Share Plans

12 Months Ended

Sep. 27, 2019

Share Plans

Share Plans

19. Share Plans

Our equity compensation plans, of which the TE Connectivity Ltd. 2007 Stock and Incentive Plan, amended and restated as of March 8, 2017, is the primary plan, provide for the award of annual performance bonuses and long-term performance awards, including share options; restricted, performance, and deferred share units; and other share-based awards (collectively, “Awards”) and allow for the use of unissued shares or treasury shares to be used to satisfy such Awards. As of fiscal year end 2019, our plans provided for a maximum of 77 million shares to be issued as Awards, subject to adjustment as provided under the terms of the plans. A total of 18 million shares remained available for issuance under our plans as of fiscal year end 2019.

Share-Based Compensation Expense

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

	Fiscal
	2019		2018		2017
	(in millions)
Share-based compensation expense	$	75	$	95	$	95

We recognized a related tax benefit associated with our share-based compensation arrangements of $16 million, $20 million, and $31 million in fiscal 2019, 2018, and 2017, respectively.

Restricted Share Awards

Restricted share awards, which are generally in the form of restricted share units, are granted subject to certain restrictions. Conditions of vesting are determined at the time of grant. All restrictions on an award will lapse upon death or disability of the employee. If the employee satisfies retirement requirements, a portion of the award may vest, depending on the terms and conditions of the particular grant. Recipients of restricted share units have no voting rights, but do receive dividend equivalents. For grants that vest through passage of time, the fair value of the award at the time of the grant is amortized to expense over the period of vesting. The fair value of restricted share awards is determined based on the closing value of our shares on the grant date. Restricted share awards generally vest in increments over a period of four years as determined by the management development and compensation committee.

Restricted share award activity was as follows:

		Weighted-Average
		Grant-Date
	Shares	Fair Value
Nonvested at fiscal year end 2018	1,631,470	$	75.39
Granted	692,899		77.77
Vested	(689,040)		70.31
Forfeited	(232,910)		78.80
Nonvested at fiscal year end 2019	1,402,419	$	78.36

The weighted-average grant-date fair value of restricted share awards granted during fiscal 2019, 2018, and 2017 was $77.77, $93.45, and $67.72, respectively.

The total fair value of restricted share awards that vested during fiscal 2019, 2018, and 2017 was $48 million, $50 million, and $50 million, respectively.

As of fiscal year end 2019, there was $64 million of unrecognized compensation expense related to nonvested restricted share awards, which is expected to be recognized over a weighted-average period of 1.7 years.

Performance Share Awards

Performance share awards, which are generally in the form of performance share units, are granted with pay-out subject to vesting requirements and certain performance conditions that are determined at the time of grant. Based on our performance, the pay-out of performance share units can range from 0% to 200% of the number of units originally granted. The grant-date fair value of performance share awards is expensed over the period of performance once achievement of the performance criteria is deemed probable. Recipients of performance share units have no voting rights but do receive dividend equivalents. Performance share awards generally vest after a period of three years as determined by the management development and compensation committee.

Performance share award activity was as follows:

		Weighted-Average
		Grant-Date
	Shares	Fair Value
Outstanding at fiscal year end 2018	688,903	$	73.38
Granted	397,716		71.38
Vested	(448,652)		65.84
Forfeited	(52,844)		74.87
Outstanding at fiscal year end 2019	585,123	$	77.44

The weighted-average grant-date fair value of performance share awards granted during fiscal 2019, 2018, and 2017 was $71.38, $92.96, and $62.88, respectively.

The total fair value of performance share awards that vested during fiscal 2019, 2018, and 2017 was $30 million, $19 million, and $15 million, respectively.

As of fiscal year end 2019, there was $16 million of unrecognized compensation expense related to nonvested performance share awards, which is expected to be recognized over a weighted-average period of 1.0 years.

Share Options

Share options are granted to purchase our common shares at prices which are equal to or greater than the market price of the common shares on the date the option is granted. Conditions of vesting are determined at the time of grant. All restrictions on the award will lapse upon death or disability of the employee. If the employee satisfies retirement requirements, a portion of the award may vest, depending on the terms and conditions of the particular grant. Options generally vest and become exercisable in equal annual installments over a period of four years and expire ten years after the date of grant.

Share option award activity was as follows:

				Weighted-Average
		Weighted-Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Shares	Price		Term	Value
				(in years)	(in millions)
Outstanding at fiscal year end 2018	6,759,077	$	65.85
Granted	1,608,300		76.91
Exercised	(1,546,377)		54.09
Expired	(19,099)		85.80
Forfeited	(456,958)		75.95
Outstanding at fiscal year end 2019	6,344,943	$	70.72	7.0	$	140
Vested and expected to vest at fiscal year end 2019	6,000,393	$	70.31	7.0	$	135
Exercisable at fiscal year end 2019	2,855,129	$	62.01	5.6	$	88

The weighted-average exercise price of share option awards granted during fiscal 2019, 2018, and 2017 was $76.91, $93.44, and $66.76, respectively.

The total intrinsic value of options exercised during fiscal 2019, 2018, and 2017 was $58 million, $106 million, and $130 million, respectively. We received cash related to the exercise of options of $85 million, $100 million, and $117 million in fiscal 2019, 2018, and 2017, respectively.

As of fiscal year end 2019, there was $30 million of unrecognized compensation expense related to nonvested share options granted under our share option plans, which is expected to be recognized over a weighted-average period of 1.7 years.

Share-Based Compensation Assumptions

The grant-date fair value of each share option grant was estimated using the Black-Scholes-Merton option pricing model. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. We employ our historical share volatility when calculating the grant-date fair value of our share option grants using the Black-Scholes-Merton option pricing model. Currently, we do not have exchange-traded options of sufficient duration to employ an implied volatility assumption in the calculation and therefore rely solely on the historical volatility calculation. The average expected life was based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. The risk-free interest rate was based on U.S. Treasury zero-coupon issues with a remaining term that approximated the expected life assumed at the date of grant. The expected annual dividend per share was based on our expected dividend rate. The recognized share-based compensation expense was net of estimated forfeitures, which are based on voluntary termination behavior as well as an analysis of actual option forfeitures.

The weighted-average grant-date fair value of options granted and the weighted-average assumptions we used in the Black-Scholes-Merton option pricing model were as follows:

	Fiscal
	2019			2018			2017
Weighted-average grant-date fair value	$	13.40		$	16.49		$	12.80
Assumptions:
Expected share price volatility		20	%		20	%		24	%
Risk-free interest rate		3.0	%		2.2	%		1.9	%
Expected annual dividend per share	$	1.76		$	1.60		$	1.48
Expected life of options (in years)		5.2			5.3			5.6