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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

(Mark One)    

ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2017

Or

o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

001-33260
(Commission File Number)


LOGO

TE CONNECTIVITY LTD.
(Exact name of registrant as specified in its charter)

Switzerland
(Jurisdiction of Incorporation)		   98-0518048
(I.R.S. Employer Identification No.)

Rheinstrasse 20
CH-8200 Schaffhausen, Switzerland
(Address of principal executive offices)

+41 (0)52 633 66 61
(Registrant's telephone number)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
 (Do not check if a
smaller reporting company)		   Smaller reporting company o

Emerging growth company o

        If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes o    No o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        The number of common shares outstanding as of July 21, 2017 was 353,384,098.

   

Table of Contents


TE CONNECTIVITY LTD.
INDEX TO FORM 10-Q

 
    
   Page  

  

  

 

        

Part I.

  

Financial Information

        

  

  

 

        

Item 1.

  

Financial Statements

     1  

  

  

 

        

 

Condensed Consolidated Statements of Operations for the Quarters and Nine Months Ended June 30, 2017 and June 24, 2016 (Unaudited)

     1  

  

  

 

        

 

Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended June 30, 2017 and June 24, 2016 (Unaudited)

     2  

  

  

 

        

 

Condensed Consolidated Balance Sheets as of June 30, 2017 and September 30, 2016 (Unaudited)

     3  

  

  

 

        

 

Condensed Consolidated Statements of Shareholders' Equity for the Nine Months Ended June 30, 2017 and June 24, 2016 (Unaudited)

     4  

  

  

 

        

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2017 and June 24, 2016 (Unaudited)

    5  

  

  

 

        

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

     6  

  

  

 

        

Item 2.

  

Management's Discussion and Analysis of Financial Condition and Results of Operations

     28  

  

  

 

        

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     44  

  

  

 

        

Item 4.

  

Controls and Procedures

     44  

  

  

 

        

Part II.

  

Other Information

        

  

  

 

        

Item 1.

  

Legal Proceedings

     45  

  

  

 

        

Item 1A.

  

Risk Factors

     45  

  

  

 

        

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     45  

  

  

 

        

Item 6.

  

Exhibits

     46  

  

  

 

        

Signatures

     47  

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

        


TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 30,
2017 		  June 24,
2016 		  June 30,
2017 		  June 24,
2016 		 
 
   (in millions, except per share data)
  

Net sales

   $ 3,367   $ 3,121   $ 9,657   $ 8,906  

Cost of sales

     2,229     2,099     6,346     5,977  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross margin

     1,138     1,022     3,311     2,929  

Selling, general, and administrative expenses

     412     367     1,196     1,074  

Research, development, and engineering expenses

     170     161     490     479  

Acquisition and integration costs

     1     11     5     19  

Restructuring and other charges (credits), net

     19     31     125     (28 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating income

     536     452     1,495     1,385  

Interest income

     3     2     14     12  

Interest expense

     (32 )   (31 )   (95 )   (93 )

Other expense, net

     (4 )   (651 )   (6 )   (631 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income (loss) from continuing operations before income taxes

     503     (228 )   1,408     673  

Income tax (expense) benefit

     (71 )   1,019     (164 )   831  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations

     432     791     1,244     1,504  

Income from discontinued operations, net of income taxes

     3     48     5     68  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income

   $ 435   $ 839   $ 1,249   $ 1,572  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Basic earnings per share:

    
 		    
 		    
 		    
 		  

Income from continuing operations

   $ 1.22   $ 2.22   $ 3.50   $ 4.08  

Income from discontinued operations

     0.01     0.13     0.01     0.18  

Net income

     1.23     2.35     3.52     4.26  

Diluted earnings per share:

    
 		    
 		    
 		    
 		  

Income from continuing operations

   $ 1.21   $ 2.19   $ 3.47   $ 4.03  

Income from discontinued operations

     0.01     0.13     0.01     0.18  

Net income

     1.22     2.32     3.48     4.21  

Dividends paid per common share

  
$
0.40		  
$
0.37		  
$
1.14		  
$
1.03		  

Weighted-average number of shares outstanding:

    
 		    
 		    
 		    
 		  

Basic

     355     357     355     369  

Diluted

     358     361     359     373  

   

See Notes to Condensed Consolidated Financial Statements.

1

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 30,
2017 		  June 24,
2016 		  June 30,
2017 		  June 24,
2016 		 
 
   (in millions)
  

Net income. 

   $ 435   $ 839   $ 1,249   $ 1,572  

Other comprehensive income (loss):

                          

Currency translation

     77     8     (25 )   (84 )

Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes

     13     12     38     26  

Gains (losses) on cash flow hedges, net of income taxes

     (12 )   54     23     56  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other comprehensive income (loss)

     78     74     36     (2 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Comprehensive income. 

   $ 513   $ 913   $ 1,285   $ 1,570  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

   

See Notes to Condensed Consolidated Financial Statements.

2

Table of Contents


TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 
   June 30,
2017 		  September 30,
2016 		 
 
   (in millions, except share
data)
  

Assets

              

Current assets:

              

Cash and cash equivalents

   $ 755   $ 647  

Accounts receivable, net of allowance for doubtful accounts of $20 and $17, respectively

     2,271     2,046  

Inventories

     1,787     1,596  

Prepaid expenses and other current assets

     541     486  
​ ​ ​ ​ ​ ​ ​ ​

Total current assets

     5,354     4,775  

Property, plant, and equipment, net

     3,165     3,052  

Goodwill

     5,516     5,492  

Intangible assets, net

     1,790     1,879  

Deferred income taxes

     2,287     2,111  

Other assets

     408     299  
​ ​ ​ ​ ​ ​ ​ ​

Total Assets

   $ 18,520   $ 17,608  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

Liabilities and Shareholders' Equity

    
 		    
 		  

Current liabilities:

              

Short-term debt

   $ 878   $ 331  

Accounts payable

     1,309     1,090  

Accrued and other current liabilities

     1,623     1,437  

Deferred revenue

     62     208  
​ ​ ​ ​ ​ ​ ​ ​

Total current liabilities

     3,872     3,066  

Long-term debt

     3,113     3,739  

Long-term pension and postretirement liabilities

     1,494     1,502  

Deferred income taxes

     197     207  

Income taxes

     283     247  

Other liabilities

     420     362  
​ ​ ​ ​ ​ ​ ​ ​

Total Liabilities

     9,379     9,123  
​ ​ ​ ​ ​ ​ ​ ​

Commitments and contingencies (Note 9)

              

Shareholders' equity:

              

Common shares, CHF 0.57 par value, 357,069,981 shares authorized and issued, and 382,835,381 shares authorized and issued, respectively

     157     168  

Contributed surplus

     —     1,801  

Accumulated earnings

     9,747     8,682  

Treasury shares, at cost, 3,380,507 and 27,554,005 shares, respectively

     (257 )   (1,624 )

Accumulated other comprehensive loss

     (506 )   (542 )
​ ​ ​ ​ ​ ​ ​ ​

Total Shareholders' Equity

     9,141     8,485  
​ ​ ​ ​ ​ ​ ​ ​

Total Liabilities and Shareholders' Equity

   $ 18,520   $ 17,608  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

   

See Notes to Condensed Consolidated Financial Statements.

3

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

 
   Common Shares   Treasury Shares    
    
   Accumulated
Other
Comprehensive
Loss 		   
  
 
   Contributed
Surplus 		  Accumulated
Earnings 		  Total
Shareholders'
Equity 		 
 
   Shares   Amount   Shares   Amount  
 
   (in millions)
  

Balance at September 30, 2016

     383   $ 168     (28 ) $ (1,624 ) $ 1,801   $ 8,682   $ (542 ) $ 8,485  

Adoption of ASU No. 2016-09

     —     —     —     —     —     165     —     165  

Net income

     —     —     —     —     —     1,249     —     1,249  

Other comprehensive income

     —     —     —     —     —     —     36     36  

Share-based compensation expense

     —     —     —     —     73     —     —     73  

Dividends approved

     —     —     —     —     (566 )   —     —     (566 )

Exercise of share options

     —     —     3     86     —     —     —     86  

Restricted share award vestings and other activity

     —     —     1     155     (156 )   —     —     (1 )

Repurchase of common shares

     —     —     (5 )   (386 )   —     —     —     (386 )

Cancellation of treasury shares

     (26 )   (11 )   26     1,512     (1,152 )   (349 )   —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Balance at June 30, 2017

     357   $ 157     (3 ) $ (257 ) $ —   $ 9,747   $ (506 ) $ 9,141  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Balance at September 25, 2015

    
414		  
$
182		    
(20
)
$
(1,256
)
$
4,359		  
$
6,673		  
$
(373
)
$
9,585		  

Net income

     —     —     —     —     —     1,572     —     1,572  

Other comprehensive loss

     —     —     —     —     —     —     (2 )   (2 )

Share-based compensation expense

     —     —     —     —     67     —     —     67  

Dividends approved

     —     —     —     —     (514 )   —     —     (514 )

Exercise of share options

     —     —     2     77     —     —     —     77  

Restricted share award vestings and other activity

     —     —     2     128     (134 )   —     —     (6 )

Repurchase of common shares

     —     —     (41 )   (2,514 )   —     —     —     (2,514 )

Cancellation of treasury shares

     (31 )   (14 )   31     2,006     (1,992 )   —     —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Balance at June 24, 2016

     383   $ 168     (26 ) $ (1,559 ) $ 1,786   $ 8,245   $ (375 ) $ 8,265  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

   

See Notes to Condensed Consolidated Financial Statements.

4

Table of Contents


TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
   For the
Nine Months Ended 		 
 
   June 30,
2017 		  June 24,
2016 		 
 
   (in millions)
  

Cash Flows From Operating Activities:

              

Net income

   $ 1,249   $ 1,572  

Income from discontinued operations, net of income taxes

     (5 )   (68 )
​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations

     1,244     1,504  

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:

              

Depreciation and amortization

     469     438  

Deferred income taxes

     (146 )   162  

Provision for losses on accounts receivable and inventories

     15     27  

Tax sharing expense

     6     632  

Share-based compensation expense

     73     66  

Gain on divestiture

     —     (143 )

Other

     17     84  

Changes in assets and liabilities, net of the effects of acquisitions and divestitures:

              

Accounts receivable, net

     (260 )   15  

Inventories

     (195 )   (2 )

Prepaid expenses and other current assets

     (6 )   302  

Accounts payable

     217     (4 )

Accrued and other current liabilities

     56     (68 )

Deferred revenue

     (150 )   (22 )

Income taxes

     54     (1,735 )

Other

     55     6  
​ ​ ​ ​ ​ ​ ​ ​

Net cash provided by continuing operating activities

     1,449     1,262  

Net cash provided by (used in) discontinued operating activities

     (1 )   1  
​ ​ ​ ​ ​ ​ ​ ​

Net cash provided by operating activities

     1,448     1,263  
​ ​ ​ ​ ​ ​ ​ ​

Cash Flows From Investing Activities:

              

Capital expenditures

     (452 )   (420 )

Proceeds from sale of property, plant, and equipment

     12     3  

Acquisition of businesses, net of cash acquired

     (77 )   (994 )

Proceeds from divestiture of business, net of cash retained by sold business

     4     326  

Other

     (25 )   28  
​ ​ ​ ​ ​ ​ ​ ​

Net cash used in investing activities

     (538 )   (1,057 )
​ ​ ​ ​ ​ ​ ​ ​

Cash Flows From Financing Activities:

              

Net increase (decrease) in commercial paper

     (162 )   300  

Proceeds from issuance of debt

     89     350  

Repayment of debt

     —     (500 )

Proceeds from exercise of share options

     86     77  

Repurchase of common shares

     (376 )   (2,657 )

Payment of common share dividends to shareholders

     (405 )   (377 )

Other

     (24 )   (29 )
​ ​ ​ ​ ​ ​ ​ ​

Net cash used in continuing financing activities

     (792 )   (2,836 )

Net cash provided by (used in) discontinued financing activities

     1     (1 )
​ ​ ​ ​ ​ ​ ​ ​

Net cash used in financing activities

     (791 )   (2,837 )
​ ​ ​ ​ ​ ​ ​ ​

Effect of currency translation on cash

     (11 )   (4 )

Net increase (decrease) in cash and cash equivalents

     108     (2,635 )

Cash and cash equivalents at beginning of period

     647     3,329  
​ ​ ​ ​ ​ ​ ​ ​

Cash and cash equivalents at end of period

   $ 755   $ 694  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

   

See Notes to Condensed Consolidated Financial Statements.

5

Table of Contents


TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation and Accounting Pronouncements

        The unaudited Condensed Consolidated Financial Statements of TE Connectivity Ltd. ("TE Connectivity" or the "Company," which may be referred to as "we," "us," or "our") have been prepared in United States ("U.S.") dollars, in accordance with accounting principles generally accepted in the U.S. ("GAAP") and the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. In management's opinion, the unaudited Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire fiscal year or any subsequent interim period.

        The year-end balance sheet data was derived from audited financial statements, but does not include all of the information and disclosures required by GAAP. These financial statements should be read in conjunction with our audited Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2016.

        Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 2017 and fiscal 2016 are to our fiscal years ending September 29, 2017 and ended September 30, 2016, respectively.

        In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 which created new Accounting Standards Codification ("ASC") topic 606, Revenue from Contracts with Customers. This guidance supersedes ASC 605, Revenue Recognition, and introduces a single, comprehensive, five-step revenue recognition model. ASC 606 also enhances disclosures related to revenue recognition. ASC 606, as amended, is effective for us in the first quarter of fiscal 2019 and allows for either a full retrospective or a modified retrospective approach at adoption. We are continuing to assess the impact of adopting ASC 606 and intend to use a modified retrospective approach. Based on the initial evaluation of our current contracts and revenue streams, we do not expect that adoption will have a material impact on our results of operations or financial position. We believe we are following an appropriate timeline to allow for the proper recognition, reporting, and disclosure of revenue upon adoption of ASC 606 at the beginning of fiscal 2019.

        In March 2016, the FASB issued ASU No. 2016-09, an update to ASC 718, Compensation—Stock Compensation, to simplify various aspects of accounting for share-based payments to employees. We elected to early adopt this update in the first quarter of fiscal 2017. The provisions of the update addressing the accounting for excess tax benefits and deficiencies were adopted using a modified retrospective transition approach, with a cumulative-effect adjustment to beginning accumulated earnings and a corresponding increase in deferred tax assets of $165 million. The provision of the update addressing the presentation on the statement of cash flows of employee taxes paid via the withholding of shares was applied retrospectively and did not have a material impact on our Condensed Consolidated Financial Statements. Adoption of other provisions, which were applied prospectively, also did not have a material impact on our Condensed Consolidated Financial Statements.

6

Table of Contents


TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2. Restructuring and Other Charges (Credits), Net

        Net restructuring and other charges (credits) consisted of the following:

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 30,
2017 		  June 24,
2016 		  June 30,
2017 		  June 24,
2016 		 
 
   (in millions)
  

Restructuring charges, net

   $ 19   $ 25   $ 124   $ 86  

(Gain) loss on divestiture

     —     3     —     (143 )

Other charges

     —     3     1     29  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  $ 19   $ 31   $ 125   $ (28 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Restructuring Charges, Net

        Net restructuring charges by segment were as follows:

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 30,
2017 		  June 24,
2016 		  June 30,
2017 		  June 24,
2016 		 
 
   (in millions)
  

Transportation Solutions

   $ 3   $ 20   $ 60   $ 39  

Industrial Solutions

     14     1     53     24  

Communications Solutions

     2     4     11     23  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Restructuring charges, net

   $ 19   $ 25   $ 124   $ 86  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

7

Table of Contents


TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2. Restructuring and Other Charges (Credits), Net (Continued)

        Activity in our restructuring reserves during the nine months ended June 30, 2017 is summarized as follows:

 
   Balance at
September 30,
2016 		  Charges   Changes
in
Estimates 		  Cash
Payments 		  Non-Cash
Items 		  Currency
Translation 		  Balance at
June 30,
2017 		 
 
   (in millions)
  

Fiscal 2017 Actions:

                                            

Employee severance

   $ —   $ 104   $ (1 ) $ (21 ) $ —   $ 3   $ 85  

Facility and other exit costs

     —     2     —     (1 )   —     —     1  

Property, plant, and equipment

     —     14     —     —     (14 )   —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

     —     120     (1 )   (22 )   (14 )   3     86  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Fiscal 2016 Actions:

                                            

Employee severance

     54     8     (1 )   (24 )   —     —     37  

Facility and other exit costs

     —     2     —     (2 )   —     —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

     54     10     (1 )   (26 )   —     —     37  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Pre-Fiscal 2016 Actions:

                                            

Employee severance

     25     —     (4 )   (6 )   —     —     15  

Facility and other exit costs

     12     —     —     (3 )   —     —     9  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

     37     —     (4 )   (9 )   —     —     24  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Activity

   $ 91   $ 130   $ (6 ) $ (57 ) $ (14 ) $ 3   $ 147  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

        During fiscal 2017, we initiated a restructuring program associated with footprint consolidation related to recent acquisitions and structural improvements impacting all segments. In connection with this program, during the nine months ended June 30, 2017, we recorded net restructuring charges of $119 million. We expect to complete all restructuring actions commenced during the nine months ended June 30, 2017 by the end of fiscal 2018 and to incur total charges of approximately $130 million with remaining charges primarily related to employee severance.

        The following table summarizes expected, incurred, and remaining charges for the fiscal 2017 program by segment:

 
   Total
Expected
Charges 		  Cumulative
Charges
Incurred 		  Remaining
Expected
Charges 		 
 
   (in millions)
  

Transportation Solutions

   $ 63   $ 59   $ 4  

Industrial Solutions

     57     52     5  

Communications Solutions

     10     8     2  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 130   $ 119   $ 11  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2. Restructuring and Other Charges (Credits), Net (Continued)

        During fiscal 2016, we initiated a restructuring program associated with headcount reductions impacting all segments and product line closures in the Communications Solutions segment. In connection with this program, during the nine months ended June 30, 2017 and June 24, 2016, we recorded net restructuring charges of $9 million and $87 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2016 by the end of fiscal 2019 and to incur total charges of approximately $165 million with remaining charges related primarily to employee severance.

        The following table summarizes expected, incurred, and remaining charges for the fiscal 2016 program by segment:

 
   Total
Expected
Charges 		  Cumulative
Charges
Incurred 		  Remaining
Expected
Charges 		 
 
   (in millions)
  

Transportation Solutions

   $ 43   $ 40   $ 3  

Industrial Solutions

     30     29     1  

Communications Solutions

     92     70     22  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 165   $ 139   $ 26  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

        Prior to fiscal 2016, we initiated a restructuring program associated with headcount reductions and product line closures, primarily impacting the Communications Solutions and Industrial Solutions segments. During the nine months ended June 30, 2017 and June 24, 2016, we recorded net restructuring credits of $4 million and $1 million, respectively, related to pre-fiscal 2016 actions. We do not expect to incur any additional charges related to pre-fiscal 2016 actions.

        Restructuring reserves included on the Condensed Consolidated Balance Sheets were as follows:

 
   June 30,
2017 		  September 30,
2016 		 
 
   (in millions)
  

Accrued and other current liabilities

   $ 127   $ 64  

Other liabilities

     20     27  
​ ​ ​ ​ ​ ​ ​ ​

Restructuring reserves

   $ 147   $ 91  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

Gain on Divestiture

        During the quarter ended March 25, 2016, we sold our Circuit Protection Devices ("CPD") business for net cash proceeds of $326 million, subject to working capital adjustments. We recognized a pre-tax gain of $143 million on the transaction during the nine months ended June 24, 2016. The CPD business was reported in our Communications Solutions segment.

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2. Restructuring and Other Charges (Credits), Net (Continued)

Other Charges

        During the nine months ended June 24, 2016, we incurred charges of $15 million related to the write-off of certain investments and costs of $14 million associated with the divestiture of certain businesses.

3. Discontinued Operations

        Income from discontinued operations for the quarter ended June 24, 2016 included pre-tax credits of $30 million recorded in connection with the settlement of the Com-Net case related to our former Wireless Systems business which was sold in fiscal 2009.

        During fiscal 2015, we sold our Broadband Network Solutions ("BNS") business and recognized a pre-tax gain of $1.1 billion on the transaction. During the nine months ended June 24, 2016, we recognized an additional pre-tax gain of $21 million on the divestiture, related primarily to pension and net working capital adjustments.

        The Wireless Systems and BNS businesses met the discontinued operations criteria and were reported as such in all periods presented on the Condensed Consolidated Financial Statements. Prior to reclassification to discontinued operations, the Wireless Systems and BNS businesses were included in the former Wireless Systems and Network Solutions segments, respectively.

4. Acquisitions

        During the quarter ended June 30, 2017, we acquired MicroGroup, a manufacturer of specialized metal tubing for medical devices, for a cash purchase price of $77 million, net of cash acquired. This business will be reported as part of our Industrial Solutions segment.

        During the nine months ended June 24, 2016, we acquired three businesses, including the Creganna Medical group. The following unaudited pro forma financial information reflects our consolidated results of operations had the fiscal 2016 acquisitions occurred at the beginning of fiscal 2015:

 
   Pro Forma for the
Quarter Ended
June 24, 2016 		  Pro Forma for the
Nine Months Ended
June 24, 2016 		 
 
   (in millions, except per share data)
  

Net sales

   $ 3,128   $ 9,065  

Net income

     839     1,584  

Diluted earnings per share

   $ 2.32   $ 4.25  

        The pro forma adjustments, which were not significant, included interest expense based on pro forma changes in our combined capital structure, charges related to acquired customer order backlog, charges related to the amortization of the fair value of acquired intangible assets, charges related to the fair value adjustment to acquisition-date inventories, and acquisition and other costs, and the related tax effects.

        Pro forma results do not include any anticipated synergies or other anticipated benefits of these acquisitions. Accordingly, the unaudited pro forma financial information is not necessarily indicative of

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4. Acquisitions (Continued)

either future results of operations or results that might have been achieved had the fiscal 2016 acquisitions occurred at the beginning of fiscal 2015.

5. Inventories

        Inventories consisted of the following:

 
   June 30,
2017 		  September 30,
2016 		 
 
   (in millions)
  

Raw materials

   $ 281   $ 241  

Work in progress

     563     504  

Finished goods

     791     669  

Inventoried costs on long-term contracts

     152     182  
​ ​ ​ ​ ​ ​ ​ ​

Inventories

   $ 1,787   $ 1,596  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

6. Goodwill

        The changes in the carrying amount of goodwill by segment were as follows:

 
   Transportation
Solutions 		  Industrial
Solutions 		  Communications
Solutions 		  Total  
 
   (in millions)
  

September 30, 2016(1)

   $ 1,903   $ 3,005   $ 584   $ 5,492  

Currency translation and other(2)

     6     15     3     24  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

June 30, 2017(1)

   $ 1,909   $ 3,020   $ 587   $ 5,516  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(1)
At June 30, 2017 and September 30, 2016, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $2,191 million, $669 million, and $1,514 million, respectively.

(2)
Includes $50 million of goodwill recognized in connection with the acquisition of MicroGroup and a reduction of goodwill of $33 million associated with adjustments made to the purchase price allocation of certain fiscal 2016 acquisitions primarily within the Industrial Solutions segment.

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7. Intangible Assets, Net

        Intangible assets consisted of the following:

 
   June 30, 2017   September 30, 2016  
 
   Gross
Carrying
Amount 		  Accumulated
Amortization 		  Net
Carrying
Amount 		  Gross
Carrying
Amount 		  Accumulated
Amortization 		  Net
Carrying
Amount 		 
 
   (in millions)
  

Customer relationships

   $ 1,363   $ (276 ) $ 1,087   $ 1,332   $ (212 ) $ 1,120  

Intellectual property

     1,233     (551 )   682     1,300     (563 )   737  

Other

     36     (15 )   21     36     (14 )   22  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 2,632   $ (842 ) $ 1,790   $ 2,668   $ (789 ) $ 1,879  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

        Intangible asset amortization expense was $43 million and $40 million for the quarters ended June 30, 2017 and June 24, 2016, respectively, and $126 million and $108 million for the nine months ended June 30, 2017 and June 24, 2016, respectively.

        The aggregate amortization expense on intangible assets is expected to be as follows:

 
   (in millions)  

Remainder of fiscal 2017

   $ 44  

Fiscal 2018

     176  

Fiscal 2019

     174  

Fiscal 2020

     166  

Fiscal 2021

     163  

Fiscal 2022

     162  

Thereafter

     905  
​ ​ ​ ​ ​

Total

   $ 1,790  
​ ​ ​ ​ ​
​ ​ ​ ​ ​
​ ​ ​ ​ ​

8. Debt

        During the nine months ended June 30, 2017, we reclassified $708 million of 6.55% senior notes due 2017 from long-term debt to short-term debt on the Condensed Consolidated Balance Sheet.

        As of June 30, 2017, Tyco Electronics Group S.A. ("TEGSA"), our 100%-owned subsidiary, had $168 million of commercial paper outstanding at a weighted-average interest rate of 1.40%. TEGSA had $330 million of commercial paper outstanding at a weighted-average interest rate of 0.69% at September 30, 2016.

        The fair value of our debt, based on indicative valuations, was approximately $4,242 million and $4,424 million at June 30, 2017 and September 30, 2016, respectively.

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9. Commitments and Contingencies

        In the normal course of business, we are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, employment disputes, disputes on agreements, other commercial disputes, environmental matters, antitrust claims, and tax matters, including non-income tax matters such as value added tax, sales and use tax, real estate tax, and transfer tax. Although it is not feasible to predict the outcome of these proceedings, based upon our experience, current information, and applicable law, we do not expect that the outcome of these proceedings, either individually or in the aggregate, will have a material effect on our results of operations, financial position, or cash flows.

        We are involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods. As of June 30, 2017, we concluded that it was probable that we would incur remedial costs in the range of $16 million to $43 million, and that the best estimate within this range was $19 million. We believe that any potential payment of such estimated amounts will not have a material adverse effect on our results of operations, financial position, or cash flows.

        In disposing of assets or businesses, we often provide representations, warranties, and/or indemnities to cover various risks including unknown damage to assets, environmental risks involved in the sale of real estate, liability for investigation and remediation of environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. We do not expect that these uncertainties will have a material adverse effect on our results of operations, financial position, or cash flows.

        At June 30, 2017, we had outstanding letters of credit, letters of guarantee, and surety bonds of $285 million.

        In the normal course of business, we are liable for contract completion and product performance. In the opinion of management, such obligations will not materially affect our results of operations, financial position, or cash flows.

        We generally record estimated product warranty costs when contract revenues are recognized under the percentage-of-completion method for construction related contracts; other warranty reserves are not significant. The estimation is based primarily on historical experience and actual warranty claims. Amounts accrued for warranty claims were $52 million and $48 million at June 30, 2017 and September 30, 2016, respectively.

        As previously reported, under a Tax Sharing Agreement, we, Tyco International plc ("Tyco International"), and Covidien plc ("Covidien") share 31%, 27%, and 42%, respectively, of income tax

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9. Commitments and Contingencies (Continued)

liabilities that arise from adjustments made by tax authorities to the collective income tax returns for certain of our, Tyco International's, and Covidien's income tax liabilities for periods prior to and including June 29, 2007. Pursuant to the Tax Sharing Agreement, we entered into certain guarantee commitments and indemnifications with Tyco International and Covidien. We have substantially settled all U.S. federal income tax matters with the Internal Revenue Service ("IRS") for periods covered under the Tax Sharing Agreement. Certain shared U.S. state and non-U.S. income tax matters remain open. We do not expect these matters will have a material effect on our results of operations, financial position, or cash flows.

10. Financial Instruments

        We hedge our net investment in certain foreign operations using intercompany non-derivative financial instruments denominated in the same currencies. The aggregate notional value of these hedges was $3,762 million and $3,480 million at June 30, 2017 and September 30, 2016, respectively. The impacts of our hedging program were as follows:

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 30,
2017 		  June 24,
2016 		  June 30,
2017 		  June 24,
2016 		 
 
   (in millions)
  

Foreign exchange gains (losses)

   $ (129 ) $ 5   $ 15   $ 6  

These foreign exchange gains and losses were recorded as currency translation, a component of accumulated other comprehensive loss, offsetting foreign exchange losses and gains attributable to the translation of the net investment.

11. Retirement Plans

        The net periodic pension benefit cost for all U.S. and non-U.S. defined benefit pension plans was as follows:

 
   U.S. Plans   Non-U.S. Plans  
 
   For the
Quarters Ended 		  For the
Quarters Ended 		 
 
   June 30,
2017 		  June 24,
2016 		  June 30,
2017 		  June 24,
2016 		 
 
   (in millions)
  

Service cost

   $ 3   $ 3   $ 13   $ 11  

Interest cost

     11     12     9     13  

Expected return on plan assets

     (13 )   (15 )   (18 )   (17 )

Amortization of net actuarial loss

     10     10     11     9  

Amortization of prior service credit

     —     —     (2 )   (1 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net periodic pension benefit cost

   $ 11   $ 10   $ 13   $ 15  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

11. Retirement Plans (Continued)


 
   U.S. Plans   Non-U.S. Plans  
 
   For the
Nine Months Ended 		  For the
Nine Months Ended 		 
 
   June 30,
2017 		  June 24,
2016 		  June 30,
2017 		  June 24,
2016 		 
 
   (in millions)
  

Service cost

   $ 9   $ 7   $ 39   $ 35  

Interest cost

     33     37     27     40  

Expected return on plan assets

     (40 )   (44 )   (53 )   (52 )

Amortization of net actuarial loss

     30     30     32     27  

Amortization of prior service credit

     —     —     (5 )   (4 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net periodic pension benefit cost

   $ 32   $ 30   $ 40   $ 46  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

        During the nine months ended June 30, 2017, we contributed $30 million to our non-U.S. pension plans.

12. Income Taxes

        During the quarter and nine months ended June 30, 2017, we recorded income tax expense of $71 million and $164 million, respectively. The income tax expense for the quarter and nine months ended June 30, 2017 included a $14 million income tax benefit associated with pre-separation tax matters. The income tax expense for the nine months ended June 30, 2017 also included a $52 million income tax benefit associated with the tax impacts of certain intercompany transactions and the corresponding reduction in the valuation allowance for U.S. tax loss carryforwards, as well as a $24 million income tax benefit resulting from lapses of statutes of limitations in the U.S. and certain non-U.S. jurisdictions.

        During the quarter and nine months ended June 24, 2016, we recorded an income tax benefit of $1,019 million and $831 million, respectively. These income tax benefits included a $1,135 million income tax benefit related to the effective settlement of pre-separation tax matters for the years 1997 through 2000 which resolved all aspects of a disputed debt matter with the IRS through the year 2007, partially offset by a $91 million increase to the valuation allowance for deferred tax assets primarily related to certain U.S. federal and state tax loss and credit carryforwards. Based on our forecast of taxable income for certain U.S. tax reporting groups, U.S. tax loss and credit carryforwards finalized as a result of settlement of the disputed debt matter with the IRS, and certain tax planning actions and strategies, we believed it was more likely than not that a portion of our deferred tax assets would not be realized. Additionally, the income tax benefits recorded during the quarter and nine months ended June 24, 2016 included an $83 million net income tax benefit related to tax settlements in certain other tax jurisdictions, partially offset by an income tax charge related to certain legal entity restructurings.

        During the nine months ended June 24, 2016, we made a payment to the IRS of $443 million for tax deficiencies associated with the disputed debt matter discussed above. Concurrent with remitting this payment, we received net reimbursements of $303 million from Tyco International and Covidien pursuant to indemnifications for pre-separation U.S. tax matters.

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

12. Income Taxes (Continued)

        We record accrued interest and penalties related to uncertain tax positions as part of income tax expense. As of June 30, 2017 and September 30, 2016, we had $57 million and $54 million, respectively, of accrued interest and penalties related to uncertain tax positions on the Condensed Consolidated Balance Sheets, recorded primarily in income taxes. During the nine months ended June 30, 2017, we recognized income tax benefits of $7 million related to interest and penalties on the Condensed Consolidated Statement of Operations.

        Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that approximately $50 million of unrecognized income tax benefits, excluding the impact relating to accrued interest and penalties, could be resolved within the next twelve months.

        We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the Condensed Consolidated Balance Sheet as of June 30, 2017.

13. Other Expense, Net

        During the quarters and nine months ended June 30, 2017 and June 24, 2016, we recorded net other expense primarily pursuant to the Tax Sharing Agreement with Tyco International and Covidien. Net other expense of $651 million and $631 million, recorded during the quarter and nine months ended June 24, 2016, respectively, included $604 million related to the effective settlement of pre-separation tax matters for the years 1997 through 2000 which resolved all aspects of a disputed debt matter with the IRS through the year 2007 and $46 million related to a tax settlement in another jurisdiction. See Notes 9 and 12 for further information regarding the Tax Sharing Agreement and the settlement with the IRS, respectively.

14. Earnings Per Share

        The weighted-average number of shares outstanding used in the computations of basic and diluted earnings per share were as follows:

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 30,
2017 		  June 24,
2016 		  June 30,
2017 		  June 24,
2016 		 
 
   (in millions)
  

Basic

     355     357     355     369  

Dilutive impact of share-based compensation arrangements

     3     4     4     4  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Diluted

     358     361     359     373  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

14. Earnings Per Share (Continued)

        The following share options were not included in the computation of diluted earnings per share because the instruments' underlying exercise prices were greater than the average market prices of our common shares and inclusion would be antidilutive.

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 30,
2017 		  June 24,
2016 		  June 30,
2017 		  June 24,
2016 		 
 
   (in millions)
  

Antidilutive share options

     —     3     1     3  

15. Equity

        In March 2017, our shareholders approved the cancellation of 26 million shares purchased under our share repurchase program during the period from December 11, 2015 to September 30, 2016. The capital reduction by cancellation of these shares was subject to a notice period and filing with the commercial register in Switzerland and became effective in May 2017.

        During the nine months ended June 30, 2017, cumulative equity transactions, including dividend activity and treasury share cancellations, have reduced our contributed surplus balance to zero with residual activity recorded against accumulated earnings as reflected on the Condensed Consolidated Statement of Shareholders' Equity. To the extent that the contributed surplus balance continues to be zero, the impact of future transactions that normally would have been recorded as a reduction of contributed surplus will be recorded in accumulated earnings.

        As previously disclosed, contributed surplus established for Swiss tax and statutory purposes, which we can distribute free from withholding tax and is updated annually, was CHF 7,878 million (equivalent to $6,992 million) at September 30, 2016 and is not impacted by our GAAP treatment.

        In March 2017, our shareholders approved a dividend payment to shareholders of $1.60 (equivalent to CHF 1.62) per share, payable in four equal quarterly installments beginning in the third quarter of fiscal 2017 through the second quarter of fiscal 2018. We paid the first installment of the dividend at a rate of $0.40 per share in the quarter ended June 30, 2017.

        Upon shareholders' approval of a dividend payment, we record a liability with a corresponding charge to shareholders' equity. At June 30, 2017 and September 30, 2016, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $424 million and $263 million, respectively.

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

15. Equity (Continued)

        Common shares repurchased under the share repurchase program were as follows:

 
   For the
Nine Months Ended 		 
 
   June 30,
2017 		  June 24,
2016 		 
 
   (in millions)
  

Number of common shares repurchased

     5     41  

Repurchase value

   $ 386   $ 2,514  

        At June 30, 2017, we had $716 million of availability remaining under our share repurchase authorization.

16. Share Plans

        Share-based compensation expense, which was included in selling, general, and administrative expenses on the Condensed Consolidated Statements of Operations, was as follows:

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 30,
2017 		  June 24,
2016 		  June 30,
2017 		  June 24,
2016 		 
 
   (in millions)
  

Share-based compensation expense

   $ 26   $ 23   $ 73   $ 66  

        As of June 30, 2017, there was $154 million of unrecognized compensation expense related to share-based awards, which is expected to be recognized over a weighted-average period of 2.0 years.

        During the quarter ended December 30, 2016, we granted the following share-based awards as part of our annual incentive plan grant:

 
   Shares   Weighted-Average
Grant-Date
Fair Value 		 
 
   (in millions)
    
  

Share options

     2.1   $ 12.79  

Restricted share awards

     0.7     66.74  

Performance share awards

     0.3     66.74  

        In March 2017, our shareholders approved an increase of 10 million shares in the number of shares available for awards under the TE Connectivity Ltd. 2007 Stock and Incentive Plan, amended and restated as of March 8, 2017 (the "2017 Plan"). As of June 30, 2017, we had 23 million shares available for issuance under our stock and incentive plans, of which the 2017 Plan was the primary plan.

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

16. Share Plans (Continued)

        The weighted-average assumptions we used in the Black-Scholes-Merton option pricing model for the options granted as part of our annual incentive plan grant were as follows:

Expected share price volatility

     24 %

Risk free interest rate

     1.9 %

Expected annual dividend per share

   $ 1.48  

Expected life of options (in years)

     5.6  

17. Segment Data

        Net sales by segment were as follows:

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 30,
2017 		  June 24,
2016 		  June 30,
2017 		  June 24,
2016 		 
 
   (in millions)
  

Transportation Solutions

   $ 1,765   $ 1,652   $ 5,195   $ 4,767  

Industrial Solutions

     905     849     2,553     2,296  

Communications Solutions

     697     620     1,909     1,843  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total(1)

   $ 3,367   $ 3,121   $ 9,657   $ 8,906  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(1)
Intersegment sales were not material and were recorded at selling prices that approximated market prices.

        Operating income by segment was as follows:

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 30,
2017 		  June 24,
2016 		  June 30,
2017 		  June 24,
2016 		 
 
   (in millions)
  

Transportation Solutions

   $ 328   $ 297   $ 971   $ 847  

Industrial Solutions

     98     95     251     224  

Communications Solutions

     110     60     273     314 (1)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 536   $ 452   $ 1,495   $ 1,385  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(1)
Includes pre-tax gain of $143 million on the sale of our CPD business during the nine months ended June 24, 2016.

19

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

18. Tyco Electronics Group S.A.

        Tyco Electronics Group S.A. ("TEGSA"), a Luxembourg company and our 100%-owned subsidiary, is a holding company that owns, directly or indirectly, all of our operating subsidiaries. TEGSA is the obligor under our senior notes, commercial paper, and five-year unsecured senior revolving credit facility, which are fully and unconditionally guaranteed by its parent, TE Connectivity Ltd. The following tables present condensed consolidating financial information for TE Connectivity Ltd., TEGSA, and all other subsidiaries that are not providing a guarantee of debt but which represent assets of TEGSA, using the equity method of accounting.


Condensed Consolidating Statement of Operations (UNAUDITED)
For the Quarter Ended June 30, 2017

 
   TE
Connectivity
Ltd. 		  TEGSA   Other
Subsidiaries 		  Consolidating
Adjustments 		  Total  
 
   (in millions)
  

Net sales

   $ —   $ —   $ 3,367   $ —   $ 3,367  

Cost of sales

     —     —     2,229     —     2,229  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross margin

     —     —     1,138     —     1,138  

Selling, general, and administrative expenses, net

     68     18     326     —     412  

Research, development, and engineering expenses

     —     —     170     —     170  

Acquisition and integration costs

     —     —     1     —     1  

Restructuring and other charges, net

     —     —     19     —     19  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating income (loss)

     (68 )   (18 )   622     —     536  

Interest income

     —     —     3     —     3  

Interest expense

     —     (32 )   —     —     (32 )

Other expense, net

     —     —     (4 )   —     (4 )

Equity in net income of subsidiaries

     507     530     —     (1,037 )   —  

Equity in net income of subsidiaries of discontinued operations

     3     4     —     (7 )   —  

Intercompany interest income (expense), net

     (7 )   27     (20 )   —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations before income taxes

     435     511     601     (1,044 )   503  

Income tax expense

     —     —     (71 )   —     (71 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations

     435     511     530     (1,044 )   432  

Income (loss) from discontinued operations, net of income taxes

     —     (1 )   4     —     3  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income

     435     510     534     (1,044 )   435  

Other comprehensive income

     78     78     83     (161 )   78  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Comprehensive income

   $ 513   $ 588   $ 617   $ (1,205 ) $ 513  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

20

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

18. Tyco Electronics Group S.A. (Continued)


Condensed Consolidating Statement of Operations (UNAUDITED)
For the Quarter Ended June 24, 2016

 
   TE
Connectivity
Ltd. 		  TEGSA   Other
Subsidiaries 		  Consolidating
Adjustments 		  Total  
 
   (in millions)
  

Net sales

   $ —   $ —   $ 3,121   $ —   $ 3,121  

Cost of sales

     —     —     2,099     —     2,099  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross margin

     —     —     1,022     —     1,022  

Selling, general, and administrative expenses, net

     50     (2 )   319     —     367  

Research, development, and engineering expenses

     —     —     161     —     161  

Acquisition and integration costs

     1     —     10     —     11  

Restructuring and other charges (credits), net

     2     (1 )   30     —     31  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating income (loss)

     (53 )   3     502     —     452  

Interest income

     —     —     2     —     2  

Interest expense

     —     (31 )   —     —     (31 )

Other expense, net

     —     —     (651 )   —     (651 )

Equity in net income of subsidiaries

     852     847     —     (1,699 )   —  

Equity in net income of subsidiaries of discontinued operations

     47     47     —     (94 )   —  

Intercompany interest income (expense), net

     (8 )   33     (25 )   —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income (loss) from continuing operations before income taxes

     838     899     (172 )   (1,793 )   (228 )

Income tax benefit

     —     —     1,019     —     1,019  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations

     838     899     847     (1,793 )   791  

Income from discontinued operations, net of income taxes

     1     —     47     —     48  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income

     839     899     894     (1,793 )   839  

Other comprehensive income

     74     74     33     (107 )   74  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Comprehensive income

   $ 913   $ 973   $ 927   $ (1,900 ) $ 913  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

21

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

18. Tyco Electronics Group S.A. (Continued)


Condensed Consolidating Statement of Operations (UNAUDITED)
For the Nine Months Ended June 30, 2017

 
   TE
Connectivity
Ltd. 		  TEGSA   Other
Subsidiaries 		  Consolidating
Adjustments 		  Total  
 
   (in millions)
  

Net sales

   $ —   $ —   $ 9,657   $ —   $ 9,657  

Cost of sales

     —     —     6,346     —     6,346  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross margin

     —     —     3,311     —     3,311  

Selling, general, and administrative expenses, net

     144     (52 )   1,104     —     1,196  

Research, development, and engineering expenses

     —     —     490     —     490  

Acquisition and integration costs

     —     —     5     —     5  

Restructuring and other charges, net

     —     —     125     —     125  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating income (loss)

     (144 )   52     1,587     —     1,495  

Interest income

     —     —     14     —     14  

Interest expense

     —     (95 )   —     —     (95 )

Other expense, net

     —     —     (6 )   —     (6 )

Equity in net income of subsidiaries

     1,409     1,369     —     (2,778 )   —  

Equity in net income of subsidiaries of discontinued operations

     5     18     —     (23 )   —  

Intercompany interest income (expense), net

     (21 )   83     (62 )   —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations before income taxes

     1,249     1,427     1,533     (2,801 )   1,408  

Income tax expense

     —     —     (164 )   —     (164 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations

     1,249     1,427     1,369     (2,801 )   1,244  

Income (loss) from discontinued operations, net of income taxes(1)

     —     (13 )   18     —     5  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income

     1,249     1,414     1,387     (2,801 )   1,249  

Other comprehensive income

     36     36     14     (50 )   36  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Comprehensive income

   $ 1,285   $ 1,450   $ 1,401   $ (2,851 ) $ 1,285  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(1)
Includes the internal allocation of gains and losses associated with the divestiture of our BNS business.

22

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

18. Tyco Electronics Group S.A. (Continued)


Condensed Consolidating Statement of Operations (UNAUDITED)
For the Nine Months Ended June 24, 2016

 
   TE
Connectivity
Ltd. 		  TEGSA   Other
Subsidiaries 		  Consolidating
Adjustments 		  Total  
 
   (in millions)
  

Net sales

   $ —   $ —   $ 8,906   $ —   $ 8,906  

Cost of sales

     —     —     5,977     —     5,977  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross margin

     —     —     2,929     —     2,929  

Selling, general, and administrative expenses, net

     135     35     904     —     1,074  

Research, development, and engineering expenses

     —     —     479     —     479  

Acquisition and integration costs

     1     —     18     —     19  

Restructuring and other charges (credits), net

     2     (1 )   (29 )   —     (28 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating income (loss)

     (138 )   (34 )   1,557     —     1,385  

Interest income

     —     —     12     —     12  

Interest expense

     —     (92 )   (1 )   —     (93 )

Other expense, net

     —     —     (631 )   —     (631 )

Equity in net income of subsidiaries

     1,658     1,724     —     (3,382 )   —  

Equity in net income of subsidiaries of discontinued operations

     67     183     —     (250 )   —  

Intercompany interest income (expense), net

     (16 )   60     (44 )   —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations before income taxes

     1,571     1,841     893     (3,632 )   673  

Income tax benefit

     —     —     831     —     831  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations

     1,571     1,841     1,724     (3,632 )   1,504  

Income (loss) from discontinued operations, net of income taxes(1)

     1     (116 )   183     —     68  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income

     1,572     1,725     1,907     (3,632 )   1,572  

Other comprehensive loss

     (2 )   (2 )   (24 )   26     (2 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Comprehensive income

   $ 1,570   $ 1,723   $ 1,883   $ (3,606 ) $ 1,570  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(1)
Includes the internal allocation of gains and losses associated with the divestiture of our BNS business.

23

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

18. Tyco Electronics Group S.A. (Continued)


Condensed Consolidating Balance Sheet (UNAUDITED)
As of June 30, 2017

 
   TE
Connectivity
Ltd. 		  TEGSA   Other
Subsidiaries 		  Consolidating
Adjustments 		  Total  
 
   (in millions)
  

Assets

                                

Current assets:

                                

Cash and cash equivalents

   $ —   $ —   $ 755   $ —   $ 755  

Accounts receivable, net

     —     —     2,271     —     2,271  

Inventories

     —     —     1,787     —     1,787  

Intercompany receivables

     33     1,795     38     (1,866 )   —  

Prepaid expenses and other current assets

     2     62     477     —     541  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total current assets

     35     1,857     5,328     (1,866 )   5,354  

Property, plant, and equipment, net

     —     —     3,165     —     3,165  

Goodwill

     —     —     5,516     —     5,516  

Intangible assets, net

     —     —     1,790     —     1,790  

Deferred income taxes

     —     —     2,287     —     2,287  

Investment in subsidiaries

     11,376     20,584     —     (31,960 )   —  

Intercompany loans receivable

     1     4,092     11,088     (15,181 )   —  

Other assets

     —     7     401     —     408  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Assets

   $ 11,412   $ 26,540   $ 29,575   $ (49,007 ) $ 18,520  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Liabilities and Shareholders' Equity

    
 		    
 		    
 		    
 		    
 		  

Current liabilities:

                                

Short-term debt

   $ —   $ 877   $ 1   $ —   $ 878  

Accounts payable

     3     —     1,306     —     1,309  

Accrued and other current liabilities

     435     47     1,141     —     1,623  

Deferred revenue

     —     —     62     —     62  

Intercompany payables

     1,833     —     33     (1,866 )   —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total current liabilities

     2,271     924     2,543     (1,866 )   3,872  

Long-term debt

     —     3,111     2     —     3,113  

Intercompany loans payable

     —     11,088     4,093     (15,181 )   —  

Long-term pension and postretirement liabilities

     —     —     1,494     —     1,494  

Deferred income taxes

     —     —     197     —     197  

Income taxes

     —     —     283     —     283  

Other liabilities

     —     41     379     —     420  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Liabilities

     2,271     15,164     8,991     (17,047 )   9,379  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Shareholders' Equity

     9,141     11,376     20,584     (31,960 )   9,141  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Liabilities and Shareholders' Equity

   $ 11,412   $ 26,540   $ 29,575   $ (49,007 ) $ 18,520  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

24

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

18. Tyco Electronics Group S.A. (Continued)


Condensed Consolidating Balance Sheet (UNAUDITED)
As of September 30, 2016

 
   TE
Connectivity
Ltd. 		  TEGSA   Other
Subsidiaries 		  Consolidating
Adjustments 		  Total  
 
   (in millions)
  

Assets

                                

Current assets:

                                

Cash and cash equivalents

   $ —   $ —   $ 647   $ —   $ 647  

Accounts receivable, net

     —     —     2,046     —     2,046  

Inventories

     —     —     1,596     —     1,596  

Intercompany receivables

     37     1,314     48     (1,399 )   —  

Prepaid expenses and other current assets

     3     17     466     —     486  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total current assets

     40     1,331     4,803     (1,399 )   4,775  

Property, plant, and equipment, net

     —     —     3,052     —     3,052  

Goodwill

     —     —     5,492     —     5,492  

Intangible assets, net

     —     —     1,879     —     1,879  

Deferred income taxes

     —     —     2,111     —     2,111  

Investment in subsidiaries

     10,053     19,425     —     (29,478 )   —  

Intercompany loans receivable

     22     3,739     10,313     (14,074 )   —  

Other assets

     —     14     285     —     299  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​