAgreementfortheindemnificationofandtheadvancingofexpensestoIndemniteetothefullestextent(whetherpartialorcomplete)permittedunderlawandassetforthinthisAgreement,and,totheextentinsuranceismaintained,toprovideforthecontinuedcoverageofIndemniteeundertheCompany’sdirectors’andofficers’liabilityinsurancepolicies;
NOW,THEREFORE,inconsiderationoftheabovepremisesandofIndemniteecontinuingtoservetheCompanydirectlyor,atitsrequest,withanotherEnterprise,andintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1. Certain Definitions :
(a)Affiliate:anycorporationorotherpersonorentitythatdirectly,orindirectlythroughoneormoreintermediaries,controlsoriscontrolledby,orisundercommoncontrolwith,thepersonspecified.
(b)Board:theBoardofDirectorsoftheCompany.
(c)ChangeinControl:shallbedeemedtohaveoccurredif:
(i)any“person,”assuchtermisusedinSections3(a)(9)and13(d)oftheExchangeAct,becomesa“beneficialowner,”assuchtermis
usedinRule13d-3promulgatedundertheExchangeAct,of50%ormoreoftheVotingStock(asdefinedbelow)oftheCompany;
(ii)themajorityoftheBoardconsistsofindividualsotherthanIncumbentDirectors,whichtermmeansthemembersoftheBoardontheeffectivedateoftheseparationoftheCompanyfromTycoInternationalLtd.,providedthatanypersonbecomingadirectorsubsequenttosuchdatewhoseelectionornominationforelectionwassupportedbythree-quartersofthedirectorswhothencomprisedtheIncumbentDirectorsshallbeconsideredtobeanIncumbentDirector;
(iii)theCompanyadoptsanyplanofliquidationprovidingforthedistributionofallorsubstantiallyallofitsassets;
(iv)allorsubstantiallyalloftheassetsorbusinessoftheCompanyisdisposedofpursuanttoamerger,consolidationorothertransaction
(unlesstheshareholdersoftheCompanyimmediatelypriortosuchamerger,consolidationorothertransactionbeneficiallyown,directlyorindirectly,insubstantiallythesameproportionastheyownedtheVotingStockoftheCompany,alloftheVotingStockorotherownershipinterestsoftheentityorentities,ifany,thatsucceedtothebusinessoftheCompany);or
(iv)theCompanycombineswithanothercompanyandisthesurvivingcorporationbut,immediatelyafterthecombination,the
shareholdersoftheCompanyimmediatelypriortothecombinationhold,directlyorindirectly,50%orlessoftheVotingStockofthecombinedcompany(therebeingexcludedfromthenumberofsharesheldbysuchshareholders,butnotfromtheVotingStockofthecombinedcompany,anysharesreceivedbyAffiliatesofsuchothercompanyinexchangeforstockofsuchothercompany).
(d)Enterprise:theCompanyandanyothercorporation,limitedliabilitycompany,partnership,jointventure,trust,employeebenefitplanorother
enterpriseofwhichIndemniteeisorwasservingattherequestoftheCompanyasadirector,officer,trustee,generalpartner,managingmember,fiduciary,boardofdirectors’committeemember,employeeoragent.
(e)ExchangeAct:theSecuritiesExchangeActof1934,asamended.
(f)Expenses:anyexpense,liability,orloss,includingreasonableattorneys’fees,judgments,fines,ERISAexcisetaxesandpenalties,amountspaidortobepaidinsettlement,anyinterest,assessments,orotherchargesimposedthereon,anyfederal,state,local,orforeigntaxesimposedasaresultoftheactualordeemedreceiptofanypaymentsunderthisAgreement,andallothercostsandobligations,paidorincurredinconnectionwithinvestigating,defending,prosecuting(subjecttoSection2(b)),beinga
2
witnessin,participatingin(includingonappeal),orpreparingforanyoftheforegoingin,anyProceedingrelatingtoanyIndemnifiableEvent.ExpensesalsoshallincludeExpensesincurredinconnectionwithanyappealresultingfromanyProceeding,includingwithoutlimitationthepremium,securityfor,andothercostsrelatingtoanycostbond,supersedesbond,orotherappealbondoritsequivalent.
(g)IndemnifiableEvent:(i)anyeventoroccurrencethattakesplaceeitherpriortooraftertheexecutionofthisAgreement,relatedtothefactthatIndemniteeisorwasadirectororofficeroftheCompany,orwhileadirectororofficerisorwasservingattherequestoftheCompanyasadirector,officer,employee,trustee,agent,orfiduciaryofanotherforeignordomesticcorporation,partnership,limitedliabilitycompany,jointventure,employeebenefitplan,trust,orotherEnterprise,orwasadirector,officer,employee,oragentofaforeignordomesticcorporationthatwasapredecessorcorporationoftheCompanyoranotherEnterpriseattherequestofsuchpredecessorcorporation,orrelatedtoanythingdoneornotdonebyIndemniteeinanysuchcapacity,whetherornotthebasisoftheProceedingisallegedactioninanofficialcapacityasadirector,officer,employeeoragentorinanyothercapacitywhileservingasadirector,officer,employee,oragentoftheCompany,asdescribedaboveor(ii)anyeventorfactrelatedtothefactthatIndemniteeisorwasadirector,officer,employee,trustee,agent,orfiduciaryofanotherforeignordomesticcorporation,partnership,limitedliabilitycompany,jointventure,employeebenefitplan,trust,orotherEnterpriseandthatrelatedtothesubjectmatteroftheinvestigationsreferredtointheCompany’sForm10asfiledonJune8,2007oranyotherinvestigation(whetherornottheCompanyisatargetofsuchinvestigation)byanygovernmententitycoveringsubjectmatterthatissubstantiallysimilartothesubjectmatterof,orarisesoutof,theforegoinginvestigations.
(h)IndependentCounsel:thepersonorbodyappointedinconnectionwithSection3.
(i)Proceeding:anythreatened,pending,orcompletedaction,suit,orproceedingoranyalternativedisputeresolutionmechanism(includinganactionbyorintherightoftheCompany),oranyinquiry,hearing,orinvestigation,whetherconductedbytheCompanyoranyotherparty,thatIndemniteeingoodfaithbelievesmightleadtotheinstitutionofanysuchaction,suit,orproceeding,whethercivil,criminal,administrative,investigative,orother.
(j)ReviewingParty:thepersonorbodyappointedinaccordancewithSection3.
(k)VotingStock:capitalstockofanyclassorclasseshavinggeneralvotingpowerunderordinarycircumstances,intheabsenceofcontingencies,toelectthedirectors(orsimilarfunction)ofanEnterprise.
3
2. Agreement to Indemnify
(a)GeneralAgreement.IntheeventIndemniteewas,is,orbecomesapartytoorwitnessorotherparticipantin,oristhreatenedtobemadeaparty
toorwitnessorotherparticipantin,aProceedingbyreasonof(orarisinginpartoutof)anIndemnifiableEvent,theCompanyshallindemnifyIndemniteefromandagainstanyandallExpensestothefullestextentpermittedbylaw,asthesameexistsormayhereafterbeamendedorinterpreted.
(b)InitiationofProceeding.NotwithstandinganythinginthisAgreementtothecontrary,Indemniteeshallnotbeentitledtoindemnification
pursuanttothisAgreementinconnectionwithanyProceedinginitiatedbyIndemniteeagainsttheCompanyoranydirectororofficeroftheCompanyunless(i)theCompanyhasjoinedinortheBoardhasconsentedtotheinitiationofsuchProceeding;(ii)theProceedingisonetoenforceindemnificationrightsunderSection5;or(iii)theProceedingisinstitutedafteraChangeinControl(otherthanaChangeinControlapprovedbyamajorityofthedirectorsontheBoardwhoweredirectorsimmediatelypriortosuchChangeinControl)andIndependentCounselhasapproveditsinitiation.
(c)ExpenseAdvances.IfsorequestedbyIndemnitee,theCompanyshalladvance(withinfivebusinessdaysofsuchrequest)anyandallExpensestoIndemnitee(an“ExpenseAdvance”);providedthat,(i)suchExpenseAdvanceshallbemadeonlyupondeliverytotheCompanyofanundertakingbyoronbehalfoftheIndemniteetorepaytheamountthereofifitisultimatelydeterminedthatIndemniteeisnotentitledtobeindemnifiedbytheCompany,and(ii)theCompanyshallnot(unlessacourtofcompetentjurisdictionshalldetermineotherwise)berequiredtomakeanExpenseAdvanceifandtotheextentthattheReviewingPartyhasdeterminedthatIndemniteeisnotpermittedtobeindemnifiedunderapplicablelaw,and(iii)ifandtotheextentthattheReviewingPartydeterminesafterpaymentofoneormoreExpenseAdvancesthatIndemniteewouldnotbepermittedtobesoindemnifiedunderapplicablelaw,theCompanyshallbeentitledtobereimbursedbyIndemnitee(whoherebyagreestoreimbursetheCompany)forallsuchamountstheretoforepaid.IfIndemniteehascommencedorcommenceslegalproceedingsinacourtofcompetentjurisdictiontosecureadeterminationthatIndemniteeshouldbeindemnifiedunderapplicablelaw,asprovidedinSection5,anydeterminationmadebytheReviewingPartythatIndemniteewouldnotbepermittedtobeindemnifiedunderapplicablelawshallnotbebinding,andIndemniteeshallnotberequiredtoreimbursetheCompanyforanyExpenseAdvanceuntilafinaljudicialdeterminationismadewithrespectthereto(astowhichallrightsofappealtherefromhavebeenexhaustedorhavelapsed).Indemnitee’sobligationtoreimbursetheCompanyforExpenseAdvancesshallbeunsecuredandnointerestshallbechargedthereon.
(d)MandatoryIndemnification.NotwithstandinganyotherprovisionofthisAgreement,totheextentthatIndemniteehasbeensuccessfulonthemeritsorotherwiseindefenseofanyProceedingrelatinginwholeorinparttoanIndemnifiableEventorindefenseofanyissueormattertherein,IndemniteeshallbeindemnifiedagainstallExpensesincurredinconnectiontherewith.
(e)PartialIndemnification.IfIndemniteeisentitledunderanyprovisionofthisAgreementtoindemnificationbytheCompanyforsomeoraportionofExpenses,
4
butnot,however,forthetotalamountthereof,theCompanyshallneverthelessindemnifyIndemniteefortheportionthereoftowhichIndemniteeisentitled.
(f)ProhibitedIndemnification.NoindemnificationpursuanttothisAgreementshallbepaidbytheCompany:
(i)onaccountofanyProceedinginwhichjudgmentisrenderedagainstIndemniteeforanaccountingofprofitsmadefromthepurchaseorsalebyIndemniteeofsecuritiesoftheCompanypursuanttotheprovisionofSection16(b)oftheExchangeActorsimilarprovisionofanyfederal,state,orlocallaws;
(ii)ifacourtofcompetentjurisdictionbyafinaljudicialdetermination,shalldeterminethatsuchindemnificationisnotpermittedunder
applicablelaw;
(iii)iftheIndemniteehasbeenconvictedofacrimeconstitutingafelonyunderthelawsofthejurisdictionwherethecriminalactionhadbeenbrought;or
(iv)inrespectofanyfraud,dishonestyorintentionalorgrosslynegligentbreachofdutiesofwhichtheIndemniteemaybeguiltyinrelationto
theCompany,providedthat,notwithstandingtheforegoing,theCompanyshallprovideExpenseAdvancestoanIndemniteeforthecosts,chargesandexpensesincurredbyhimindefendinganycivilorcriminalproceedingsagainsthiminrespectofanallegationoffraud,dishonesty,orintentionalorgrosslynegligentbreachofduties,onconditionthatheshallrepaytheadvanceifanysuchallegationisprovedagainsthim.
3. Reviewing Party .PriortoanyChangeinControl,theReviewingPartyshallbeanyappropriatepersonorbodyconsistingofamemberor
membersoftheBoardoranyotherpersonorbodyappointedbytheBoardwhoisnotapartytotheparticularProceedingwithrespecttowhichIndemniteeisseekingindemnification;afteraChangeinControl,theIndependentCounselreferredtobelowshallbecometheReviewingParty.WithrespecttoallmattersarisingafteraChangeinControl(otherthanaChangeinControlapprovedbyamajorityofthedirectorsontheBoardwhoweredirectorsimmediatelypriortosuchChangeinControl)concerningtherightsofIndemniteetoindemnitypaymentsandExpenseAdvancesunderthisAgreementoranyotheragreementorunderapplicablelawortheCompany’sArticlesofAssociationnoworhereafterineffectrelatingtoindemnificationforIndemnifiableEvents,theCompanyshallseeklegaladviceonlyfromIndependentCounselselectedbyIndemniteeandapprovedbytheCompany(whichapprovalshallnotbeunreasonablywithheld),andwhohasnototherwiseperformedservicesfortheCompanyortheIndemnitee(otherthaninconnectionwithindemnificationmatters)withinthelastfiveyears.TheIndependentCounselshallnotincludeanypersonwho,undertheapplicablestandardsofprofessionalconductthenprevailing,wouldhaveaconflictofinterestinrepresentingeithertheCompanyorIndemniteeinanactiontodetermineIndemnitee’srightsunderthis
5
Agreement.Suchcounsel,amongotherthings,shallrenderitswrittenopiniontotheCompanyandIndemniteeastowhetherandtowhatextenttheIndemniteeshouldbepermittedtobeindemnifiedunderapplicablelaw.Indoingso,theIndependentCounselmayconsultwith(andrelyupon)counselinanyappropriatejurisdiction(e.g.,_Switzerland)whowouldqualifyasIndependentCounsel(“LocalCounsel”).TheCompanyagreestopaythereasonablefeesoftheIndependentCounselandtheLocalCounselandtoindemnifyfullysuchcounselagainstanyandallexpenses(includingattorneys’fees),claims,liabilities,loss,anddamagesarisingoutoforrelatingtothisAgreementortheengagementofIndependentCounselortheLocalCounselpursuanthereto.
4. Indemnification Process and Appeal .
(a)IndemnificationPayment.IndemniteeshallbeentitledtoindemnificationofExpenses,andshallreceivepaymentthereof,fromtheCompanyinaccordancewiththisAgreementassoonaspracticableafterIndemniteehasmadewrittendemandontheCompanyforindemnification,unlesstheReviewingPartyhasgivenawrittenopiniontotheCompanythatIndemniteeisnotentitledtoindemnificationunderapplicablelaw.
(b)AdjudicationorArbitration.
(i)RegardlessofanyactionbytheReviewingParty,ifIndemniteehasnotreceivedfullindemnificationwithinthirtydaysaftermakingademandinaccordancewithSection4(a)(a“Nonpayment”),IndemniteeshallhavetherighttoenforceitsindemnificationrightsunderthisAgreementbycommencinglitigationinthecourtattheCompany’sdomicileasevidencedinthecommercialregister(the“CourtattheCompany’sdomicile”)orinanyfederalorstatecourtlocatedinNewYorkCounty,StateofNewYork(a“NewYorkCourt”)havingsubjectmatterjurisdictionthereofseekinganinitialdeterminationbythecourtorbychallenginganydeterminationbytheReviewingPartyoranyaspectthereof.AnydeterminationbytheReviewingPartynotchallengedbyIndemniteeinanysuchlitigationshallbebindingontheCompanyandIndemnitee.TheremedyprovidedforinthisSection4shallbeinadditiontoanyotherremediesavailabletoIndemniteeatlaworinequity.TheCompanyandIndemniteeherebyirrevocablyandunconditionally(A)agreethatanyactionorproceedingarisingoutoforinconnectionwiththisAgreementshallbebroughtonlyintheCourtattheCompany’sdomicileorinaNewYorkCourtandnotinanyothercourtintheUnitedStatesorinanyothercountry,(B)consenttosubmittotheexclusivejurisdictionoftheCourtattheCompany’sdomicileortheNewYorkCourtforpurposesofanyactionorproceedingarisingoutoforinconnectionwiththisAgreement,(C)waiveanyobjectiontothelayingofvenueoranysuchactionorproceedingintheCourtattheCompany’sdomicileorintheNewYorkCourt,and(D)waive,andagreenottopleadortomake,anyclaimthatanysuchactionorproceedingbroughtintheCourtattheCompany’sdomicileortheNewYorkCourthasbeenbroughtinanimproperorinconvenientforum.
6
(ii)Alternatively,inthecaseofaNonpaymentIndemnitee,athisoption,mayseekanawardinarbitrationtobeconductedbyasingle
arbitratorpursuanttotheCommercialArbitrationRulesoftheAmericanArbitrationAssociation.
(iii)IntheeventthatadeterminationshallhavebeenmadepursuanttoSection3ofthisAgreementthatIndemniteeisnotentitledtoindemnification,anyjudicialproceedingorarbitrationcommencedpursuanttothisSection4(b)shallbeconductedinallrespectsasade novo trial,orarbitration,onthemerits,andIndemniteeshallnotbeprejudicedbyreasonofthatadversedetermination.InanyjudicialproceedingorarbitrationcommencedpursuanttothisSection4(b)theCompanyshallhavetheburdenofprovingIndemniteeisnotentitledtoindemnificationoradvancementofExpenses,asthecasemaybe.IfIndemniteecommencesajudicialproceedingorarbitrationpursuanttothisSection4(b),IndemniteeshallnotberequiredtoreimbursetheCompanyforanyadvancespursuanttoSection2(c)untilafinaldeterminationismadewithrespecttoIndemnitee’sentitlementtoindemnification(astowhichallrightsofappealhavebeenexhaustedorlapsed).
(iv)IntheeventthatIndemnitee,pursuanttothisSection4(b),seeksajudicialadjudicationoforanawardinarbitrationtoenforcehis
rightsunder,ortorecoverdamagesforbreachof,thisAgreement,IndemniteeshallbeentitledtorecoverfromtheCompany,andshallbeindemnifiedbytheCompanyagainst,anyandallExpensesactuallyandreasonablyincurredbyhiminsuchjudicialadjudicationorarbitration.IfitshallbedeterminedinsaidjudicialadjudicationorarbitrationthatIndemniteeisentitledtoreceivepartbutnotalloftheindemnificationoradvancementofExpensessought,theIndemniteeshallbeentitledtorecoverfromtheCompany,andshallbeindemnifiedbytheCompanyagainst,anyandallExpensesreasonablyincurredbyIndemniteeinconnectionwithsuchjudicialadjudicationorarbitration.
(c)DefensetoIndemnification,BurdenofProof,andPresumptions.
(i)ItshallbeadefensetoanyactionbroughtbyIndemniteeagainsttheCompanytoenforcethisAgreement(otherthananactionbroughtto
enforceaclaimforExpensesincurredindefendingaProceedinginadvanceofitsfinaldispositionwheretherequiredundertakinghasbeentenderedtotheCompany)thatitisnotpermissibleunderapplicablelawfortheCompanytoindemnifyIndemniteefortheamountclaimed.
(ii)InconnectionwithanyactionoranydeterminationbytheReviewingPartyorotherwiseastowhetherIndemniteeisentitledtobe
indemnifiedhereunder,theburdenofprovingsuchadefenseordeterminationshallbeontheCompany.
7
(iii)NeitherthefailureoftheReviewingPartyortheCompany(includingitsBoard,independentlegalcounsel,oritsstockholders)tohave
madeadeterminationpriortothecommencementofsuchactionbyIndemniteethatindemnificationoftheIndemniteeisproperunderthecircumstancesbecauseIndemniteehasmetthestandardofconductsetforthinapplicablelaw,noranactualdeterminationbytheReviewingPartyorCompany(includingitsBoard,independentlegalcounsel,oritsstockholders)thattheIndemniteehadnotmetsuchapplicablestandardofconduct,shallbeadefensetotheactionorcreatedapresumptionthattheIndemniteehasnotmettheapplicablestandardofconduct.
(iv)ForpurposesofthisAgreement,tothefullestextentpermittedbylaw,theterminationofanyclaim,action,suit,orproceeding,by
judgment,order,settlement(whetherwithorwithoutcourtapproval),conviction,oruponapleaofnolocontendere,oritsequivalent,shallnot,ofitself,createapresumptionthatIndemniteedidnotmeetanyparticularstandardofconductorhaveanyparticularbelieforthatacourthasdeterminedthatindemnificationisnotpermittedbyapplicablelaw.
5. Indemnification for Expenses Incurred in Enforcing Rights .TheCompanyshallindemnifyIndemniteeagainstanyandallExpensesthat
areincurredbyIndemniteeinconnectionwithanyactionbroughtbyIndemnitee:
(a)asprovidedinSection4(b)(iv),forindemnificationoradvancepaymentofExpensesbytheCompanyunderthisAgreementoranyotheragreementorunderapplicablelawortheCompany’sArticlesofAssociationnoworhereafterineffectrelatingtoindemnificationforIndemnifiableEvents,and/or
(b)forrecoveryunderdirectors’andofficers’liabilityinsurancepoliciesmaintainedbytheCompany,butonlyintheeventthatIndemniteeultimatelyisdeterminedtobeentitledtosuchindemnificationorinsurancerecovery,asthecasemaybe.Inaddition,theCompanyshall,ifsorequestedbyIndemnitee,advancetheforegoingExpensestoIndemnitee,subjecttoandinaccordancewithSection2(c).
6. Notification and Defense of Proceeding .
(a)Notice.PromptlyafterreceiptbyIndemniteeofnoticeofthecommencementofanyProceeding,Indemniteeshall,ifaclaiminrespectthereofistobemadeagainsttheCompanyunderthisAgreement,notifytheCompanyofthecommencementthereof;buttheomissionsotonotifytheCompanywillnotrelievetheCompanyfromanyliabilitythatitmayhavetoIndemnitee,exceptasprovidedinSection6(c).
(b)Defense.WithrespecttoanyProceedingastowhichIndemniteenotifiestheCompanyofthecommencementthereof,theCompanywillbeentitledtoparticipate
8
intheProceedingatitsownexpenseandexceptasotherwiseprovidedbelow,totheextenttheCompanysowishes,itmayassumethedefensethereofwithcounselreasonablysatisfactorytoIndemnitee.AfternoticefromtheCompanytoIndemniteeofitselectiontoassumethedefenseofanyProceeding,theCompanyshallnotbeliabletoIndemniteeunderthisAgreementorotherwiseforanyExpensessubsequentlyincurredbyIndemniteeinconnectionwiththedefenseofsuchProceedingotherthanreasonablecostsofinvestigationorasotherwiseprovidedbelow.IndemniteeshallhavetherighttoemploylegalcounselinsuchProceeding,butallExpensesrelatedtheretoincurredafternoticefromtheCompanyofitsassumptionofthedefenseshallbeatIndemnitee’sexpenseunless;(i)theemploymentoflegalcounselbyIndemniteehasbeenauthorizedbytheCompany,(ii)IndemniteehasreasonablydeterminedthattheremaybeaconflictofinterestbetweenIndemniteeandtheCompanyinthedefenseoftheProceeding,(iii)afteraChangeinControl(otherthanaChangeinControlapprovedbyamajorityofthedirectorsontheBoardwhoweredirectorsimmediatelypriortosuchChangeinControl),theemploymentofcounselbyIndemniteehasbeenapprovedbytheIndependentCounsel,or(iv)theCompanyshallnotinfacthaveemployedcounseltoassumethedefenseofsuchProceeding,ineachofwhichcasesallExpenseoftheProceedingshallbebornebytheCompany.TheCompanyshallnotbeentitledtoassumethedefenseofanyProceedingbroughtbyoronbehalfoftheCompanyorastowhichIndemniteeshallhavemadethedeterminationprovidedforin(ii),(iii)and(iv)above.
(c)SettlementofClaims.TheCompanyshallnotbeliabletoindemnifyIndemniteeunderthisAgreementorotherwiseforanyamountspaidinsettlementofanyProceedingeffectedwithouttheCompany’swrittenconsent,suchconsentnottobeunreasonablywithheld;provided,however,thatifaChangeinControlhasoccurred(otherthanaChangeinControlapprovedbyamajorityofthedirectorsontheBoardwhoweredirectorsimmediatelypriortosuchChangeinControl),theCompanyshallbeliableforindemnificationofIndemniteeforamountspaidinsettlementiftheIndependentCounselhasapprovedthesettlement.TheCompanyshallnotsettleanyProceedinginanymannerthatwouldimposeanypenaltyorlimitationonIndemniteewithoutIndemnitee’swrittenconsent.TheCompanyshallnotbeliabletoindemnifytheIndemniteeunderthisAgreementwithregardtoanyjudicialawardiftheCompanywasnotgivenareasonableandtimelyopportunity,atitsexpense,toparticipateinthedefenseofsuchaction;theCompany’sliabilityhereundershallnotbeexcusedifparticipationintheProceedingbytheCompanywasbarredbythisAgreement.
7. Establishment of Trust .IntheeventofaChangeinControl(otherthanaChangeinControlapprovedbyamajorityofthedirectorsontheBoardwhoweredirectorsimmediatelypriortosuchChangeinControl)theCompanyshall,uponwrittenrequestbyIndemnitee,createatrustforthebenefitoftheIndemnitee(the“Trust”)andfromtimetotimeuponwrittenrequestofIndemniteeshallfundtheTrustinanamountsufficienttosatisfyanyandallExpensesreasonablyanticipatedatthetimeofeachsuchrequesttobeincurredinconnectionwithinvestigating,preparingfor,participatingin,and/ordefendinganyProceedingrelatingtoanIndemnifiableEvent.TheamountoramountstobedepositedintheTrustpursuanttotheforegoingfundingobligationshallbe
9
determinedbytheIndependentCounsel.ThetermsoftheTrustshallprovidethat(i)theTrustshallnotberevokedortheprincipalthereofinvadedwithoutthewrittenconsentoftheIndemnitee,(ii)theTrustee(asdefinedbelow)shalladvance,withinfivebusinessdaysofarequestbytheIndemnitee,anyandallExpensestotheIndemnitee(andtheIndemniteeherebyagreestoreimbursetheTrustunderthesamecircumstancesforwhichtheIndemniteewouldberequiredtoreimbursetheCompanyunderSection2(c)ofthisAgreement),(iii)theTrustshallcontinuetobefundedbytheCompanyinaccordancewiththefundingobligationsetforthabove,(iv)theTrusteeshallpromptlypaytotheIndemniteeallamountsforwhichtheIndemniteeshallbeentitledtoindemnificationpursuanttothisAgreementorotherwise,and(v)allunexpendedfundsintheTrustshallreverttotheCompanyuponafinaldeterminationbytheIndependentCounseloracourtofcompetentjurisdiction,asthecasemaybe,thattheIndemniteehasbeenfullyindemnifiedunderthetermsofthisAgreement.ThetrusteeoftheTrust(the“Trustee”)shallbechosenbytheIndemnitee.NothinginthisSection7shallrelievetheCompanyofanyofitsobligationsunderthisAgreement.AllincomeearnedontheassetsheldintheTrustshallbereportedasincomebytheCompanyforfederal,state,local,andforeigntaxpurposes.TheCompanyshallpayallcostsofestablishingandmaintainingtheTrustandshallindemnifytheTrusteeagainstanyandallexpenses(includingattorney’sfees),claims,liabilities,loss,anddamagesarisingoutoforrelatingtothisAgreementortheestablishmentandmaintenanceoftheTrust.
8. Non-Exclusivity .TherightsofIndemniteehereundershallbeinadditiontoanyotherrightsIndemniteemayhaveundertheCompany’sArticlesofAssociation,applicablelaw,orotherwise;provided,however,thatthisAgreementshallsupersedeanypriorindemnificationagreementbetweentheCompanyandtheIndemnitee.Totheextentthatachangeinapplicablelaw(whetherbystatuteorjudicialdecision)permitsgreaterindemnificationthanwouldbeaffordedcurrentlyundertheCompany’sArticlesofAssociation,applicablelaw,orthisAgreement,itistheintentofthepartiesthatIndemniteeenjoybythisAgreementthegreaterbenefitssoaffordedbysuchchange.
9. Liability Insurance .TotheextenttheCompanymaintainsaninsurancepolicyorpoliciesprovidinggeneraland/ordirectors’andofficers’liabilityinsurance,Indemniteeshallbecoveredbysuchpolicyorpolicies,inaccordancewithitsortheirterms,tothemaximumextentofthecoverageavailableforanyCompanydirectororofficer.
10. Continuation of Contractual Indemnity or Period of Limitations .AllagreementsandobligationsoftheCompanycontainedhereinshallcontinueforsolongasIndemniteeshallbesubjectto,orinvolvedin,anyproceedingforwhichindemnificationisprovidedpursuanttothisAgreement.
11. Amendment of this Agreement .Nosupplement,modification,oramendmentofthisAgreementshallbebindingunlessexecutedinwritingbybothofthepartieshereto.NowaiverofanyoftheprovisionsofthisAgreementshallbebindingunlessintheformofawritingsignedbythepartyagainstwhomenforcementofthewaiverissought,andnosuchwaivershalloperateasacontinuingwaiver.Except,as
10
specificallyprovidedherein,nofailuretoexerciseoranydelayinexercisinganyrightorremedyhereundershallconstituteawaiverthereof.
12. Subrogation .IntheeventofpaymentunderthisAgreement,theCompanyshallbesubrogatedtotheextentofsuchpaymenttoalloftherightsofrecoveryofIndemnitee,whoshallexecuteallpapersrequiredandshalldoeverythingthatmaybenecessarytosecuresuchrights,includingtheexecutionofsuchdocumentsnecessarytoenabletheCompanyeffectivelytobringsuittoenforcesuchrights.
13. No Duplication of Payments .TheCompanyshallnotbeliableunderthisAgreementtomakeanypaymentinconnectionwithanyclaimmadeagainstIndemniteetotheextentIndemniteehasotherwisereceivedpayment(underanyinsurancepolicy,ArticlesofAssociation,orotherwise)oftheamountsotherwiseindemnifiablehereunder.
14. Binding Effect .ThisAgreementshallbebindinguponandinuretothebenefitofandbeenforceablebythepartiesheretoandtheirrespectivesuccessors(includinganydirectorindirectsuccessorbypurchase,merger,consolidation,orotherwisetoallorsubstantiallyallofthebusinessand/orassetsoftheCompany),assigns,spouses,heirs,andpersonalandlegalrepresentatives.TheCompanyshallrequireandcauseanysuccessor(whetherdirectorindirectbypurchase,merger,consolidation,orotherwise)toall,substantiallyall,orasubstantialpart,ofthebusinessand/orassetsoftheCompany,bywrittenagreementinformandsubstancesatisfactorytoIndemnitee,expresslytoassumeandagreetoperformthisAgreementinthesamemannerandtothesameextentthattheCompanywouldberequiredtoperformifnosuchsuccessionhadtakenplace.TheindemnificationprovidedunderthisAgreementshallcontinueastoIndemniteeforanyactiontakenornottakenwhileservinginanindemnifiedcapacitypertainingtoanIndemnifiableEventeventhoughhemayhaveceasedtoserveinsuchcapacityatthetimeofanyProceedingorisdeceasedandshallinuretothebenefitoftheheirs,executors,administrators,legateesandassignsofsuchaperson.
15. Severability .Ifanyprovision(orportionthereof)ofthisAgreementshallbeheldbyacourtofcompetentjurisdictiontobeinvalid,void,orotherwiseunenforceable,theremainingprovisionsshallremainenforceabletothefullestextentpermittedbylaw.Furthermore,tothefullestextentpossible,theprovisionsofthisAgreement(including,withoutlimitation,eachportionofthisAgreementcontaininganyprovisionheldtobeinvalid,void,orotherwiseunenforceablethatisnotitselfinvalid,voidorunenforceable)shallbeconstruedsoastogiveeffecttotheintentmanifestedbytheprovisionheldinvalid,voidorunenforceable.
16. Governing Law .ThisAgreementshallbegovernedbyandconstruedandenforcedinaccordancewiththesubstantivelawsofSwitzerlandapplicabletocontractsmadeandtobeperformedinsuchjurisdictionwithoutgivingeffectstoitsprinciplesofconflictsoflaws.
11
17. Notices .Allnotices,demands,andothercommunicationsrequiredorpermittedhereundershallbemadeinwritingandshallbedeemedto
havebeendulygivenifdeliveredbyhand,againstreceipt,ormailed,postageprepaid,certifiedorregisteredmail,returnreceiptrequested,andaddressedtotheCompanyat:
TEConnectivityLtd..Rheinstrasse208200SchaffhausenSwitzerlandAttention:CorporateSecretary
AndtoIndemniteeat:NoticeofchangeofaddressshallbeeffectiveonlywhengiveninaccordancewiththisSection.AllnoticescomplyingwiththisSectionshallbedeemedtohavebeenreceivedonthedateofhanddeliveryoronthedayofactualreceipt.
18. Counterparts .ThisAgreementmaybeexecutedinoneormorecounterparts,eachofwhichshallbedeemedanoriginal,butallofwhichtogethershallconstituteoneandthesameinstrument.
12
INWITNESSWHEREOF,thepartiesheretohavedulyexecutedanddeliveredthisAgreementasthedayspecifiedabove.
COMPANYBy:TEConnectivityLtd.Its:INDEMNITEE
13
Exhibit 21.1
Subsidiaries of the RegistrantThefollowingisalistofsubsidiariesoftheRegistrantasofNovember8,2016,omittingsomesubsidiarieswhich,consideredintheaggregate,wouldnotconstituteasignificantsubsidiary.Jurisdiction
Entity NameArgentina
TEConnectivityArgentinaS.R.L.
TycoNetworks(Argentina)S.R.L.
TycoSubmarineSystemsdeArgentinaS.A. Australia
ClareburyPty.Ltd.
GrangehurstEnterprisesPty.Ltd.
MorlynnCeramicsPty.Ltd.
TappatEngineeringPtyLtd
TEConnectivityAustraliaPtyLtd Austria
TycoElectronicsAustriaGmbH Barbados
CorcomWestIndiesLimited
TEConnectivity(Barbados)SRL Belgium
RaychemIndustriesBVBA
TycoElectronicsBelgiumECBVBA Bermuda
TycoElectronicsEtaLimited
TycoElectronicsHoldings(Bermuda)No.7Limited
TycoElectronicsLambda
TycoGlobalNetworksLtd.
TycoTelecommunicationsLtd. Brazil
CelisEletrocomponentesLtda.
SeaconProdutoseServicosOpticoseEletricosLtda.
TycoElectronicsBrasilLtda. British Virgin Islands
CommunicationExpertInternationalInvestmentsLimited
KenabellHoldingLimited Canada
TEConnectivityULC
TycoElectronicsCanadaULC Chile
ADCChileLimitada
TycoElectronicsIndustrialYComercialChileLimitada China
ADCTelecommunicationsEquipment(Shanghai)Co.,Ltd.
DeutschConnectorsManufacturing(Shanghai)Co.,Ltd.
DeutschConnectorsTrading(Shanghai)Co.,Ltd.
IntercontecConnectorSystem(Shanghai)Co.,Ltd.
MEASShenzhenLimited
MeasurementSpecialties(Chengdu)Ltd.
MeasurementSpecialties(China)Ltd.
MeasurementSpecialties(China)Ltd.ProductionBranch
MeasurementTechnology(Chengdu)Ltd.
RaychemShanghaiCableAccessoriesLtd
Raychem(Shanghai)TradingLtd
ShanghaiCIIElectronicsCo.,Ltd(50%)
ShenzhenCenturyManCommunicationEquipmentCo.,Ltd.
SibasElectronics(Xiamen)Co.,Ltd.
TaicangSpeed&SpinSensorsCo.,Ltd.
TEConnectivityConnectors(Suzhou)Co.,Ltd.
TEConnectivity(Kunshan)CompanyLimited
TEConnectivity(Suzhou)Co.,Ltd.
TycoElectronicsAMPGuangdongLtd
TycoElectronicsAMPQingdaoLtd.
TycoElectronicsAMPShanghaiLtd.(92.31%)
TycoElectronics(Dongguan)Ltd
TycoElectronics(Kunshan)Ltd
TycoElectronics(Qingdao)Ltd.
TycoElectronics(Shanghai)Co.,Ltd
TycoElectronics(Shenzhen)Co.Ltd.
TycoElectronics(Suzhou)Ltd.
TycoElectronicsTechnology(SIP)Ltd.
TycoElectronicsTechnology(SIP)Co.,Ltd.BranchNo.1
TycoElectronics(Zhuhai)Ltd
WemaEnvironmentalTechnologies(Shanghai)Co.,Ltd.
WemaEnvironmentalTechnologies(Shenzhen)Co.,Ltd. Colombia
TEConnectivityColombiaS.A.S. Costa Rica
CregannaMedicals.r.l.
TechDeviceCostaRicaLimitada Cyprus
AcalonHoldingsLimited
RaychemTechnologiesLimited Czech Republic
TycoElectronicsCzechs.r.o.
TycoElectronicsECTrutnovs.r.o. Denmark
TEConnectivity(Denmark)ApS Dominican Republic
RaychemDominicanaS.A. Finland
TycoElectronicsFinlandOy France
ButterflyManagementSAS
CarrierKheopsBacSAS
CompagnieDeutschDistributionSAS
CompagnieDeutschSAS
ConnecteursElectriquesDeutschSAS
DeutschFinanceSAS
DeutschGroupSAS
DeutschSAS
MEASEuropeSAS
MEASFranceSAS
TycoElectronicsFranceSAS
TycoElectronicsGroupS.A.(FrenchBranch)
TycoElectronicsHoldingFrance
TycoElectronicsIdento
TycoElectronicsSIMELSAS Germany
CablotecGmbH
ComtecSystemeGmbH
IntercontectPfeifferIndustrie-SteckverbindungenGmbH
IntercontecProduktGmbH
motecMontageGmbH
PfeifferGmbH&CoKG
PfeifferVerwaltungsGmbH
TEConnectivityEMEAHoldingGmbH
TEConnectivityGermanyGmbH
TycoElectronicsECVerwaltungsgesellschaftmbH
TycoElectronicsGermanyHoldingsGmbH
TycoElectronicsRaychemGmbH
TEConnectivitySensorsGermanyGmbH
TycoElectronicsVerwaltungsGmbH Gibraltar
TycoElectronicsChina(Gibraltar)Limited
TycoElectronics(Gibraltar)HoldingLimited
TycoElectronics(Gibraltar)Limited
TycoElectronicsIndia(Gibraltar)Limited Greece
TycoElectronicsHellasMEPE Guernsey
CregstarBidcoLimited Hong Kong
ADCCommunicationsHongKongLimited
AMPProductsPacificLimited
DeutschConnectorsHongKongLimited
F.A.I.Technology(HongKong)Limited
HongKongSensorsTechnologiesLimited
MEASAsiaLimited
RaychemChinaLimited
Raychem(HK)Limited
TEConnectivityHKLimited
TEConnectivity(HKZ)HoldingLimited
TycoElectronicsH.K.Limited
TycoElectronicsHongKongHoldingsNo.1Limited
TycoElectronicsHongKongHoldingsNo.2Limited
TycoElectronicsHongKongHoldingsNo.3Limited
WemaSystemHongKongLimited
WemaSystemProductionandDistributionHKLimited Hungary
TycoElectronicsHungaryTermeloKft India
CIIGuardianInternationalLimited(39.431%)
DeutschIndiaPowerConnectors(Pvt)Ltd
RAYCHEM-RPGPrivateLimited(50%)
TEConnectivityIndiaPrivateLimited
TEConnectivityServicesIndiaPrivateLimited
WemaAutomotiveSystemPrivateLimited Indonesia
PTKRONEIndonesia(70%)
PT.TycoElectronicsIndonesia Ireland
Betatherm(R&D)Limited
CregannaCaptialHoldingIrelandUnlimitedCompany
CregannaFinanceIrelandLimited
CregannaSolutionsUnlimitedCompany
CregannaTactxSingaporeLimited
CregannaUnlimitedCompany
MEASIreland(Betatherm)Limited
TEConnectivityHoldingInternationalIIS.àr.l.(IrelandBranch)
TEConnectivityIrelandLimited
TEConnectivity(Netherlands)HoldingS.ar.l.-IrishBranch
TycoElectronicsGroupS.A.(IrelandBranch)
TycoElectronicsIrelandLimited Isle of Man
CregannaMedicalTechnologyUnlimited
CregannaSolutionsLimited Israel
DeutschIsraelLtd.
RaychemLtd.
TycoElectronicsIsraelLtd. Italy
TycoElectronicsAMPItaliaProductsS.R.L.
TycoElectronicsAMPItaliaS.R.L.
TycoElectronicsItaliaHoldingS.r.l.
TycoNetworks(Italy)Srl Japan
LADDDistributionLimited
Nikkiso-ThermCo.,Ltd.(50.06%)
TycoElectronicsJapanG.K. Kenya
TycoElectronicsUKLtd.(KenyaBranch) Luxembourg
CregannaLuxembourgSARL
TCNHolding(Luxembourg)S.a.r.l.(enliquidation)
TEConnectivityHoldingInternationalS.A.
TEConnectivityHoldingInternationalIIS.ar.l.
TEConnectivityInvestmentsHoldingS.A.
TEConnectivityLATAMHoldingS.àr.l.
TEConnectivityLATAMIS.àr.l.
TEConnectivityLATAMIIS.àr.l.
TEConnectivityMOGEuropeS.ar.l.
TEConnectivityMOGHoldingS.ar.l.
TycoElectronicsFinanceS.ar.l.
TycoElectronicsGroupS.A.
TycoElectronicsHoldingS.ar.l.
TycoElectronicsNetherlands(GermanyHolding)S.àr.l.
TyComHoldingsIISA Malaysia
TEConnectivityManufacturingSdn.Bhd.
TycoElectronics(Malaysia)Sdn.Bhd. Malta
TycoElectronics(AMPKorea)MaltaLimited
TycoElectronics(Korea)MaltaLimited Marshall Islands
C.S.TycoDecisiveInc.
C.S.TycoDependableInc.
C.S.TycoDurableInc.
C.S.TycoRelianceInc.
C.S.TycoResoluteInc.
C.S.TycoResponderInc. Mexico
AMPAmermex,S.A.deC.V.
CimadeAcunaS.A.deC.V.
Corcom,S.A.deC.V.
DeutschServiciosS.deR.L.DeC.V.
KemexHoldingCompany,S.A.deC.V.
Potter&BrumfielddeMexico,S.A.deC.V.
RaychemJuarez,S.A.deC.V.
SeaconGlobalProduction,S.deR.L.deC.V.
TycoElectronicsMexico,S.deR.L.deC.V.
TycoElectronicsTecnologiasS.deR.L.deC.V.
TycoSubmarineSystems,S.A.deC.V. Morocco
TEConnectivityMoroccoSARL Netherlands
AMPTaiwanB.V.
AMPTradingB.V.
TEConnectivityNederlandB.V.
TEConnectivityNetherlandsCooperatiefU.A.
TEConnectivityNetherlands(PolandII)CooperatiefU.A.
TEConnectivityNetherlands(Turkey)B.V.
TycoElectronicsNetherlands(GibraltarChina)CooperatiefU.A.
TycoElectronicsNetherlands(GibraltarIndia)CooperatiefU.A.
TycoElectronicsNetherlandsHoldingB.V.
TycoElectronicsNetherlands(India)CooperatiefU.A.
TycoElectronicsWirelessSystemsB.V.
TycoNetworks(Netherlands)B.V. New Zealand
TycoElectronicsNZLimited Nigeria
TEConnectivityTechnologySolutionsLimited Norway
MEASNorwayAS
PrecisionSubseaAS
TycoElectronicsNorgeAS
WemaSystemAS Panama
TYCOSUBMARINESYSTEMS,INC. Peru
TycoElectronicsDelPeruS.A.C.
TyComNetworks(Peru)S.A. Philippines
TycoElectronicsPhilippines,Inc. Poland
TYCOElectronicsPolskaSp.z.o.o. Portugal
TycoElectronicsComponentesElectromecanicosLda. Russia
TycoElectronicsRUSOOO Saudi Arabia
RaychemSaudiArabiaLimited(49%)
TycoElectronicsSaudiArabiaLimited Singapore
ADCCommunications(SEA)Pte.Ltd.
CregannaMedicalPte.Limited
CromptonInstruments(South-EastAsia)Pte.Ltd.
TycoElectronicsAMPManufacturing(S)PteLtd
TycoElectronicsManufacturingSingaporePteLtd
TycoElectronicsSingaporePteLtd South Africa
TEConnectivitySouthAfricaProprietaryLimited South Korea
AdvancedTubeTechnologies,Ltd.
TycoElectronicsAMPKoreaCo.,Ltd.
TycoElectronicsRaychemKoreaLimited Spain
TEConnectivitySpain,S.L.U.
TEConnectivitySubComS.L.U.
TEConnectivitySubComSpainHoldingS.L.U.
TycoIberia,S.L.
TycoNetworksIberica,S.L. Sweden
TycoElectronicsSvenskaAB
TycoElectronicsSvenskaHoldingsAB Switzerland
JaquetTechnologyGroupAG
MEASSwitzerlandS.ar.l.
TEConnectivityHoldingInternationalIIS.ar.l.,Luxembourg(LU),Schaffhausenbranch
TEConnectivityHoldingInternationalIIS.ar.l.,Luxembourg(LU),SchaffhausenE-Financebranch
TEConnectivityMOGSalesGmbH
TEConnectivityInvestmentsHoldingS.A.,Luxembourg(LU),Schaffhausenbranch
TEConnectivitySolutionsGmbH
TycoElectronicsFinanceAlphaGmbH
TycoElectronics(Schweiz)HoldingIIGmbH
TEConnectivity(Schweiz)ManagementAG
TycoElectronicsServicesGmbH
TycoInternationalServicesGmbH(49.9375%)
WemaSystemAG Taiwan
RaychemPacificCorporation(50%)
TaliqTaiwanLimited
TycoElectronicsHoldings(Bermuda)No.7Limited,TaiwanBranch Thailand
TEConnectivityDistribution(Thailand)Limited
TEConnectivityManufacturing(Thailand)CompanyLimited
WemaEnvironmentalTechnologiesLtd. Tunisia
TEConnectivityTunisiaSarl Turkey
TycoElektronikAMPTicaretLimitedSirketi Ukraine
TycoElectronicsUkraineLimited United Arab Emirates
TycoElectronicsMiddleEastFZE United Kingdom
ADCCommunications(UK)HoldingLtd.
ADCCommunications(UK)Ltd.
AdvancedFiberProductsLimited
CritchleyGroupLimited
DeutschGBLimited
DeutschSubcoLimited
DeutschUK
PolamcoLimited
RaychemLimited
Seacon(Europe)Limited
ServoInterconnectLimited
TEConnectivityLimited
TycoElectronicsCorbyLimited
TycoElectronicsMotorsLtd
TycoElectronicsPrecisionEngineeringLtd.
TycoElectronicsUKHoldingsLtd
TycoElectronicsUKLtd. United States
999ArquesCorp.(37.5%)
AdvancedCathTechnologies,LLC
AdvancedFiberProductsLLC
AmericanSensorTechnologies,Inc.
BrantnerandAssociates,Inc.
BrantnerHoldingCompany
CatheterandDisposableTechnology,Inc.
CodenollTechnologyCorporation(73.988%)
CotsworksLLC(40%)
CregannaFinance(US)LLC
CregannaMedicalDevices,Inc.
CregannaRegulatory,Inc.
HowardA.SchaevitzTechnologies,Inc.
JaquetNorthAmerica,Inc.
LADDDistributionLLC
LSA,LLC
MEASUSHolding,Inc.
MeasurementSpecialtiesForeignHoldingsLLC
MeasurementSpecialties,Inc.
MedicalEngineering&Design,Inc.
MP&E,LLC
PrecisionInterconnectLLC
PrecisionWireComponents,LLC
PrecisionWireHoldingCompany
Produxx,Inc.
RaychemInternationalLLC
RaychemInternationalManufacturingLLC
RochesterWireandCableLLC
SEACONAdvancedProductsLLC
TacPro,LLC
TactxMedical,Inc.
TEConnectivityInc.
TEConnectivityMOGInc.
TEConnectivityPhoenixOptixInc.
TEConnectivitySeaconPhoenixInc.
TEConnectivityUSGroupHoldingInc.
TechDeviceLLC
TechDeviceHoldings,LLC
TheWhitakerLLC
TransoceanicCableShipCompanyLLC
TycoElectronicsCorporation
TycoElectronicsHoldingCorp.
TycoElectronicsIntegratedCableSystemsLLC
TycoElectronicsLatinAmericaHoldingLLC
TycoElectronicsPrintedCircuitGroupLP
TycoElectronicsRIMCHoldingLLC
TycoElectronicsSubseaCommunicationsLLC
WemaAmericasLLC Uruguay
TycoElectronicsUruguayS.A. Venezuela
AMPdeVenezuela,C.A.
TycoElectronicsdeVenezuela,C.A.
TycoSubmarineSystems,C.A. Vietnam
TEConnectivityVietnamHoldingCompanyLimited
QuickLinks--Clickheretorapidlynavigatethroughthisdocument
Exhibit23.1
CONSENTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
WeconsenttotheincorporationbyreferenceintheRegistrationStatementsonFormS-3(FileNos.333-193380and333-212771)andFormS-8(FileNos.333-180085,333-144355,333-144369,333-167445,and333-171127)ofourreportsdatedNovember15,2016,relatingtotheconsolidatedfinancialstatementsandfinancialstatementscheduleofTEConnectivityLtd.andsubsidiariesandtheeffectivenessofTEConnectivityLtd.andsubsidiaries'internalcontroloverfinancialreportingappearinginthisAnnualReportonForm10-KofTEConnectivityLtd.andsubsidiariesforthefiscalyearendedSeptember30,2016.
/s/Deloitte&ToucheLLP
Philadelphia,PennsylvaniaNovember15,2016
EXHIBIT 24.1
POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS:
Thateachpersonwhosesignatureappearsbelow,asaDirectorofTEConnectivityLtd.(the“Company”),aSwisscorporationwithitsgeneralofficesatRheinstrasse20,CH-8200Schaffhausen,Switzerland,doesherebymake,constituteandappointThomasJ.Lynch,ChiefExecutiveOfficer,HeathA.Mitts,ExecutiveVicePresidentandChiefFinancialOfficer,JohnS.Jenkins,Jr.,ExecutiveVicePresidentandGeneralCounsel,oranyoneofthemactingalone,hisorhertrueandlawfulattorneys,withfullpowerofsubstitutionandresubstitution,inhisorhername,placeandstead,inanyandallcapacities,toexecuteandsigntheCompany’sAnnualReportonForm10-KforthefiscalyearendedSeptember30,2016,andanyandallamendmentsthereto,anddocumentsinconnectiontherewith,tobefiledwiththeSecuritiesandExchangeCommissionundertheSecuritiesExchangeActof1934,asamended,givingandgrantinguntosaidattorneysfullpowerandauthoritytodoandperformsuchactionsasfullyastheymighthavedoneorcoulddoifpersonallypresentandexecutinganyofsaiddocuments.
Datedandeffectiveasofthe14 ofNovember2016./s/ThomasJ.Lynch
/s/YongNamThomasJ.Lynch,Director
YongNam,Director /s/PierreR.Brondeau
/s/DanielJ.PhelanPierreR.Brondeau,Director
DanielJ.Phelan,Director /s/TerrenceR.Curtin
/s/PaulaA.SneedTerrenceR.Curtin,Director
PaulaA.Sneed,Director /s/CarolA.Davidson
/s/MarkC.TrudeauCarolA.Davidson,Director
MarkC.Trudeau,Director /s/JuergenW.Gromer
/s/JohnC.VanScoterJuergenW.Gromer,Director
JohnC.VanScoter,Director /s/WilliamA.Jeffrey
/s/LauraH.WrightWilliamA.Jeffrey,Director
LauraH.Wright,Director
th
QuickLinks--Clickheretorapidlynavigatethroughthisdocument
Exhibit31.1
CERTIFICATIONOFCHIEFEXECUTIVEOFFICER
I,ThomasJ.Lynch,certifythat:
1. IhavereviewedthisAnnualReportonForm10-KofTEConnectivityLtd.;
2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4. Theregistrant'sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
a) Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
b) Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
c) Evaluatedtheeffectivenessoftheregistrant'sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
d) Disclosedinthisreportanychangeintheregistrant'sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant'smostrecentfiscalquarter(theregistrant'sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant'sinternalcontroloverfinancialreporting;and
5. Theregistrant'sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant'sauditorsandtheauditcommitteeoftheregistrant'sboardofdirectors(orpersonsperformingtheequivalentfunctions);
a) Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant'sabilitytorecord,process,summarizeandreportfinancialinformation;and
b) Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant'sinternalcontroloverfinancialreporting.
Date:November15,2016
/s/THOMASJ.LYNCH
ThomasJ.LynchChiefExecutiveOfficer
QuickLinks--Clickheretorapidlynavigatethroughthisdocument
Exhibit31.2
CERTIFICATIONOFCHIEFFINANCIALOFFICER
I,HeathA.Mitts,certifythat:
1. IhavereviewedthisAnnualReportonForm10-KofTEConnectivityLtd.;
2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4. Theregistrant'sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
a) Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
b) Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
c) Evaluatedtheeffectivenessoftheregistrant'sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
d) Disclosedinthisreportanychangeintheregistrant'sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant'smostrecentfiscalquarter(theregistrant'sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant'sinternalcontroloverfinancialreporting;and
5. Theregistrant'sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant'sauditorsandtheauditcommitteeoftheregistrant'sboardofdirectors(orpersonsperformingtheequivalentfunctions);
a) Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant'sabilitytorecord,process,summarizeandreportfinancialinformation;and
b) Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant'sinternalcontroloverfinancialreporting.
Date:November15,2016
/s/HEATHA.MITTS
HeathA.MittsExecutiveVicePresidentandChiefFinancialOfficer
QuickLinks--Clickheretorapidlynavigatethroughthisdocument
Exhibit32.1
TECONNECTIVITYLTD.CERTIFICATIONPURSUANTTO
SECTION906OFTHESARBANES-OXLEYACTOF2002
TheundersignedofficersofTEConnectivityLtd.(the"Company")herebycertifytotheirknowledgethattheCompany'sannualreportonForm10-KforthefiscalyearendedSeptember30,2016(the"Report"),asfiledwiththeSecuritiesandExchangeCommissiononthedatehereof,fullycomplieswiththerequirementsofSection13(a)or15(d),asapplicable,oftheSecuritiesExchangeActof1934,asamended,andthattheinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsoftheCompany.
/s/THOMASJ.LYNCH
ThomasJ.LynchChiefExecutiveOfficerNovember15,2016
/s/HEATHA.MITTS
HeathA.MittsExecutiveVicePresidentandChiefFinancialOfficerNovember15,2016