XNYS:TEL TE Connectivity Ltd Quarterly Report 10-Q Filing - 6/29/2012

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TABLE OF CONTENTS

Table of Contents

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 29, 2012

Or

o

 

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

001-33260
(Commission File Number)



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, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting 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

        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 24, 2012 was 427,809,571.

   


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 29, 2012 and June 24, 2011 (Unaudited)

    1  

 

Condensed Consolidated Balance Sheets as of June 29, 2012 and September 30, 2011 (Unaudited)

    2  

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 29, 2012 and June 24, 2011 (Unaudited)

    3  

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

    4  

Item 2.

 

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

    46  

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

    70  

Item 4.

 

Controls and Procedures

    70  

Part II.

 

Other Information

       

Item 1.

 

Legal Proceedings

    71  

Item 1A.

 

Risk Factors

    71  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

    71  

Item 3.

 

Defaults Upon Senior Securities

    71  

Item 4.

 

Mine Safety Disclosures

    72  

Item 5.

 

Other Information

    72  

Item 6.

 

Exhibits

    72  

Signatures

    73  

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 29,
2012
  June 24,
2011
  June 29,
2012
  June 24,
2011
 
 
  (in millions, except per share data)
 

Net sales

  $ 3,499   $ 3,579   $ 9,918   $ 10,025  

Cost of sales

    2,481     2,491     6,936     6,938  
                   

Gross margin

    1,018     1,088     2,982     3,087  

Selling, general, and administrative expenses

    423     441     1,233     1,261  

Research, development, and engineering expenses

    173     178     523     507  

Acquisition and integration costs

    15     1     23     19  

Restructuring and other charges, net

    36     8     86     58  
                   

Operating income

    371     460     1,117     1,242  

Interest income

    6     5     18     16  

Interest expense

    (48 )   (39 )   (131 )   (117 )

Other income (expense), net

    19     (5 )   31     13  
                   

Income from continuing operations before income taxes

    348     421     1,035     1,154  

Income tax expense

    (88 )   (70 )   (267 )   (247 )
                   

Income from continuing operations

    260     351     768     907  

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

    (61 )   6     (49 )   16  
                   

Net income

    199     357     719     923  

Less: net income attributable to noncontrolling interests

        (2 )   (3 )   (4 )
                   

Net income attributable to TE Connectivity Ltd

  $ 199   $ 355   $ 716   $ 919  
                   

Amounts attributable to TE Connectivity Ltd.:

                         

Income from continuing operations

  $ 260   $ 349   $ 765   $ 903  

Income (loss) from discontinued operations

    (61 )   6     (49 )   16  
                   

Net income

  $ 199   $ 355   $ 716   $ 919  
                   

Basic earnings per share attributable to TE Connectivity Ltd.:

                         

Income from continuing operations

  $ 0.61   $ 0.80   $ 1.79   $ 2.05  

Income (loss) from discontinued operations

    (0.15 )   0.01     (0.11 )   0.03  
                   

Net income

  $ 0.46   $ 0.81   $ 1.68   $ 2.08  
                   

Diluted earnings per share attributable to TE Connectivity Ltd.:

                         

Income from continuing operations

  $ 0.60   $ 0.79   $ 1.78   $ 2.02  

Income (loss) from discontinued operations

    (0.14 )   0.01     (0.11 )   0.04  
                   

Net income

  $ 0.46   $ 0.80   $ 1.67   $ 2.06  
                   

Dividends and cash distributions paid per common share of TE Connectivity Ltd

  $ 0.21   $ 0.18   $ 0.57   $ 0.50  

Weighted-average number of shares outstanding:

                         

Basic

    428     437     427     441  

Diluted

    431     442     430     447  

   

See Notes to Condensed Consolidated Financial Statements.

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 
  June 29,
2012
  September 30,
2011
 
 
  (in millions,
except share data)

 

Assets

             

Current Assets:

             

Cash and cash equivalents

  $ 1,302   $ 1,218  

Accounts receivable, net of allowance for doubtful accounts of $41 and $38, respectively

    2,393     2,341  

Inventories

    1,868     1,878  

Prepaid expenses and other current assets

    462     634  

Deferred income taxes

    407     402  

Assets held for sale

        508  
           

Total current assets

    6,432     6,981  

Property, plant, and equipment, net

    3,136     3,140  

Goodwill

    4,290     3,288  

Intangible assets, net

    1,392     631  

Deferred income taxes

    2,232     2,364  

Receivable from Tyco International Ltd. and Covidien plc

    1,170     1,066  

Other assets

    290     253  
           

Total Assets

  $ 18,942   $ 17,723  
           

Liabilities and Equity

             

Current Liabilities:

             

Current maturities of long-term debt

  $ 1,066   $  

Accounts payable

    1,383     1,454  

Accrued and other current liabilities

    1,522     1,733  

Deferred revenue

    99     143  

Liabilities held for sale

        80  
           

Total current liabilities

    4,070     3,410  

Long-term debt

    2,693     2,667  

Long-term pension and postretirement liabilities

    1,169     1,202  

Deferred income taxes

    509     333  

Income taxes

    2,257     2,122  

Other liabilities

    504     505  
           

Total Liabilities

    11,202     10,239  
           

Commitments and contingencies (Note 11)

             

Equity:

             

TE Connectivity Ltd. Shareholders' Equity:

             

Common shares, 439,092,124 shares authorized and issued, CHF 1.17 par value, and 463,080,684 shares authorized and issued, CHF 1.37 par value, respectively

    193     593  

Contributed surplus

    6,820     7,604  

Accumulated earnings

    800     84  

Treasury shares, at cost, 11,318,310 and 39,303,550 shares, respectively

    (305 )   (1,235 )

Accumulated other comprehensive income

    226     428  
           

Total TE Connectivity Ltd. shareholders' equity

    7,734     7,474  

Noncontrolling interests

    6     10  
           

Total Equity

    7,740     7,484  
           

Total Liabilities and Equity

  $ 18,942   $ 17,723  
           

   

See Notes to Condensed Consolidated Financial Statements.

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
  For the Nine Months Ended  
 
  June 29, 2012   June 24, 2011  
 
  (in millions)
 

Cash Flows From Operating Activities:

             

Net income

  $ 719   $ 923  

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

    49     (16 )
           

Income from continuing operations

    768     907  

Adjustments to reconcile net cash provided by operating activities:

             

Depreciation and amortization

    453     419  

Deferred income taxes

    100     103  

Provision for losses on accounts receivable and inventories

    44     20  

Share-based compensation expense

    52     58  

Other

    17     (19 )

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

             

Accounts receivable, net

    (26 )   (122 )

Inventories

    24     (235 )

Inventoried costs on long-term contracts

    9     16  

Prepaid expenses and other current assets

    86     94  

Accounts payable

    (91 )   84  

Accrued and other current liabilities

    (195 )   (251 )

Income taxes

    (74 )   22  

Deferred revenue

    (52 )   (66 )

Long-term pension and postretirement liabilities

    33     53  

Other

    26     31  
           

Net cash provided by continuing operating activities

    1,174     1,114  

Net cash provided by discontinued operating activities

    60     35  
           

Net cash provided by operating activities

    1,234     1,149  
           

Cash Flows From Investing Activities:

             

Capital expenditures

    (385 )   (370 )

Proceeds from sale of property, plant, and equipment

    13     58  

Proceeds from sale of intangible assets

        68  

Proceeds from sale of short-term investments

        155  

Acquisition of business, net of cash acquired

    (1,384 )   (731 )

Proceeds from divestiture of discontinued operations, net of cash retained by operations sold

    394      

Other

    (7 )   (10 )
           

Net cash used in continuing investing activities

    (1,369 )   (830 )

Net cash used in discontinued investing activities

    (1 )   (5 )
           

Net cash used in investing activities

    (1,370 )   (835 )
           

Cash Flows From Financing Activities:

             

Net increase (decrease) in commercial paper

    350     (100 )

Proceeds from long-term debt

    748     249  

Repayment of long-term debt

    (642 )   (565 )

Proceeds from exercise of share options

    52     74  

Repurchase of common shares

    (17 )   (540 )

Payment of common share dividends and cash distributions to shareholders

    (243 )   (220 )

Other

    45     17  
           

Net cash provided by (used in) continuing financing activities

    293     (1,085 )

Net cash used in discontinued financing activities

    (59 )   (30 )
           

Net cash provided by (used in) financing activities

    234     (1,115 )
           

Effect of currency translation on cash

    (14 )   23  

Net increase (decrease) in cash and cash equivalents

    84     (778 )

Cash and cash equivalents at beginning of period

    1,218     1,990  
           

Cash and cash equivalents at end of period

  $ 1,302   $ 1,212  
           

   

See Notes to Condensed Consolidated Financial Statements.

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

    Basis of Presentation

        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 Dollars, in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ materially from these estimates. 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 Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. 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, 2011.

        Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 2012 and fiscal 2011 are to our fiscal years ending September 28, 2012 and September 30, 2011, respectively.

    Reclassifications

        We have reclassified certain items on our Condensed Consolidated Financial Statements to conform to the current year presentation.

2. Accounting Pronouncements

    Recently Issued Accounting Pronouncements

        In December 2011 and June 2011, the Financial Accounting Standards Board ("FASB") issued updates to guidance in Accounting Standards Codification ("ASC") 220, Comprehensive Income, that change the presentation and disclosure requirements of comprehensive income in interim and annual financial statements. These updates to ASC 220 are effective for us in the first quarter of fiscal 2013; however, we expect to early adopt these standards during the fourth quarter of fiscal 2012. Adoption is not expected to have a material impact on our Condensed Consolidated Financial Statements.

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TE CONNECTIVITY LTD.

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

3. Restructuring and Other Charges, Net

        Charges (credits) to operations by segment were as follows:

 
  For the
Quarters Ended
  For the
Nine Months Ended
 
 
  June 29,
2012
  June 24,
2011
  June 29,
2012
  June 24,
2011
 
 
  (in millions)
 

Transportation Solutions

  $ 14   $ (13 ) $ 12   $ (18 )

Communications and Industrial Solutions

    16     11     51     14  

Network Solutions

    6     10     23     62  
                   

Restructuring and related charges, net

  $ 36   $ 8   $ 86   $ 58  
                   

        Amounts recognized on the Condensed Consolidated Statements of Operations were as follows:

 
  For the
Quarters Ended
  For the
Nine Months Ended
 
 
  June 29,
2012
  June 24,
2011
  June 29,
2012
  June 24,
2011
 
 
  (in millions)
 

Cash charges

  $ 36   $ 7   $ 89   $ 52  

Non-cash charges (credits)

        1     (3 )   6  
                   

Restructuring and related charges, net

  $ 36   $ 8   $ 86   $ 58  
                   

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TE CONNECTIVITY LTD.

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

3. Restructuring and Other Charges, Net (Continued)

Restructuring and Related Cash Charges

        Activity in our restructuring reserves during the first nine months of fiscal 2012 is summarized as follows:

 
  Balance at
September 30,
2011
  Charges   Utilization   Changes in
Estimate
  Currency
Translation
  Balance at
June 29,
2012
 
 
  (in millions)
 

Fiscal 2012 Actions:

                                     

Employee severance

  $   $ 87   $ (30 ) $ (1 ) $ (1 ) $ 55  

Facilities exit costs

                         

Other

                         
                           

Total

        87     (30 )   (1 )   (1 )   55  
                           

Fiscal 2011 Actions:

                                     

Employee severance

    104     6     (51 )   (12 )   (3 )   44  

Facilities exit costs

    4     2     (4 )           2  

Other

    1                     1  
                           

Total

    109     8     (55 )   (12 )   (3 )   47  
                           

Pre-Fiscal 2011 Actions:

                                     

Employee severance

    33     4     (14 )   (1 )   (2 )   20  

Facilities exit costs

    31     3     (6 )       (1 )   27  

Other

    2     1     (1 )           2  
                           

Total

    66     8     (21 )   (1 )   (3 )   49  
                           

Total Activity

  $ 175   $ 103   $ (106 ) $ (14 ) $ (7 ) $ 151  
                           

    Fiscal 2012 Actions

        We initiated restructuring programs during fiscal 2012 associated with the acquisition of Deutsch Group SAS and related headcount reductions primarily in the Transportations Solutions segment as well as headcount reductions in the Communications and Industrial Solutions segment. In connection with these actions, during the nine months ended June 29, 2012, we recorded net restructuring charges of $86 million primarily related to employee severance and benefits. We expect to complete all restructuring activities commenced in fiscal 2012 by the end of fiscal 2013 and to incur total charges of approximately $87 million. Cash spending related to this plan was $30 million in the first nine months of fiscal 2012. We expect total cash spending to be approximately $59 million and $27 million in fiscal 2012 and 2013, respectively.

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TE CONNECTIVITY LTD.

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

3. Restructuring and Other Charges, Net (Continued)

        The following table summarizes charges incurred for fiscal 2012 actions by segment:

 
  Charges Incurred  
 
  For the
Quarter Ended
June 29, 2012
  For the
Nine Months Ended
June 29, 2012
 
 
  (in millions)
 

Transportation Solutions

  $ 13   $ 17  

Communications and Industrial Solutions

    18     50  

Network Solutions

    5     19  
           

Total

  $ 36   $ 86  
           

    Fiscal 2011 Actions

        We initiated restructuring programs during fiscal 2011 which were primarily associated with the acquisition of ADC Telecommunications, Inc. ("ADC") and related headcount reductions in the Network Solutions segment. Additionally, we increased reductions in force as a result of economic conditions, primarily in the Communications and Industrial Solutions segment. In connection with these actions, during the nine months ended June 29, 2012 and June 24, 2011, we recorded net restructuring credits of $4 million and charges of $77 million, respectively, which primarily related to employee severance and benefits. We have completed all restructuring activities commenced in fiscal 2011. Cash spending related to this plan was $55 million in the first nine months of fiscal 2012. We expect total cash spending to be approximately $82 million and $20 million in fiscal 2012 and 2013, respectively.

        The following table summarizes charges incurred for fiscal 2011 actions by segment:

 
  Charges Incurred  
 
  For the
Quarter Ended
June 29, 2012
  For the
Nine Months Ended
June 29, 2012
  Cumulative  
 
  (in millions)
 

Transportation Solutions

  $   $ (6 ) $ 2  

Communications and Industrial Solutions

    (2 )       68  

Network Solutions

    1     2     81  
               

Total

  $ (1 ) $ (4 ) $ 151  
               

    Pre-Fiscal 2011 Actions

        We initiated restructuring programs during fiscal 2010 primarily related to headcount reductions in the Transportation Solutions segment. During fiscal 2009, we initiated restructuring programs primarily related to headcount reductions and manufacturing site closures across all segments in response to economic conditions and the implementation of our manufacturing simplification plan. We have completed all restructuring activities commenced in fiscal 2010 and 2009. In connection with these pre-fiscal 2011 actions, during the nine months ended June 29, 2012 and June 24, 2011, we recorded net restructuring charges of $7 million and credits of $25 million, respectively. The credits in the first

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TE CONNECTIVITY LTD.

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

3. Restructuring and Other Charges, Net (Continued)

nine months of fiscal 2011 primarily related to decreases in planned employee headcount reductions associated with the Transportation Solutions segment.

        During fiscal 2002, we recorded restructuring charges related to a significant downturn in the telecommunications industry and certain other end markets. These actions have been completed. As of June 29, 2012, the remaining restructuring reserves related to fiscal 2002 actions were $29 million, primarily associated with exited lease facilities in the Subsea Communications business in the Network Solutions segment. We expect that the remaining reserves will continue to be paid out over the expected terms of the obligations which range from one to fifteen years.

        Cash spending related to pre-fiscal 2011 actions was $21 million in the first nine months of fiscal 2012, and we expect total cash spending of approximately $39 million and $15 million in fiscal 2012 and 2013, respectively.

Total Restructuring Reserves

        Restructuring reserves by segment were as follows:

 
  June 29,
2012
  September 30,
2011
 
 
  (in millions)
 

Transportation Solutions

  $ 25   $ 32  

Communications and Industrial Solutions

    65     65  

Network Solutions

    61     78  
           

Restructuring reserves

  $ 151   $ 175  
           

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

 
  June 29,
2012
  September 30,
2011
 
 
  (in millions)
 

Accrued and other current liabilities

  $ 109   $ 129  

Other liabilities

    42     46  
           

Restructuring reserves

  $ 151   $ 175  
           

4. Acquisition

        On April 3, 2012, we acquired 100% of the outstanding shares of Deutsch Group SAS ("Deutsch"). The total value paid for the transaction amounted to €1.55 billion (approximately $2.05 billion using an exchange rate of $1.33 per €1.00), net of cash acquired. The total value paid included $659 million related to the repayment of Deutsch's financial debt plus accrued interest. Deutsch is a global leader in high-performance connectors for harsh environments, and significantly expands our product portfolio and enables us to better serve customers in the industrial and commercial transportation, aerospace, defense, and marine, and rail markets. This acquisition is reported primarily as part of our Transportation Solutions segment from the date of acquisition.

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TE CONNECTIVITY LTD.

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

4. Acquisition (Continued)

        The Deutsch acquisition was accounted for under the provisions of ASC 805, Business Combinations. We have preliminarily allocated the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. We are in the process of completing the valuation of identifiable assets acquired and liabilities assumed and, therefore, the fair values set forth below are subject to adjustment upon finalizing the valuations. In addition, completion of the purchase price allocation may impact the net deferred tax liability of $187 million currently recognized with any adjustment resulting in a corresponding change to goodwill. The amount of these potential adjustments could be significant. We expect to complete the purchase price allocation during the current fiscal year.

        The following table summarizes the preliminary allocation of the purchase price to the fair value of identifiable assets acquired and liabilities assumed at the date of acquisition, in accordance with the acquisition method of accounting:

 
  (in millions)  

Cash and cash equivalents

  $ 152  

Other current assets

    337  

Property, plant, and equipment

    132  

Goodwill

    1,026  

Intangible assets

    837  

Other long-term assets

    31  
       

Total assets acquired

    2,515  
       

Current maturities of long-term debt

    642  

Other current liabilities

    137  

Deferred income taxes

    176  

Other long-term liabilities

    24  
       

Total liabilities assumed

    979  
       

Net assets acquired

    1,536  

Cash and cash equivalents acquired

    (152 )
       

Net cash paid

  $ 1,384  
       

        Other current assets primarily consist of inventories of $190 million and trade accounts receivable of $122 million. Other current liabilities assumed are primarily comprised of accrued and other current liabilities of $70 million and trade accounts payable of $56 million.

        The fair values assigned to intangible assets were determined through the use of the income approach, specifically the relief from royalty method and the multi-period excess earnings method. Both valuation methods rely on management judgments, including expected future cash flows resulting from existing customer relationships, customer attrition rates, contributory effects of other assets utilized in the business, peer group cost of capital and royalty rates, and other factors. The valuation of tangible assets was derived using a combination of the income approach, the market approach, and the cost approach. Significant judgments used in valuing tangible assets include estimated reproduction or replacement cost, useful lives of assets, estimated selling prices, costs to complete, and reasonable

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TE CONNECTIVITY LTD.

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

4. Acquisition (Continued)

profit. Useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows.

        Intangible assets acquired consist of the following:

 
  Amount   Weighted-Average
Amortization Period
 
 
  (in millions)
  (in years)
 

Customer relationships

  $ 500     15  

Developed technology

    165     12  

Trade names and trademarks

    150     20  

Customer order backlog

    22     0.3  
             

Total

  $ 837     15  
             

        The acquired intangible assets are being amortized on a straight-line basis over their expected lives. The $1,026 million of goodwill is attributable to the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. The goodwill recognized is primarily attributable to cost savings and other synergies that we expect to realize through operational efficiencies including consolidation of manufacturing, marketing, and general and administrative functions. Substantially all of the goodwill has been allocated to our Transportation Solutions segment and is not deductible for tax purposes. However, prior to its merger with us, Deutsch completed certain acquisitions that resulted in goodwill deductible primarily for U.S. tax purposes of approximately $215 million which we will deduct over the next thirteen years.

        During the quarter ended June 29, 2012, Deutsch contributed net sales of $174 million and an operating loss of $62 million to our Condensed Consolidated Financial Statements. The operating loss included charges of $68 million associated with the amortization of acquisition-accounting related fair value adjustments primarily related to acquired inventories and customer order backlog, acquisition costs of $13 million, restructuring charges of $11 million, and integration costs of $2 million. During the nine months ended June 29, 2012, we incurred Deutsch-related acquisition and integration costs of $21 million and $2 million, respectively.

        The following unaudited pro forma financial information reflects the consolidated results of operations of the Company had the Deutsch acquisition occurred at the beginning of fiscal 2011.

 
  Pro Forma for
the Quarters Ended
  Pro Forma for
the Nine Months Ended
 
 
  June 29,
2012
  June 24,
2011
  June 29,
2012
  June 24,
2011
 
 
  (in millions)
 

Net sales

  $ 3,502   $ 3,757   $ 10,264   $ 10,513  

Net income attributable to TE Connectivity Ltd. 

    250     367     789     892  

        The pro forma financial information is based on our preliminary allocation of purchase price and therefore subject to adjustment upon finalizing the purchase price allocation. The significant pro forma adjustments which are described below are net of income tax expense (benefit) at the statutory rate.

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

4. Acquisition (Continued)

        Pro forma results for the quarter ended June 29, 2012 were adjusted to exclude $30 million of charges related to the fair value adjustment to acquisition-date inventories, $12 million of charges related to acquired customer order backlog, $8 million of acquisition costs, and $2 million of charges related to other acquisition accounting-related adjustments. Pro forma results for the quarter ended June 29, 2012 were also adjusted to include $1 million of interest expense based on pro forma changes in our capital structure.

        Pro forma results for the quarter ended June 24, 2011 were adjusted to exclude $11 million of interest expense based on pro forma changes in our capital structure, $7 million of income tax expense based on the estimated impact of combining Deutsch into our global tax position, and $1 million of charges related to depreciation expense. In addition, pro forma results for the quarter ended June 24, 2011 were adjusted to include $5 million of charges related to the amortization of the fair value of acquired intangible assets.

        Pro forma results for the nine months ended June 29, 2012 were adjusted to exclude $30 million of interest expense based on pro forma changes in our capital structure, $30 million of charges related to the fair value adjustment to acquisition-date inventories, $20 million of income tax expense based on the estimated impact of combining Deutsch into our global tax position, $13 million of acquisition costs, $12 million of charges related to acquired customer order backlog, $2 million of share-based compensation expense incurred by Deutsch as a result of the change in control of Deutsch, $2 million of charges related to depreciation expense, and $2 million of charges related to other acquisition accounting-related adjustments. In addition, pro forma results for the nine months ended June 29, 2012 were adjusted to include $17 million of charges related to the amortization of the fair value of acquired intangible assets.

        Pro forma results for the nine months ended June 24, 2011 were adjusted to exclude $32 million of interest expense based on pro forma changes in our capital structure, $20 million of income tax expense based on the estimated impact of combining Deutsch into our global tax position, and $3 million of charges related to depreciation expense. In addition, pro forma results for the nine months ended June 24, 2011 were adjusted to include $30 million of charges related to the fair value adjustment to acquisition-date inventories, $16 million of charges related to the amortization of the fair value of acquired intangible assets, $14 million of charges related to acquired customer order backlog, and $4 million of charges related to other acquisition accounting-related adjustments.

        Pro forma results do not include any anticipated synergies or other anticipated benefits of the acquisition. Accordingly, the unaudited pro forma financial information is not necessarily indicative of either future results of operations or results that might have been achieved had the Deutsch acquisition occurred at the beginning of fiscal 2011.

5. Discontinued Operations

        On June 1, 2012, we sold our Touch Solutions business for net cash proceeds of $380 million, subject to working capital adjustments, of which we received $370 million during the quarter ended June 29, 2012. We recognized an insignificant pre-tax loss on the transaction. The agreement includes contingent earn-out provisions through 2015 based on business performance. In connection with the divestiture, we incurred an income tax charge of $65 million, which is included in income (loss) from discontinued operations, net of income taxes on the Condensed Consolidated Statement of Operations

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TE CONNECTIVITY LTD.

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

5. Discontinued Operations (Continued)

for the quarter ended June 29, 2012, primarily as a result of being unable to realize a tax benefit from the write-off of goodwill at the time of the sale. We expect to make tax payments of approximately $10 million associated with this divestiture.

        On April 27, 2012, we sold our TE Professional Services business for net cash proceeds of $29 million, of which we received $24 million during the quarter ended June 29, 2012, and recognized a pre-tax gain of $2 million on the transaction. In the second quarter of fiscal 2012, we recorded a pre-tax impairment charge of $28 million, which is included in income (loss) from discontinued operations, net of income taxes on the Condensed Consolidated Statement of Operations, to write the carrying value of the business down to its estimated fair value less costs to sell.

        On December 27, 2011, the New York Court of Claims entered judgment in our favor in the amount of $25 million, payment of which was received in the second quarter of fiscal 2012, in connection with our former Wireless Systems business's State of New York contract. This judgment resolved all outstanding issues between the parties in this matter. This partial recovery of a previously recognized loss, net of legal fees, is reflected in income (loss) from discontinued operations, net of income taxes on the Condensed Consolidated Statement of Operations for the nine months ended June 29, 2012.

        The Touch Solutions, TE Professional Services, and Wireless Systems businesses met the held for sale and discontinued operations criteria and have been included in discontinued operations in all periods presented. Prior to reclassification to discontinued operations, the Touch Solutions and TE Professional Services businesses were included in the Communications and Industrial Solutions and Network Solutions segments, respectively. The Wireless Systems business was a component of the former Wireless Systems segment.

        The following table presents net sales, pre-tax income, pre-tax gain (loss) on sale, and income tax expense from discontinued operations:

 
  For the
Quarters Ended
  For the
Nine Months Ended
 
 
  June 29,
2012
  June 24,
2011
  June 29,
2012
  June 24,
2011
 
 
  (in millions)
 

Net sales

  $ 76   $ 151   $ 355   $ 377  
                   

Pre-tax income from discontinued operations

 
$

6
 
$

11
 
$

21
 
$

33
 

Pre-tax gain (loss) on sale of discontinued operations

    2         2     (4 )

Income tax expense

    (69 )   (5 )   (72 )   (13 )
                   

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

  $ (61 ) $ 6   $ (49 ) $ 16  
                   

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

5. Discontinued Operations (Continued)

        The following table presents balance sheet information for assets and liabilities held for sale at fiscal year end 2011. There were no such amounts at June 29, 2012:

 
  September 30,
2011
 
 
  (in millions)
 

Accounts receivable, net

  $ 84  

Inventories

    61  

Prepaid expenses and other current assets

    14  

Property, plant, and equipment, net

    23  

Goodwill

    298  

Intangible assets, net

    24  

Other assets

    4  
       

Total assets

  $ 508  
       

Accounts payable

  $ 29  

Accrued and other current liabilities

    40  

Deferred revenue

    2  

Other liabilities

    9  
       

Total liabilities

  $ 80  
       

6. Inventories

        Inventories consisted of the following:

 
  June 29,
2012
  September 30,
2011
 
 
  (in millions)
 

Raw materials

  $ 308   $ 301  

Work in progress

    602     541  

Finished goods

    905     973  

Inventoried costs on long-term contracts

    53     63  
           

Inventories

  $ 1,868   $ 1,878  
           

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

7. Goodwill

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

 
  Transportation
Solutions
  Communications
and Industrial
Solutions
  Network
Solutions
  Total  
 
  (in millions)
 

Balance at September 30, 2011:

                         

Goodwill

  $ 2,712   $ 3,034   $ 2,217   $ 7,963  

Accumulated impairment losses

    (2,191 )   (1,459 )   (1,025 )   (4,675 )
                   

Goodwill, net of impairment losses

    521     1,575     1,192     3,288  
                   

Changes in goodwill:

                         

Acquisition

    1,006     20         1,026  

Currency translation

    (3 )   (11 )   (10 )   (24 )

Balance at June 29, 2012:

                         

Goodwill

    3,715     3,043     2,207     8,965  

Accumulated impairment losses

    (2,191 )   (1,459 )   (1,025 )   (4,675 )
                   

Goodwill, net of impairment losses

  $ 1,524   $ 1,584   $ 1,182   $ 4,290  
                   

        During the third quarter of fiscal 2012, we completed the acquisition of Deutsch and recognized $1,026 million of goodwill, which primarily benefits the Transportation Solutions segment. See Note 4 for additional information on the acquisition of Deutsch.

8. Intangible Assets, Net

        Intangible assets were as follows:

 
  June 29, 2012   September 30, 2011  
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Amount
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Amount
 
 
  (in millions)
 

Intellectual property

  $ 1,146   $ (424 ) $ 722   $ 831   $ (389 ) $ 442  

Customer relationships

    666     (33 )   633     165     (12 )   153  

Other

    74     (37 )   37     53     (17 )   36  
                           

Total

  $ 1,886   $ (494 ) $ 1,392   $ 1,049   $ (418 ) $ 631  
                           

        During the quarter ended June 29, 2012, the Deutsch acquisition increased the gross carrying amount of intangible assets by $837 million. Intangible asset amortization expense was $47 million and $16 million for the quarters ended June 29, 2012 and June 24, 2011, respectively, and $76 million and $49 million for the nine months ended June 29, 2012 and June 24, 2011 respectively.

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

8. Intangible Assets, Net (Continued)

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

 
  (in millions)  

Remainder of fiscal 2012

  $ 31  

Fiscal 2013

    112  

Fiscal 2014

    112  

Fiscal 2015

    112  

Fiscal 2016

    111  

Fiscal 2017

    111  

Thereafter

    803  
       

Total

  $ 1,392  
       

9. Debt

        Debt was as follows:

 
  June 29,
2012
  September 30,
2011
 
 
  (in millions)
 

6.00% senior notes due 2012

  $ 714   $ 716  

5.95% senior notes due 2014

    300     300  

1.60% senior notes due 2015

    250      

6.55% senior notes due 2017

    733     736  

4.875% senior notes due 2021

    272     269  

3.50% senior notes due 2022

    498      

7.125% senior notes due 2037

    475     475  

3.50% convertible subordinated notes due 2015

    90     90  

Commercial paper, at a weighted-average interest rate of 0.43% at June 29, 2012

    350      

Other

    77     81  
           

Total debt(1)

    3,759     2,667  

Less current maturities of long-term debt(2)

    1,066      
           

Long-term debt

  $ 2,693   $ 2,667  
           

(1)
Senior notes are presented at face amount and, if applicable, are net of unamortized discount and the fair value of interest rate swaps.

(2)
The current maturities of long-term debt at June 29, 2012 was comprised of the 6.00% senior notes due 2012, commercial paper, and a portion of amounts shown as other.

        During February 2012, Tyco Electronics Group S.A. ("TEGSA"), our wholly-owned subsidiary, issued $250 million aggregate principal amount of 1.60% senior notes due February 3, 2015 and $500 million aggregate principal amount of 3.50% senior notes due February 3, 2022. The notes were offered and sold pursuant to an effective registration statement on Form S-3 filed on January 21, 2011. Interest on the notes is payable semi-annually on February 3 and August 3 of each year, beginning

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9. Debt (Continued)

August 3, 2012. The notes are TEGSA's unsecured senior obligations and rank equally in right of payment with all existing and any future senior indebtedness of TEGSA and senior to any subordinated indebtedness that TEGSA may incur. Net proceeds from the issuance of the notes due 2015 and 2022, were approximately $250 million and $498 million, respectively. In connection with the issuance of the senior notes in February 2012, the commitments of the lenders under the $700 million 364-day credit agreement, dated as of December 20, 2011, automatically terminated.

        In June 2011, TEGSA entered into a five-year unsecured senior revolving credit facility ("Credit Facility"), with total commitments of $1,500 million. TEGSA had no borrowings under the Credit Facility at June 29, 2012 and September 30, 2011.

        The Credit Facility contains a financial ratio covenant providing that if, as of the last day of each fiscal quarter, our ratio of Consolidated Total Debt (as defined in the Credit Facility) to Consolidated EBITDA (as defined in the Credit Facility) for the then most recently concluded period of four consecutive fiscal quarters exceeds 3.5 to 1.0, an Event of Default (as defined in the Credit Facility) is triggered. The Credit Facility and our other debt agreements contain other customary covenants.

        TEGSA's payment obligations under its senior notes, commercial paper, and Credit Facility are fully and unconditionally guaranteed by TE Connectivity Ltd. Neither TE Connectivity Ltd. nor any of its subsidiaries provides a guarantee as to payment obligations under the 3.50% convertible subordinated notes due 2015 and other notes issued by ADC prior to its acquisition in December 2010.

        We have used, and continue to use, derivative instruments to manage interest rate risk. See Note 12 for information on options to enter into interest rate swaps ("swaptions"), forward starting interest rate swaps, and interest rate swaps.

        The fair value of our debt, based on indicative valuations, was approximately $4,078 million and $2,968 million at June 29, 2012 and September 30, 2011, respectively.

10. Guarantees

        Pursuant to the Separation and Distribution Agreement and Tax Sharing Agreement, upon separation from Tyco International Ltd. ("Tyco International") on June 29, 2007, we entered into certain guarantee commitments and indemnifications with Tyco International and Covidien plc ("Covidien"). Under these agreements, principally the Tax Sharing Agreement, we, Tyco International, and Covidien share 31%, 27%, and 42%, respectively, of certain contingent liabilities relating to unresolved pre-separation tax matters of Tyco International. The effect of the Tax Sharing Agreement is to indemnify us for 69% of certain liabilities settled in cash by us with respect to unresolved pre-separation tax matters. Pursuant to that indemnification, we have made similar indemnifications to Tyco International and Covidien with respect to 31% of certain liabilities settled in cash by the companies relating to unresolved pre-separation tax matters. If any of the companies responsible for all or a portion of such liabilities were to default in its payment of costs or expenses related to any such liability, we would be responsible for a portion of the defaulting party or parties' obligation. In addition, Tyco International and Covidien are responsible for their tax liabilities that are not subject to the Tax Sharing Agreement's sharing formula. Our indemnification created under the Tax Sharing Agreement qualifies as a guarantee of a third party entity's debt under ASC 460, Guarantees.

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

10. Guarantees (Continued)

        At June 29, 2012, we had a liability representing the indemnifications made to Tyco International and Covidien pursuant to the Tax Sharing Agreement of $239 million of which $225 million was reflected in other liabilities and $14 million was reflected in accrued and other current liabilities on the Condensed Consolidated Balance Sheet. At September 30, 2011, the liability was $249 million and consisted of $228 million in other liabilities and $21 million in accrued and other current liabilities. The amount reflected in accrued and other current liabilities is our estimated cash obligation under the Tax Sharing Agreement to Tyco International and Covidien in connection with pre-separation tax matters that could be resolved within the next twelve months.

        We have assessed the probable future cash payments to Tyco International and Covidien for pre-separation income tax matters pursuant to the terms of the Tax Sharing Agreement and determined that $239 million remains sufficient to satisfy these expected obligations.

        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 have no reason to believe that these uncertainties would have a material adverse effect on our results of operations, financial position, or cash flows.

        At June 29, 2012, we had outstanding letters of credit and letters of guarantee in the amount of $349 million.

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

        We generally record estimated product warranty costs when contract revenues are recognized under the percentage-of-completion method for construction related contracts and at the time of sale for products. The estimation is primarily based on historical experience and actual warranty claims. Amounts accrued for warranty claims at June 29, 2012 and September 30, 2011 were $51 million and $54 million, respectively.

11. Commitments and Contingencies

TE Connectivity Legal Proceedings

        In the ordinary 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.

        At June 29, 2012, we had a contingent purchase price commitment of $80 million related to our fiscal 2001 acquisition of Com-Net. This represents the maximum amount payable to the former

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

11. Commitments and Contingencies (Continued)

shareholders of Com-Net only after the construction and installation of a communications system for the State of Florida was completed and approved by the State of Florida in accordance with guidelines set forth in the contract. Under the terms of the purchase and sale agreement, we do not believe we have any obligation to the sellers. However, the sellers have contested our position and initiated a lawsuit in June 2006 in the Court of Common Pleas in Allegheny County, Pennsylvania, which is in the discovery phase. A liability for this contingency has not been recorded on the Condensed Consolidated Financial Statements as we do not believe that any payment is probable or reasonably estimable at this time.

Legal Matters under Separation and Distribution Agreement

        The Separation and Distribution Agreement among us, Tyco International, and Covidien provided for the allocation among the parties of Tyco International's assets, liabilities, and obligations attributable to periods prior to our and Covidien's separations from Tyco International on June 29, 2007. Under the Separation and Distribution Agreement, we assumed the liability for, and control of, all pending and threatened legal matters at separation related to our business or assumed or retained liabilities. We were responsible for 31% of certain liabilities that arose from litigation pending or threatened at separation that was not allocated to one of the three parties, and Tyco International and Covidien were responsible for 27% and 42%, respectively, of such liabilities. If any party defaults in payment of its allocated share of any such liability, each non-defaulting party will be responsible for an equal portion of the amount in default together with any other non-defaulting party, although any such payments will not release the obligation of the defaulting party. Subject to the terms and conditions of the Separation and Distribution Agreement, Tyco International manages and controls all the legal matters related to the shared contingent liabilities, including the defense or settlement thereof, subject to certain limitations. All costs and expenses that Tyco International incurs in connection with the defense of such litigation, other than the amount of any judgment or settlement, which is allocated in the manner described above, will be borne equally by Tyco International, Covidien, and us. At the present time, all significant matters for which we shared responsibility with Tyco International and Covidien under the Separation and Distribution Agreement, which as previously reported in our periodic filings generally related to securities class action cases and other securities cases, have been settled. Other than matters described below under "Compliance Matters," we presently are not aware of any additional legal matters which may arise for which we would bear a portion of the responsibility under the Separation and Distribution Agreement.

    Compliance Matters

        As previously reported in our periodic filings, Tyco International received and has responded to various allegations that certain improper payments were made by Tyco International subsidiaries, including our subsidiaries, in recent years prior to the separation. Tyco International reported to the U.S. Department of Justice and the Securities and Exchange Commission the investigative steps and remedial measures that it had taken in response to the allegations, including that it retained outside counsel to perform a company-wide baseline review of its policies, controls, and practices with respect to compliance with the Foreign Corrupt Practices Act ("FCPA"), and that it would continue to investigate and make periodic progress reports to these agencies. To date, our baseline review has revealed that some of our former business practices may not have complied with FCPA requirements.

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

11. Commitments and Contingencies (Continued)

At this time, we believe we have adequate amounts recorded related to these matters, the amounts of which are not significant. Any judgment, settlement, or other cost incurred by Tyco International in connection with these matters not specifically allocated to Tyco International, Covidien, or us would be subject to the liability sharing provisions of the Separation and Distribution Agreement.

Income Taxes

        In prior years, in connection with the Internal Revenue Service ("IRS") audit of various fiscal years, Tyco International submitted to the IRS proposed adjustments to prior period U.S. federal income tax returns resulting in a reduction in the taxable income previously filed. The IRS accepted substantially all of the proposed adjustments for fiscal 1997 through 2000 for which the IRS had completed its field work. On the basis of previously accepted amendments, we have determined that acceptance of adjustments presented for additional periods through fiscal 2006 is more likely than not to be accepted and, accordingly, have recorded them, as well as the impacts of the adjustments accepted by the IRS, on the Condensed Consolidated Financial Statements.

        As our tax return positions continue to be updated for periods prior to separation, additional adjustments may be identified and recorded on the Condensed Consolidated Financial Statements. While the final adjustments cannot be determined until the income tax return amendment process is completed and accepted by the IRS, we believe that any resulting adjustments will not have a material impact on our results of operations, financial position, or cash flows. Additionally, adjustments may be recorded to equity in the future for the impact of filing final or amended income tax returns in certain jurisdictions where those returns include a combination of Tyco International, Covidien, and/or our subsidiaries for the periods prior to the separation.

        During fiscal 2007, the IRS concluded its field examination of certain of Tyco International's U.S. federal income tax returns for the years 1997 through 2000 and issued Revenue Agent Reports which reflect the IRS' determination of proposed tax adjustments for the 1997 through 2000 period. Tyco International has appealed certain proposed adjustments totaling approximately $1 billion. Additionally, the IRS proposed civil fraud penalties against Tyco International arising from alleged actions of former executives in connection with certain intercompany transfers of stock in 1998 and 1999. Based upon statutory guidelines, Tyco International estimates the proposed penalties could range between $30 million and $50 million. The penalty is asserted against a prior subsidiary of Tyco International that was distributed to us in connection with the separation. Any penalty ultimately imposed upon our subsidiary would be subject to sharing with Tyco International and Covidien under the Tax Sharing Agreement. It is our understanding that Tyco International continues to make progress towards resolving a substantial number of proposed tax adjustments for the years 1997 through 2000; however, several significant matters remain in dispute. The remaining issues in dispute involve the tax treatment of certain intercompany debt transactions. Tyco International has indicated that it is unlikely to achieve the resolution of these contested adjustments through the IRS appeals process, and therefore may be required to litigate the disputed issues. In the first nine months of fiscal 2012, we made payments of $70 million for tax deficiencies related to undisputed tax adjustments for the years 1997 through 2000. Concurrent with remitting these payments, we were reimbursed $44 million from Tyco International and Covidien pursuant to their indemnifications for pre-separation tax matters. For those issues not in dispute, we expect the IRS to complete its examination for the years 1997 through 2000 and issue special agreement Forms 870-AD by early fiscal 2013. Over the next twelve months, we expect to pay

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

11. Commitments and Contingencies (Continued)

approximately $26 million, inclusive of related indemnification payments, in connection with these pre-separation tax matters.

        During fiscal 2011, the IRS completed its field examination of certain Tyco International income tax returns for the years 2001 through 2004, issued Revenue Agent Reports which reflect the IRS' determination of proposed tax adjustments for the 2001 through 2004 period, and issued certain notices of deficiency. As a result of the completion of fieldwork and the settlement of certain tax matters, in the third quarter of fiscal 2011, we recognized income tax benefits of $35 million and other expense of $14 million pursuant to the Tax Sharing Agreement. Also, in the fourth quarter of fiscal 2011, we made net cash payments of $154 million related to pre-separation deficiencies.

        The IRS commenced its audit of certain Tyco International income tax returns for the years 2005 through 2007 in fiscal 2011.

        During the third quarter of fiscal 2012, the IRS commenced its audit of our income tax returns for the years 2008 through 2010.

        At June 29, 2012 and September 30, 2011, we have reflected $74 million and $232 million, respectively, of income tax liabilities related to the audits of Tyco International's and our income tax returns in accrued and other current liabilities as certain of these matters could be resolved within the next twelve months.

        We continue to believe that the amounts recorded on our Condensed Consolidated Financial Statements relating to the matters discussed above are appropriate. However, the ultimate resolution is uncertain and could result in a material impact to our results of operations, financial position, or cash flows.

Environmental Matters

        We are involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods. As of June 29, 2012, we concluded that it was probable that we would incur remedial costs in the range of $13 million to $26 million. As of June 29, 2012, we concluded that the best estimate within this range is $13 million, of which $9 million is included in accrued and other current liabilities and $4 million is included in other liabilities on the Condensed Consolidated Balance Sheet. In view of our financial position and reserves for environmental matters of $13 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.

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12. Financial Instruments

        We use derivative and non-derivative financial instruments to manage certain exposures to foreign currency, interest rate, investment, and commodity risks.

    Foreign Exchange Risks

        As part of managing the exposure to changes in foreign currency exchange rates, we utilize foreign currency forward and swap contracts, a portion of which are designated as cash flow hedges. The objective of these contracts is to minimize impacts to cash flows and profitability due to changes in foreign currency exchange rates on intercompany transactions, accounts receivable, accounts payable, and other cash transactions.

        We expect that significantly all of the balance in accumulated other comprehensive income associated with the cash flow hedge-designated instruments addressing foreign exchange risks will be reclassified into the Condensed Consolidated Statements of Operations within the next twelve months.

    Interest Rate and Investment Risk Management

        We issue debt, from time to time, to fund our operations and capital needs. Such borrowings can result in interest rate exposure. To manage the interest rate exposure, we use interest rate swaps to convert a portion of fixed-rate debt into variable-rate debt. We use forward starting interest rate swaps and swaptions to manage interest rate exposure in periods prior to the anticipated issuance of fixed-rate debt. We also utilize interest rate and investment swap contracts to manage interest rate and earnings exposure on certain non-qualified deferred compensation liabilities.

        During the first nine months of fiscal 2012, in conjunction with the issuance of the 1.60% senior notes due 2015 and 3.50% senior notes due 2022, we terminated forward starting interest rate swaps and swaptions designated as cash flow hedges on notional amounts of $400 million for a cash payment of $24 million. The effective portion of the forward starting interest rate swaps, approximately $24 million, was recorded in accumulated other comprehensive income and is reclassified to interest expense over a four year period. The ineffective portion of the forward starting interest rate swaps and the remaining unamortized premium of the swaptions were insignificant and were recorded in interest expense during the second quarter of fiscal 2012. Also during the first nine months of fiscal 2012 and in conjunction with the debt issuance (see Note 9 for additional information regarding the debt issuance), we entered into, and subsequently terminated, a cash flow hedge-designated interest rate swap on a notional amount of $300 million of the 3.50% senior notes due 2022 for a cash payment of $2 million. That cash payment was recorded in accumulated other comprehensive income and is reclassified to interest expense over a ten year period.

    Commodity Hedges

        As part of managing the exposure to certain commodity price fluctuations, we utilize commodity swap contracts designated as cash flow hedges. The objective of these contracts is to minimize impacts to cash flows and profitability due to changes in prices of commodities used in production.

        At June 29, 2012 and September 30, 2011, our commodity hedges had notional values of $214 million and $211 million, respectively. We expect that significantly all of the balance in

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

12. Financial Instruments (Continued)

accumulated other comprehensive income associated with the commodities hedges will be reclassified into the Condensed Consolidated Statements of Operations within the next twelve months.

    Hedges of Net Investment

        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 $1,739 million and $1,542 million at June 29, 2012 and September 30, 2011, respectively. We recorded foreign exchange gains of $20 million and losses of $4 million during the quarters ended June 29, 2012 and June 24, 2011, respectively, and gains of $80 million and losses of $106 million during the nine months ended June 29, 2012 and June 24, 2011, respectively, to currency translation, a component of accumulated other comprehensive income, offsetting foreign exchange gains or losses attributable to the translation of the net investment. See additional information in Note 19.

    Derivative Instrument Summary

        The fair value of our derivative instruments is summarized below.

 
  June 29, 2012   September 30, 2011  
 
  Fair Value
of Asset
Positions(1)
  Fair Value
of Liability
Positions(2)
  Fair Value
of Asset
Positions(1)
  Fair Value
of Liability
Positions(2)
 
 
  (in millions)
 

Derivatives designated as hedging instruments:

                         

Foreign currency contracts(3)

  $ 1   $ 2   $ 1   $ 1  

Interest rate swaps and swaptions

    24         21     21  

Commodity swap contracts

    1     16     13     14  
                   

Total derivatives designated as hedging instruments

    26     18     35     36  
                   

Derivatives not designated as hedging instruments:

                         

Foreign currency contracts(3)

    3     10     6     10  

Investment swaps

        1         5  
                   

Total derivatives not designated as hedging instruments

    3     11     6     15  
                   

Total derivatives

  $ 29   $ 29   $ 41   $ 51  
                   

(1)
All foreign currency, commodity swap, investment swap, and interest rate swap and swaption derivatives in asset positions that mature within one year of the balance sheet date are recorded in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets, except where a right of offset against liability positions exists. Derivative instruments in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets totaled $5 million and $12 million at June 29, 2012 and September 30, 2011, respectively. Interest rate swaps and swaptions and commodity swap contracts in asset positions that mature more than one year from the balance sheet date are recorded in other assets on the Condensed Consolidated Balance Sheets and totaled $24 million and $21 million at June 29, 2012 and September 30, 2011, respectively.

(2)
All foreign currency, commodity swap, investment swap, and interest rate swap and swaption derivatives in liability positions that mature within one year of the balance sheet date are recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets, except where a right of offset against asset positions exists. Derivative instruments

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12. Financial Instruments (Continued)

    in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $27 million and $43 million at June 29, 2012 and September 30, 2011, respectively. Interest rate swaps and swaptions and commodity swap contracts in liability positions that mature more than one year from the balance sheet date are recorded in other liabilities on the Condensed Consolidated Balance Sheets and totaled $2 million at June 29, 2012; there were no derivatives in other liabilities at September 30, 2011.

(3)
Contracts are presented gross without regard to any right of offset that exists.

        The effects of derivative instruments designated as fair value hedges on the Condensed Consolidated Statements of Operations were as follows:

 
  Gain Recognized  
 
   
  For the
Quarters Ended
  For the
Nine Months Ended
 
Derivatives Designated as Fair Value Hedges
  Location   June 29,
2012
  June 24,
2011
  June 29,
2012
  June 24,
2011
 
 
   
  (in millions)
 

Interest rate swaps(1)

  Interest expense   $ 2   $ 2   $ 5   $ 5  
                       

(1)
Certain interest rate swaps designated as fair value hedges were terminated in December 2008. Terminated interest rate swaps resulted in all gains presented in this table. Interest rate swaps in place at June 29, 2012 had no gain or loss recognized on the Condensed Consolidated Statements of Operations during the periods.

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

12. Financial Instruments (Continued)

        The effects of derivative instruments designated as cash flow hedges on the Condensed Consolidated Statements of Operations for the quarters ended were as follows:

 
  Gain (Loss)
Recognized in
OCI (Effective
Portion)
  Gain (Loss) Reclassified from
Accumulated OCI into
Income (Effective Portion)
  Gain (Loss) Recognized in
Income (Ineffective Portion
and Amount Excluded From
Effectiveness Testing)
 
Derivatives Designated
as Cash Flow Hedges
  Amount   Location   Amount   Location   Amount  
 
  (in millions)
 

For the Quarter Ended June 29, 2012:

                           

Foreign currency contracts

  $ (1 ) Cost of sales   $   Cost of sales   $  

Commodity swap contracts

    (14 ) Cost of sales       Cost of sales      

Interest rate swaps and swaptions(1)

      Interest expense     (3 ) Interest expense      
                       

Total

  $ (15 )     $ (3 )     $  
                       

For the Quarter Ended June 24, 2011:

                           

Foreign currency contracts

  $ 3   Cost of sales   $ 2   Cost of sales   $  

Commodity swap contracts

    5   Cost of sales     15   Cost of sales      

Interest rate swaps and swaptions(1)

    (8 ) Interest expense     (2 ) Interest expense     (2 )
                       

Total

  $       $ 15       $ (2 )
                       

(1)
During the quarter ended June 29, 2012, losses reclassified from accumulated other comprehensive income to interest expense relate to both forward starting interest rate swaps and swaptions designated as cash flow hedges terminated in February 2012 and forward starting interest rate swaps designated as cash flow hedges terminated in September 2007. Forward starting interest rate swaps in place at June 24, 2011 resulted in losses of $8 million in other comprehensive income related to the effective portions of the hedge during the period. Losses reclassified from accumulated other comprehensive income to interest expense during the quarter ended June 24, 2011 include only the forward starting interest rate swaps designated as cash flow hedges that were terminated in September 2007. Interest rate swaptions in place at June 24, 2011 resulted in losses of $2 million in interest expense as a result of amounts excluded from hedging relationship; there were no gains or losses recorded in other comprehensive income during the period.

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

12. Financial Instruments (Continued)

        The effects of derivative instruments designated as cash flow hedges on the Condensed Consolidated Statements of Operations for the nine months ended were as follows:

 
  Gain (Loss)
Recognized in
OCI (Effective
Portion)
  Gain (Loss) Reclassified from
Accumulated OCI into
Income (Effective Portion)
  Gain (Loss) Recognized in
Income (Ineffective Portion
and Amount Excluded From
Effectiveness Testing)
 
Derivatives Designated
as Cash Flow Hedges
  Amount   Location   Amount   Location   Amount  
 
  (in millions)
 

For the Nine Months Ended June 29, 2012:

                           

Foreign currency contracts

  $ (2 ) Cost of sales   $ (1 ) Cost of sales   $  

Commodity swap contracts

      Cost of sales     14   Cost of sales      

Interest rate swaps and swaptions(1)

    (5 ) Interest expense     (7 ) Interest expense      
                       

Total

  $ (7 )     $ 6       $  
                       

For the Nine Months Ended June 24, 2011:

                           

Foreign currency contracts

  $ 3   Cost of sales   $ 4   Cost of sales   $  

Commodity swap contracts

    30   Cost of sales     29   Cost of sales      

Interest rate swaps and swaptions(1)

    (2 ) Interest expense     (4 ) Interest expense     (1 )
                       

Total

  $ 31       $ 29       $ (1 )
                       

(1)
During the nine months ended June 29, 2012, we terminated forward starting interest rate swaps and swaptions designated as cash flow hedges. Prior to the termination, a loss of $3 million was recorded in other comprehensive income related to the effective portions of the hedges during the period. Amounts recognized as interest expense due to ineffectiveness were not material. Also during the nine months ended June 29, 2012, we entered into and terminated an interest rate swap designated as a cash flow hedge, recording a loss of $2 million in other comprehensive income. During the nine months ended June 29, 2012, losses reclassified from accumulated other comprehensive income to interest expense relate to both forward starting interest rate swaps and swaptions designated as cash flow hedges terminated in February 2012 and forward starting interest rate swaps designated as cash flow hedges terminated in September 2007. Interest rate swaps designated as cash flow hedges terminated in September 2007 resulted in losses of $4 million reflected in interest expense during the nine months ended June 24, 2011. Forward starting interest rate swaps in place at June 24, 2011 resulted in losses of $2 million in other comprehensive income related to the effective portions of the hedge during the period. Interest rate swaptions in place at June 24, 2011 resulted in losses of $1 million in interest expense as a result of amounts excluded from hedging relationship; there were no gains or losses recorded in other comprehensive income during the period.

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

12. Financial Instruments (Continued)

        The effects of derivative instruments not designated as hedging instruments on the Condensed Consolidated Statements of Operations were as follows:

 
  Gain (Loss) Recognized  
 
   
  For the
Quarters Ended
  For the
Nine Months Ended
 
Derivatives not Designated as
Hedging Instruments
  Location   June 29,
2012
  June 24,
2011
  June 29,
2012
  June 24,
2011
 
 
   
  (in millions)
 

Foreign currency contracts

  Selling, general, and administrative expenses   $ (15 ) $ 7   $ (36 ) $ 12  

Investment swaps

  Selling, general, and administrative expenses     (1 )   (1 )   6     3  
                       

Total

      $ (16 ) $ 6   $ (30 ) $ 15  
                       

        During the quarter and nine months ended June 29, 2012, we incurred losses of $15 million and $36 million, respectively, as a result of marking foreign currency derivatives not designated as hedging instruments to fair value. The losses were offset by gains realized as a result of re-measuring certain non-U.S. Dollar-denominated intercompany non-derivative financial instruments to the U.S. Dollar and included, during the first six months of fiscal 2012, losses of $20 million incurred in anticipation of the acquisition of Deutsch.

13. Fair Value Measurements

        Guidance on fair value measurement in ASC 820, Fair Value Measurements and Disclosures, specifies a fair value hierarchy based upon the observable inputs utilized in valuation of certain assets and liabilities. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. Fair value measurements are classified under the following hierarchy:

    Level 1—Quoted prices in active markets for identical assets and liabilities.

    Level 2—Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

    Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flows methodologies, and similar techniques that use significant unobservable inputs.

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

13. Fair Value Measurements (Continued)

        Financial assets and liabilities recorded at fair value on a recurring basis were as follows:

 
  Fair Value Measurements
Using Inputs Considered as
   
 
 
  Fair Value  
Description
  Level 1   Level 2   Level 3  
 
  (in millions)
 

June 29, 2012:

                         

Assets:

                         

Commodity swap contracts

  $ 1   $   $   $ 1  

Interest rate swaps and swaptions

        24         24  

Foreign currency contracts(1)

        4         4  

Rabbi trust assets

    4     79         83  
                   

Total assets at fair value

  $ 5   $ 107   $   $ 112  
                   

Liabilities:

                         

Commodity swap contracts

  $ 16   $   $   $ 16  

Investment swap contracts

        1         1  

Foreign currency contracts(1)

        12         12  
                   

Total liabilities at fair value

  $ 16   $ 13   $   $ 29  
                   

September 30, 2011:

                         

Assets:

                         

Commodity swap contracts

  $ 13   $   $   $ 13  

Interest rate swaps and swaptions

        21         21  

Foreign currency contracts(1)

        7         7  

Rabbi trust assets

    5     79         84  
                   

Total assets at fair value

  $ 18   $ 107   $   $ 125  
                   

Liabilities:

                         

Commodity swap contracts

  $ 14   $   $   $ 14  

Interest rate swaps and swaptions

        21         21  

Investment swap contracts

        5         5  

Foreign currency contracts(1)

        11         11  
                   

Total liabilities at fair value

  $ 14   $ 37   $   $ 51  
                   

(1)
Contracts are presented gross without regard to any right of offset that exists. See Note 12 for a reconciliation of amounts to the Condensed Consolidated Balance Sheets.

        The following is a description of the valuation methodologies used for the respective financial assets and liabilities measured at fair value on a recurring basis:

    Commodity swap contracts—Fair value of these assets and liabilities is determined using quoted prices on futures exchanges (level 1).

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13. Fair Value Measurements (Continued)

    Interest rate swaps and swaptions—Fair value of these assets and liabilities is determined based on observable inputs other than quoted prices. The positions are primarily valued using market approach models that use readily observable interest rates as their basis (level 2).

    Investment swap contracts—Fair value of these assets is determined based on observable inputs other than quoted prices. The positions are primarily valued using market approach models that use readily observable equity returns as their basis (level 2).

    Foreign currency contracts—Fair value of these assets and liabilities is determined using the market approach. Values are based on observable market transactions of spot and forward currency rates (level 2).

    Rabbi trust assets—Rabbi trust assets are principally comprised of comingled equity funds that are marked to fair value based on unadjusted quoted prices in active markets (level 1) and fixed income securities that are marked to fair value based on quoted market prices or other pricing determinations based on the results of market approach valuation models using observable market data such as recently reported trades, bid and offer information, and benchmark securities (level 2).

        The majority of derivatives that we enter into are valued using the over-the-counter quoted market prices for similar instruments. We do not believe that fair values of these derivative instruments materially differ from the amounts that could be realized upon settlement or maturity.

Other Financial Instruments

        Financial instruments other than derivative instruments include cash and cash equivalents, accounts receivable, accounts payable and long-term debt. These instruments are recorded on our Condensed Consolidated Balance Sheets at book value, which we believe approximates fair value (see Note 9 for disclosure of the fair value of long-term debt). The following is a description of the valuation methodologies used for the respective financial instruments:

    Cash and cash equivalents—Cash and cash equivalents are valued at book value, which we consider to be equivalent to unadjusted quoted prices (level 1).

    Accounts receivable—Accounts receivable are valued based on the net value expected to be realized. The net realizable value generally represents an observable contractual agreement (level 2).

    Accounts payable—Accounts payable are valued based on the net value expected to be paid, generally supported by an observable contractual agreement (level 2).

    Long-term debt—The fair value of long-term debt, including both current and non-current maturities, as presented in Note 9, is derived from quoted market prices or other pricing determinations based on the results of market approach valuation models using observable market data such as recently reported trades, bid and offer information, and benchmark securities (level 2).

        As of June 29, 2012, we did not have significant financial assets or liabilities that were measured at fair value on a non-recurring basis.

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

13. Fair Value Measurements (Continued)

        During the first nine months of fiscal 2012, we used significant other observable inputs (level 2) to calculate an impairment charge related to the TE Professional Services business. See Note 5 for additional information.

14. Retirement Plans

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

 
  U.S. Plans   Non-U.S. Plans  
 
  For the
Quarters Ended
  For the
Quarters Ended
 
 
  June 29,
2012
  June 24,
2011
  June 29,
2012
  June 24,
2011
 
 
  (in millions)
 

Service cost

  $ 2   $ 1   $ 14   $ 15  

Interest cost

    12     13     20     21  

Expected return on plan assets

    (14 )   (15 )   (14 )   (15 )

Amortization of prior service credit

            (3 )   (2 )

Amortization of net actuarial loss

    10     9     8     10  
                   

Net periodic benefit pension cost

  $ 10   $ 8   $ 25   $ 29  
                   

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

 
  U.S. Plans   Non-U.S. Plans  
 
  For the
Nine Months Ended
  For the
Nine Months Ended
 
 
  June 29,
2012
  June 24,
2011
  June 29,
2012
  June 24,
2011
 
 
  (in millions)
 

Service cost

  $ 5   $ 5   $ 40   $ 48  

Interest cost

    38     39     58     64  

Expected return on plan assets

    (43 )   (47 )   (41 )   (43 )

Amortization of prior service credit

            (7 )   (2 )

Amortization of net actuarial loss

    31     27     24     30  
                   

Net periodic benefit pension cost

  $ 31   $ 24   $ 74   $ 97  
                   

        The net periodic benefit cost for postretirement benefit plans was insignificant for the quarters and nine months ended June 29, 2012 and June 24, 2011.

        We anticipate that, at a minimum, we will make the minimum required contributions to our pension plans in fiscal 2012 of $3 million for U.S. plans and $97 million for non-U.S. plans. During the nine months ended June 29, 2012, we contributed $1 million to our U.S. plans and $72 million to our non-U.S. plans.

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14. Retirement Plans (Continued)

        We anticipate that we will make contributions to our postretirement benefit plans of $2 million in fiscal 2012. During the nine months ended June 29, 2012, contributions to our postretirement benefit plans were insignificant.

15. Income Taxes

        We recorded a tax provision of $88 million, for an effective income tax rate of 25.3%, and a tax provision of $70 million, for an effective income tax rate of 16.6%, for the quarters ended June 29, 2012 and June 24, 2011, respectively. The effective income tax rate for the quarter ended June 29, 2012 reflects income tax benefits recognized in connection with expected increased profitability in fiscal 2012 in certain entities operating in lower tax rate jurisdictions, offset by the estimated tax impacts of certain intercompany dividends. In addition, the effective income tax rate for the quarter ended June 29, 2012 reflects tax benefits recognized in connection with the finalization of prior year's tax returns, as well as accruals of interest related to uncertain tax positions. The effective income tax rate for the quarter ended June 24, 2011 reflects income tax benefits recognized in connection with expected increased profitability in fiscal 2011 in certain entities operating in lower tax rate jurisdictions and benefits of $35 million associated with the completion of fieldwork and the settlement of certain U.S. tax matters, partially offset by accruals of interest related to uncertain tax positions.

        We recorded a tax provision of $267 million, for an effective income tax rate of 25.8%, and a tax provision of $247 million, for an effective income tax rate of 21.4%, for the nine months ended June 29, 2012 and June 24, 2011, respectively. The effective income tax rate for the nine months ended June 29, 2012 reflects income tax benefits recognized in connection with expected increased profitability in fiscal 2012 in certain entities operating in lower tax rate jurisdictions. These benefits were partially offset by accruals of interest related to uncertain tax positions and income tax expense associated with certain non-U.S. tax rate changes enacted in the quarter ended December 30, 2011. The effective income tax rate for the nine months ended June 24, 2011 reflects income tax benefits recognized in connection with expected increased profitability in fiscal 2011 in certain entities operating in lower tax rate jurisdictions partially offset by accruals of interest related to uncertain tax positions. The effective income tax rate for the nine months ended June 24, 2011 also reflects income tax benefits of $35 million associated with the completion of fieldwork and the settlement of certain U.S. tax matters.

        We record accrued interest as well as penalties related to uncertain tax positions as part of the provision for income taxes. As of June 29, 2012, we had recorded $1,303 million of accrued interest and penalties related to uncertain tax positions on the Condensed Consolidated Balance Sheet, of which $1,267 million was recorded in income taxes and $36 million was recorded in accrued and other current liabilities. During the quarter and nine months ended June 29, 2012, we recognized $13 million and $63 million, respectively, of expense related to interest and penalties on the Condensed Consolidated Statements of Operations. As of September 30, 2011, the balance of accrued interest and penalties was $1,287 million, of which $1,154 million was recorded in income taxes and $133 million was recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheet.

        During fiscal 2007, the IRS concluded its field examination of certain of Tyco International's U.S. federal income tax returns for the years 1997 through 2000. Tyco International is in the process of appealing certain tax adjustments proposed by the IRS related to this period. During fiscal 2011, the IRS completed its field examination of certain Tyco International income tax returns for the years 2001

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

15. Income Taxes (Continued)

through 2004 and issued Revenue Agent Reports which reflect the IRS' determination of proposed tax adjustments for the 2001 through 2004 period. Also, during fiscal 2011, the IRS commenced its audit of certain Tyco International income tax returns for the years 2005 through 2007. During the third quarter of fiscal 2012, the IRS commenced its audit of our income tax returns for the years 2008 through 2010. See Note 11 for additional information regarding the status of IRS examinations.

        Although it is difficult to predict the timing or results of certain pending examinations, it is our understanding that Tyco International continues to make progress towards resolving a substantial number of proposed tax adjustments for the years 1997 through 2000; however, several significant matters remain in dispute. The remaining issues in dispute involve the tax treatment of certain intercompany debt transactions. Tyco International has indicated that it is unlikely to achieve the resolution of these contested adjustments through the IRS appeals process, and therefore may be required to litigate the disputed issues. For those issues not in dispute, we expect the IRS to complete its examination for the years 1997 through 2000 and issue special agreement Forms 870-AD by early fiscal 2013. While the ultimate resolution is uncertain, based upon the current status of these examinations, we estimate that up to approximately $200 million of unrecognized income tax benefits, excluding the impacts 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 29, 2012.

16. Other Income, Net

        We recorded net other income of $19 million and net other expense of $5 million in the quarters ended June 29, 2012 and June 24, 2011, respectively, and net other income of $31 million and $13 million in the nine months ended June 29, 2012 and June 24, 2011, respectively, primarily consisting of income pursuant to the Tax Sharing Agreement with Tyco International and Covidien. During the third quarter of fiscal 2011, we recorded other expense of $14 million in connection with the completion of fieldwork and the settlement of certain U.S. tax matters. See additional information in Note 11.

17. Earnings Per Share

        Basic earnings per share is computed by dividing net income attributable to TE Connectivity Ltd. by the basic weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income attributable to TE Connectivity Ltd. by the weighted-average number of common shares outstanding adjusted for potentially dilutive unexercised share options and

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

17. Earnings Per Share (Continued)

non-vested restricted share awards. The following table sets forth the denominators of the basic and diluted earnings per share computations:

 
  For the
Quarters Ended
  For the
Nine Months Ended
 
 
  June 29,
2012
  June 24,
2011
  June 29,
2012
  June 24,
2011
 
 
  (in millions)
 

Weighted-average shares outstanding:

                         

Basic

    428     437     427     441  

Dilutive share options and restricted share awards

    3     5     3     6  
                   

Diluted

    431     442     430     447  
                   

        Certain 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. Such shares not included in the computation were 14 million and 9 million for the quarters ended June 29, 2012 and June 24, 2011, respectively, and 12 million for each of the nine months ended June 29, 2012 and June 24, 2011.

18. Equity

    Common Shares

        Subject to certain conditions specified in the articles of association, we are authorized to increase our share capital by issuing new shares in aggregate not exceeding 50% of our authorized shares. Additionally, in March 2011, our shareholders reapproved and extended through March 9, 2013 our board of directors' authorization to issue additional new shares, subject to certain conditions specified in the articles, in aggregate not exceeding 50% of the amount of our authorized shares. Although we state our par value in Swiss Francs ("CHF"), we continue to use the U.S. Dollar as our reporting currency for preparing our Condensed Consolidated Financial Statements.

    Common Shares Held in Treasury

        At June 29, 2012, approximately 11 million common shares were held in treasury, all of which were owned by one of our subsidiaries. At September 30, 2011, approximately 39 million common shares were held in treasury, of which 15 million were owned by one of our subsidiaries. Shares held both directly by us and by our subsidiary are presented as treasury shares on the Condensed Consolidated Balance Sheets.

        In March 2012, our shareholders approved the cancellation of 23,988,560 shares purchased under our share repurchase program during the period from December 25, 2010 to December 30, 2011. The capital reduction by cancellation of shares was subject to a notice period and filing with the commercial register and became effective in May 2012. As a result of the cancellation of shares, common shares, contributed surplus, and treasury shares on the Condensed Consolidated Balance Sheets decreased by $11 million, $790 million, and $801 million, respectively.

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

18. Equity (Continued)

    Contributed Surplus

        Contributed surplus originally established during the Change of Domicile for Swiss tax and statutory purposes ("Swiss Contributed Surplus"), subject to certain conditions, is a freely distributable reserve.

        Distributions to shareholders from Swiss Contributed Surplus are free from withholding tax. During the second quarter of fiscal 2012, our shareholders approved a resolution to reclassify Swiss Contributed Surplus in the amount of CHF 9,745 million from free reserves (contributed surplus) to legal reserves (reserves from capital contributions) on our Swiss statutory balance sheet, a provisional reclassification made while we were in discussions with the Swiss tax authorities. Also during the second quarter of fiscal 2012, we received a favorable outcome from the Swiss tax authorities related to our classification of Swiss Contributed Surplus that allows us to present Swiss Contributed Surplus as a free reserve on our statutory Swiss balance sheet. On July 25, 2012, our shareholders approved a resolution to reclassify Swiss Contributed Surplus in the amount of CHF 9,745 million from legal reserves (reserves from capital contributions) as of March 30, 2012 to free reserves (reserves from capital contributions) on our Swiss statutory balance sheet, with effect as of March 30, 2012. This reclassification will be reflected on our Swiss statutory financial statements for the year ending September 28, 2012. As of September 30, 2011, Swiss Contributed Surplus was $8,940 million (equivalent to CHF 9,745 million).

    Dividends and Distributions to Shareholders

        Under Swiss law, subject to certain conditions, distributions to shareholders made in the form of a reduction of registered share capital or from reserves from capital contributions (equivalent to Swiss Contributed Surplus) are exempt from Swiss withholding tax. See "Contributed Surplus" for additional information regarding our ability to make distributions free from withholding tax from contributed surplus. Distributions or dividends on our shares must be approved by our shareholders.

        In March 2011, our shareholders approved a dividend payment to shareholders of CHF 0.68 (equivalent to $0.72) per share out of contributed surplus, payable in four equal quarterly installments beginning in the third quarter of fiscal 2011 through the second quarter of fiscal 2012 to shareholders of record on specified dates in each of the four quarters. We paid the third and fourth installments of the dividend at a rate of $0.18 per share each during the quarters ended December 30, 2011 and March 30, 2012.

        In March 2012, our shareholders approved a cash distribution to shareholders in the form of a capital reduction to the par value of our common shares of CHF 0.80 (equivalent to $0.84) per share, payable in four equal quarterly installments beginning in the third quarter of fiscal 2012 through the second quarter of fiscal 2013 to shareholders of record on specified dates in each of the four quarters. We paid the first installment of the distribution at a rate of $0.21 per share during the quarter ended June 29, 2012. This capital reduction reduced the par value of our common shares from CHF 1.37 (equivalent to $1.28) to CHF 1.17 (equivalent to $1.07).

        Upon approval by the shareholders of a dividend payment or cash distribution in the form of a capital reduction, we record a liability with a corresponding charge to contributed surplus or common shares. At June 29, 2012 and September 30, 2011, the unpaid portion of dividends and distributions

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

18. Equity (Continued)

recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $269 million and $153 million, respectively.

    Share Repurchase Program

        During the first nine months of fiscal 2012, we did not purchase any of our common shares under our share repurchase authorization. During the third quarter and first nine months of fiscal 2011, we purchased approximately 7 million and 16 million, respectively, of our common shares for $267 million and $564 million, respectively. At June 29, 2012, we had $1,501 million of availability remaining under our share repurchase authorization.

19. Comprehensive Income

        Comprehensive income consisted of the following:

 
  For the
Quarters Ended
  For the
Nine Months Ended
 
 
  June 29,
2012
  June 24,
2011
  June 29,
2012
  June 24,
2011
 
 
  (in millions)
 

Net income

  $ 199   $ 357   $ 719   $ 923  

Currency translation(1)

    (163 )   26     (222 )   187  

Gain (loss) on cash flow hedges, net of income taxes

    (10 )   (14 )   (11 )   2  

Effects of unrecognized pension and postretirement benefit costs, net of income taxes(2)

    10     117     31     141  
                   

    36     486     517     1,253  

Less: comprehensive income attributable to noncontrolling interests

        (2 )   (3 )   (4 )
                   

Comprehensive income attributable to TE Connectivity Ltd. 

  $ 36   $ 484   $ 514   $ 1,249  
                   

(1)
Includes hedge of net investment foreign exchange gains or losses which offset foreign exchange gains or losses attributable to the translation of the net investments.

(2)
Includes the effects of an amendment to a non-U.S. pension plan, ratified during the third quarter of fiscal 2011, that decreased long-term pension and postretirement liabilities by $179 million via a credit to other comprehensive income.

20. Share Plans

        Share-based compensation expense was $18 million and $19 million during the quarters ended June 29, 2012 and June 24, 2011, respectively, and $54 million and $60 million during the nine months ended June 29, 2012 and June 24, 2011, respectively. These expenses were primarily presented in selling, general, and administrative expenses on the Condensed Consolidated Statements of Operations.

        Pursuant to the acquisition of ADC, we exchanged unexercised ADC share options and stock appreciation rights for our share options and stock appreciation right awards. As a result of that exchange, we recognized $2 million of incremental share-based compensation expense during the first nine months of fiscal 2011. Those costs, which are included in the total share-based compensation expense above, are presented in acquisition and integration costs on the Condensed Consolidated Statements of Operations.

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

20. Share Plans (Continued)

        On March 7, 2012, our shareholders approved an increase of 20 million shares in the number of shares available for awards under the TE Connectivity Ltd. 2007 Stock and Incentive Plan, as amended and restated (the "2007 Plan"). As of June 29, 2012, we had 27 million shares available for issuance under the 2007 Plan and 4 million shares available for issuance under ADC equity incentive plans.

    Restricted Share Awards

        A summary of restricted share award activity during the nine months ended June 29, 2012 is presented below:

 
  Shares   Weighted-Average
Grant-Date Fair Value
 

Non-vested at September 30, 2011

    5,022,839   $ 26.48  

Granted

    1,797,077     34.56  

Vested

    (1,674,762 )   24.36  

Forfeited

    (526,460 )   29.55  
             

Non-vested at June 29, 2012

    4,618,694   $ 30.05  
             

        As of June 29, 2012, there was $94 million of unrecognized compensation cost related to non-vested restricted share awards. The cost is expected to be recognized over a weighted-average period of 1.8 years.

    Share Options

        A summary of share option award activity during the nine months ended June 29, 2012 is presented below:

 
  Shares   Weighted-Average
Exercise Price
  Weighted-Average
Remaining
Contractual
Term
  Aggregate
Intrinsic Value
 
 
   
   
  (in years)
  (in millions)
 

Outstanding at September 30, 2011

    21,920,451   $ 31.94              

Granted

    3,405,700     34.49              

Exercised

    (2,105,922 )   23.33              

Forfeited

    (589,606 )   29.67              

Expired

    (1,501,806 )   47.03              
                         

Outstanding at June 29, 2012

    21,128,817   $ 32.20     5.7   $ 70  
                         

Vested and non-vested expected to vest at June 29, 2012

    20,572,936   $ 32.27     5.7   $ 69  

Exercisable at June 29, 2012

    13,406,330   $ 33.50     4.1   $ 43  

        As of June 29, 2012, there was $46 million of unrecognized compensation cost related to non-vested share options granted under our share option plans. The cost is expected to be recognized over a weighted-average period of 1.8 years.

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

20. Share Plans (Continued)

    Share-Based Compensation Assumptions

        The weighted-average grant-date fair value of options granted during the nine months ended June 29, 2012 and the weighted-average assumptions we used in the Black-Scholes-Merton option pricing model for the nine months then ended were as follows:

Weighted-average grant-date fair value

  $ 9.49  

Assumptions:

       

Expected share price volatility

    36 %

Risk free interest rate

    1.3 %

Expected annual dividend per share

  $ 0.84  

Expected life of options (in years)

    6.0  

21. Segment Data

        Net sales by segment were as follows:

 
  For the
Quarters Ended
  For the
Nine Months Ended
 
 
  June 29,
2012
  June 24,
2011
  June 29,
2012
  June 24,
2011
 
 
  (in millions)
 

Transportation Solutions

  $ 1,607   $ 1,426   $ 4,469   $ 4,094  

Communications and Industrial Solutions

    1,045     1,184     2,994     3.433  

Network Solutions

    847     969     2,455     2,498  
                   

Total(1)

  $ 3,499   $ 3,579   $ 9,918   $ 10,025  
                   

(1)
Intersegment sales were not material and were recorded at selling prices that approximate market prices.

        Operating income by segment was as follows:

 
  For the
Quarters Ended
  For the
Nine Months Ended
 
 
  June 29,
2012
  June 24,
2011
  June 29,
2012
  June 24,
2011
 
 
  (in millions)
 

Transportation Solutions

  $ 183   $ 211   $ 633   $ 611  

Communications and Industrial Solutions

    96     120     232     426  

Network Solutions

    92     129     252     205  
                   

Total

  $ 371   $ 460   $ 1,117   $ 1,242  
                   

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

21. Segment Data (Continued)

        Segment assets and a reconciliation of segment assets to total assets were as follows:

 
  June 29,
2012
  September 30,
2011
 
 
  (in millions)
 

Transportation Solutions

  $ 3,470   $ 3,187  

Communications and Industrial Solutions

    2,071     2,257  

Network Solutions

    1,856     1,915  
           

Total segment assets(1)

    7,397     7,359  

Other current assets

    2,171     2,762  

Other non-current assets

    9,374     7,602  
           

Total assets

  $ 18,942   $ 17,723  
           

(1)
Segment assets are comprised of accounts receivable, inventories, and property, plant, and equipment.

22. Tyco Electronics Group S.A.

        TEGSA, a Luxembourg company and our 100%-owned subsidiary, is a holding company that owns, directly or indirectly, all of our operating subsidiaries. TEGSA is the obligor under our senior notes, commercial paper, and Credit Facility, which are fully and unconditionally guaranteed by its parent, TE Connectivity Ltd. The following tables present condensed consolidating financial information for TE Connectivity Ltd., TEGSA, and all other subsidiaries that are not providing a guarantee of debt but which represent assets of TEGSA, using the equity method of accounting.

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

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


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
For the Quarter Ended June 29, 2012

 
  TE
Connectivity
Ltd.
  Tyco
Electronics
Group S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  
 
  (in millions)
 

Net sales

  $   $   $ 3,499   $   $ 3,499  

Cost of sales

            2,481         2,481  
                       

Gross margin

            1,018         1,018  

Selling, general, and administrative expenses, net(1)

    7     (73 )   489         423  

Research, development, and engineering expenses

            173         173  

Acquisition and integration costs

    1         14         15  

Restructuring and other charges, net

            36         36  
                       

Operating income (loss)

    (8 )   73     306         371  

Interest income

            6         6  

Interest expense

        (44 )   (4 )       (48 )

Other income, net

            19         19  

Equity in net income of subsidiaries

    271     224         (495 )    

Equity in net loss of subsidiaries of discontinued operations

    (61 )   (61 )       122      

Intercompany interest and fees

    (3 )   18     (15 )        
                       

Income from continuing operations before income taxes

    199     210     312     (373 )   348  

Income tax expense

            (88 )       (88 )
                       

Income from continuing operations

    199     210     224     (373 )   260  

Loss from discontinued operations, net of income taxes

            (61 )       (61 )
                       

Net income attributable to TE Connectivity Ltd., Tyco Electronics Group S.A., or Other Subsidiaries

  $ 199   $ 210   $ 163   $ (373 ) $ 199  
                       

(1)
Tyco Electronics Group S.A. selling, general, and administrative expenses include gains of $74 million related to intercompany transactions. These gains are offset by corresponding losses recorded by Other Subsidiaries.

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

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
For the Quarter Ended June 24, 2011

 
  TE
Connectivity
Ltd.
  Tyco
Electronics
Group S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  
 
  (in millions)
 

Net sales

  $   $   $ 3,579   $   $ 3,579  

Cost of sales

            2,491         2,491  
                       

Gross margin

            1,088         1,088  

Selling, general, and administrative expenses

    61         380         441  

Research, development, and engineering expenses

            178         178  

Acquisition and integration costs

    1                 1  

Restructuring and other charges, net

            8         8  
                       

Operating income (loss)

    (62 )       522         460  

Interest income

            5         5  

Interest expense

        (38 )   (1 )       (39 )

Other expense, net

            (5 )       (5 )

Equity in net income of subsidiaries

    416     432         (848 )    

Equity in net income of subsidiaries of discontinued operations

    6     6         (12 )    

Intercompany interest and fees

    (5 )   22     (17 )        
                       

Income from continuing operations before income taxes

    355     422     504     (860 )   421  

Income tax expense

            (70 )       (70 )
                       

Income from continuing operations

    355     422     434     (860 )   351  

Income from discontinued operations, net of income taxes

            6         6  
                       

Net income

    355     422     440     (860 )   357  

Less: net income attributable to noncontrolling interests

            (2 )       (2 )
                       

Net income attributable to TE Connectivity Ltd., Tyco Electronics Group S.A., or Other Subsidiaries

  $ 355   $ 422   $ 438   $ (860 ) $ 355  
                       

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

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
For the Nine Months Ended June 29, 2012

 
  TE
Connectivity
Ltd.
  Tyco
Electronics
Group S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  
 
  (in millions)
 

Net sales

  $   $   $ 9,918   $   $ 9,918  

Cost of sales

            6,936         6,936  
                       

Gross margin

            2,982         2,982  

Selling, general, and administrative expenses, net(1)

    62     (122 )   1,293         1,233  

Research, development, and engineering expenses

            523         523  

Acquisition and integration costs

    1     2     20         23  

Restructuring and other charges, net

            86         86  
                       

Operating income (loss)

    (63 )   120     1,060         1,117  

Interest income

            18         18  

Interest expense

        (124 )   (7 )       (131 )

Other income, net

            31         31  

Equity in net income of subsidiaries

    836     789         (1,625 )    

Equity in net loss of subsidiaries of discontinued operations

    (49 )   (49 )       98      

Intercompany interest and fees

    (8 )   51     (43 )        
                       

Income from continuing operations before income taxes

    716     787     1,059     (1,527 )   1,035  

Income tax expense

            (267 )       (267 )
                       

Income from continuing operations

    716     787     792     (1,527 )   768  

Loss from discontinued operations, net of income taxes

            (49 )       (49 )
                       

Net income

    716     787     743     (1,527 )   719  

Less: net income attributable to noncontrolling interests

            (3 )       (3 )
                       

Net income attributable to TE Connectivity Ltd., Tyco Electronics Group S.A., or Other Subsidiaries

  $ 716   $ 787   $ 740   $ (1,527 ) $ 716  
                       

(1)
Tyco Electronics Group S.A. selling, general, and administrative expenses include gains of $125 million related to intercompany transactions. These gains are offset by corresponding losses recorded by Other Subsidiaries.

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

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
For the Nine Months Ended June 24, 2011

 
  TE
Connectivity
Ltd.
  Tyco
Electronics
Group S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  
 
  (in millions)
 

Net sales

  $   $   $ 10,025   $   $ 10,025  

Cost of sales

            6,938         6,938  
                       

Gross margin

            3,087         3,087  

Selling, general, and administrative expenses

    153     1     1,107         1,261  

Research, development, and engineering expenses

            507         507  

Acquisition and integration costs

    3         16         19  

Restructuring and other charges, net

            58         58  
                       

Operating income (loss)

    (156 )   (1 )   1,399         1,242  

Interest income

            16         16  

Interest expense

        (110 )   (7 )       (117 )

Other income, net

            13         13  

Equity in net income of subsidiaries

    1,075     1,114         (2,189 )    

Equity in net income of subsidiaries of discontinued operations

    16     16         (32 )    

Intercompany interest and fees

    (16 )   72     (56 )        
                       

Income from continuing operations before income taxes

    919     1,091     1,365     (2,221 )   1,154  

Income tax expense

            (247 )       (247 )
                       

Income from continuing operations

    919     1,091     1,118     (2,221 )   907  

Income from discontinued operations, net of income taxes

            16         16  
                       

Net income

    919     1,091     1,134     (2,221 )   923  

Less: net income attributable to noncontrolling interests

            (4 )       (4 )
                       

Net income attributable to TE Connectivity Ltd., Tyco Electronics Group S.A., or Other Subsidiaries

  $ 919   $ 1,091   $ 1,130   $ (2,221 ) $ 919  
                       

41


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TE CONNECTIVITY LTD.

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

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

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
As of June 29, 2012

 
  TE
Connectivity
Ltd.
  Tyco
Electronics
Group S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  
 
  (in millions)
 

Assets

                               

Current Assets:

                               

Cash and cash equivalents

  $   $   $ 1,302   $   $ 1,302  

Accounts receivable, net

    2         2,391         2,393  

Inventories

            1,868         1,868  

Intercompany receivables

    29         37     (66 )    

Prepaid expenses and other current assets

    1     5     456         462  

Deferred income taxes

            407         407  
                       

Total current assets

    32     5     6,461     (66 )   6,432  

Property, plant, and equipment, net

            3,136         3,136  

Goodwill

            4,290         4,290  

Intangible assets, net

            1,392         1,392  

Deferred income taxes

            2,232         2,232  

Investment in subsidiaries

    8,031     17,182         (25,213 )    

Intercompany loans receivable

    11     2,216     7,773     (10,000 )    

Receivable from Tyco International Ltd. and Covidien plc

            1,170         1,170  

Other assets

        40     250         290  
                       

Total Assets

  $ 8,074   $ 19,443   $ 26,704   $ (35,279 ) $ 18,942  
                       

Liabilities and Equity

                               

Current Liabilities:

                               

Current maturities of long-term debt

  $   $ 1,064   $ 2   $   $ 1,066  

Accounts payable

    1         1,382         1,383  

Accrued and other current liabilities

    289     54     1,179         1,522  

Deferred revenue

            99         99  

Intercompany payables

    37         29     (66 )    
                       

Total current liabilities

    327     1,118     2,691     (66 )   4,070  

Long-term debt

        2,528     165         2,693  

Intercompany loans payable

    7     7,766     2,227     (10,000 )    

Long-term pension and postretirement liabilities

            1,169         1,169  

Deferred income taxes

            509         509  

Income taxes

            2,257         2,257  

Other liabilities

            504         504  
                       

Total Liabilities

    334     11,412     9,522     (10,066 )   11,202  
                       

Total Equity

    7,740     8,031     17,182     (25,213 )   7,740  
                       

Total Liabilities and Equity

  $ 8,074   $ 19,443   $ 26,704   $ (35,279 ) $ 18,942  
                       

42


Table of Contents


TE CONNECTIVITY LTD.

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

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


CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
As of September 30, 2011

 
  TE
Connectivity
Ltd.
  Tyco
Electronics
Group S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  
 
  (in millions)
 

Assets

                               

Current Assets:

                               

Cash and cash equivalents

  $   $   $ 1,218   $   $ 1,218  

Accounts receivable, net

    2         2,339         2,341  

Inventories

            1,878         1,878  

Intercompany receivables

    17         28     (45 )    

Prepaid expenses and other current assets

    2     4     628         634  

Deferred income taxes

            402         402  

Assets held for sale

            508         508  
                       

Total current assets

    21     4     7,001     (45 )   6,981  

Property, plant, and equipment, net

            3,140         3,140  

Goodwill

            3,288         3,288  

Intangible assets, net

            631         631  

Deferred income taxes

            2,364         2,364  

Investment in subsidiaries

    7,687     13,209         (20,896 )    

Investment in subsidiaries of discontinued operations

        441         (441 )    

Intercompany loans receivable

        2,416     5,848     (8,264 )    

Receivable from Tyco International Ltd. and Covidien plc

            1,066         1,066  

Other assets

        34     219         253  
                       

Total Assets

  $ 7,708   $ 16,104   $ 23,557   $ (29,646 ) $ 17,723  
                       

Liabilities and Equity

                               

Current Liabilities:

                               

Current maturities of long-term debt

  $   $   $   $   $  

Accounts payable

    1         1,453         1,454  

Accrued and other current liabilities

    180     88     1,465         1,733  

Deferred revenue

            143         143  

Intercompany payables

    28         17     (45 )    

Liabilities held for sale

            80         80  
                       

Total current liabilities

    209     88     3,158     (45 )   3,410  

Long-term debt

        2,496     171         2,667  

Intercompany loans payable

    15     5,833     2,416     (8,264 )    

Long-term pension and postretirement liabilities

            1,202         1,202  

Deferred income taxes

            333         333  

Income taxes

            2,122         2,122  

Other liabilities

            505         505  
                       

Total Liabilities

    224     8,417     9,907     (8,309 )   10,239  
                       

Total Equity

    7,484     7,687     13,650     (21,337 )   7,484  
                       

Total Liabilities and Equity

  $ 7,708   $ 16,104   $ 23,557   $ (29,646 ) $ 17,723  
                       

43


Table of Contents


TE CONNECTIVITY LTD.

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

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

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended June 29, 2012

 
  TE
Connectivity
Ltd.
  Tyco
Electronics
Group S.A.
  Other
Subsidiaries
  Consolidating
Adjustments
  Total  
 
  (in millions)
 

Cash Flows From Operating Activities:

                               

Net cash provided by (used in) continuing operating activities

  $ (66 ) $ 14   $ 1,226   $   $ 1,174  

Net cash provided by discontinued operating activities

            60         60  
                       

Net cash provided by (used in) operating activities

    (66 )   14     1,286         1,234  
                       

Cash Flows From Investing Activities:

                               

Capital expenditures

            (385 )       (385 )

Proceeds from sale of property, plant, and equipment

            13         13  

Acquisition of business, net of cash acquired

            (1,384 )       (1,384 )

Proceeds from divestiture of discontinued operations, net of cash retained by operations sold

            394         394  

Change in intercompany loans

    (19 )   2,133         (2,114 )    

Other

            (7 )       (7 )
                       

Net cash provided by (used in) continuing investing activities

    (19 )   2,133     (1,369 )   (2,114 )   (1,369 )

Net cash used in discontinued investing activities

            (1 )       (1 )
                       

Net cash provided by (used in) investing activities

    (19 )   2,133     (1,370 )   (2,114 )   (1,370 )
                       

Cash Flows From Financing Activities:

                               

Changes in parent company equity(1)

    352     (3,237 )   2,885          

Increase in commercial paper

        350             350  

Proceeds from long-term debt

        748             748  

Repayment of long-term debt

            (642 )       (642 )

Proceeds from exercise of share options

            52         52  

Repurchase of common shares

    (17 )               (17 )

Payment of common share dividends and cash distributions to shareholders

    (250 )       7         (243 )

Loan borrowing with parent

            (2,114 )   2,114      

Other

        (8 )   53         45  
                       

Net cash provided by (used in) continuing financing activities

    85     (2,147 )   241     2,114     293  

Net cash used in discontinued financing activities

            (59 )       (59 )
                       

Net cash provided by (used in) financing activities

    85     (2,147 )   182     2,114     234