Advancing Connectivity for Connectivity Advancing
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2016 ANNUAL REPORT ANNUAL 2016 CORPORATE DATA REGISTERED & PRINCIPAL EXECUTIVE OFFICE TE Connectivity Ltd. Rheinstrasse 20 CH-8200 Schaffhausen Switzerland +41.0.52.633.66.61 2016 ANNUAL REPORT INDEPENDENT AUDITORS Deloitte & Touche LLP 1700 Market Street Philadelphia, PA 19103 Deloitte AG General Guisan-Quai 38 CH-8022 Zurich Switzerland STOCK EXCHANGE The company’s common shares are traded on the New York Stock Exchange (NYSE) under the ticker symbol TEL. ADVANCING CONNECTIVITY FOR FORM 10-K Copies of the company’s Annual Report on Form 10-K for the fiscal year that ended September 30, 2016 may be obtained by shareholders without charge upon written request to TE Connectivity Ltd., Rheinstrasse 20, CH-8200 Schaffhausen, Switzerland. The Annual Report on Form 10-K is also available on the company’s website at www.te.com SHAREHOLDER SERVICES Registered shareholders (shares held in your own name with our transfer agent) with requests such as change of address or dividend checks should contact TE Connectivity’s transfer agent at: Wells Fargo Shareowner Services 1110 Centre Pointe Curve, Suite 101 Mendota Heights, MN 55120-4100 866.258.4745 www.shareowneronline.com Beneficial shareholders (shares held with a bank or broker) should contact the bank or brokerage holding their shares with their requests. Other shareholder inquiries may be directed to TE Connectivity Shareholder Services at the company’s registered and principal executive office above. www.te.com © 2017 TE Connectivity Ltd. All Rights Reserved. 001-AR-FY2016 TE Connectivity, TE, TE connectivity (logo) are trademarks of the TE Connectivity family of companies. Other logos, product, and/or company names may be trademarks of their respective owners. Our commitment to innovation enables advancements in transportation, industrial applications, medical technology, energy, data communications, and the home. TE’s unmatched breadth of connectivity and sensor solutions, proven in the harshest of environments, helps build a safer, greener, smarter, and more connected world. Terrence Curtin, President and Tom Lynch, Chairman and CEO MESSAGE TO OUR STAKEHOLDERS Connectivity is all around us—channeling essential power and data for everything from cloud computing and transportation, to precision medicine and the Internet of Things in homes and on factory floors. In 2016, TE Connectivity celebrated 75 years as a leader in enabling that connectivity, and as we move into 2017 and beyond, we’re redefining what’s possible using TE’s connector and sensor technologies to meet the safety, efficiency and connected trends that are so important for our customers’ success in the markets they serve. 2016: SOLID PERFORMANCE AND CONTINUED EXECUTION OF OUR HARSH ENVIRONMENT STRATEGY Our business performed well in a challenging economic environment. Sales for the year were $12.2 billion and adjusted earnings per share (EPS) were $4.08—up 13 percent versus the prior year. Our adjusted operating margin was nearly 16 percent, and the company generated $2 billion of cash flow from continuing operating activities. Our results were driven by strong performance in our Transportation Solutions segment and our SubCom business within our Communications Solutions segment. This more than offset a relatively flat year in our Industrial Solutions segment due to weak overall industrial markets. Transportation Solutions delivered 5 percent organic sales growth driven by strong growth in Europe and Asia, a result of our leadership in those markets. Our SubCom business, which installs and maintains the subsea cables that make up the backbone of the global cloud network, grew 25 percent, and with $1 billion in backlog, we expect continued growth from that business in 2017. With our solid cash flow generation and the continuing to drive improvements in the customer proceeds from the sale of our Broadband Network experience, TE is ensuring that we can more effectively Solutions business at the end of 2015, we continued serve both the technology and service needs of our our disciplined capital allocation strategy in 2016, customers in the future. returning $3.1 billion to shareholders. We remain committed to our capital strategy of a balanced return of free cash flow to shareholders through TEOA Progress dividends and share repurchases while continuing to strengthen our harsh environment product portfolio We continue to implement our TE Operating via acquisitions. Advantage (TEOA) lean business system, a key aspect of our margin improvement over the past five years, across the enterprise. In 2016, we were very proud Strengthening our Harsh to report two more sites have reached “Star Level 5,” the highest TEOA rating. These sites—Steinach in Environment Portfolio Switzerland and Norwood in Massachusetts, United Our customers turn to TE, a leader in harsh States—are prime examples of the creativity and environment connectivity and sensing applications, commitment to a continuous improvement culture for solutions that must be reliable under the most we strive for at TE. extreme conditions. Today, approximately 90 percent of our revenue is focused on connectivity and sensing, and 80 percent of our revenue is derived from harsh Unleashing Our People environment applications. These applications are highly engineered and designed into the architecture Our customers demand both innovation and execution of the customer’s solution, positioning TE as uniquely from our company, and excellence in those areas is qualified to meet many customers’ demands. Over only possible through people with diverse experiences the last five years, we have generated mid-single digit and perspectives collaborating to meet and exceed growth and above company average margins with our customers’ needs. Recruiting, developing and harsh business. unleashing this talent within a diverse and inclusive workplace is a key part of our overall business strategy, During 2016, we strengthened our harsh environment and in 2016 we brought this to life, in part, by: portfolio with several key acquisitions and the divestiture of our Circuit Protection business. These • Engaging more than 20,000 employees in our acquisitions included: Creganna, which established us annual Inclusion & Diversity Month as a leader in the market for minimally invasive medical solutions; Jaquet, which expanded our sensors • Significantly increasing our recruiting and position in the transportation market; and Intercontec, outreach at global technology events, including which added to the range of connectivity products in both the Society of Women Engineers (SWE) 2016 our Industrial Solutions product portfolio that serve International Conference and the National Society the trend of increasingly connected factories. of Black Engineers Annual Conference • Expanding our employee resource groups globally, Extraordinary Customer Experience including ALIGN (LGBT), African Heritage, Young Professionals and Women in Networking Our mission to deliver an Extraordinary Customer Experience (ECE) is expanding our competitive advantage. In 2016, we improved our Net Promoter CEO Succession Score (NPS) by 11 points over 2015, as customers began to recognize our improvements in the In March 2016, Terrence was nominated to our board dimensions that matter most to them: innovation, of directors and in October we announced that he quality, delivery, and service and support. By would succeed Tom as chief executive officer, effective March 9, 2017. Upon completion of the transition in China, rapid advances in interventional and minimally March 2017, Tom will remain on the board and continue invasive medicine, and the need for increased capacity in the role of executive chairman. and greater security in global data networks. STRONG POSITION IN These macro-trends combined with our leadership GROWING MARKETS position give us confidence in our strategy, business model and growth prospects even as markets fluctuate. For over 75 years, we’ve helped our customers create exciting new innovations using our connectivity Entering 2017, we look back with pride at all we’ve solutions. Today, we are a world leader in connectivity accomplished, thanks to our phenomenal employees and sensor solutions, with capabilities that are and shareholders, and ahead with optimism for all we’ll unmatched in our industry. Our global presence, continue to do together. We are excited about how we more than 7,000 engineers and broad portfolio of have strategically positioned TE and how our teams connectivity and sensor solutions are integral to our and engineers co-create with customers wherever customers’ product roadmaps. they exist in the world to advance solutions that move the world forward. The markets TE serves are driven by the positive macro-trends toward building a safer, greener and more connected world. Using our automotive business as an example, more sensors and connectors are needed in vehicles to support increased safety features, autonomous driving systems, higher emission standards, improved fuel efficiency and infotainment. Tom Lynch Terrence Curtin Additional trends point to further potential for our Chairman and President business: the growing demand for electric vehicles in Chief Executive Officer See non-GAAP measures for descriptions and reconciliations of Organic Sales Growth, Adjusted Operating Margin, Adjusted Earnings Per Share, and Free Cash Flow. INNOVATION LEADERSHIP 14,000 $644M 7,000+ PATENTS INVESTED ENGINEERS granted or pending in R&D and Engineering globally FY 16 CNBC IQ100 INDEX TE CONNECTIVITY