Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

Financial Statements. See Item 8.

Financial Statement Schedule. See Item 8.

Exhibit Index:


					Incorporated by Reference Herein
Exhibit Number
			Description	Form	Exhibit	Filing Date
	2.1			Separation and Distribution Agreement among Tyco International Ltd., Covidien Ltd. and Tyco Electronics Ltd., dated as of June 29, 2007	Current Report on Form 8-K	2.1		July 5, 2007

	2.2		†	Share Purchase Agreement dated as of February 1, 2016 by and between TE Connectivity Ltd. and Cregstar Holdco Limited	Quarterly Report on Form 10-Q for the quarterly period ended March 25, 2016	2.1		April 21, 2016

	2.3		†	Stock Purchase Agreement, dated as of September 16, 2018, by and between Tyco Electronics Group S.A. and Crown Subsea AcquisitionCo LLC	Current Report on Form 8-K	2.1		September 17, 2018

	3.1			Articles of Association of TE Connectivity Ltd., as amended and restated	Current Report on Form 8-K	3.1		March 19, 2018

	3.2			Organizational Regulations of TE Connectivity Ltd., as amended and restated	Current Report on Form 8-K	3.2		March 6, 2015

	4.1(a	)		Indenture among Tyco Electronics Group S.A., Tyco Electronics Ltd. and Deutsche Bank Trust Company Americas, as trustee, dated as of September 25, 2007	Annual Report on Form 10-K for the fiscal year ended September 28, 2007	4.1(a	)	December 14, 2007

	4.1(b	)		Third Supplemental Indenture among Tyco Electronics Group S.A., Tyco Electronics Ltd. and Deutsche Bank Trust Company Americas, as trustee, dated as of September 25, 2007	Annual Report on Form 10-K for the fiscal year ended September 28, 2007	4.1(d	)	December 14, 2007

	4.1(c	)		Fifth Supplemental Indenture among Tyco Electronics Group S.A., Tyco Electronics Ltd. and Deutsche Bank Trust Company Americas, as trustee, dated as of December 20, 2010	Current Report on Form 8-K	4.1		December 20, 2010


					Incorporated by Reference Herein
Exhibit Number
			Description	Form	Exhibit	Filing Date
	4.1(d	)		Seventh Supplemental Indenture among Tyco Electronics Group S.A., TE Connectivity Ltd. and Deutsche Bank Trust Company Americas, as trustee, dated as of February 3, 2012	Current Report on Form 8-K	4.2	February 3, 2012

	4.1(e	)		Eighth Supplemental Indenture among Tyco Electronics Group S.A., TE Connectivity Ltd. and Deutsche Bank Trust Company Americas, as trustee, dated as of November 25, 2013	Current Report on Form 8-K	4.1	November 25, 2013

	4.1(f	)		Ninth Supplemental Indenture among Tyco Electronics Group S.A., TE Connectivity Ltd. and Deutsche Bank Trust Company Americas, as trustee, dated as of July 31, 2014	Current Report on Form 8-K	4.1	July 31, 2014

	4.1(g	)		Tenth Supplemental Indenture among Tyco Electronics Group S.A., TE Connectivity Ltd. and Deutsche Bank Trust Company Americas, as trustee, dated July 31, 2014	Current Report on Form 8-K	4.2	July 31, 2014

	4.1(h	)		Twelfth Supplemental Indenture among Tyco Electronics Group S.A., TE Connectivity Ltd. and Deutsche Bank Trust Company Americas, as trustee, dated as of February 27, 2015	Current Report on Form 8-K	4.1	February 27, 2015

	4.1(i	)		Thirteenth Supplemental Indenture among Tyco Electronics Group S.A., as issuer, TE Connectivity Ltd., as guarantor, and Deutsche Bank Trust Company Americas, as trustee, dated as of January 28, 2016	Current Report on Form 8-K	4.1	January 28, 2016

	4.1(j	)		Fourteenth Supplemental Indenture among Tyco Electronics Group S.A., as issuer, TE Connectivity Ltd., as guarantor, and Deutsche Bank Trust Company Americas, as trustee, dated as of August 3, 2017	Current Report on Form 8-K	4.2	August 3, 2017

	10.1			Tax Sharing Agreement among Tyco International Ltd., Covidien Ltd. and Tyco Electronics Ltd., dated as of June 29, 2007	Current Report on Form 8-K	10.1	July 5, 2007


				Incorporated by Reference Herein
Exhibit Number
		Description	Form	Exhibit	Filing Date
	10.2		Five-Year Senior Credit Agreement among Tyco Electronics Group S.A., as borrower, TE Connectivity Ltd., as guarantor, the lenders parties thereto and Deutsche Bank AG New York Branch, as administrative agent, dated as of June 24, 2011	Current Report on Form 8-K	10.1	June 27, 2011

	10.3		First Amendment to the Five-Year Senior Credit Agreement dated as of August 2, 2013 among Tyco Electronics Group S.A., as borrower, TE Connectivity Ltd., as guarantor, the lenders parties thereto and Deutsche Bank AG New York Branch, as administrative agent	Current Report on Form 8-K	10.1	August 2, 2013

	10.4		Second Amendment to the Five-Year Senior Credit Agreement dated as of December 9, 2015 by and among Tyco Electronics Group S.A., as borrower, TE Connectivity Ltd., as guarantor, the lenders parties thereto, and Deutsche Bank AG New York Branch, as existing administrative agent, and Bank of America, N.A., as administrative agent	Current Report on Form 8-K	10.1	December 9, 2015

	10.5	‡	TE Connectivity Ltd. 2007 Stock and Incentive Plan (amended and restated as of March 8, 2017)	Current Report on Form 8-K	10.1	March 9, 2017

	10.6	‡	TE Connectivity Ltd. Employee Stock Purchase Plan (as amended and restated)	Annual Report on Form 10-K for the fiscal year ended September 29, 2017	10.6	November 14, 2017

	10.7	‡	Form of Option Award Terms and Conditions	Quarterly Report on Form 10-Q for the quarterly period ended December 24, 2010	10.3	January 24, 2011

	10.8	‡	Form of Option Award Terms and Conditions for Option Grants Beginning in November 2017	Annual Report on Form 10-K for the fiscal year ended September 29, 2017	10.8	November 14, 2017

	10.9	‡	Form of Restricted Unit Award Terms and Conditions	Quarterly Report on Form 10-Q for the quarterly period ended December 24, 2010	10.4	January 24, 2011


				Incorporated by Reference Herein
Exhibit Number
		Description	Form	Exhibit	Filing Date
	10.10	‡	Form of Restricted Stock Unit Award Terms and Conditions for RSU Grants Beginning in November 2017	Annual Report on Form 10-K for the fiscal year ended September 29, 2017	10.10	November 14, 2017

	10.11	‡	Form of Performance Stock Unit Award Terms and Conditions	Quarterly Report on Form 10-Q for the quarterly period ended December 28, 2012	10.1	January 25, 2013

	10.12	‡	Form of Performance Stock Unit Award Terms and Conditions for Performance Cycles Starting in Fiscal Year 2016 and Fiscal Year 2017	Annual Report on Form 10-K for the fiscal year ended September 30, 2016	10.11	November 15, 2016

	10.13	‡	Form of Performance Stock Unit Award Terms and Conditions for Performance Cycles Starting in and After Fiscal Year 2018	Annual Report on Form 10-K for the fiscal year ended September 29, 2017	10.13	November 14, 2017

	10.14	‡	TE Connectivity Change in Control Severance Plan for Certain U.S. Executives (as amended and restated)	Annual Report on Form 10-K for the fiscal year ended September 25, 2015	10.10	November 10, 2015

	10.15	‡*	TE Connectivity Severance Plan for U.S. Executives (as amended and restated)

	10.16	‡	Tyco Electronics Ltd. Deferred Compensation Plan for Directors	Annual Report on Form 10-K for the fiscal year ended September 28, 2007	10.16	December 14, 2007

	10.17	‡	Tyco Electronics Corporation Supplemental Savings and Retirement Plan	Annual Report on Form 10-K for the fiscal year ended September 25, 2009	10.13	November 18, 2009

	10.18	‡	TE Connectivity Ltd. Savings Related Share Plan (as amended and restated)	Current Report on Form 8-K	10.1	March 14, 2018

	10.19		Form of Indemnification Agreement	Annual Report on Form 10-K for the fiscal year ended September 30, 2016	10.17	November 15, 2016

	10.20	‡	TE Connectivity Ltd. 2010 Stock and Incentive Plan (amended and restated March 9, 2017)	Annual Report on Form 10-K for the fiscal year ended September 29, 2017	10.20	November 14, 2017

	10.21	‡	Employment Agreement between Thomas J. Lynch and Tyco Electronics Corporation dated December 15, 2015	Current Report on Form 8-K	10.1	December 16, 2015


				Incorporated by Reference Herein
Exhibit Number
		Description	Form	Exhibit	Filing Date
	10.22	‡	Employment Agreement between Terrence R. Curtin and Tyco Electronics Corporation dated December 15, 2015	Current Report on Form 8-K	10.2	December 16, 2015

	10.23	‡	Employment Agreement between Joseph B. Donahue and Tyco Electronics Corporation dated December 15, 2015	Current Report on Form 8-K	10.4	December 16, 2015

	10.24	‡	Employment Agreement between Steven T. Merkt and Tyco Electronics Corporation dated December 15, 2015	Current Report on Form 8-K	10.6	December 16, 2015

	10.25	‡	Employment Agreement between Heath A. Mitts and Tyco Electronics Corporation dated September 30, 2016	Current Report on Form 8-K	10.1	October 3, 2016

	10.26	‡	Employment Agreement between John S. Jenkins and Tyco Electronics Corporation dated December 15, 2015	Quarterly Report on Form 10-Q for the quarterly period ended December 29, 2017	10.1	January 24, 2018

	10.27	‡	Letter Agreement between Joseph B. Donahue and TE Connectivity dated January 18, 2018	Quarterly Report on Form 10-Q for the quarterly period ended December 29, 2017	10.2	January 24, 2018

	10.28		Credit Support Agreement dated November 2, 2018 by and between Tyco Electronics Group S.A. and Crown Subsea Communications Holding, Inc.	Current Report on Form 8-K	10.1	November 5, 2018

	10.29	‡*	TE Connectivity Ltd. Annual Incentive Plan (as amended and restated)

	21.1	*	Subsidiaries of TE Connectivity Ltd.

	23.1	*	Consent of Independent Registered Public Accounting Firm

	24.1	*	Power of Attorney

	31.1	*	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	*	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1	**	Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


				Incorporated by Reference Herein
Exhibit Number
		Description	Form	Exhibit	Filing Date
	101	*	Financial statements from the Annual Report on Form 10-K of TE Connectivity Ltd. for the fiscal year ended September 28, 2018, filed on November 13, 2018, formatted in XBRL: (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Shareholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements

†

The schedules to the Share Purchase Agreement and Stock Purchase Agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. We will furnish copies of such schedules to the SEC upon its request; provided, however, that we may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any schedule so furnished.

‡

Management contract or compensatory plan or arrangement

Filed herewith

Furnished herewith

**SIGNATURES **

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		TE CONNECTIVITY LTD.
		By:		/s/ HEATH A. MITTS Heath A. Mitts Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date: November 13, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ TERRENCE R. CURTIN Terrence R. Curtin	Chief Executive Officer and Director (Principal Executive Officer)	November 13, 2018
/s/ HEATH A. MITTS Heath A. Mitts	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	November 13, 2018
/s/ ROBERT J. OTT Robert J. Ott	Senior Vice President and Corporate Controller (Principal Accounting Officer)	November 13, 2018
* Pierre R. Brondeau	Director	November 13, 2018
* Carol A. Davidson	Director	November 13, 2018
* William A. Jeffrey	Director	November 13, 2018


Signature	Title	Date

* Thomas J. Lynch	Director	November 13, 2018
* Yong Nam	Director	November 13, 2018
* Daniel J. Phelan	Director	November 13, 2018
* Paula A. Sneed	Director	November 13, 2018
* Abhijit Y. Talwalkar	Director	November 13, 2018
* Mark C. Trudeau	Director	November 13, 2018
* John C. Van Scoter	Director	November 13, 2018
* Laura H. Wright	Director	November 13, 2018

John S. Jenkins, Jr., by signing his name hereto, does sign this document on behalf of the above noted individuals, pursuant to powers of attorney duly executed by such individuals, which have been filed as Exhibit 24.1 to this Report.


		By:		/s/ JOHN S. JENKINS, JR. John S. Jenkins, Jr. Attorney-in-fact

**TE CONNECTIVITY LTD.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS **


	Page
Reports of Independent Registered Public Accounting Firm		59
Consolidated Statements of Operations for the Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016		61
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016		62
Consolidated Balance Sheets as of September 28, 2018 and September 29, 2017		63
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016		64
Consolidated Statements of Cash Flows for the Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016		65
Notes to Consolidated Financial Statements		66
Schedule II—Valuation and Qualifying Accounts		122

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of TE Connectivity Ltd.:

**Opinion on the Financial Statements **

We have audited the accompanying consolidated balance sheets of TE Connectivity Ltd. and subsidiaries (the "Company") as of September 28, 2018 and September 29, 2017, the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows, for each of the three fiscal years in the period ended September 28, 2018, and the related notes and schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 28, 2018 and September 29, 2017, and the results of its operations and its cash flows for each of the three fiscal years in the period ended September 28, 2018, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 28, 2018, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 13, 2018 expressed an unqualified opinion on the Company's internal control over financial reporting.

**Basis for Opinion **

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania November 13, 2018

We have served as the Company's auditor since 2007.

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM **

To the Shareholders and the Board of Directors of TE Connectivity Ltd.:

**Opinion on Internal Control over Financial Reporting **

We have audited the internal control over financial reporting of TE Connectivity Ltd. and subsidiaries (the "Company") as of September 28, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 28, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial statements as of and for the fiscal year ended September 28, 2018 of the Company and our report dated November 13, 2018 expressed an unqualified opinion on those financial statements.

**Basis for Opinion **

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

**Definition and Limitations of Internal Control over Financial Reporting **

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania November 13, 2018

** TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016 **


	Fiscal
	2018			2017			2016
	(in millions, except per share data)
Net sales	$	13,988		$	12,185		$	11,352
Cost of sales		9,243			8,002			7,525

Gross margin		4,745			4,183			3,827
Selling, general, and administrative expenses		1,594			1,543			1,396
Research, development, and engineering expenses		680			611			603
Acquisition and integration costs		14			6			22
Restructuring and other charges (credits), net		126			147			(2	)

Operating income		2,331			1,876			1,808
Interest income		15			16			17
Interest expense		(107	)		(130	)		(127	)
Other income (expense), net		1			(42	)		(677	)

Income from continuing operations before income taxes		2,240			1,720			1,021
Income tax (expense) benefit		344			(180	)		826

Income from continuing operations		2,584			1,540			1,847
Income (loss) from discontinued operations, net of income taxes		(19	)		143			162

Net income	$	2,565		$	1,683		$	2,009



Basic earnings per share:
Income from continuing operations	$	7.38		$	4.34		$	5.05
Income (loss) from discontinued operations		(0.05	)		0.40			0.44
Net income		7.33			4.74			5.49
Diluted earnings per share:
Income from continuing operations	$	7.32		$	4.30		$	5.01
Income (loss) from discontinued operations		(0.05	)		0.40			0.44
Net income		7.27			4.70			5.44
Weighted-average number of shares outstanding:
Basic		350			355			366
Diluted		353			358			369

See Notes to Consolidated Financial Statements.

** TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016 **


	Fiscal
	2018			2017		2016
	(in millions)
Net income	$	2,565		$	1,683	$	2,009
Other comprehensive income (loss):
Currency translation		(117	)		37		(92	)
Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes		83			330		(88	)
Gains (losses) on cash flow hedges, net of income taxes		(74	)		15		11

Other comprehensive income (loss)		(108	)		382		(169	)

Comprehensive income.	$	2,457		$	2,065	$	1,840

See Notes to Consolidated Financial Statements.

** TE CONNECTIVITY LTD.

CONSOLIDATED BALANCE SHEETS

As of September 28, 2018 and September 29, 2017 **


	Fiscal Year End
	2018			2017
	(in millions, except share data)
Assets
Current assets:
Cash and cash equivalents	$	848		$	1,218
Accounts receivable, net of allowance for doubtful accounts of $22 and $18, respectively		2,361			2,138
Inventories		1,857			1,647
Prepaid expenses and other current assets		661			578
Current assets held for sale		472			345

Total current assets		6,199			5,926
Property, plant, and equipment, net		3,497			3,159
Goodwill		5,684			5,651
Intangible assets, net		1,704			1,841
Deferred income taxes		2,144			2,141
Noncurrent assets held for sale		—			257
Other assets		1,158			428

Total Assets	$	20,386		$	19,403



Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt	$	963		$	710
Accounts payable		1,548			1,387
Accrued and other current liabilities		1,711			1,613
Current liabilities held for sale		188			137

Total current liabilities		4,410			3,847
Long-term debt		3,037			3,634
Long-term pension and postretirement liabilities		1,102			1,158
Deferred income taxes		207			236
Income taxes		312			293
Noncurrent liabilities held for sale		—			43
Other liabilities		487			441

Total Liabilities		9,555			9,652

Commitments and contingencies (Note 12)
Shareholders' equity:
Common shares, CHF 0.57 par value, 357,069,981 shares authorized and issued		157			157
Accumulated earnings		12,114			10,175
Treasury shares, at cost, 12,279,603 and 5,356,369 shares, respectively		(1,134	)		(421	)
Accumulated other comprehensive loss		(306	)		(160	)

Total Shareholders' Equity		10,831			9,751

Total Liabilities and Shareholders' Equity	$	20,386		$	19,403

See Notes to Consolidated Financial Statements.

** TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016 **


	Common Shares						Treasury Shares
							Accumulated Other Comprehensive Loss
	Contributed Surplus			Accumulated Earnings			Total Shareholders' Equity
	Shares			Amount			Shares			Amount
	(in millions)
Balance at September 25, 2015		414		$	182			(20	)	$	(1,256	)	$	4,359		$	6,673		$	(373	)	$	9,585
Net income		—			—			—			—			—			2,009			—			2,009
Other comprehensive loss		—			—			—			—			—			—			(169	)		(169	)
Share-based compensation expense		—			—			—			—			91			—			—			91
Dividends approved		—			—			—			—			(512	)		—			—			(512	)
Exercise of share options		—			—			2			90			—			—			—			90
Restricted share award vestings and other activity		—			—			2			146			(145	)		—			—			1
Repurchase of common shares		—			—			(43	)		(2,610	)		—			—			—			(2,610	)
Cancellation of treasury shares		(31	)		(14	)		31			2,006			(1,992	)		—			—			—

Balance at September 30, 2016		383		$	168			(28	)	$	(1,624	)	$	1,801		$	8,682		$	(542	)	$	8,485

Adoption of ASU No. 2016-09		—			—			—			—			—			165			—			165
Net income		—			—			—			—			—			1,683			—			1,683
Other comprehensive income		—			—			—			—			—			—			382			382
Share-based compensation expense		—			—			—			—			99			—			—			99
Dividends approved		—			—			—			—			(564	)		—			—			(564	)
Exercise of share options		—			—			3			117			—			—			—			117
Restricted share award vestings and other activity		—			—			2			195			(184	)		(6	)		—			5
Repurchase of common shares		—			—			(8	)		(621	)		—			—			—			(621	)
Cancellation of treasury shares		(26	)		(11	)		26			1,512			(1,152	)		(349	)		—			—

Balance at September 29, 2017		357		$	157			(5	)	$	(421	)	$	—		$	10,175		$	(160	)	$	9,751

Adoption of ASU No. 2018-02		—			—			—			—			—			38			(38	)		—
Net income		—			—			—			—			—			2,565			—			2,565
Other comprehensive loss		—			—			—			—			—			—			(108	)		(108	)
Share-based compensation expense		—			—			—			—			98			—			—			98
Dividends approved		—			—			—			—			—			(610	)		—			(610	)
Exercise of share options		—			—			1			100			—			—			—			100
Restricted share award vestings and other activity		—			—			2			153			(98	)		(54	)		—			1
Repurchase of common shares		—			—			(10	)		(966	)		—			—			—			(966	)

Balance at September 28, 2018		357		$	157			(12	)	$	(1,134	)	$	—		$	12,114		$	(306	)	$	10,831

See Notes to Consolidated Financial Statements.

** TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016 **


	Fiscal
	2018			2017			2016
	(in millions)
Cash Flows From Operating Activities:
Net income	$	2,565		$	1,683		$	2,009
(Income) loss from discontinued operations, net of income taxes		19			(143	)		(162	)

Income from continuing operations		2,584			1,540			1,847
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization		667			611			560
Deferred income taxes		(791	)		(142	)		136
Provision for losses on accounts receivable and inventories		30			20			13
Tax sharing expense		—			8			632
Share-based compensation expense		95			95			87
Gain on divestiture		(2	)		—			(144	)
Other		7			17			99
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts receivable, net		(269	)		(204	)		95
Inventories		(247	)		(270	)		154
Prepaid expenses and other current assets		(63	)		(62	)		281
Accounts payable		201			314			(87	)
Accrued and other current liabilities		5			224			(4	)
Income taxes		54			(1	)		(1,769	)
Other		30			123			33

Net cash provided by continuing operating activities		2,301			2,273			1,933
Net cash provided by discontinued operating activities		150			48			14

Net cash provided by operating activities		2,451			2,321			1,947

Cash Flows From Investing Activities:
Capital expenditures		(935	)		(679	)		(603	)
Proceeds from sale of property, plant, and equipment		23			19			8
Acquisition of businesses, net of cash acquired		(153	)		(250	)		(1,336	)
Proceeds from divestiture of business, net of cash retained by sold business		—			4			333
Other		(8	)		(3	)		42

Net cash used in continuing investing activities		(1,073	)		(909	)		(1,556	)
Net cash used in discontinued investing activities		(21	)		(23	)		(25	)

Net cash used in investing activities		(1,094	)		(932	)		(1,581	)

Cash Flows From Financing Activities:
Net increase (decrease) in commercial paper		270			(330	)		330
Proceeds from issuance of debt		119			589			352
Repayment of debt		(708	)		—			(501	)
Proceeds from exercise of share options		100			117			90
Repurchase of common shares		(879	)		(614	)		(2,787	)
Payment of common share dividends to shareholders		(588	)		(546	)		(509	)
Transfers (to) from discontinued operations		129			25			(11	)
Other		(36	)		(30	)		(30	)

Net cash used in continuing financing activities		(1,593	)		(789	)		(3,066	)
Net cash provided by (used in) discontinued financing activities		(129	)		(25	)		11

Net cash used in financing activities		(1,722	)		(814	)		(3,055	)

Effect of currency translation on cash		(5	)		(4	)		7
Net increase (decrease) in cash and cash equivalents		(370	)		571			(2,682	)
Cash and cash equivalents at beginning of fiscal year		1,218			647			3,329

Cash and cash equivalents at end of fiscal year	$	848		$	1,218		$	647



Supplemental Cash Flow Information:
Interest paid	$	127		$	128		$	117
Income taxes paid, net of refunds		393			323			806

See Notes to Consolidated Financial Statements.

** TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS **

1. Basis of Presentation

The Consolidated Financial Statements reflect the consolidated operations of TE Connectivity Ltd. and its subsidiaries and have been prepared in United States ("U.S.") dollars in accordance with accounting principles generally accepted in the U.S. ("GAAP").

Description of the Business

TE Connectivity Ltd. ("TE Connectivity" or the "Company," which may be referred to as "we," "us," or "our") is a global technology and manufacturing leader creating a safer, sustainable, productive, and connected future. For more than 75 years, our connectivity and sensor solutions, proven in the harshest environments, have enabled advancements in transportation, industrial applications, medical technology, energy, data communications, and the home.

We operate through three reportable segments:

Transportation Solutions. The Transportation Solutions segment is a leader in connectivity and sensor technologies. Our products, which must withstand harsh conditions, are used in the automotive, commercial transportation, and sensors markets.

Industrial Solutions. The Industrial Solutions segment is a leading supplier of products that connect and distribute power, data, and signals. Our products are used in the industrial equipment; aerospace, defense, oil, and gas; and energy markets.

Communications Solutions. The Communications Solutions segment is a leading supplier of electronic components for the data and devices and the appliances markets.

Use of Estimates

The preparation of the 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. Significant estimates in these Consolidated Financial Statements include restructuring and other charges, assets acquired and liabilities assumed in acquisitions, allowances for doubtful accounts receivable, estimates of future cash flows and discount rates associated with asset impairments, useful lives for depreciation and amortization, loss contingencies, net realizable value of inventories, estimated contract revenue and related costs, legal contingencies, tax reserves and deferred tax asset valuation allowances, and the determination of discount and other rate assumptions for pension benefit cost. Actual results could differ materially from these estimates.

Fiscal Year

We have a 52- or 53-week fiscal year that ends on the last Friday of September. For fiscal years in which there are 53 weeks, the fourth quarter reporting period includes 14 weeks. Fiscal 2018, 2017, and 2016 ended on September 28, 2018, September 29, 2017, and September 30, 2016, respectively. Fiscal 2018 and 2017 were 52 weeks in length. Fiscal 2016 was a 53-week year.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies

Principles of Consolidation

We consolidate entities in which we own or control more than 50% of the voting shares or otherwise have the ability to control through similar rights. All intercompany transactions have been eliminated. The results of companies acquired or disposed of are included on the Consolidated Financial Statements from the effective date of acquisition or up to the date of disposal.

Revenue Recognition

Our revenues are generated principally from the sale of our products. Revenue from the sale of products is recognized at the time title and the risks and rewards of ownership pass to the customer. This generally occurs when the products reach the shipping point, the sales price is fixed and determinable, and collection is reasonably assured.

We generally warrant that our products will conform to our, or mutually agreed to, specifications and that our products will be free from material defects in materials and workmanship for a limited time. We limit our warranty to the replacement or repair of defective parts, or a refund or credit of the price of the defective product. We accept returned goods only when the customer makes a verified claim and we have authorized the return. Generally, a reserve for estimated returns is established at the time of sale based on historical return experience and is recorded as a reduction of sales.

We provide certain distributors with an inventory allowance for returns or scrap equal to a percentage of qualified purchases. A reserve for estimated returns and scrap allowances is established at the time of the sale based on an agreed-upon, fixed percentage of sales to distributors and is recorded as a reduction of sales.

Other allowances include customer quantity and price discrepancies. A reserve for other allowances is generally established at the time of sale based on historical experience and is recorded as a reduction of sales. We believe we can reasonably and reliably estimate the amounts of future allowances.

See "Recently Issued Accounting Pronouncements" below for information regarding our adoption of Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, in fiscal 2019.

Inventories

Inventories are recorded at the lower of cost or net realizable value using the first-in, first-out cost method.

Property, Plant, and Equipment, Net

Property, plant, and equipment is recorded at cost less accumulated depreciation. Maintenance and repair expenditures are charged to expense when incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which are 10 to 20 years for land improvements, 5 to 40 years for buildings and improvements, and 1 to 15 years for machinery and equipment.

We periodically evaluate, when events and circumstances warrant, the net realizable value of property, plant, and equipment and other long-lived assets, relying on a number of factors including

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

operating results, business plans, economic projections, and anticipated future cash flows. When indicators of potential impairment are present, the carrying values of the asset group are evaluated in relation to the operating performance and estimated future undiscounted cash flows of the underlying asset group. Impairment of the carrying value is recognized whenever anticipated future undiscounted cash flow estimates are less than the carrying value of the asset. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows and discount rates, reflecting varying degrees of perceived risk.

Goodwill and Other Intangible Assets

Intangible assets include both indeterminable-lived residual goodwill and determinable-lived identifiable intangible assets. Intangible assets with determinable lives primarily include intellectual property, consisting of patents, trademarks, and unpatented technology, and customer relationships. Recoverability estimates range from 1 to 50 years and costs are generally amortized on a straight-line basis. Evaluations of the remaining useful lives of determinable-lived intangible assets are performed on a periodic basis and when events and circumstances warrant.

At fiscal year end 2018, we had five reporting units, all of which contained goodwill. There were two reporting units in both the Transportation Solutions and Industrial Solutions segments and one reporting unit in the Communications Solutions segment. When changes occur in the composition of one or more reporting units, goodwill is reassigned to the reporting units affected based on their relative fair values.

Goodwill impairment is evaluated by comparing the carrying value of each reporting unit to its fair value on the first day of the fourth fiscal quarter of each year or whenever we believe a triggering event requiring a more frequent assessment has occurred. In assessing the existence of a triggering event, management relies on a number of reporting unit-specific factors including operating results, business plans, economic projections, anticipated future cash flows, transactions, and market place data. There are inherent uncertainties related to these factors and management's judgment in applying these factors to the impairment analysis.

When testing for goodwill impairment, we perform a step I goodwill impairment test to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, goodwill may be impaired and a step II goodwill impairment test is performed to measure the amount of impairment, if any. In the step II goodwill impairment test, we compare the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The implied fair value of goodwill is determined in a manner consistent with how goodwill is recognized in a business combination. We allocate the fair value of a reporting unit to the assets and liabilities of that unit, including intangible assets, as if the reporting unit had been acquired in a business combination. Any excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill.

Fair value estimates used in the step I goodwill impairment tests are calculated using an income approach based on the present value of future cash flows of each reporting unit. The income approach has been supported by guideline analyses (a market approach). These approaches incorporate a number of assumptions including future growth rates, discount rates, income tax rates, and market activity in

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

assessing fair value and are reporting unit specific. Changes in economic and operating conditions impacting these assumptions could result in goodwill impairments in future periods.

Research and Development

Research and development expenditures are expensed when incurred and are included in research, development, and engineering expenses on the Consolidated Statements of Operations. Research and development expenses include salaries, direct costs incurred, and building and overhead expenses. The amounts expensed in fiscal 2018, 2017, and 2016 were $606 million, $548 million, and $525 million, respectively.

Income Taxes

Income taxes are computed in accordance with the provisions of ASC 740, Income Taxes. Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected on the Consolidated Financial Statements. Deferred tax liabilities and assets are determined based on the differences between the book and tax bases of particular assets and liabilities and operating loss carryforwards using tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is provided to offset deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The calculation of our tax liabilities includes estimates for uncertainties in the application of complex tax regulations across multiple global jurisdictions where we conduct our operations. Under the uncertain tax position provisions of ASC 740, we recognize liabilities for tax and related interest for issues in tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes and related interest will be due. These tax liabilities and related interest are reflected net of the impact of related tax loss carryforwards, as such tax loss carryforwards will be applied against these tax liabilities and will reduce the amount of cash tax payments due upon the eventual settlement with the tax authorities. These estimates may change due to changing facts and circumstances. Due to the complexity of these uncertainties, the ultimate resolution may result in a settlement that differs from our current estimate of the tax liabilities and related interest.

Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, debt, and derivative financial instruments.

We account for derivative financial instrument contracts on the Consolidated Balance Sheets at fair value. For instruments not designated as hedges under ASC 815, Derivatives and Hedging, the changes in the instruments' fair value are recognized currently in earnings. For instruments designated as cash flow hedges, the effective portion of changes in the fair value of a derivative is recorded in other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the underlying hedged item affects earnings. Ineffective portions of a cash flow hedge, including amounts excluded from the hedging relationship, are recognized currently in earnings. Changes in the fair value of instruments designated as fair value hedges affect the carrying value of the asset or liability hedged, with changes in both the derivative instrument and the hedged asset or liability being recognized currently in earnings.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

We determine the fair value of our financial instruments by using methods and assumptions that are based on market conditions and risks existing at each balance sheet date. Standard market conventions are used to determine the fair value of financial instruments, including derivatives.

The cash flows related to derivative financial instruments are reported in the operating activities section of the Consolidated Statements of Cash Flows.

Our derivative financial instruments present certain market and counterparty risks. Concentration of counterparty risk is mitigated, however, by our use of financial institutions worldwide, substantially all of which have long-term Standard & Poor's, Moody's, and/or Fitch credit ratings of A/A2 or higher. In addition, we utilize only conventional derivative financial instruments. We are exposed to potential losses if a counterparty fails to perform according to the terms of its agreement. With respect to counterparty net asset positions recognized at fiscal year end 2018, we have assessed the likelihood of counterparty default as remote. We currently provide guarantees from a wholly-owned subsidiary to the counterparties to our commodity swap derivatives and exchange cash collateral with the counterparties to our cross-currency swap contracts. The likelihood of performance on the guarantees has been assessed as remote. For all other derivative financial instruments, we are not required to provide, nor do we require counterparties to provide, collateral or other security.

Fair Value Measurements

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.

Derivative financial instruments measured at fair value on a recurring basis are generally valued using level 2 inputs.

Financial instruments other than derivative instruments include cash and cash equivalents, accounts receivable, accounts payable, and debt. These instruments are recorded on the Consolidated Balance Sheets at book value. For cash and cash equivalents, accounts receivable, and accounts payable, we believe book value approximates fair value due to the short-term nature of these instruments. See Note 11 for disclosure of the fair value of 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).

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

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).

Debt. The fair value of debt, including both current and non-current maturities, 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).

Pension Liabilities

The funded status of our defined benefit pension plans is recognized on the Consolidated Balance Sheets and is measured as the difference between the fair value of plan assets and the projected benefit obligation at the measurement date. The projected benefit obligation represents the actuarial present value of benefits projected to be paid upon retirement factoring in estimated future compensation levels. The fair value of plan assets represents the current market value of cumulative company and participant contributions made to irrevocable trust funds, held for the sole benefit of participants, which are invested by the trustee of the funds. The benefits under our defined benefit pension plans are based on various factors, such as years of service and compensation.

Net periodic pension benefit cost is based on the utilization of the projected unit credit method of calculation and is charged to earnings on a systematic basis over the expected average remaining service lives of current participants.

The measurement of benefit obligations and net periodic benefit cost is based on estimates and assumptions determined by our management. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age, and years of service, as well as certain assumptions, including estimates of discount rates, expected return on plan assets, rate of compensation increases, interest crediting rates, and mortality rates.

Share-Based Compensation

We determine the fair value of share awards on the date of grant. Share options are valued using the Black-Scholes-Merton valuation model; restricted share awards and performance awards are valued using our end-of-day share price on the date of grant. The fair value is expensed ratably over the expected service period, with an allowance made for estimated forfeitures based on historical employee activity. Estimates regarding the attainment of performance criteria are reviewed periodically; the cumulative impact of a change in estimate regarding the attainment of performance criteria is recorded in the period in which that change is made.

Earnings Per Share

Basic earnings per share is computed by dividing net income by the basic weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding adjusted for the potentially dilutive impact of share-based compensation arrangements.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

Currency Translation

For our non-U.S. dollar functional currency subsidiaries, assets and liabilities are translated into U.S. dollars using fiscal year end exchange rates. Sales and expenses are translated at average monthly exchange rates. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive income (loss) within equity.

Gains and losses resulting from foreign currency transactions, which are included in earnings, were immaterial in fiscal 2018, 2017, and 2016.

Restructuring Charges

Restructuring activities involve employee-related termination costs, facility exit costs, and asset impairments resulting from reductions-in-force, migration of facilities or product lines from higher-cost to lower-cost countries, or consolidation of facilities within countries. We recognize termination costs based on requirements established by severance policy, government law, or previous actions. Facility exit costs generally reflect the cost to terminate a facility lease before the end of its term (measured at fair value at the time we cease using the facility) or costs that will continue to be incurred under the facility lease without future economic benefit to us. Restructuring activities often result in the disposal or abandonment of assets that require an acceleration of depreciation or impairment reflecting the excess of the assets' carrying values over fair value.

The recognition of restructuring costs require that we make certain judgments and estimates regarding the nature, timing, and amount of costs associated with the planned exit activity. To the extent our actual results differ from our estimates and assumptions, we may be required to revise the estimated liabilities, requiring the recognition of additional restructuring costs or the reduction of liabilities already recognized. At the end of each reporting period, we evaluate the remaining accrued balances to ensure these balances are properly stated and the utilization of the reserves are for their intended purpose in accordance with developed exit plans.

Contingent Liabilities

We record a loss contingency when the available information indicates it is probable that we have incurred a liability and the amount of the loss is reasonably estimable. When a range of possible losses with equal likelihood exists, we record the low end of the range. The likelihood of a loss with respect to a particular contingency is often difficult to predict, and determining a meaningful estimate of the loss or a range of loss may not be practicable based on information available. In addition, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and new information must continuously be evaluated to determine whether a loss is probable and a reasonable estimate of that loss can be made. When a loss is probable but a reasonable estimate cannot be made, or when a loss is at least reasonably possible, disclosure is provided.

Recently Issued Accounting Pronouncements

In October 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-16, an update to ASC 740, Income Taxes. This new guidance requires the recognition of the income tax consequences of intra-entity transfers of assets other than inventory in the period in which the transfer occurs. The update, which we will adopt on a modified

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

retrospective basis, is effective for us in the first quarter of fiscal 2019. Adoption is expected to result in a $443 million cumulative-effect adjustment to beginning accumulated earnings, which represents the net reversal of all balances associated with deferred tax impacts of intra-entity transfers of assets other than inventory. This will result in a decrease in other assets of $798 million, an increase in deferred tax assets of $418 million, and a decrease in prepaid expenses and other current assets of $63 million on the Consolidated Balance Sheet.

In February 2016, the FASB issued ASU No. 2016-02 which codified ASC 842, Leases. This guidance, as subsequently amended, requires lessees to recognize a lease liability and a right-of-use asset for most leases and is effective for us in the first quarter of fiscal 2020. We are currently in the process of updating policies, internal controls, financial statement disclosures, and systems to incorporate the impact of the new standard in our financial reporting processes. We intend to adopt the standard using the modified retrospective approach in the period of adoption, as permitted by ASU No. 2018-11. We expect that adoption will likely have a material impact to our Consolidated Balance Sheet; however, we currently do not expect adoption to have a material impact to our results of operations or cash flows. We believe that we are following an appropriate timeline to adopt the new standard in the first quarter of fiscal 2020.

In May 2014, the FASB issued ASU No. 2014-09 which codified ASC 606, Revenue from Contracts with Customers. This guidance supersedes ASC 605, Revenue Recognition, and introduces a single, comprehensive, five-step revenue recognition model. ASC 606 also enhances disclosures related to revenue recognition. ASC 606, as amended, is effective for us beginning in fiscal 2019. Significantly all our revenues are generated from the sale of products. Our Subsea Communications ("SubCom") business, which is reported in discontinued operations, generates contract revenues for construction related projects which are recorded primarily using the percentage-of-completion method. Our review of existing contracts, which is complete, affirms that product revenue and contract revenue will continue to be recognized at a point in time and over-time, respectively, in a manner consistent with current practice. See Notes 4 and 23 for additional information regarding our SubCom business. In fiscal 2018, we completed the process of updating policies, internal controls, financial statement disclosures, and systems to incorporate the impact of the new standard in our financial reporting processes. We will adopt the new standard using the modified retrospective approach and have determined that transition impacts, which relate primarily to incentive compensation arrangements, are not material to our results of operations or financial position.

Recently Adopted Accounting Pronouncements

In February 2018, the FASB issued ASU No. 2018-02, an update to ASC 220, Income Statement—Reporting Comprehensive Income, to allow a reclassification from accumulated other comprehensive income (loss) for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Act"). See Note 15 for additional information regarding the Act. We elected to early adopt this update in fiscal 2018 and reclassify the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate. This change in accounting principle resulted in a reclassification of $38 million, primarily associated with our pension plans, during the period of adoption. The reclassification increased both accumulated other comprehensive loss and accumulated earnings on the Consolidated Balance Sheet with no impact to total shareholders' equity.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

In March 2017, the FASB issued ASU No. 2017-07, an update to ASC 715, Compensation—Retirement Benefits, which changes the income statement presentation of net periodic pension and postretirement benefit costs. The ASU requires that service costs be presented with other employee compensation costs within operating income and that other cost components be presented outside of operating income. We elected to early adopt this update in fiscal 2018. The update was applied retrospectively and did not have a material impact on our Consolidated Statements of Operations.

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

3. Restructuring and Other Charges (Credits), Net

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


	Fiscal
	2018			2017		2016
	(in millions)
Restructuring charges, net	$	140		$	146	$	121
Gain on divestiture		(2	)		—		(144	)
Other charges (credits), net		(12	)		1		21

	$	126		$	147	$	(2	)

**Restructuring Charges, Net **

Net restructuring charges by segment were as follows:


	Fiscal
	2018		2017		2016
	(in millions)
Transportation Solutions	$	42	$	69	$	39
Industrial Solutions		83		73		28
Communications Solutions		15		4		54

Restructuring charges, net	$	140	$	146	$	121

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Activity in our restructuring reserves was as follows:


	Balance at Beginning of Fiscal Year		Charges		Changes in Estimate			Cash Payments			Non-Cash Items			Currency Translation			Balance at End of Fiscal Year
	(in millions)
Fiscal 2018 Activity:
Fiscal 2018 Actions:
Employee severance	$	—	$	130	$	—		$	(16	)	$	—		$	—		$	114
Facility and other exit costs		—		6		—			(2	)		—			—			4
Property, plant, and equipment		—		6		—			—			(6	)		—			—

Total		—		142		—			(18	)		(6	)		—			118

Fiscal 2017 Actions:
Employee severance		102		5		(10	)		(60	)		—			(1	)		36
Facility and other exit costs		1		2		—			(3	)		—			—			—
Property, plant, and equipment		—		1		(2	)		2			(1	)		—			—

Total		103		8		(12	)		(61	)		(1	)		(1	)		36

Fiscal 2016 Actions:
Employee severance		26		7		(7	)		(14	)		—			—			12
Facility and other exit costs		—		4		—			(4	)		—			—			—
Property, plant, and equipment		—		1		(3	)		3			(1	)		—			—

Total		26		12		(10	)		(15	)		(1	)		—			12

Pre-Fiscal 2016 Actions:
Employee severance		9		—		(2	)		(5	)		—			(1	)		1
Facility and other exit costs		—		2		—			(1	)		—			(1	)		—

Total		9		2		(2	)		(6	)		—			(2	)		1

Total fiscal 2018 activity	$	138	$	164	$	(24	)	$	(100	)	$	(8	)	$	(3	)	$	167



Fiscal 2017 Activity:
Fiscal 2017 Actions:
Employee severance	$	—	$	141	$	(5	)	$	(39	)	$	—		$	5		$	102
Facility and other exit costs		—		2		—			(1	)		—			—			1
Property, plant, and equipment		—		9		—			—			(9	)		—			—

Total		—		152		(5	)		(40	)		(9	)		5			103

Fiscal 2016 Actions:
Employee severance		53		8		(9	)		(26	)		—			—			26
Facility and other exit costs		—		3		—			(3	)		—			—			—

Total		53		11		(9	)		(29	)		—			—			26

Pre-Fiscal 2016 Actions:
Employee severance		23		—		(4	)		(7	)		—			(3	)		9
Facility and other exit costs		1		1		—			(2	)		—			—			—

Total		24		1		(4	)		(9	)		—			(3	)		9

Total fiscal 2017 activity	$	77	$	164	$	(18	)	$	(78	)	$	(9	)	$	2		$	138

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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


	Balance at Beginning of Fiscal Year		Charges		Changes in Estimate			Cash Payments			Non-Cash Items			Currency Translation		Balance at End of Fiscal Year
	(in millions)
Fiscal 2016 Activity:
Fiscal 2016 Actions:
Employee severance	$	—	$	84	$	—		$	(32	)	$	—		$	1	$	53
Facility and other exit costs		—		2		—			(2	)		—			—		—
Property, plant, and equipment		—		41		—			—			(41	)		—		—

Total		—		127		—			(34	)		(41	)		1		53

Pre-Fiscal 2016 Actions:
Employee severance		68		2		(10	)		(39	)		—			2		23
Facility and other exit costs		1		2		—			(2	)		—			—		1

Total		69		4		(10	)		(41	)		—			2		24

Total fiscal 2016 activity	$	69	$	131	$	(10	)	$	(75	)	$	(41	)	$	3	$	77

Fiscal 2018 Actions

During fiscal 2018, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions and Transportation Solutions segments. In connection with this program, during fiscal 2018, we recorded restructuring charges of $142 million. We expect to complete all restructuring actions commenced during fiscal 2018 by the end of fiscal 2020 and to incur additional charges of approximately $15 million primarily in the Industrial Solutions segment.

Fiscal 2017 Actions

During fiscal 2017, we initiated a restructuring program associated with footprint consolidation related to recent acquisitions and structural improvements impacting all segments. In connection with this program, during fiscal 2018 and 2017, we recorded net restructuring credits of $4 million and charges of $147 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2017 by the end of fiscal 2019 and anticipate that any additional charges will be insignificant.

Fiscal 2016 Actions

During fiscal 2016, we initiated a restructuring program associated with headcount reductions impacting all segments and product line closures in the Communications Solutions segment. In connection with this program, during fiscal 2018, 2017, and 2016, we recorded net restructuring charges of $2 million, $2 million, and $127 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2016 by the end of fiscal 2019 and to incur additional employee severance charges of approximately $10 million primarily in the Communications Solutions segment.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Pre-Fiscal 2016 Actions

During fiscal 2017 and 2016, we recorded net restructuring credits of $3 million and $6 million, respectively, related to pre-fiscal 2016 actions. We do not expect to incur any additional charges related to pre-fiscal 2016 actions.

Total Restructuring Reserves

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


	Fiscal Year End
	2018		2017
	(in millions)
Accrued and other current liabilities	$	141	$	127
Other liabilities		26		11

Restructuring reserves	$	167	$	138

**Gain on Divestiture **

During fiscal 2016, we sold our Circuit Protection Devices ("CPD") business for net cash proceeds of $333 million. We recognized a pre-tax gain of $144 million on the transaction. The CPD business was reported in our Communications Solutions segment.

4. Discontinued Operations

On September 16, 2018, we entered into a definitive agreement to sell our Subsea Communications ("SubCom") business for $325 million, subject to a final working capital adjustment. The agreement provides that, if the purchaser sells the business within two years of the closing date, we will be entitled to 20% of the net proceeds of that future sale, as defined in the agreement, in excess of $325 million. The sale of the SubCom business, which was previously included in our Communications Solutions segment, represents our exit from the telecommunications market and is significant to our sales and profitability, both to the Communications Solutions segment and to the consolidated company. We have concluded that the divestiture is a strategic shift that will have a major effect on our operations and financial results. As a result, the SubCom business met the held for sale and discontinued operations criteria and was reported as a discontinued operation on our Consolidated Financial Statements for all periods presented.

Upon entering into the definitive agreement, which we consider a level 2 observable input in the fair value hierarchy, we assessed the carrying value of the SubCom business and determined that it was in excess of its fair value. In fiscal 2018, we recorded a pre-tax impairment charge of $19 million, which is included in income (loss) from discontinued operations on the Consolidated Statement of Operations, to write the carrying value of the business down to its estimated fair value less costs to sell. We expect to incur a pre-tax loss on sale of approximately $90 million, related primarily to the recognition of cumulative translation adjustment losses and the guarantee liabilities discussed below, which will be presented in income (loss) from discontinued operations on the Consolidated Statement of Operations. See Note 23 for additional information regarding the divestiture.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Discontinued Operations (Continued)

Following the divestiture, we will continue to honor performance guarantees and letters of credit related to the SubCom business' existing projects. These existing guarantees have a combined value of approximately $1.7 billion and are expected to expire at various dates through fiscal 2025; however, the majority are expected to expire within two years. Also, under the terms of the definitive agreement, we are required to issue up to $300 million of new performance guarantees, subject to certain limitations, for projects entered into by the SubCom business following the sale for a period of up to three years. We have contractual recourse against the SubCom business if we are required to perform on these guarantees; however, based on historical experience, we do not anticipate having to perform.

The SubCom business generates contract revenues for construction related projects which are recorded primarily using the percentage-of-completion method. Profits recognized on contracts in process are based upon estimated contract revenue and related cost to complete. Percentage-of-completion is measured based on the ratio of actual costs incurred to total estimated costs. Revisions in cost estimates as contracts progress have the effect of increasing or decreasing profits in the current period. Provisions for anticipated losses are made in the period in which they first become determinable. In addition, provisions for credit losses related to unbilled receivables on construction related projects are recorded as reductions of revenue in the period in which they first become determinable.

The following table presents the summarized components of income (loss) from discontinued operations, net of income taxes, for the SubCom business and prior divestitures:


	Fiscal
	2018			2017			2016
	(in millions)
Net sales	$	702		$	928		$	886
Cost of sales		602			653			666

Gross margin		100			275			220
Selling, general, and administrative expenses(1)		48			50			13
Research, development, and engineering expenses		39			40			34
Restructuring and other charges (credits), net(2)		30			(3	)		3

Operating income (loss)		(17	)		188			170
Non-operating income, net(3)		—			22			—

Pre-tax income (loss) from discontinued operations		(17	)		210			170
Pre-tax gain (loss) on sale of discontinued operations(4)		(2	)		3			29
Income tax (expense) benefit		—			(70	)		(37	)

Income (loss) from discontinued operations, net of income taxes	$	(19	)	$	143		$	162

(1)

Fiscal 2016 included $30 million of credits related to the settlement of the Com-Net case as discussed below.

(2)

Fiscal 2018 included a $19 million impairment charge recorded in connection with the sale of our SubCom business.

(3)

Fiscal 2017 included a $19 million credit related to the SubCom business' curtailment of a postretirement benefit plan.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Discontinued Operations (Continued)

(4)

Fiscal 2016 included a gain of $29 million on the fiscal 2015 divestiture of our Broadband Network Solutions ("BNS") business as discussed below.

The following table presents balance sheet information for assets and liabilities held for sale:


	Fiscal Year End
	2018		2017
	(in millions)
Accounts receivable, net	$	72	$	152
Inventories		130		166
Other current assets		32		27
Property, plant, and equipment, net(1)		221		241
Other assets		17		16

Total assets held for sale(2)	$	472	$	602



Accounts payable	$	63	$	50
Accrued and other current liabilities		26		39
Deferred revenue		60		48
Other liabilities		39		43

Total liabilities held for sale(2)	$	188	$	180

(1)

Fiscal year end 2018 included a reduction of $19 million related to the impairment charge recorded in connection with the sale of our SubCom business.

(2)

Assets and liabilities held for sale at fiscal year end 2017 were classified as both current and noncurrent on the Consolidated Balance Sheet.

During fiscal 2016, we settled a lawsuit with the former shareholders of Com-Net, which we acquired in fiscal 2001, and paid an aggregate amount of $96 million. In connection with the settlement, we recorded pre-tax credits of $30 million, representing a release of excess reserves, during fiscal 2016. This amount was reflected in income (loss) from discontinued operations on the Consolidated Statement of Operations as the Com-Net case was associated with our former Wireless Systems business which was sold in fiscal 2009. Also during fiscal 2016, we recognized an additional pre-tax gain of $29 million on the fiscal 2015 divestiture of our BNS business, related primarily to pension and net working capital adjustments.

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

5. Acquisitions

Fiscal 2018 Acquisitions

During fiscal 2018, we acquired two businesses for a combined cash purchase price of $153 million, net of cash acquired. The acquisitions were reported as part of our Industrial Solutions segment from the date of acquisition.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Acquisitions (Continued)

Fiscal 2017 Acquisitions

During fiscal 2017, we acquired two businesses for a combined cash purchase price of $250 million, net of cash acquired. The acquisitions were reported as part of our Transportation Solutions and Industrial Solutions segments from the date of acquisition.

Fiscal 2016 Acquisitions

In fiscal 2016, we acquired four businesses, including the Creganna Medical group, for a combined cash purchase price of $1.3 billion, net of cash acquired. The acquisitions were reported as part of our Industrial Solutions and Transportation Solutions segments from the date of acquisition.

The following table summarizes the 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	$	77
Other current assets		97
Goodwill		802
Intangible assets		530
Other non-current assets		73

Total assets acquired		1,579

Current liabilities		46
Deferred income taxes		100
Other non-current liabilities		20

Total liabilities assumed		166

Net assets acquired		1,413
Cash and cash equivalents acquired		(77	)

Net cash paid	$	1,336

The fair values assigned to intangible assets were determined using the income approach, specifically the relief from royalty and the multi-period excess earnings methods. Both valuation methods rely on management judgment, 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. 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.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Acquisitions (Continued)

Acquired intangible assets consisted of the following:


	Amount		Weighted-Average Amortization Period
	(in millions)		(in years)
Customer relationships	$	300		18
Developed technology		170		11
Trade names and trademarks		45		25
Customer order backlog		15		3

Total	$	530		16

The acquired intangible assets are being amortized on a straight-line basis over their expected useful lives.

Goodwill of $802 million was recognized in these transactions, representing the excess of the purchase price over the fair value of the tangible and intangible assets acquired and liabilities assumed. This goodwill is attributable primarily to cost savings and other synergies related to operational efficiencies including the consolidation of manufacturing, marketing, and general and administrative functions. The goodwill has been allocated to the Industrial Solutions and Transportation Solutions segments and is not deductible for tax purposes. However, prior to being acquired by us, one of the fiscal 2016 acquisitions completed certain acquisitions that resulted in goodwill with an estimated value of $15 million that is deductible primarily for U.S. tax purposes, which we will deduct through 2025.

Fiscal 2016 acquisitions contributed net sales of $167 million and operating income of $8 million to our Consolidated Statement of Operations during fiscal 2016. The operating income included $10 million of acquisition costs, $7 million associated with the amortization of acquisition-related fair value adjustments related to acquired inventories and customer order backlog, and $2 million of integration costs.

The following unaudited pro forma financial information reflects our consolidated results of operations had the fiscal 2016 acquisitions occurred at the beginning of fiscal 2015:


	Fiscal
	2016
	(in millions, except per share data)
Net sales	$	11,585
Net income		2,038
Diluted earnings per share	$	5.52

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

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

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Acquisitions (Continued)

either future results of operations or results that might have been achieved had these acquisitions occurred at the beginning of the preceding fiscal years.

6. Inventories

Inventories consisted of the following:


	Fiscal Year End
	2018		2017
	(in millions)
Raw materials	$	276	$	271
Work in progress		656		570
Finished goods		925		806

Inventories	$	1,857	$	1,647

7. Property, Plant, and Equipment, Net

Net property, plant, and equipment consisted of the following:


	Fiscal Year End
	2018			2017
	(in millions)
Land and improvements	$	171		$	174
Buildings and improvements		1,379			1,324
Machinery and equipment		7,124			6,757
Construction in process		724			683

Gross property, plant, and equipment		9,398			8,938
Accumulated depreciation		(5,901	)		(5,779	)

Property, plant, and equipment, net	$	3,497		$	3,159

Depreciation expense was $487 million, $442 million, and $411 million in fiscal 2018, 2017, and 2016, respectively.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Goodwill

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


	Transportation Solutions			Industrial Solutions			Communications Solutions			Total
	(in millions)
Fiscal year end 2016(1)	$	1,903		$	3,005		$	584		$	5,492
Acquisitions		82			14			—			96
Currency translation		26			28			9			63

Fiscal year end 2017(1)		2,011			3,047			593			5,651
Acquisitions		—			78			—			78
Currency translation		(18	)		(21	)		(6	)		(45	)

Fiscal year end 2018(1)	$	1,993		$	3,104		$	587		$	5,684

(1)

At fiscal year end 2018, 2017, and 2016, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $2,191 million, $669 million, and $489 million, respectively.

During fiscal 2018, we recognized goodwill of $78 million in the Industrial Solutions segment due primarily to recent acquisitions. During fiscal 2017, we acquired two businesses and recognized goodwill of $130 million, which benefitted the Transportation Solutions and Industrial Solutions segments. Also in fiscal 2017, we finalized the purchase price allocation of our fiscal 2016 acquisitions, and the associated goodwill was reduced by $34 million. This reduction, which was primarily within the Industrial Solutions segment, is reflected in fiscal 2017 acquisitions in the above table. See Note 5 for additional information regarding acquisitions.

We completed our annual goodwill impairment test in the fourth quarter of fiscal 2018 and determined that no impairment existed.

9. Intangible Assets, Net

Intangible assets consisted of the following:


	Fiscal Year End
	2018							2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(in millions)
Customer relationships	$	1,468	$	(389	)	$	1,079	$	1,433	$	(300	)	$	1,133
Intellectual property		1,261		(653	)		608		1,262		(574	)		688
Other		33		(16	)		17		36		(16	)		20

Total	$	2,762	$	(1,058	)	$	1,704	$	2,731	$	(890	)	$	1,841

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Intangible Assets, Net (Continued)

Intangible asset amortization expense was $180 million, $169 million, and $149 million for fiscal 2018, 2017, and 2016, respectively. At fiscal year end 2018, the aggregate amortization expense on intangible assets is expected to be as follows:


	(in millions)
Fiscal 2019	$	184
Fiscal 2020		176
Fiscal 2021		173
Fiscal 2022		173
Fiscal 2023		172
Thereafter		826

Total	$	1,704

10. Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following:


	Fiscal Year End
	2018		2017
	(in millions)
Accrued payroll and employee benefits	$	565	$	577
Dividends payable to shareholders		303		281
Income taxes payable		109		121
Restructuring reserves		141		127
Share repurchase program payable		94		7
Interest payable		34		58
Deferred revenue		27		27
Other		438		415

Accrued and other current liabilities	$	1,711	$	1,613

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Debt

Debt was as follows:


	Fiscal Year End
	2018			2017
	(in millions)
Commercial paper, at a weighted-average interest rate of 2.35% at fiscal year end 2018	$	270		$	—
6.55% senior notes due 2017		—			708
2.375% senior notes due 2018		325			325
2.35% senior notes due 2019		250			250
4.875% senior notes due 2021		250			250
3.50% senior notes due 2022		500			500
1.10% euro-denominated senior notes due 2023		639			650
3.45% senior notes due 2024		350			350
3.70% senior notes due 2026		350			350
3.125% senior notes due 2027		400			400
7.125% senior notes due 2037		477			477
Other		210			96

Total principal debt		4,021			4,356
Unamortized discounts and debt issuance costs		(21	)		(26	)
Effects of fair value hedge-designated interest rate swap contracts		—			14

Total debt	$	4,000		$	4,344

Tyco Electronics Group S.A. ("TEGSA"), our 100%-owned subsidiary, has a five-year unsecured senior revolving credit facility ("Credit Facility") with a maturity date of December 2020 and total commitments of $1,500 million. TEGSA had no borrowings under the Credit Facility at fiscal year end 2018 or 2017.

Borrowings under the Credit Facility bear interest at a rate per annum equal to, at the option of TEGSA, (1) LIBOR plus an applicable margin based upon the senior, unsecured, long-term debt rating of TEGSA, or (2) an alternate base rate equal to the highest of (i) Bank of America, N.A.'s base rate, (ii) the federal funds effective rate plus 1/2 of 1%, and (iii) one-month LIBOR plus 1%, plus, in each case, an applicable margin based upon the senior, unsecured, long-term debt rating of TEGSA. TEGSA is required to pay an annual facility fee ranging from 5.0 to 12.5 basis points based upon the amount of the lenders' commitments under the Credit Facility and the applicable credit ratings of TEGSA.

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 to Consolidated EBITDA (as defined in the Credit Facility) for the then most recently concluded period of four consecutive fiscal quarters exceeds 3.75 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.

Periodically, TEGSA issues commercial paper to U.S. institutional accredited investors and qualified institutional buyers in accordance with available exemptions from the registration requirements of the Securities Act of 1933 as part of our ongoing effort to maintain financial flexibility

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Debt (Continued)

and to potentially decrease the cost of borrowings. Borrowings under the commercial paper program are backed by the Credit Facility.

TEGSA's payment obligations under its senior notes, commercial paper, and Credit Facility are fully and unconditionally guaranteed by its parent, TE Connectivity Ltd.

At fiscal year end 2018, principal payments required for debt are as follows:


	(in millions)
Fiscal 2019	$	963
Fiscal 2020		—
Fiscal 2021		252
Fiscal 2022		501
Fiscal 2023		639
Thereafter		1,666

Total	$	4,021

The fair value of our debt, based on indicative valuations, was approximately $4,149 million and $4,622 million at fiscal year end 2018 and 2017, respectively.

12. Commitments and Contingencies

Legal Proceedings

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

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 fiscal year end 2018, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $15 million to $42 million, and we accrued $17 million as the probable loss, which was the best estimate within this range. 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.

Leases

We have facility, land, vehicle, and equipment leases that expire at various dates. Rental expense under these operating leases was $141 million, $147 million, and $137 million for fiscal 2018, 2017, and

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Commitments and Contingencies (Continued)

2016, respectively. At fiscal year end 2018, future minimum lease payments under non-cancelable operating lease obligations were as follows:


	(in millions)
Fiscal 2019	$	97
Fiscal 2020		76
Fiscal 2021		62
Fiscal 2022		48
Fiscal 2023		38
Thereafter		82

Total	$	403

Guarantees

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

At fiscal year end 2018, we had outstanding letters of credit, letters of guarantee, and surety bonds of $275 million.

13. Financial Instruments and Fair Value Measurements

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

The effects of derivative instruments on the Consolidated Statements of Operations were immaterial for fiscal 2018, 2017, and 2016.

Foreign Exchange Risks and Hedges of Net Investment

As part of managing the exposure to changes in foreign currency exchange rates, we utilize cross-currency swap contracts and foreign currency forward 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 and other cash transactions. We expect that significantly all of the balance in accumulated other comprehensive income (loss) associated with the cash flow hedge-designated instruments addressing foreign exchange risks will be reclassified into the Consolidated Statement of Operations within the next twelve months.

During fiscal 2015, we entered into cross-currency swap contracts with an aggregate notional value of €1,000 million to reduce our exposure to foreign currency exchange risk associated with certain intercompany loans. Under the terms of these contracts, which have been designated as cash flow hedges, we make quarterly interest payments in euros at 3.50% per annum and receive interest in U.S. dollars at a weighted-average rate of 5.33% per annum. Upon maturity of these contracts in fiscal 2022,

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Financial Instruments and Fair Value Measurements (Continued)

we will pay the notional value of the contracts in euros and receive U.S. dollars from our counterparties. In connection with the cross-currency swap contracts, we are required to post cash collateral with our counterparties.

At fiscal year end 2018 and 2017, our cross-currency swap contracts were in liability positions of $100 million and $96 million, respectively, and were recorded in other liabilities on the Consolidated Balance Sheets. At fiscal year end 2018 and 2017, collateral paid to our counterparties approximated the derivative positions and was recorded in prepaid expenses and other current assets on the Consolidated Balance Sheets. The impacts of our cross-currency swap contracts were as follows:


	Fiscal
	2018			2017			2016
	(in millions)
Losses recorded in other comprehensive income (loss)	$	(25	)	$	(20	)	$	(26	)
Gains (losses) excluded from the hedging relationship(1)		21			(58	)		(7	)

(1)

Gains and losses excluded from the hedging relationship are recognized prospectively in selling, general, and administrative expenses and are offset by losses and gains generated as a result of re-measuring certain intercompany loans to the U.S. dollar.

We hedge our net investment in certain foreign operations using intercompany loans and external borrowings denominated in the same currencies. The aggregate notional value of these hedges was $4,064 million and $3,110 million at fiscal year end 2018 and 2017, respectively. The impacts of our hedging program were as follows:


	Fiscal
	2018		2017			2016
	(in millions)
Foreign currency exchange gains (losses)(1)	$	36	$	(74	)	$	(45	)

(1)

Foreign currency exchange gains and losses are recorded as currency translation, a component of accumulated other comprehensive income (loss), and are offset by changes attributable to the translation of the net investment.

Interest Rate and Investment Risk Management

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

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.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Financial Instruments and Fair Value Measurements (Continued)

At fiscal year end 2018 and 2017, our commodity hedges had notional values of $401 million and $314 million, respectively. We expect that significantly all of the balance in accumulated other comprehensive income (loss) associated with the commodity hedges will be reclassified into the Consolidated Statement of Operations within the next twelve months.

Fair Value Measurements

Financial instruments recorded at fair value on a recurring basis, which consist of derivative instruments and marketable securities, were immaterial at fiscal year end 2018 and 2017.

14. Retirement Plans

Defined Benefit Pension Plans

We have a number of contributory and noncontributory defined benefit retirement plans covering certain of our non-U.S. and U.S. employees, designed in accordance with local customs and practice.

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


	Non-U.S. Plans									U.S. Plans
	Fiscal									Fiscal
	2018			2017			2016			2018			2017			2016
	($ in millions)
Service cost	$	46		$	50		$	48		$	14		$	12		$	9
Interest cost		42			35			52			43			43			50
Expected return on plan assets		(69	)		(68	)		(68	)		(59	)		(53	)		(59	)
Amortization of net actuarial loss		24			41			36			22			40			40
Other		(6	)		(4	)		(6	)		—			—			—

Net periodic pension benefit cost	$	37		$	54		$	62		$	20		$	42		$	40



Weighted-average assumptions used to determine net pension benefit cost during the fiscal year:
Discount rate		1.87	%		1.44	%		2.50	%		3.77	%		3.58	%		4.38	%
Expected return on plan assets		4.92	%		5.21	%		5.98	%		6.45	%		5.93	%		6.97	%
Rate of compensation increase		2.53	%		2.52	%		2.81	%		—	%		—	%		—	%

The components of net periodic pension benefit cost other than service cost are included in net other income (expense) on the Consolidated Statements of Operations.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Retirement Plans (Continued)

The following table represents the changes in benefit obligation and plan assets and the net amount recognized on the Consolidated Balance Sheets for all non-U.S. and U.S. defined benefit pension plans:


	Non-U.S. Plans						U.S. Plans
	Fiscal						Fiscal
	2018			2017			2018			2017
	($ in millions)
Change in benefit obligation:
Benefit obligation at beginning of fiscal year	$	2,292		$	2,535		$	1,191		$	1,250
Service cost		46			50			14			12
Interest cost		42			35			43			43
Actuarial gain		(22	)		(301	)		(69	)		(34	)
Benefits and administrative expenses paid		(77	)		(69	)		(86	)		(82	)
Currency translation		(43	)		29			—			—
Other		(18	)		13			—			2

Benefit obligation at end of fiscal year		2,220			2,292			1,093			1,191

Change in plan assets:
Fair value of plan assets at beginning of fiscal year		1,402			1,371			963			929
Actual return on plan assets		51			49			37			115
Employer contributions		51			47			3			1
Benefits and administrative expenses paid		(77	)		(69	)		(86	)		(82	)
Currency translation		(30	)		(2	)		—			—
Other		(7	)		6			—			—

Fair value of plan assets at end of fiscal year		1,390			1,402			917			963

Funded status	$	(830	)	$	(890	)	$	(176	)	$	(228	)



Amounts recognized on the Consolidated Balance Sheets:
Other assets	$	107		$	50		$	—		$	—
Accrued and other current liabilities		(23	)		(22	)		(5	)		(5	)
Long-term pension and postretirement liabilities		(914	)		(918	)		(171	)		(223	)

Net amount recognized	$	(830	)	$	(890	)	$	(176	)	$	(228	)



Weighted-average assumptions used to determine pension benefit obligation at fiscal year end:
Discount rate		1.94	%		1.87	%		4.35	%		3.77	%
Rate of compensation increase		2.57	%		2.53	%		—	%		—	%

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Retirement Plans (Continued)

The pre-tax amounts recognized in accumulated other comprehensive income (loss) for all non-U.S. and U.S. defined benefit pension plans were as follows:


	Non-U.S. Plans						U.S. Plans
	Fiscal						Fiscal
	2018			2017			2018			2017
	(in millions)
Change in net loss:
Unrecognized net loss at beginning of fiscal year	$	513		$	839		$	292		$	428
Current year change recorded in accumulated other comprehensive income (loss)		(13	)		(285	)		(46	)		(96	)
Amortization reclassified to earnings		(24	)		(41	)		(22	)		(40	)

Unrecognized net loss at end of fiscal year	$	476		$	513		$	224		$	292



Change in prior service credit:
Unrecognized prior service credit at beginning of fiscal year	$	(59	)	$	(70	)	$	2		$	—
Current year change recorded in accumulated other comprehensive income (loss)		(5	)		5			—			2
Amortization reclassified to earnings(1)		6			6			—			—

Unrecognized prior service credit at end of fiscal year	$	(58	)	$	(59	)	$	2		$	2

(1)

Amortization of prior service credit is included in other in the above table summarizing the components of net periodic pension benefit cost.

In fiscal 2018 and 2017, unrecognized actuarial gains recorded in accumulated other comprehensive income (loss) were primarily the result of higher discount rates and favorable asset performance for both non-U.S. and U.S. defined benefit pension plans as compared to fiscal 2017 and 2016, respectively.

The estimated amortization of actuarial losses from accumulated other comprehensive income (loss) into net periodic pension benefit cost for non-U.S. and U.S. defined benefit pension plans in fiscal 2019 is expected to be $24 million and $17 million, respectively. The estimated amortization of prior service credit from accumulated other comprehensive income (loss) into net periodic pension benefit cost for non-U.S. defined benefit pension plans in fiscal 2019 is expected to be $7 million.

In determining the expected return on plan assets, we consider the relative weighting of plan assets by class and individual asset class performance expectations.

The investment strategies for non-U.S. and U.S. pension plans are governed locally. Our investment strategy for our pension plans is to manage the plans on a going concern basis. Current investment policy is to achieve a reasonable return on assets, subject to a prudent level of portfolio risk, for the purpose of enhancing the security of benefits for participants. Projected returns are based primarily on pro forma asset allocation, expected long-term returns, and forward-looking estimates of active portfolio and investment management.

At fiscal year end 2018, the long-term target asset allocation in our U.S. plans' master trust is 10% return-seeking assets and 90% liability-hedging assets. Return-seeking assets, including non-U.S. and U.S. equity securities, are assets intended to generate returns in excess of pension liability growth.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Retirement Plans (Continued)

Liability-hedging assets, including government and corporate bonds, are assets intended to have characteristics similar to pension liabilities and are used to better match asset cash flows with expected obligation cash flows. Asset re-allocation to meet that target is occurring over a multi-year period based on the funded status. We expect to reach our target allocation when the funded status of the plans exceeds 105%. Based on the funded status of the plans as of fiscal year end 2018, our target asset allocation is 45% return-seeking and 55% liability-hedging.

Target weighted-average asset allocation and weighted-average asset allocation for non-U.S. and U.S. pension plans were as follows:


	Non-U.S. Plans									U.S. Plans
	Target			Fiscal Year End 2018			Fiscal Year End 2017			Target			Fiscal Year End 2018			Fiscal Year End 2017
Asset category:
Equity securities		27	%		29	%		30	%		45	%		53	%		50	%
Fixed income		51			49			49			55			47			50
Insurance contracts and other investments		20			20			19			—			—			—
Real estate investments		2			2			2			—			—			—

Total		100	%		100	%		100	%		100	%		100	%		100	%

Our common shares are not a direct investment of our pension funds; however, the pension funds may indirectly include our shares. The aggregate amount of our common shares would not be considered material relative to the total pension fund assets.

Our funding policy is to make contributions in accordance with the laws and customs of the various countries in which we operate as well as to make discretionary voluntary contributions from time to time. We expect to make the minimum required contributions of $42 million and $5 million to our non-U.S. and U.S. pension plans, respectively, in fiscal 2019. We may also make voluntary contributions at our discretion.

At fiscal year end 2018, benefit payments, which reflect future expected service, as appropriate, are expected to be paid as follows:


	Non-U.S. Plans		U.S. Plans
	(in millions)
Fiscal 2019	$	74	$	76
Fiscal 2020		78		73
Fiscal 2021		82		73
Fiscal 2022		83		74
Fiscal 2023		88		74
Fiscal 2024–2028		487		368

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Retirement Plans (Continued)

Presented below is the accumulated benefit obligation for all non-U.S. and U.S. pension plans as well as additional information related to plans with an accumulated benefit obligation in excess of plan assets and plans with a projected benefit obligation in excess of plan assets.


	Non-U.S. Plans				U.S. Plans
	Fiscal Year End				Fiscal Year End
	2018		2017		2018		2017
	(in millions)
Accumulated benefit obligation	$	2,099	$	2,167	$	1,093	$	1,191
Pension plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation		1,400		1,402		1,093		1,191
Fair value of plan assets		580		581		917		963
Pension plans with projected benefit obligations in excess of plan assets:
Projected benefit obligation		1,560		1,524		1,093		1,191
Fair value of plan assets		623		583		917		963

We value our pension assets based on the fair value hierarchy of ASC 820, Fair Value Measurements and Disclosures. Details of the fair value hierarchy are described in Note 2. The following table presents our defined benefit pension plans' asset categories and their associated fair value within the fair value hierarchy:


	Fiscal Year End 2018
	Non-U.S. Plans								U.S. Plans
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
Equity:
Non-U.S. equity securities(1)	$	—	$	—	$	—	$	—	$	220	$	—	$	—	$	220
U.S. equity securities(1)		—		—		—		—		265		—		—		265
Commingled equity funds(2)		—		397		—		397		—		—		—		—
Fixed income:
Government bonds(3)		—		213		—		213		—		45		—		45
Corporate bonds(4)		—		6		—		6		—		283		—		283
Commingled bond funds(5)		—		464		—		464		—		87		—		87
Other(6)		—		184		120		304		—		11		—		11

Subtotal	$	—	$	1,264	$	120		1,384	$	485	$	426	$	—		911



Items to reconcile to fair value of plan assets(7)								6								6

Fair value of plan assets							$	1,390							$	917

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Retirement Plans (Continued)


	Fiscal Year End 2017
	Non-U.S. Plans								U.S. Plans
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
Equity:
Non-U.S. equity securities(1)	$	—	$	—	$	—	$	—	$	227	$	—	$	—	$	227
U.S. equity securities(1)		—		—		—		—		250		—		—		250
Commingled equity funds(2)		—		418		—		418		—		—		—		—
Fixed income:
Government bonds(3)		—		219		—		219		—		59		—		59
Corporate bonds(4)		—		8		—		8		—		351		—		351
Commingled bond funds(5)		—		455		—		455		—		48		—		48
Other(6)		—		180		117		297		—		16		—		16

Subtotal	$	—	$	1,280	$	117		1,397	$	477	$	474	$	—		951



Items to reconcile to fair value of plan assets(7)								5								12

Fair value of plan assets							$	1,402							$	963

(1)

Non-U.S. and U.S. equity securities are valued at the closing price reported on the stock exchange on which the individual securities are traded.

(2)

Commingled equity funds are pooled investments in multiple equity-type securities. Fair value is calculated as the closing price of the underlying investments, an observable market condition, divided by the number of shares of the fund outstanding.

(3)

Government bonds are marked to fair value based on quoted market prices or market approach valuation models using observable market data such as quotes, spreads, and data points for yield curves.

(4)

Corporate bonds are marked to fair value based on quoted market prices or market approach valuation models using observable market data such as quotes, spreads, and data points for yield curves.

(5)

Commingled bond funds are pooled investments in multiple debt-type securities. Fair value is calculated as the closing price of the underlying investments, an observable market condition, divided by the number of shares of the fund outstanding.

(6)

Other investments are composed of insurance contracts, derivatives, short-term investments, structured products such as collateralized obligations and mortgage- and asset-backed securities, real estate investments, and hedge funds. Insurance contracts are valued using cash surrender value, or face value of the contract if a cash surrender value is unavailable (level 2), as these values represent the amount that the plan would receive on termination of the underlying contract. Derivatives, short-term investments, and structured products are marked to fair value using models that are supported by observable market based data (level 2). Real estate investments include investments in commingled real estate funds and are valued at net asset value which is calculated using unobservable inputs that are supported by little or no market activity (level 3). Hedge funds are valued at their net asset value which is calculated using unobservable inputs that are supported by little or no market activity (level 3).

(7)

Items to reconcile to fair value of plan assets include amounts receivable for securities sold, amounts payable for securities purchased, and any cash balances, considered to be carried at book value, that are held in the plans.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Retirement Plans (Continued)

Changes in Level 3 assets in non-U.S. plans were primarily the result of purchases in fiscal 2018 and 2017.

Defined Contribution Retirement Plans

We maintain several defined contribution retirement plans, the most significant of which is located in the U.S. These plans include 401(k) matching programs, as well as qualified and nonqualified profit sharing and share bonus retirement plans. Expense for the defined contribution plans is computed as a percentage of participants' compensation and was $62 million, $60 million, and $52 million for fiscal 2018, 2017, and 2016, respectively.

Deferred Compensation Plans

We maintain nonqualified deferred compensation plans, which permit eligible employees to defer a portion of their compensation. A record keeping account is set up for each participant and the participant chooses from a variety of measurement funds for the deemed investment of their accounts. The measurement funds correspond to a number of funds in our 401(k) plans and the account balance fluctuates with the investment returns on those funds. At fiscal year end 2018 and 2017, total deferred compensation liabilities were $189 million and $157 million, respectively, and were recorded primarily in other liabilities on the Consolidated Balance Sheets. See Note 13 for additional information regarding our risk management strategy related to deferred compensation liabilities.

Postretirement Benefit Plans

In addition to providing pension and 401(k) benefits, we also provide certain health care coverage continuation for qualifying retirees from the date of retirement to age 65. The accumulated postretirement benefit obligation was $18 million and $19 million at fiscal year end 2018 and 2017, respectively, and the underfunded status of the postretirement benefit plans was included primarily in long-term pension and postretirement liabilities on the Consolidated Balance Sheets. Activity during fiscal 2018, 2017, and 2016 was not significant.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Income Taxes

**Income Tax Expense (Benefit) **

Significant components of the income tax expense (benefit) were as follows:


	Fiscal
	2018			2017			2016
	(in millions)
Current income tax expense (benefit):
U.S.:
Federal	$	20		$	(9	)	$	(1,120	)
State		21			9			(163	)
Non-U.S.		406			322			321

		447			322			(962	)

Deferred income tax expense (benefit):
U.S.:
Federal		499			(119	)		133
State		(30	)		(15	)		18
Non-U.S.		(1,260	)		(8	)		(15	)

		(791	)		(142	)		136

Income tax expense (benefit)	$	(344	)	$	180		$	(826	)

The U.S. and non-U.S. components of income from continuing operations before income taxes were as follows:


	Fiscal
	2018			2017			2016
	(in millions)
U.S.	$	(245	)	$	(273	)	$	(244	)
Non-U.S.		2,485			1,993			1,265

Income from continuing operations before income taxes	$	2,240		$	1,720		$	1,021

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Income Taxes (Continued)

The reconciliation between U.S. federal income taxes at the statutory rate and income tax expense (benefit) was as follows:


	Fiscal
	2018			2017			2016
	(in millions)
Notional U.S. federal income tax expense at the statutory rate(1)	$	551		$	602		$	357
Adjustments to reconcile to the income tax expense (benefit):
U.S. state income tax benefit, net		(7	)		(4	)		(94	)
Other expense—Tax Sharing Agreement(2)		—			3			221
Tax law changes		638			7			(3	)
Tax credits		(8	)		(8	)		(10	)
Non-U.S. net earnings(3)		(213	)		(355	)		(341	)
Change in accrued income tax liabilities		13			24			(1,056	)
Valuation allowance		33			(1	)		97
Legal entity restructuring and intercompany transactions		(1,329	)		(40	)		39
Divestitures		(1	)		—			(31	)
Excess tax benefits from share-based payments		(24	)		(40	)		—
Other		3			(8	)		(5	)

Income tax expense (benefit)	$	(344	)	$	180		$	(826	)

(1)

The U.S. federal statutory rate was 24.58% for fiscal 2018 and 35% for both fiscal 2017 and 2016.

(2)

Net other expense pursuant to the Tax Sharing Agreement with Tyco International plc and Covidien plc is not taxable or deductible.

(3)

Excludes items which are separately presented.

The income tax benefit for fiscal 2018 included a $1,222 million net income tax benefit associated with the tax impacts of certain legal entity restructurings and intercompany transactions that occurred in the quarter ended September 28, 2018. The net income tax benefit of $1,222 million related primarily to the recognition of certain non-U.S. loss carryforwards and basis differences in subsidiaries expected to be utilized against future taxable income, partially offset by a $46 million increase in the valuation allowance for certain U.S. federal tax credit carryforwards. The income tax benefit for fiscal 2018 also included $567 million of income tax expense related to the tax impacts of the Tax Cuts and Jobs Act (the "Act") and a $61 million net income tax benefit related to the tax impacts of certain legal entity restructurings that occurred in the quarter ended December 29, 2017. See "Tax Cuts and Jobs Act" below for additional information regarding the Act.

The income tax expense for fiscal 2017 included a $52 million income tax benefit associated with the tax impacts of certain intercompany transactions and the corresponding reduction in the valuation allowance for U.S. tax loss carryforwards, a $40 million income tax benefit related to share-based payments and the adoption of ASU No. 2016-09, and a $14 million income tax benefit associated with

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Income Taxes (Continued)

pre-separation tax matters. See Note 2 for additional information regarding recently adopted accounting pronouncements.

The income tax benefit for fiscal 2016 included a $1,135 million income tax benefit related to the effective settlement of tax matters for the years 1997 through 2000, partially offset by a $91 million income tax charge related to an increase to the valuation allowance for certain U.S. deferred tax assets. Additionally, the tax benefit for fiscal 2016 included an $83 million net income tax benefit related to tax settlements in certain other tax jurisdictions, partially offset by an income tax charge related to certain legal entity restructurings. See "Internal Revenue Service Audits" below for additional information regarding settlements with the Internal Revenue Service ("IRS").

In fiscal 2016, the increase to the valuation allowance for deferred tax assets related primarily to certain U.S. federal and state tax loss and credit carryforwards. Based on our forecast of taxable income for certain U.S. tax reporting groups, U.S. tax loss and credit carryforwards finalized as a result of settlement of the disputed debt matter with the IRS, and certain tax planning actions and strategies, we believed it was more likely than not that a portion of our deferred tax assets would not be realized.

**Deferred Tax Assets and Liabilities **

Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax asset were as follows:


	Fiscal Year End
	2018			2017
	(in millions)
Deferred tax assets:
Accrued liabilities and reserves	$	255		$	357
Tax loss and credit carryforwards		3,237			5,264
Inventories		58			48
Pension and postretirement benefits		179			231
Deferred revenue		5			8
Interest		30			366
Unrecognized income tax benefits		8			10
Basis difference in subsidiaries		946			—
Other		13			22

		4,731			6,306

Deferred tax liabilities:
Intangible assets		(552	)		(653	)
Property, plant, and equipment		(13	)		(22	)
Other		(38	)		(99	)

		(603	)		(774	)

Net deferred tax asset before valuation allowance		4,128			5,532
Valuation allowance		(2,191	)		(3,627	)

Net deferred tax asset	$	1,937		$	1,905

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Income Taxes (Continued)

Our tax loss and credit carryforwards (tax effected) at fiscal year end 2018 were as follows:


	Expiration Period
	Through Fiscal 2023		Fiscal 2024 Through Fiscal 2038		No Expiration		Total
	(in millions)
U.S. Federal:
Net operating loss carryforwards	$	119	$	385	$	—	$	504
Tax credit carryforwards		32		115		52		199
U.S. State:
Net operating loss carryforwards		45		52		—		97
Tax credit carryforwards		9		16		8		33
Non-U.S.:
Net operating loss carryforwards		12		863		1,496		2,371
Tax credit carryforwards		—		1		1		2
Capital loss carryforwards		—		3		28		31

Total tax loss and credit carryforwards	$	217	$	1,435	$	1,585	$	3,237

The valuation allowance for deferred tax assets of $2,191 million and $3,627 million at fiscal year end 2018 and 2017, respectively, related principally to the uncertainty of the utilization of certain deferred tax assets, primarily tax loss, capital loss, and credit carryforwards in various jurisdictions. During fiscal 2018, tax loss and credit carryforwards decreased primarily as a result of a $1,675 million (tax effected) recovery of prior years' net write-downs of investments in subsidiaries in certain jurisdictions, offset by a corresponding decrease to the valuation allowance. We believe that we will generate sufficient future taxable income to realize the income tax benefits related to the remaining net deferred tax assets on the Consolidated Balance Sheet.

We have provided income taxes for earnings that are currently distributed as well as the taxes associated with several subsidiaries' earnings that are expected to be distributed in the future. No additional provision has been made for Swiss or non-Swiss income taxes on the undistributed earnings of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to basis differences in investments in subsidiaries, as such earnings are expected to be permanently reinvested, the investments are essentially permanent in duration, or we have concluded that no additional tax liability will arise as a result of the distribution of such earnings. As of fiscal year end 2018, certain subsidiaries had approximately $23 billion of cumulative undistributed earnings that have been retained indefinitely and reinvested in our global manufacturing operations, including working capital; property, plant, and equipment; intangible assets; and research and development activities. A liability could arise if our intention to permanently reinvest such earnings were to change and amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investments in subsidiaries. As of fiscal year end 2018, we had approximately $11.6 billion of cash, cash equivalents, and intercompany deposits, principally in our subsidiaries, that we have the ability to distribute to TEGSA, our Luxembourg subsidiary, which is the obligor of substantially all of our debt, and to TE Connectivity Ltd., our Swiss parent company, but we consider to be permanently reinvested. We estimate that up to $0.9 billion of tax expense would be recognized on the Consolidated Financial

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Income Taxes (Continued)

Statements if our intention to permanently reinvest these amounts were to change. Our current plans do not demonstrate a need to repatriate cash, cash equivalents, and intercompany deposits that are designated as permanently reinvested in order to fund our operations, including investing and financing activities.

**Uncertain Tax Positions **

As of fiscal year end 2018, we had total unrecognized income tax benefits of $566 million. If recognized in future years, $467 million of these currently unrecognized income tax benefits would impact income tax expense (benefit) and the effective tax rate. As of fiscal year end 2017, we had total unrecognized income tax benefits of $501 million. If recognized in future years, $431 million of these currently unrecognized income tax benefits would impact income tax expense (benefit) and the effective tax rate. The following table summarizes the activity related to unrecognized income tax benefits:


	Fiscal
	2018			2017			2016
	(in millions)
Balance at beginning of fiscal year	$	501		$	490		$	1,368
Additions related to prior years tax positions		14			40			75
Reductions related to prior years tax positions		(11	)		(9	)		(817	)
Additions related to current year tax positions		105			70			124
Acquisitions		—			—			4
Settlements		(7	)		(4	)		(205	)
Reductions due to lapse of applicable statute of limitations		(36	)		(86	)		(59	)

Balance at end of fiscal year	$	566		$	501		$	490

We record accrued interest and penalties related to uncertain tax positions as part of income tax expense (benefit). As of fiscal year end 2018 and 2017, we had $60 million of accrued interest and penalties related to uncertain tax positions on the Consolidated Balance Sheets, recorded primarily in income taxes. During fiscal 2018, 2017, and 2016, we recognized income tax expense of $5 million, benefits of $5 million, and benefits of $765 million, respectively, related to interest and penalties on the Consolidated Statements of Operations.

We file income tax returns on a unitary, consolidated, or stand-alone basis in multiple state and local jurisdictions, which generally have statutes of limitations ranging from 3 to 4 years. Various state and local income tax returns are currently in the process of examination or administrative appeal.

Our non-U.S. subsidiaries file income tax returns in the countries in which they have operations. Generally, these countries have statutes of limitations ranging from 3 to 10 years. Various non-U.S. subsidiary income tax returns are currently in the process of examination by taxing authorities.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Income Taxes (Continued)

As of fiscal year end 2018, under applicable statutes, the following tax years remained subject to examination in the major tax jurisdictions indicated:


Jurisdiction	Open Years
China		2008 through 2018
Czech Republic		2015 through 2018
Germany		2013 through 2018
Hong Kong		2012 through 2018
Ireland		2013 through 2018
Italy		2013 through 2018
Japan		2012 through 2018
Korea		2012 through 2018
Luxembourg		2013 through 2018
Netherlands		2012 through 2018
Singapore		2013 through 2018
Spain		2014 through 2018
Switzerland		2013 through 2018
United Kingdom		2016 through 2018
U.S.—federal		2015 through 2018

In most jurisdictions, taxing authorities retain the ability to review prior tax years and to adjust any net operating loss and tax credit carryforwards from these years that are utilized in a subsequent period.

Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that approximately $130 million of unrecognized income tax benefits, excluding the impact relating to accrued interest and penalties, could be resolved within the next twelve months.

We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the Consolidated Balance Sheet as of fiscal year end 2018.

**Other Income Tax Matters **

Tax Cuts and Jobs Act

On December 22, 2017, the President of the U.S. signed the Tax Cuts and Jobs Act (the "Act") into law. The Act includes numerous significant changes to existing tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, further limitations on the deductibility of interest expense and certain executive compensation, repeal of the corporate Alternative Minimum Tax, and imposition of a territorial tax system with a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries. While some of the new provisions of the Act will impact us in fiscal 2019 and beyond, the change in the tax rate was effective January 1, 2018. In the period of enactment, we were required to revalue our U.S. federal deferred tax assets and liabilities at the new tax rate. Accordingly, during fiscal 2018, we recorded income tax expense of $567 million primarily in connection with the write-down of our U.S. federal deferred tax asset for net operating loss and interest carryforwards to the lower tax rate. Included in the expense of $567 million was an income

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Income Taxes (Continued)

tax benefit of $34 million related to the reduction in the existing valuation allowance recorded against certain U.S. federal tax credit carryforwards. The limitations on interest expense deductions contained in the Act are expected to increase prospective taxable income and thereby allow the utilization of more tax credits in future years. As a Swiss corporation, the one-time repatriation tax imposed by the Act will not be significant to us.

The Act makes broad and complex changes to the U.S. Internal Revenue Code, and in certain instances, lacks clarity and is subject to interpretation until additional IRS guidance is issued. The ultimate impact of the Act may differ from our estimates due to changes in the interpretations and assumptions we made as well as any forthcoming regulatory guidance.

Intra-Entity Transfers of Assets

In fiscal 2018, there were certain sales of assets other than inventory between affiliated companies that are consolidated for financial statement purposes but file separate tax returns. In accordance with U.S. GAAP, the tax impact of these intra-entity transfers of assets was deferred and not recognized. Such transactions resulted in a $674 million increase to other assets and a $48 million increase to prepaid expenses and other current assets on the Consolidated Balance Sheet during fiscal 2018. See Note 2 for information regarding our adoption of ASU No. 2016-16 in fiscal 2019 and the net reversal of all balances associated with deferred tax impacts of intra-entity transfers of assets other than inventory.

Tax Sharing Agreement

Under a Tax Sharing Agreement entered into upon our separation from Tyco International plc ("Tyco International") in fiscal 2007, we, Tyco International, and Covidien plc ("Covidien") share 31%, 27%, and 42%, respectively, of income tax liabilities that arise from adjustments made by tax authorities to the collective income tax returns for periods prior to and including June 29, 2007. Pursuant to the Tax Sharing Agreement, we entered into certain guarantee commitments and indemnifications with Tyco International and Covidien. We have substantially settled all U.S. federal income tax matters with the IRS for periods covered under the Tax Sharing Agreement. Certain shared U.S. state and non-U.S. income tax matters remain open. We do not expect these matters will have a material effect on our results of operations, financial position, or cash flows. As a result of subsequent transactions, Tyco International plc ("Tyco International") and Covidien plc ("Covidien") now operate as part of Johnson Controls International plc and Medtronic plc, respectively.

Internal Revenue Service Audits

As previously disclosed, in fiscal 2013, the IRS effectively settled its audit of all tax matters for the years 1997 through 2000, excluding one issue involving the tax treatment of certain intercompany debt transactions. In fiscal 2016, the U.S. Tax Court resolved all aspects of the disputed debt matter for the 1997 to 2000 audit cycle and the Appeals Division of the IRS effectively settled the intercompany debt issues on appeal for subsequent audit cycles (years 2001 to 2007). In connection with these developments, in fiscal 2016, we recognized an income tax benefit of $1,135 million, representing a reduction in tax reserves, and other expense of $604 million, representing a reduction of associated indemnification receivables, pursuant to the Tax Sharing Agreement with Tyco International and Covidien.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Income Taxes (Continued)

During fiscal 2016, in connection with the disputed debt matter, we made a payment to the IRS of $443 million for tax deficiencies for which we were the primary obligor. Concurrent with remitting this payment, we received net reimbursements of $303 million from Tyco International and Covidien pursuant to their indemnifications for pre-separation tax matters.

16. Other Income (Expense), Net

In fiscal 2018, 2017, and 2016, we recorded net other income of $1 million, net other expense of $42 million, and net other expense of $677 million, respectively. In fiscal 2016, net other expense was primarily pursuant to the Tax Sharing Agreement with Tyco International and Covidien and included $604 million related to the effective settlement of tax matters for the years 1997 through 2000 and $46 million related to a tax settlement in another tax jurisdiction. See Note 15 for further information regarding the Tax Sharing Agreement and settlements.

17. Earnings Per Share

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


	Fiscal
	2018		2017		2016
	(in millions)
Basic		350		355		366
Dilutive impact of share-based compensation arrangements		3		3		3

Diluted		353		358		369

There were one million, one million, and three million share options that were not included in the computation of diluted earnings per share for fiscal 2018, 2017, and 2016, respectively, because the instruments' underlying exercise prices were greater than the average market prices of our common shares and inclusion would be antidilutive.

18. Shareholders' Equity

Common Shares

We are organized under the laws of Switzerland. The rights of holders of our shares are governed by Swiss law, our Swiss articles of association, and our Swiss organizational regulations. Accordingly, the par value of our common shares is stated in Swiss francs ("CHF"). We continue to use the U.S. dollar, however, as our reporting currency on the Consolidated Financial Statements.

Subject to certain conditions specified in our articles of association, we are authorized to increase our conditional share capital by issuing new shares in aggregate not exceeding 50% of our authorized shares. In March 2018, our shareholders reapproved and extended through March 14, 2020, our board of directors' authorization to issue additional new shares, subject to certain conditions specified in the articles of association, in aggregate not exceeding 50% of the amount of our authorized shares.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Shareholders' Equity (Continued)

Common Shares Held in Treasury

At fiscal year end 2018, approximately 12 million common shares were held in treasury, of which 6 million were owned by one of our subsidiaries. At fiscal year end 2017, approximately 5 million common shares were held in treasury and owned by one of our subsidiaries. Shares held both directly by us and by our subsidiary are presented as treasury shares on the Consolidated Balance Sheets.

In fiscal 2017 and 2016, our shareholders approved the cancellation of 26 million and 31 million shares, respectively, purchased under our share repurchase program. These capital reductions by cancellation of shares were subject to a notice period and filing with the commercial register in Switzerland.

Contributed Surplus

During fiscal 2017, cumulative equity transactions, including dividend activity and treasury share cancellations, reduced our contributed surplus balance to zero with residual activity recorded against accumulated earnings as reflected on the Consolidated Statement of Shareholders' Equity. To the extent that the contributed surplus balance continues to be zero, the impact of future transactions that normally would have been recorded as a reduction of contributed surplus will be recorded in accumulated earnings. Contributed surplus established for Swiss tax and statutory purposes ("Swiss Contributed Surplus"), is not impacted by our GAAP treatment.

Swiss Contributed Surplus, subject to certain conditions, is a freely distributable reserve. As of fiscal year end 2018 and 2017, Swiss Contributed Surplus was CHF 6,724 million and CHF 7,300 million, respectively (equivalent to $5,809 million and $6,420 million, respectively).

Dividends

We paid cash dividends to shareholders of $1.68, $1.54, and $1.40 per share in fiscal 2018, 2017, and 2016, respectively.

Under Swiss law, subject to certain conditions, dividends paid from reserves from capital contributions (equivalent to Swiss Contributed Surplus) are exempt from Swiss withholding tax. Dividends on our shares must be approved by our shareholders.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Shareholders' Equity (Continued)

Our shareholders approved the following dividends on our common shares:


Approval Date	Annual Payment Per Share	Payment Dates
March 2015	$1.32, payable in four quarterly installments of $0.33	Third quarter of fiscal 2015 Fourth quarter of fiscal 2015 First quarter of fiscal 2016 Second quarter of fiscal 2016
March 2016	$1.48, payable in four quarterly installments of $0.37	Third quarter of fiscal 2016 Fourth quarter of fiscal 2016 First quarter of fiscal 2017 Second quarter of fiscal 2017
March 2017	$1.60, payable in four quarterly installments of $0.40	Third quarter of fiscal 2017 Fourth quarter of fiscal 2017 First quarter of fiscal 2018 Second quarter of fiscal 2018
March 2018	$1.76, payable in four quarterly installments of $0.44	Third quarter of fiscal 2018 Fourth quarter of fiscal 2018 First quarter of fiscal 2019 Second quarter of fiscal 2019

Upon shareholders' approval of a dividend payment, we record a liability with a corresponding charge to shareholders' equity. At fiscal year end 2018 and 2017, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Consolidated Balance Sheets totaled $303 million and $281 million, respectively.

Share Repurchase Program

During fiscal 2018 and 2016, our board of directors authorized increases of $1.5 billion and $1.0 billion, respectively, in the share repurchase program. Common shares repurchased under the share repurchase program were as follows:


	Fiscal
	2018		2017		2016
	(in millions)
Number of common shares repurchased		10		8		43
Repurchase value	$	966	$	621	$	2,610

At fiscal year end 2018, we had $1.0 billion of availability remaining under our share repurchase authorization.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19. Accumulated Other Comprehensive Income (Loss)

The changes in each component of accumulated other comprehensive income (loss) were as follows:


	Currency Translation(1)			Unrecognized Pension and Postretirement Benefit Costs			Gains (Losses) on Cash Flow Hedges			Accumulated Other Comprehensive Income (Loss)
	(in millions)
Balance at fiscal year end 2015	$	408		$	(738	)	$	(43	)	$	(373	)

Other comprehensive income (loss), net of tax:
Other comprehensive loss before reclassifications		(69	)		(190	)		(14	)		(273	)
Amounts reclassified from accumulated other comprehensive income (loss)		(23	)		70			32			79
Income tax (expense) benefit		—			32			(7	)		25

Other comprehensive income (loss), net of tax		(92	)		(88	)		11			(169	)

Balance at fiscal year end 2016		316			(826	)		(32	)		(542	)

Other comprehensive income, net of tax:
Other comprehensive income before reclassifications		38			378			32			448
Amounts reclassified from accumulated other comprehensive income (loss)		(1	)		74			(14	)		59
Income tax expense		—			(122	)		(3	)		(125	)

Other comprehensive income, net of tax		37			330			15			382

Balance at fiscal year end 2017		353			(496	)		(17	)		(160	)

Adoption of ASU No. 2018–02		—			(39	)		1			(38	)
Other comprehensive income (loss), net of tax:
Other comprehensive income (loss) before reclassifications		(117	)		64			(60	)		(113	)
Amounts reclassified from accumulated other comprehensive income (loss)		—			40			(23	)		17
Income tax (expense) benefit		—			(21	)		9			(12	)

Other comprehensive income (loss), net of tax		(117	)		83			(74	)		(108	)

Balance at fiscal year end 2018	$	236		$	(452	)	$	(90	)	$	(306	)

(1)

Includes hedges of net investment foreign currency exchange gains or losses which offset foreign currency exchange losses or gains attributable to the translation of the net investments.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20. 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 (the "2017 Plan"), 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 2018, 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 20 million shares remained available for issuance under our plans as of fiscal year end 2018.

Share-Based Compensation Expense

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


	Fiscal
	2018		2017		2016
	(in millions)
Share-based compensation expense	$	95	$	95	$	87

We recognized a related tax benefit associated with our share-based compensation arrangements of $20 million, $31 million, and $28 million in fiscal 2018, 2017, and 2016, 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:


	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at fiscal year end 2017		1,990,784		$	64.40
Granted		592,852			93.45
Vested		(799,724	)		62.06
Forfeited		(152,442	)		70.88

Nonvested at fiscal year end 2018		1,631,470		$	75.39

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20. Share Plans (Continued)

The weighted-average grant-date fair value of restricted share awards granted during fiscal 2018, 2017, and 2016 was $93.45, $67.72, and $64.88, respectively.

The total fair value of restricted share awards that vested during fiscal 2018, 2017, and 2016 was $50 million, $50 million, and $51 million, respectively.

As of fiscal year end 2018, there was $66 million of unrecognized compensation cost related to nonvested restricted share awards. The cost is expected to be recognized over a weighted-average period of 1.6 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:


	Shares			Weighted-Average Grant-Date Fair Value
Outstanding at fiscal year end 2017		703,407		$	65.13
Granted		301,483			92.96
Vested		(300,174	)		61.99
Forfeited		(15,813	)		71.26

Outstanding at fiscal year end 2018		688,903		$	73.38

The weighted-average grant-date fair value of performance share awards granted during fiscal 2018, 2017, and 2016 was $92.96, $62.88, and $55.15, respectively.

The total fair value of performance share awards that vested during fiscal 2018, 2017, and 2016 was $19 million, $15 million, and $15 million, respectively.

As of fiscal year end 2018, there was $24 million of unrecognized compensation cost related to nonvested performance share awards. The cost 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

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20. Share Plans (Continued)

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:


	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
						(in years)		(in millions)
Outstanding at fiscal year end 2017		7,685,093		$	55.70
Granted		1,386,850			93.44
Exercised		(2,103,141	)		46.50
Expired		(8,565	)		60.44
Forfeited		(201,160	)		70.98

Outstanding at fiscal year end 2018		6,759,077		$	65.85		7.0	$	157



Vested and expected to vest at fiscal year end 2018		6,376,801		$	65.27		7.0	$	151
Exercisable at fiscal year end 2018		2,908,893		$	53.08		5.5	$	101

The weighted-average exercise price of share option awards granted during fiscal 2018, 2017, and 2016 was $93.44, $66.76, and $65.70, respectively.

The total intrinsic value of options exercised during fiscal 2018, 2017, and 2016 was $106 million, $130 million, and $67 million, respectively. We received cash related to the exercise of options of $100 million, $117 million, and $90 million in fiscal 2018, 2017, and 2016, respectively.

As of fiscal year end 2018, there was $34 million of unrecognized compensation cost related to nonvested share options granted under our share option plans. The cost 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.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20. Share Plans (Continued)

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
	2018			2017			2016
Weighted-average grant-date fair value	$	16.49		$	12.80		$	14.26
Assumptions:
Expected share price volatility		20	%		24	%		26	%
Risk free interest rate		2.2	%		1.9	%		2.0	%
Expected annual dividend per share	$	1.60		$	1.48		$	1.32
Expected life of options (in years)		5.3			5.6			5.7

21. Segment and Geographic Data

We operate through three reportable segments: Transportation Solutions, Industrial Solutions, and Communications Solutions. See Note 1 for a description of the segments in which we operate.

Segment performance is evaluated based on net sales and operating income. Generally, we consider all expenses to be of an operating nature and, accordingly, allocate them to each reportable segment. Costs specific to a segment are charged to the segment. Corporate expenses, such as headquarters administrative costs, are allocated to the segments based on segment operating income. Intersegment sales were not material and were recorded at selling prices that approximate market prices. Corporate assets are allocated to the segments based on segment assets.

Net sales and operating income by segment were as follows:


	Net Sales						Operating Income
	Fiscal						Fiscal
	2018		2017		2016		2018		2017		2016
	(in millions)
Transportation Solutions	$	8,290	$	7,039	$	6,503	$	1,578	$	1,294	$	1,209
Industrial Solutions		3,856		3,507		3,215		465		364		353
Communications Solutions		1,842		1,639		1,634		288		218		246	(1)

Total	$	13,988	$	12,185	$	11,352	$	2,331	$	1,876	$	1,808

(1)

Includes pre-tax gain of $144 million on the sale of our CPD business during fiscal 2016.

No single customer accounted for a significant amount of our net sales in fiscal 2018, 2017, or 2016.

As we are not organized by product or service, it is not practicable to disclose net sales by product or service.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21. Segment and Geographic Data (Continued)

Depreciation and amortization and capital expenditures were as follows:


	Depreciation and Amortization						Capital Expenditures
	Fiscal						Fiscal
	2018		2017		2016		2018		2017		2016
	(in millions)
Transportation Solutions	$	416	$	362	$	341	$	711	$	473	$	432
Industrial Solutions		178		165		134		145		123		108
Communications Solutions		73		84		85		79		83		63

Total	$	667	$	611	$	560	$	935	$	679	$	603

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


	Segment Assets
	Fiscal Year End
	2018		2017		2016
	(in millions)
Transportation Solutions	$	4,707	$	4,084	$	3,510
Industrial Solutions		2,049		1,909		1,725
Communications Solutions		959		951		889

Total segment assets(1)		7,715		6,944		6,124
Other current assets		1,981		2,141		1,460
Other non-current assets		10,690		10,318		10,024

Total assets	$	20,386	$	19,403	$	17,608

(1)

Segment assets are composed of accounts receivable, inventories, and net property, plant, and equipment.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21. Segment and Geographic Data (Continued)

Net sales and net property, plant, and equipment by geographic region were as follows:


	Net Sales(1)						Property, Plant, and Equipment, Net
	Fiscal						Fiscal Year End
	2018		2017		2016		2018		2017		2016
	(in millions)
Europe/Middle East/Africa:
Switzerland	$	3,478	$	3,016	$	2,979	$	94	$	80	$	62
Germany		443		235		127		448		413		334
Other Europe/Middle East/Africa		1,334		1,148		1,008		829		741		628

Total Europe/Middle East/Africa		5,255		4,399		4,114		1,371		1,234		1,024

Asia–Pacific:
China		2,739		2,414		2,165		627		555		491
Other Asia–Pacific		2,023		1,898		1,758		436		390		371

Total Asia–Pacific		4,762		4,312		3,923		1,063		945		862

Americas:
U.S.		3,583		3,136		3,018		964		880		830
Other Americas		388		338		297		99		100		93

Total Americas		3,971		3,474		3,315		1,063		980		923

Total	$	13,988	$	12,185	$	11,352	$	3,497	$	3,159	$	2,809

(1)

Net sales to external customers is attributed to individual countries based on the legal entity that records the sale.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

22. Quarterly Financial Data (unaudited)

Summarized quarterly financial data was as follows:


	Fiscal
	2018										2017
	First Quarter(1)			Second Quarter		Third Quarter		Fourth Quarter(2)			First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in millions, except per share data)
Net sales	$	3,336		$	3,562	$	3,581	$	3,509		$	2,848	$	3,007	$	3,095	$	3,235
Gross margin		1,164			1,212		1,187		1,182			1,015		1,041		1,060		1,067
Acquisition and integration costs		2			3		4		5			2		2		1		1
Restructuring and other charges, net		34			6		64		22			46		59		20		22
Income (loss) from continuing operations		(33	)		490		453		1,674			387		374		390		389
Income (loss) from discontinued operations, net of income taxes		(7	)		—		1		(13	)		22		31		45		45
Net income (loss)	$	(40	)	$	490	$	454	$	1,661		$	409	$	405	$	435	$	434
Basic earnings (loss) per share:
Income (loss) from continuing operations	$	(0.09	)	$	1.40	$	1.30	$	4.82		$	1.09	$	1.05	$	1.10	$	1.10
Net income (loss)		(0.11	)		1.40		1.30		4.79			1.15		1.14		1.23		1.23
Diluted earnings (loss) per share:
Income (loss) from continuing operations	$	(0.09	)	$	1.38	$	1.29	$	4.78		$	1.08	$	1.04	$	1.09	$	1.09
Net income (loss)		(0.11	)		1.38		1.29		4.75			1.14		1.13		1.22		1.22

(1)

Results for the quarter ended December 29, 2017 included $567 million of income tax expense related to the tax impacts of the Tax Cuts and Jobs Act. See Note 15 for additional information regarding income taxes.

(2)

Results for the quarter ended September 28, 2018 included a $1,222 million net income tax benefit associated with the tax impacts of certain legal entity restructurings and intercompany transactions. See Note 15 for additional information regarding income taxes.

23. Subsequent Event

In November 2018, we completed the sale of the Subsea Communications business for $325 million. The proceeds received are subject to a final working capital adjustment.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

24. Tyco Electronics Group S.A.

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

**Condensed Consolidating Statement of Operations For the Fiscal Year Ended September 28, 2018 **


	TE Connectivity Ltd.			TEGSA			Other Subsidiaries			Consolidating Adjustments			Total
	(in millions)
Net sales	$	—		$	—		$	13,988		$	—		$	13,988
Cost of sales		—			—			9,243			—			9,243

Gross margin		—			—			4,745			—			4,745
Selling, general, and administrative expenses, net		154			6			1,434			—			1,594
Research, development, and engineering expenses		—			—			680			—			680
Acquisition and integration costs		—			—			14			—			14
Restructuring and other charges, net		—			—			126			—			126

Operating income (loss)		(154	)		(6	)		2,491			—			2,331
Interest income		—			2			13			—			15
Interest expense		—			(105	)		(2	)		—			(107	)
Other income, net		—			—			1			—			1
Equity in net income of subsidiaries		2,808			2,841			—			(5,649	)		—
Equity in net loss of subsidiaries of discontinued operations		(19	)		(19	)		—			38			—
Intercompany interest income (expense), net		(70	)		76			(6	)		—			—

Income from continuing operations before income taxes		2,565			2,789			2,497			(5,611	)		2,240
Income tax benefit		—			—			344			—			344

Income from continuing operations		2,565			2,789			2,841			(5,611	)		2,584
Loss from discontinued operations, net of income taxes		—			—			(19	)		—			(19	)

Net income		2,565			2,789			2,822			(5,611	)		2,565
Other comprehensive loss		(108	)		(108	)		(82	)		190			(108	)

Comprehensive income	$	2,457		$	2,681		$	2,740		$	(5,421	)	$	2,457

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

**Condensed Consolidating Statement of Operations For the Fiscal Year Ended September 29, 2017 **


	TE Connectivity Ltd.			TEGSA			Other Subsidiaries			Consolidating Adjustments			Total
	(in millions)
Net sales	$	—		$	—		$	12,185		$	—		$	12,185
Cost of sales		—			—			8,002			—			8,002

Gross margin		—			—			4,183			—			4,183
Selling, general, and administrative expenses, net(1)		184			1,911			(552	)		—			1,543
Research, development, and engineering expenses		—			—			611			—			611
Acquisition and integration costs		—			—			6			—			6
Restructuring and other charges, net		—			—			147			—			147

Operating income (loss)		(184	)		(1,911	)		3,971			—			1,876
Interest income		—			—			16			—			16
Interest expense		—			(129	)		(1	)		—			(130	)
Other expense, net		—			—			(42	)		—			(42	)
Equity in net income of subsidiaries		1,756			3,686			—			(5,442	)		—
Equity in net income of subsidiaries of discontinued operations		143			156			—			(299	)		—
Intercompany interest income (expense), net		(32	)		110			(78	)		—			—

Income from continuing operations before income taxes		1,683			1,912			3,866			(5,741	)		1,720
Income tax expense		—			—			(180	)		—			(180	)

Income from continuing operations		1,683			1,912			3,686			(5,741	)		1,540
Income (loss) from discontinued operations, net of income taxes(2)		—			(13	)		156			—			143

Net income		1,683			1,899			3,842			(5,741	)		1,683
Other comprehensive income		382			382			375			(757	)		382

Comprehensive income	$	2,065		$	2,281		$	4,217		$	(6,498	)	$	2,065

(1)

TEGSA selling, general and administrative expenses include losses of $1,965 million related to intercompany transactions. These losses are offset by corresponding gains recorded by other subsidiaries.

(2)

Includes the internal allocation of gains and losses associated with the divestiture of our BNS business.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

**Condensed Consolidating Statement of Operations For the Fiscal Year Ended September 30, 2016 **


	TE Connectivity Ltd.			TEGSA			Other Subsidiaries			Consolidating Adjustments			Total
	(in millions)
Net sales	$	—		$	—		$	11,352		$	—		$	11,352
Cost of sales		—			—			7,525			—			7,525

Gross margin		—			—			3,827			—			3,827
Selling, general, and administrative expenses, net(1)		168			95			1,133			—			1,396
Research, development, and engineering expenses		—			—			603			—			603
Acquisition and integration costs		—			—			22			—			22
Restructuring and other charges (credits), net		2			(1	)		(3	)		—			(2	)

Operating income (loss)		(170	)		(94	)		2,072			—			1,808
Interest income		—			—			17			—			17
Interest expense		—			(126	)		(1	)		—			(127	)
Other expense, net		—			—			(677	)		—			(677	)
Equity in net income of subsidiaries		2,045			2,167			—			(4,212	)		—
Equity in net income of subsidiaries of discontinued operations		161			262			—			(423	)		—
Intercompany interest income (expense), net		(28	)		98			(70	)		—			—

Income from continuing operations before income taxes		2,008			2,307			1,341			(4,635	)		1,021
Income tax benefit		—			—			826			—			826

Income from continuing operations		2,008			2,307			2,167			(4,635	)		1,847
Income (loss) from discontinued operations, net of income taxes(2)		1			(101	)		262			—			162

Net income		2,009			2,206			2,429			(4,635	)		2,009
Other comprehensive loss		(169	)		(169	)		(143	)		312			(169	)

Comprehensive income	$	1,840		$	2,037		$	2,286		$	(4,323	)	$	1,840

(1)

TEGSA selling, general, and administrative expenses include losses of $80 million related to intercompany transactions. These losses are offset by corresponding gains recorded by other subsidiaries.

(2)

Includes the internal allocation of gains and losses associated with the divestiture of our BNS business.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

**Condensed Consolidating Balance Sheet As of September 28, 2018 **


	TE Connectivity Ltd.		TEGSA		Other Subsidiaries		Consolidating Adjustments			Total
	(in millions)
Assets
Current assets:
Cash and cash equivalents	$	—	$	—	$	848	$	—		$	848
Accounts receivable, net		—		—		2,361		—			2,361
Inventories		—		—		1,857		—			1,857
Intercompany receivables		37		2,391		48		(2,476	)		—
Prepaid expenses and other current assets		5		112		544		—			661
Current assets held for sale		—		—		472		—			472

Total current assets		42		2,503		6,130		(2,476	)		6,199
Property, plant, and equipment, net		—		—		3,497		—			3,497
Goodwill		—		—		5,684		—			5,684
Intangible assets, net		—		—		1,704		—			1,704
Deferred income taxes		—		—		2,144		—			2,144
Investment in subsidiaries		13,626		26,613		—		(40,239	)		—
Intercompany loans receivable		2		6,535		17,887		(24,424	)		—
Other assets		—		—		1,158		—			1,158

Total Assets	$	13,670	$	35,651	$	38,204	$	(67,139	)	$	20,386



Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt	$	—	$	961	$	2	$	—		$	963
Accounts payable		2		—		1,546		—			1,548
Accrued and other current liabilities		400		36		1,275		—			1,711
Intercompany payables		2,437		—		39		(2,476	)		—
Current liabilities held for sale		—		—		188		—			188

Total current liabilities		2,839		997		3,050		(2,476	)		4,410
Long-term debt		—		3,033		4		—			3,037
Intercompany loans payable		—		17,888		6,536		(24,424	)		—
Long-term pension and postretirement liabilities		—		—		1,102		—			1,102
Deferred income taxes		—		—		207		—			207
Income taxes		—		—		312		—			312
Other liabilities		—		107		380		—			487

Total Liabilities		2,839		22,025		11,591		(26,900	)		9,555

Total Shareholders' Equity		10,831		13,626		26,613		(40,239	)		10,831

Total Liabilities and Shareholders' Equity	$	13,670	$	35,651	$	38,204	$	(67,139	)	$	20,386

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

**Condensed Consolidating Balance Sheet As of September 29, 2017 **


	TE Connectivity Ltd.		TEGSA		Other Subsidiaries		Consolidating Adjustments			Total
	(in millions)
Assets
Current assets:
Cash and cash equivalents	$	—	$	—	$	1,218	$	—		$	1,218
Accounts receivable, net		—		—		2,138		—			2,138
Inventories		—		—		1,647		—			1,647
Intercompany receivables		49		1,914		60		(2,023	)		—
Prepaid expenses and other current assets		4		96		478		—			578
Current assets held for sale		—		—		345		—			345

Total current assets		53		2,010		5,886		(2,023	)		5,926
Property, plant, and equipment, net		—		—		3,159		—			3,159
Goodwill		—		—		5,651		—			5,651
Intangible assets, net		—		—		1,841		—			1,841
Deferred income taxes		—		—		2,141		—			2,141
Investment in subsidiaries		11,960		20,109		—		(32,069	)		—
Intercompany loans receivable		—		4,027		9,700		(13,727	)		—
Noncurrent assets held for sale		—		—		257		—			257
Other assets		—		6		422		—			428

Total Assets	$	12,013	$	26,152	$	29,057	$	(47,819	)	$	19,403



Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt	$	—	$	708	$	2	$	—		$	710
Accounts payable		2		—		1,385		—			1,387
Accrued and other current liabilities		286		59		1,268		—			1,613
Intercompany payables		1,974		—		49		(2,023	)		—
Current liabilities held for sale		—		—		137		—			137

Total current liabilities		2,262		767		2,841		(2,023	)		3,847
Long-term debt		—		3,629		5		—			3,634
Intercompany loans payable		—		9,700		4,027		(13,727	)		—
Long-term pension and postretirement liabilities		—		—		1,158		—			1,158
Deferred income taxes		—		—		236		—			236
Income taxes		—		—		293		—			293
Noncurrent liabilities held for sale		—		—		43		—			43
Other liabilities		—		96		345		—			441

Total Liabilities		2,262		14,192		8,948		(15,750	)		9,652

Total Shareholders' Equity		9,751		11,960		20,109		(32,069	)		9,751

Total Liabilities and Shareholders' Equity	$	12,013	$	26,152	$	29,057	$	(47,819	)	$	19,403

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

**Condensed Consolidating Statement of Cash Flows For the Fiscal Year Ended September 28, 2018 **


	TE Connectivity Ltd.			TEGSA			Other Subsidiaries			Consolidating Adjustments			Total
	(in millions)
Cash Flows From Operating Activities:
Net cash provided by continuing operating activities(1)	$	486		$	343		$	2,625		$	(1,153	)	$	2,301
Net cash provided by discontinued operating activities		—			—			150			—			150

Net cash provided by operating activities		486			343			2,775			(1,153	)		2,451

Cash Flows From Investing Activities:
Capital expenditures		—			—			(935	)		—			(935	)
Proceeds from sale of property, plant, and equipment		—			—			23			—			23
Acquisition of businesses, net of cash acquired		—			—			(153	)		—			(153	)
Intercompany distribution receipts(1)		—			794			—			(794	)		—
Change in intercompany loans		—			62			—			(62	)		—
Other		—			—			(8	)		—			(8	)

Net cash provided by (used in) continuing investing activities		—			856			(1,073	)		(856	)		(1,073	)
Net cash used in discontinued investing activities		—			—			(21	)		—			(21	)

Net cash provided by (used in) investing activities		—			856			(1,094	)		(856	)		(1,094	)

Cash Flows From Financing Activities:
Changes in parent company equity(2)		112			(170	)		58			—			—
Net increase in commercial paper		—			270			—			—			270
Proceeds from issuance of debt		—			119			—			—			119
Repayment of debt		—			(708	)		—			—			(708	)
Proceeds from exercise of share options		—			—			100			—			100
Repurchase of common shares		(478	)		—			(401	)		—			(879	)
Payment of common share dividends to shareholders		(594	)		—			6			—			(588	)
Intercompany distributions(1)		—			(710	)		(505	)		1,215			—
Loan activity with parent		474			—			(1,268	)		794			—
Transfers from discontinued operations		—			—			129			—			129
Other		—			—			(36	)		—			(36	)

Net cash used in continuing financing activities		(486	)		(1,199	)		(1,917	)		2,009			(1,593	)
Net cash used in discontinued financing activities		—			—			(129	)		—			(129	)

Net cash used in financing activities		(486	)		(1,199	)		(2,046	)		2,009			(1,722	)

Effect of currency translation on cash		—			—			(5	)		—			(5	)
Net decrease in cash and cash equivalents		—			—			(370	)		—			(370	)
Cash and cash equivalents at beginning of fiscal year		—			—			1,218			—			1,218

Cash and cash equivalents at end of fiscal year	$	—		$	—		$	848		$	—		$	848

(1)

During fiscal 2018, other subsidiaries made distributions to TEGSA in the amount of $505 million and TEGSA made distributions to TE Connectivity Ltd. in the amount of $710 million. Cash flows are presented based upon the nature of the distributions.

(2)

Changes in parent company equity includes cash flows related to certain intercompany equity and funding transactions, and other intercompany activity.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

**Condensed Consolidating Statement of Cash Flows For the Fiscal Year Ended September 29, 2017 **


	TE Connectivity Ltd.			TEGSA			Other Subsidiaries			Consolidating Adjustments			Total
	(in millions)
Cash Flows From Operating Activities:
Net cash provided by (used in) continuing operating activities(1)	$	(180	)	$	102		$	2,581		$	(230	)	$	2,273
Net cash provided by discontinued operating activities		—			—			48			—			48

Net cash provided by (used in) operating activities		(180	)		102			2,629			(230	)		2,321

Cash Flows From Investing Activities:
Capital expenditures		—			—			(679	)		—			(679	)
Proceeds from sale of property, plant, and equipment		—			—			19			—			19
Acquisition of businesses, net of cash acquired		—			—			(250	)		—			(250	)
Proceeds from divestiture of business, net of cash retained by sold business		—			—			4			—			4
Intercompany distribution receipts(1)		—			516			—			(516	)		—
Change in intercompany loans		—			(1,369	)		—			1,369			—
Other		—			(12	)		9			—			(3	)

Net cash used in continuing investing activities		—			(865	)		(897	)		853			(909	)
Net cash used in discontinued investing activities		—			—			(23	)		—			(23	)

Net cash used in investing activities		—			(865	)		(920	)		853			(932	)

Cash Flows From Financing Activities:
Changes in parent company equity(2)		97			559			(656	)		—			—
Net decrease in commercial paper		—			(330	)		—			—			(330	)
Proceeds from issuance of debt		—			589			—			—			589
Proceeds from exercise of share options		—			—			117			—			117
Repurchase of common shares		—			—			(614	)		—			(614	)
Payment of common share dividends to shareholders		(550	)		—			4			—			(546	)
Intercompany distributions(1)		—			(50	)		(696	)		746			—
Loan activity with parent		633			—			736			(1,369	)		—
Transfers from discontinued operations		—			—			25			—			25
Other		—			(5	)		(25	)		—			(30	)

Net cash provided by (used in) continuing financing activities		180			763			(1,109	)		(623	)		(789	)
Net cash used in discontinued financing activities		—			—			(25	)		—			(25	)

Net cash provided by (used in) financing activities		180			763			(1,134	)		(623	)		(814	)

Effect of currency translation on cash		—			—			(4	)		—			(4	)
Net increase in cash and cash equivalents		—			—			571			—			571
Cash and cash equivalents at beginning of fiscal year		—			—			647			—			647

Cash and cash equivalents at end of fiscal year	$	—		$	—		$	1,218		$	—		$	1,218

(1)

During fiscal 2017, other subsidiaries made distributions to TEGSA in the amount of $696 million and TEGSA made distributions to TE Connectivity Ltd. in the amount of $50 million. Cash flows are presented based upon the nature of the distributions.

(2)

Changes in parent company equity includes cash flows related to certain intercompany equity and funding transactions, and other intercompany activity.

** TE CONNECTIVITY LTD.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

**Condensed Consolidating Statement of Cash Flows For the Fiscal Year Ended September 30, 2016 **


	TE Connectivity Ltd.			TEGSA			Other Subsidiaries			Consolidating Adjustments			Total
	(in millions)
Cash Flows From Operating Activities:
Net cash provided by (used in) continuing operating activities(1)	$	(37	)	$	211		$	2,095		$	(336	)	$	1,933
Net cash provided by discontinued operating activities		—			—			14			—			14

Net cash provided by (used in) operating activities		(37	)		211			2,109			(336	)		1,947

Cash Flows From Investing Activities:
Capital expenditures		—			—			(603	)		—			(603	)
Proceeds from sale of property, plant, and equipment		—			—			8			—			8
Acquisition of businesses, net of cash acquired		—			—			(1,336	)		—			(1,336	)
Proceeds from divestiture of business, net of cash retained by sold business		—			199			134			—			333
Intercompany distribution receipts(1)		1,082			1,729			—			(2,811	)		—
Change in intercompany loans		—			(1,244	)		—			1,244			—
Other(2)		—			(120	)		162			—			42

Net cash provided by (used in) continuing investing activities		1,082			564			(1,635	)		(1,567	)		(1,556	)
Net cash used in discontinued investing activities		—			—			(25	)		—			(25	)

Net cash provided by (used in) investing activities		1,082			564			(1,660	)		(1,567	)		(1,581	)

Cash Flows From Financing Activities:
Changes in parent company equity(3)		410			300			(710	)		—			—
Net increase in commercial paper		—			330			—			—			330
Proceeds from issuance of debt		—			349			3			—			352
Repayment of debt		—			(500	)		(1	)		—			(501	)
Proceeds from exercise of share options		—			—			90			—			90
Repurchase of common shares		(2,780	)		—			(7	)		—			(2,787	)
Payment of common share dividends to shareholders		(513	)		—			4			—			(509	)
Intercompany distributions(1)		—			(1,250	)		(1,897	)		3,147			—
Loan activity with parent		1,838			—			(594	)		(1,244	)		—
Transfers to discontinued operations		—			—			(11	)		—			(11	)
Other		—			(4	)		(26	)		—			(30	)

Net cash used in continuing financing activities		(1,045	)		(775	)		(3,149	)		1,903			(3,066	)
Net cash provided by discontinued financing activities		—			—			11			—			11

Net cash used in financing activities		(1,045	)		(775	)		(3,138	)		1,903			(3,055	)

Effect of currency translation on cash		—			—			7			—			7
Net decrease in cash and cash equivalents		—			—			(2,682	)		—			(2,682	)
Cash and cash equivalents at beginning of fiscal year		—			—			3,329			—			3,329

Cash and cash equivalents at end of fiscal year	$	—		$	—		$	647		$	—		$	647

(1)

During fiscal 2016, other subsidiaries made distributions to TEGSA in the amount of $1,897 million and TEGSA made distributions to TE Connectivity Ltd. in the amount of $1,250 million. Cash flows are presented based upon the nature of the distributions.

(2)

Includes the internal allocation of proceeds between TEGSA and other subsidiaries associated with the divestiture of our BNS business.

(3)

Changes in parent company equity includes cash flows related to certain intercompany equity and funding transactions, and other intercompany activity.

TE CONNECTIVITY LTD.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

Fiscal Years Ended September 28, 2018, September 29, 2017, and September 30, 2016


Description	Balance at Beginning of Fiscal Year		Additions Charged to Costs and Expenses		Acquisitions, Divestitures, and Other			Deductions			Balance at End of Fiscal Year
	(in millions)
Fiscal 2018:
Allowance for doubtful accounts receivable	$	18	$	7	$	(1	)	$	(2	)	$	22
Valuation allowance on deferred tax assets		3,627		261		—			(1,697	)		2,191
Fiscal 2017:
Allowance for doubtful accounts receivable	$	17	$	5	$	—		$	(4	)	$	18
Valuation allowance on deferred tax assets		3,096		1,072		—			(541	)		3,627
Fiscal 2016:
Allowance for doubtful accounts receivable	$	18	$	—	$	1		$	(2	)	$	17
Valuation allowance on deferred tax assets		3,237		283		1			(425	)		3,096

Previous: Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES