Item 16. FORM 10-K SUMMARY

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Item 16. FORM 10-K SUMMARY

None.

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 10, 2020

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	Chief Executive Officer and Director	November 10, 2020
Terrence R. Curtin	(Principal Executive Officer)

/s/ Heath A. Mitts	Executive Vice President and
Heath A. Mitts	Chief Financial Officer	November 10, 2020
	(Principal Financial Officer)

/s/ Robert J. Ott	Senior Vice President and
Robert J. Ott	Corporate Controller	November 10, 2020
	(Principal Accounting Officer)

*	Director	November 10, 2020
Pierre R. Brondeau

*	Director	November 10, 2020
Carol A. Davidson

*	Director	November 10, 2020
Lynn A. Dugle

*	Director	November 10, 2020
William A. Jeffrey

*	Director	November 10, 2020
David M. Kerko

*	Director	November 10, 2020
Thomas J. Lynch

*	Director	November 10, 2020
Yong Nam

*	Director	November 10, 2020
Daniel J. Phelan



*	Director	November 10, 2020
Abhijit Y. Talwalkar

*	Director	November 10, 2020
Mark C. Trudeau

*	Director	November 10, 2020
Dawn C. Willoughby

*	Director	November 10, 2020
Laura H. Wright

*	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		54
Consolidated Statements of Operations for the Fiscal Years Ended September 25, 2020, September 27, 2019, and September 28, 2018		58
Consolidated Statements of Comprehensive Income (Loss) for the Fiscal Years Ended September 25, 2020, September 27, 2019, and September 28, 2018		59
Consolidated Balance Sheets as of September 25, 2020 and September 27, 2019		60
Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended September 25, 2020, September 27, 2019, and September 28, 2018		61
Consolidated Statements of Cash Flows for the Fiscal Years Ended September 25, 2020, September 27, 2019, and September 28, 2018		62
Notes to Consolidated Financial Statements		63
Schedule II—Valuation and Qualifying Accounts		103

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 25, 2020 and September 27, 2019, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows, for each of the three years in the period ended September 25, 2020, and the related notes and the 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 25, 2020 and September 27, 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 25, 2020, 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 25, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 10, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, effective September 28, 2019, the Company adopted FASB Accounting Standards Update 2016-02 which codified Accounting Standards Codification 842, Leases, using the modified retrospective approach.

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill —Sensors Reporting Unit within the Transportation Solutions Reportable Segment — Refer to Notes 2 and 8 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves comparing the carrying amount of each reporting unit to its fair value on the first day of the fourth fiscal quarter or whenever the Company believes a triggering event requiring a more frequent assessment has occurred. The Company uses the income approach based on the present value of future cash flows to estimate fair value. The income approach is supported by guideline analyses (a market approach). These approaches incorporate several assumptions including future growth rates, discount rates, and market activity in assessing fair value and are reporting unit specific. The goodwill balance was $5.2 billion as of September 25, 2020, of which $0.5 billion was allocated to the Sensors reporting unit within the Transportation Solutions reportable segment. As a result of current and projected declines in sales and profitability, due in part to the impact of the COVID-19 pandemic and projected reductions in global automotive production, the Company recorded a partial impairment charge of $900 million during the quarter ended March 27, 2020 for the Sensors reporting unit. The fair value of this reporting unit exceeded its carrying amount as of the annual measurement date and, therefore, no additional impairment was recognized.

We identified goodwill for the Sensors reporting unit as a critical audit matter because of the significant judgments made by management to estimate its fair value, especially considering the reduction of future revenue growth rates and resulting cash flows. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of future revenue and operating margin and the selection of a discount rate.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures for the $900 million impairment charge and the annual quantitative assessment related to the forecasts of future revenue and operating margin (the “forecasts”), and the selection of a discount rate for the Sensors reporting unit included the following, among others:

	•	We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value, such as controls related to forecasts and management’s selection of the discount rate.

	•	We evaluated management’s ability to accurately forecast future revenue and operating margin by comparing actual results to management’s historical forecasts.

	•	We evaluated the reasonableness of management’s forecasts by comparing the forecasts to:

	–	Historical operating results of the reporting unit.

	–	Historical operating results of the Company’s other reporting units.

	–	Internal communications to management and the board of directors.

	–	External communications made by management to analysts and investors.

	–	Third-party industry reports for similar products.

	–	The effects of the COVID-19 pandemic on projections.

	•	With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate by:

	–	Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation.

	–	Developing a range of independent estimates and comparing those to the discount rate selected by management.

Income Taxes — Realizability of Deferred Tax Assets — Refer to Notes 2 and 16 to the financial statements

Critical Audit Matter Description

The Company recognizes deferred income taxes for temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. 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. Future realization of deferred tax assets depends on the existence of sufficient taxable income of the appropriate character prior to expiration. Sources of taxable income include future reversals of deferred tax assets and liabilities, expected future taxable income, taxable income in prior carryback years if permitted under the tax law, and tax planning strategies. Management has determined that it is more likely than not that sufficient taxable income will be generated in the future to realize a portion of its deferred tax assets, and therefore, a valuation allowance of $4.4 billion has been recorded to offset the Company’s gross deferred tax assets as of September 25, 2020 of $6.7 billion.

We identified the realizability of deferred tax assets as a critical audit matter because of the Company’s tax structure and the significant judgments and estimates made by management to determine that sufficient taxable income will be generated in the future prior to expiration to realize a portion of its deferred tax assets. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists, when performing audit procedures to evaluate the appropriateness of qualifying tax planning strategies and the reasonableness of management’s estimates of taxable income prior to expiration.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the determination that it is more likely than not that sufficient taxable income will be generated in the future to realize deferred tax assets included the following, among others:

	•	We tested the effectiveness of controls over management’s estimates of the realization of the deferred tax assets, including those over the estimates of taxable income, the approval of tax planning strategies and the determination of whether it is more likely than not that the deferred tax assets will be realized prior to expiration.

	•	We evaluated the reasonableness of management’s assessment of the significance and weighting of negative evidence and positive evidence that is objectively verifiable.

	•	We evaluated management’s ability to accurately estimate taxable income by comparing actual results to management’s historical estimates and evaluating whether there have been any changes that would impact management’s ability to continue accurately estimating taxable income.

	•	We tested the reasonableness of management’s estimates of taxable income by comparing the estimates to:

	–	Historical taxable income.

	–	Internal communications to management and the board of directors.

	–	Management’s history of carrying out its stated plans and its ability to carry out its plans considering contractual commitments, available financing, or debt covenants.

	•	We evaluated whether the estimates of future taxable income were consistent with evidence obtained in other areas of the audit, including the effects of the COVID-19 pandemic on projections.

	•	We evaluated whether the taxable income in prior carryback years was of the appropriate character and available under the tax law.

	•	With the assistance of our income tax specialists, we evaluated (1) the appropriateness of qualifying tax planning strategies, including that they were prudent, feasible and would more likely than not result in the realization of deferred tax assets and (2) management’s assessment that sufficient taxable income will be generated in the future to realize a portion of the deferred tax assets prior to expiration.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania

November 10, 2020

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 25, 2020, 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 25, 2020, 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 25, 2020, of the Company and our report dated November 10, 2020 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of FASB Accounting Standards Update 2016-02 which codified Accounting Standards Codification 842, Leases.

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 10, 2020

TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

Fiscal Years Ended September 25, 2020, September 27, 2019, and September 28, 2018


	Fiscal
	2020		2019		2018

	(in millions, except per share data)
Net sales	$	12,172	$	13,448	$	13,988
Cost of sales		8,437		9,054		9,243
Gross margin		3,735		4,394		4,745
Selling, general, and administrative expenses		1,392		1,490		1,594
Research, development, and engineering expenses		613		644		680
Acquisition and integration costs		36		27		14
Restructuring and other charges, net		257		255		126
Impairment of goodwill		900		—		—
Operating income		537		1,978		2,331
Interest income		15		19		15
Interest expense		(48)		(68)		(107)
Other income, net		20		2		1
Income from continuing operations before income taxes		524		1,931		2,240
Income tax (expense) benefit		(783)		15		344
Income (loss) from continuing operations		(259)		1,946		2,584
Income (loss) from discontinued operations, net of income taxes		18		(102)		(19)
Net income (loss)	$	(241)	$	1,844	$	2,565

Basic earnings (loss) per share:
Income (loss) from continuing operations	$	(0.78)	$	5.76	$	7.38
Income (loss) from discontinued operations		0.05		(0.30)		(0.05)
Net income (loss)		(0.73)		5.46		7.33

Diluted earnings (loss) per share:
Income (loss) from continuing operations	$	(0.78)	$	5.72	$	7.32
Income (loss) from discontinued operations		0.05		(0.30)		(0.05)
Net income (loss)		(0.73)		5.42		7.27

Weighted-average number of shares outstanding:
Basic		332		338		350
Diluted		332		340		353

See Notes to Consolidated Financial Statements.

TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Fiscal Years Ended September 25, 2020, September 27, 2019, and September 28, 2018


	Fiscal
	2020		2019		2018

	(in millions)
Net income (loss)	$	(241)	$	1,844	$	2,565
Other comprehensive income (loss):
Currency translation		(11)		(48)		(117)
Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes		34		(195)		83
Gains (losses) on cash flow hedges, net of income taxes		40		46		(74)
Other comprehensive income (loss)		63		(197)		(108)
Comprehensive income (loss)		(178)		1,647		2,457
Less: comprehensive income attributable to noncontrolling interests		(5)		—		—
Comprehensive income (loss) attributable to TE Connectivity Ltd.	$	(183)	$	1,647	$	2,457

See Notes to Consolidated Financial Statements.

TE CONNECTIVITY LTD.

CONSOLIDATED BALANCE SHEETS

As of September 25, 2020 and September 27, 2019


	Fiscal Year End
	2020		2019

	(in millions, except
	share data)
Assets
Current assets:
Cash and cash equivalents	$	945	$	927
Accounts receivable, net of allowance for doubtful accounts of $29 and $25, respectively		2,377		2,320
Inventories		1,950		1,836
Prepaid expenses and other current assets		512		471
Total current assets		5,784		5,554
Property, plant, and equipment, net		3,650		3,574
Goodwill		5,224		5,740
Intangible assets, net		1,593		1,596
Deferred income taxes		2,178		2,776
Other assets		813		454
Total assets	$	19,242	$	19,694
Liabilities, redeemable noncontrolling interests, and shareholders' equity
Current liabilities:
Short-term debt	$	694	$	570
Accounts payable		1,276		1,357
Accrued and other current liabilities		1,720		1,613
Total current liabilities		3,690		3,540
Long-term debt		3,452		3,395
Long-term pension and postretirement liabilities		1,336		1,367
Deferred income taxes		143		156
Income taxes		252		239
Other liabilities		874		427
Total liabilities		9,747		9,124
Commitments and contingencies (Note 13)
Redeemable noncontrolling interests		112		—
Shareholders' equity:
Common shares, CHF 0.57 par value, 338,953,381 shares authorized and issued, and 350,951,381 shares authorized and issued, respectively		149		154
Accumulated earnings		10,348		12,256
Treasury shares, at cost, 8,295,878 and 15,862,337 shares, respectively		(669)		(1,337)
Accumulated other comprehensive loss		(445)		(503)
Total shareholders' equity		9,383		10,570
Total liabilities, redeemable noncontrolling interests, and shareholders' equity	$	19,242	$	19,694

See Notes to Consolidated Financial Statements.

TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Fiscal Years Ended September 25, 2020, September 27, 2019, and September 28, 2018


											Accumulated
											Other		Total
	Common Shares			Treasury Shares			Contributed		Accumulated		Comprehensive		Shareholders'
	Shares	Amount		Shares	Amount		Surplus		Earnings		Loss		Equity

	(in millions)
Balance at fiscal year end 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	—		—	—		—		—		(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 fiscal year end 2018	357	$	157	(12)	$	(1,134)	$	—	$	12,114	$	(306)	$	10,831
Adoption of ASU No. 2016-16	—		—	—		—		—		(443)		—		(443)
Net income	—		—	—		—		—		1,844		—		1,844
Other comprehensive loss	—		—	—		—		—		—		(197)		(197)
Share-based compensation expense	—		—	—		—		75		—		—		75
Dividends	—		—	—		—		—		(613)		—		(613)
Exercise of share options	—		—	1		85		—		—		—		85
Restricted share award vestings and other activity	—		—	1		154		(75)		(77)		—		2
Repurchase of common shares	—		—	(12)		(1,014)		—		—		—		(1,014)
Cancellation of treasury shares	(6)		(3)	6		572		—		(569)		—		—
Balance at fiscal year end 2019	351	$	154	(16)	$	(1,337)	$	—	$	12,256	$	(503)	$	10,570
Net loss	—		—	—		—		—		(241)		—		(241)
Other comprehensive income	—		—	—		—		—		—		58		58
Share-based compensation expense	—		—	—		—		74		—		—		74
Dividends	—		—	—		—		—		(634)		—		(634)
Exercise of share options	—		—	1		55		—		—		—		55
Restricted share award vestings and other activity	—		—	1		143		(74)		(63)		—		6
Repurchase of common shares	—		—	(6)		(505)		—		—		—		(505)
Cancellation of treasury shares	(12)		(5)	12		975		—		(970)		—		—
Balance at fiscal year end 2020	339	$	149	(8)	$	(669)	$	—	$	10,348	$	(445)	$	9,383

See Notes to Consolidated Financial Statements.

TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Years Ended September 25, 2020, September 27, 2019, and September 28, 2018


	Fiscal
	2020		2019		2018

	(in millions)
Cash flows from operating activities:
Net income (loss)	$	(241)	$	1,844	$	2,565
(Income) loss from discontinued operations, net of income taxes		(18)		102		19
Income (loss) from continuing operations		(259)		1,946		2,584
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities:
Impairment of goodwill		900		—		—
Depreciation and amortization		711		690		667
Deferred income taxes		535		(218)		(791)
Non-cash lease cost		108		—		—
Provision for losses on accounts receivable and inventories		14		43		30
Share-based compensation expense		74		75		95
Other		54		51		5
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts receivable, net		(63)		31		(269)
Inventories		(89)		64		(247)
Prepaid expenses and other current assets		51		144		(63)
Accounts payable		(80)		(178)		201
Accrued and other current liabilities		(99)		(15)		5
Income taxes		(9)		(135)		54
Other		143		(44)		30
Net cash provided by continuing operating activities		1,991		2,454		2,301
Net cash provided by (used in) discontinued operating activities		1		(32)		150
Net cash provided by operating activities		1,992		2,422		2,451
Cash flows from investing activities:
Capital expenditures		(560)		(749)		(935)
Proceeds from sale of property, plant, and equipment		17		43		23
Acquisition of businesses, net of cash acquired		(339)		(283)		(153)
Proceeds from divestiture of discontinued operation, net of cash retained by sold operation		—		297		—
Other		17		2		(8)
Net cash used in continuing investing activities		(865)		(690)		(1,073)
Net cash used in discontinued investing activities		—		(2)		(21)
Net cash used in investing activities		(865)		(692)		(1,094)
Cash flows from financing activities:
Net increase (decrease) in commercial paper		(219)		(51)		270
Proceeds from issuance of debt		593		746		119
Repayment of debt		(352)		(691)		(708)
Proceeds from exercise of share options		55		85		100
Repurchase of common shares		(523)		(1,091)		(879)
Payment of common share dividends to shareholders		(625)		(608)		(588)
Transfers (to) from discontinued operations		1		(34)		129
Other		(34)		(33)		(36)
Net cash used in continuing financing activities		(1,104)		(1,677)		(1,593)
Net cash provided by (used in) discontinued financing activities		(1)		34		(129)
Net cash used in financing activities		(1,105)		(1,643)		(1,722)
Effect of currency translation on cash		(4)		(8)		(5)
Net increase (decrease) in cash, cash equivalents, and restricted cash		18		79		(370)
Cash, cash equivalents, and restricted cash at beginning of fiscal year		927		848		1,218
Cash, cash equivalents, and restricted cash at end of fiscal year	$	945	$	927	$	848

Supplemental cash flow information:
Interest paid on debt, net	$	50	$	75	$	127
Income taxes paid, net of refunds		257		338		393

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 industrial technology leader creating a safer, sustainable, productive, and connected future. Our broad range of connectivity and sensor solutions, proven in the harshest environments, enable 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 aerospace, defense, oil, and gas; industrial equipment; medical; 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. Actual results could differ from these estimates.

Fiscal Year

We have a 52- or 53-week fiscal year that ends on the last Friday of September. Fiscal 2020, 2019, and 2018 were each 52 weeks in length and ended on September 25, 2020, September 27, 2019, and September 28, 2018, respectively. For fiscal years in which there are 53 weeks, the fourth quarter reporting period includes 14 weeks, with the next such occurrence taking place in fiscal 2022.

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 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

We account for revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which is a single, comprehensive, five-step revenue recognition model. Our revenues are generated principally from the sale of our products. Revenue is recognized as performance obligations under the terms of a contract, such as a purchase order with a customer, are satisfied; generally this occurs with the transfer of control. We transfer control and recognize revenue when we ship product to our customers, the customers accept and have legal title for the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

product, and we have a right to payment for such product. Revenue is measured as the amount of consideration that we expect to receive in exchange for those products and excludes taxes assessed by governmental authorities and collected from customers concurrent with the sale of products. Shipping and handling costs are treated as fulfillment costs and are included in cost of sales. Since we typically invoice our customers when we satisfy our performance obligations, we do not have material contract assets or contract liabilities. Our credit terms are customary and do not contain significant financing components that extend beyond one year of fulfillment of performance obligations. We apply the practical expedient of ASC 606 with respect to financing components and do not evaluate contracts in which payment is due within one year of satisfaction of the related performance obligation. Since our performance obligations to deliver products are part of contracts that generally have original durations of one year or less, we have elected to use the optional exemption to not disclose the aggregate amount of transaction prices associated with unsatisfied or partially satisfied performance obligations as of fiscal year end 2020. See Note 21 for net sales disaggregated by industry end market and geographic region which is summarized by segment and that we consider meaningful to depict the nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors.

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 do not account for these warranties as separate performance obligations.

Although products are generally sold at fixed prices, certain distributors and customers receive incentives or awards, such as sales rebates, return allowances, scrap allowances, and other rights, which are accounted for as variable consideration. We estimate these amounts in the same period revenue is recognized based on the expected value to be provided to customers and reduce revenue accordingly. Our estimates of variable consideration and ultimate determination of the estimated amounts to include in the transaction price are based primarily on our assessment of anticipated performance and historical and forecasted information that is reasonably available to us.

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 several factors including 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

We account for goodwill and other intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other, as updated by Accounting Standards Update (“ASU”) No. 2017-04, Simplifying the Test for Goodwill Impairment.

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

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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 2020, 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 several reporting unit-specific factors including operating results, business plans, economic projections, anticipated future cash flows, transactions, and marketplace 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 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, a goodwill impairment charge will be recorded for the amount of the excess, limited to the total amount of goodwill allocated to the reporting unit.

Fair value estimates used in the 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 is supported by guideline analyses (a market approach). These approaches incorporate several assumptions including future growth rates, discount rates, income tax rates, and market activity in 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 2020, 2019, and 2018 were $539 million, $572 million, and $606 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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. 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.

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 2020, 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 certain of 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-

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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).

	●	_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 Plans

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, or, for inactive plans, over the remaining life expectancy of 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Leases

We have facility, land, vehicle, and equipment leases that expire at various dates. We determine if a contract qualifies as a lease at inception. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The right to control the use of an asset includes the right to obtain substantially all of the economic benefits of the identified asset and the right to direct the use of the identified asset.

Lease right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date of the lease based on the present value of remaining lease payments over the lease term. Lease ROU assets represent our right to use the underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. We do not recognize ROU assets or lease liabilities that arise from short-term leases. Since our lease contracts do not contain a readily determinable implicit rate, we determine a fully-collateralized incremental borrowing rate that reflects a similar term to the lease and the economic environment of the applicable country or region in which the asset is leased.

We have elected to account for fixed lease and non-lease components in our real estate leases as a single lease component; other leases generally do not contain non-lease components. The non-lease components in our real estate leases include logistics services, warehousing, and other operational costs. Many of these costs are variable, fluctuating based on services provided, such as pallets shipped in and out of a location or square footage of space occupied. These costs, and any other variable rental costs, are excluded from our ROU assets and lease liabilities, and instead are expensed as incurred. Some of our leases may include options to either renew or early terminate the lease. The exercise of these options is generally at our sole discretion and would only occur if there is an economic, financial, or business reason to do so. Such options are included in the lease term if we determine it is reasonably certain they will be exercised.

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 are included in earnings.

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 accelerated rent expense for ROU assets, expected lease termination costs, 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

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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 Adopted Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-04, an update to ASC 350. The update simplifies the subsequent measurement of goodwill by eliminating step 2 of the goodwill impairment test. Under the amendments in the update, goodwill impairment should be tested by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments are to be applied on a prospective basis. We elected to early adopt this update and applied it during the quarter ended March 27, 2020. See Note 8 for additional information regarding our interim and annual goodwill impairment tests.

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 ROU asset for most leases. We adopted ASC 842, as amended, in fiscal 2020 using the optional transition method permitted by ASU No. 2018-11, which allows for application of the standard at the adoption date and no restatement of comparative periods. We elected to use the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows the carry forward of historical lease classification of existing and expired leases. In addition, we elected to use the hindsight practical expedient in determining the lease term for existing leases. As a result of adoption, we recorded ROU assets and related lease liabilities of approximately $520 million on the Consolidated Balance Sheet. Adoption did not have a material impact on our results of operations or cash flows. See Note 12 for additional information regarding leases.

3. Restructuring and Other Charges, Net

Net restructuring and other charges consisted of the following:


	Fiscal
	2020		2019		2018

	(in millions)
Restructuring charges, net	$	257	$	255	$	140
Gain on divestiture		—		—		(2)
Other credits, net		—		—		(12)
Restructuring and other charges, net	$	257	$	255	$	126

Net restructuring charges by segment were as follows:


	Fiscal
	2020		2019		2018

	(in millions)
Transportation Solutions	$	113	$	144	$	42
Industrial Solutions		102		63		83
Communications Solutions		42		48		15
Restructuring charges, net	$	257	$	255	$	140

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Activity in our restructuring reserves was as follows:


	Balance at												Balance at
	Beginning										Currency		End
	of Fiscal				Changes in		Cash		Non-Cash		Translation		of Fiscal
	Year		Charges		Estimate		Payments		Items		and Other		Year

	(in millions)
Fiscal 2020 Activity:
Fiscal 2020 Actions:
Employee severance	$	—	$	214	$	—	$	(35)	$	—	$	1	$	180
Facility and other exit costs		—		8		—		—		—		—		8
Property, plant, and equipment		—		28		—		—		(28)		—		—
Total		—		250		—		(35)		(28)		1		188
Fiscal 2019 Actions:
Employee severance		188		7		(20)		(107)		—		4		72
Facility and other exit costs		1		11		—		(11)		—		1		2
Property, plant, and equipment		—		7		—		—		(7)		—		—
Total		189		25		(20)		(118)		(7)		5		74
Fiscal 2018 Actions:
Employee severance		52		—		—		(32)		—		—		20
Facility and other exit costs		1		2		—		(3)		—		1		1
Property, plant, and equipment		—		2		—		—		(2)		—		—
Total		53		4		—		(35)		(2)		1		21
Pre-Fiscal 2018 Actions:
Employee severance		21		—		(6)		(14)		—		—		1
Facility and other exit costs		1		4		—		(4)		—		—		1
Total		22		4		(6)		(18)		—		—		2
Total fiscal 2020 activity	$	264	$	283	$	(26)	$	(206)	$	(37)	$	7	$	285
Fiscal 2019 Activity:
Fiscal 2019 Actions:
Employee severance	$	—	$	252	$	(3)	$	(55)	$	(3)	$	(3)	$	188
Facility and other exit costs		—		2		—		(1)		—		—		1
Property, plant, and equipment		—		3		—		—		(3)		—		—
Total		—		257		(3)		(56)		(6)		(3)		189
Fiscal 2018 Actions:
Employee severance		114		3		(5)		(57)		—		(3)		52
Facility and other exit costs		4		4		(2)		(5)		—		—		1
Property, plant, and equipment		—		2		(2)		—		—		—		—
Total		118		9		(9)		(62)		—		(3)		53
Pre-Fiscal 2018 Actions:
Employee severance		49		6		(7)		(25)		—		(2)		21
Facility and other exit costs		—		4		—		(3)		—		—		1
Property, plant, and equipment		—		1		(3)		—		2		—		—
Total		49		11		(10)		(28)		2		(2)		22
Total fiscal 2019 activity	$	167	$	277	$	(22)	$	(146)	$	(4)	$	(8)	$	264
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
Pre-Fiscal 2018 Actions:
Employee severance		137		12		(19)		(79)		—		(2)		49
Facility and other exit costs		1		8		—		(8)		—		(1)		—
Property, plant, and equipment		—		2		(5)		5		(2)		—		—
Total		138		22		(24)		(82)		(2)		(3)		49
Total fiscal 2018 activity	$	138	$	164	$	(24)	$	(100)	$	(8)	$	(3)	$	167

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fiscal 2020 Actions

During fiscal 2020, we initiated a restructuring program associated with footprint consolidation and structural improvements, due in part to the COVID-19 pandemic, across all segments. In connection with this program, during fiscal 2020, we recorded restructuring charges of $250 million. We expect to complete all restructuring actions commenced during fiscal 2020 by the end of fiscal 2022 and to incur additional charges of approximately $45 million related to all three classes of costs.

The following table summarizes expected, incurred, and remaining charges for the fiscal 2020 program by segment:


	Total		Cumulative		Remaining
	Expected		Charges		Expected
	Charges		Incurred		Charges

	(in millions)
Transportation Solutions	$	140	$	115	$	25
Industrial Solutions		114		99		15
Communications Solutions		41		36		5
Total	$	295	$	250	$	45

Fiscal 2019 Actions

During fiscal 2019, we initiated a restructuring program associated with footprint consolidation and structural improvements impacting all segments. In connection with this program, during fiscal 2020 and 2019, we recorded net restructuring charges of $5 million and $254 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2019 by the end of fiscal 2021. We anticipate that any additional charges will be insignificant for restructuring actions commenced during fiscal 2019.

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 2020 and 2018, we recorded net restructuring charges of $4 million and $142 million, respectively. We anticipate that any additional charges will be insignificant for restructuring actions commenced during fiscal 2018.

Pre-Fiscal 2018 Actions

During fiscal 2020, 2019, and 2018, we recorded net restructuring credits of $2 million, charges of $1 million, and credits of $2 million, respectively, related to pre-fiscal 2018 actions. We anticipate that any additional charges will be insignificant for restructuring actions commenced prior to fiscal 2018.

Total Restructuring Reserves

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


	Fiscal Year End
	2020		2019

	(in millions)
Accrued and other current liabilities	$	229	$	245
Other liabilities		56		19
Restructuring reserves	$	285	$	264

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. Discontinued Operations

In fiscal 2019, we sold our Subsea Communications (“SubCom”) business for net cash proceeds of $297 million and incurred a pre-tax loss on sale of $86 million, related primarily to the recognition of cumulative translation adjustment losses of $67 million and the guarantee liabilities discussed below. The sale of the SubCom business, which was previously included in our Communications Solutions segment, represented our exit from the telecommunications market and was significant to our sales and profitability, both to the Communications Solutions segment and to the consolidated company. We concluded that the divestiture was a strategic shift that had 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 has been reported as such in all periods presented on our Consolidated Financial Statements.

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 was 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.

In connection with the sale, we contractually agreed to continue to honor performance guarantees and letters of credit related to the SubCom business’ projects that existed as of the date of sale. These guarantees had a combined value of approximately $600 million as of fiscal year end 2020 and are expected to expire at various dates through fiscal 2025. At the time of sale, we determined that the fair value of these guarantees was $12 million, which we recognized by a charge to pre-tax loss on sale. 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. At fiscal year end 2020, there were no such new performance guarantees outstanding. We have contractual recourse against the SubCom business if we are required to perform on any SubCom guarantees; however, based on historical experience, we do not anticipate having to perform.

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
	2020		2019		2018

	(in millions)
Net sales	$	—	$	41	$	702
Cost of sales		—		50		602
Gross margin		—		(9)		100
Selling, general, and administrative expenses		1		11		48
Research, development, and engineering expenses		—		3		39
Restructuring and other charges, net		—		3		30	(1)
Operating loss		(1)		(26)		(17)
Non-operating expense, net		(1)		—		—
Pre-tax loss from discontinued operations		(2)		(26)		(17)
Pre-tax gain (loss) on sale of discontinued operations		4		(86)		(2)
Income tax benefit		16		10		—
Income (loss) from discontinued operations, net of income taxes	$	18	$	(102)	$	(19)

(1)	Included a $19 million impairment charge recorded in connection with the sale of our SubCom business.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Acquisitions

First Sensor AG

During fiscal 2020, we acquired approximately 72% of the outstanding shares of First Sensor AG (“First Sensor”), a provider of sensing solutions based in Germany, for €181 million in cash (equivalent to $201 million using an exchange rate of $1.11 per €1.00), net of cash acquired. As a result of the transaction, we recognized a noncontrolling interest with a fair value of €96 million (equivalent to $107 million) as of the acquisition date. The fair value of the noncontrolling interest for First Sensor common shares that were not acquired was determined using the stated price in the Domination and Profit and Loss Transfer Agreement (“DPLTA”) which is considered to be a level 2 observable input under the fair value hierarchy. The First Sensor business has been reported as part of our Transportation Solutions segment from the date of acquisition.

We and First Sensor entered into a DPLTA which was approved by First Sensor shareholders and became effective in July 2020 following registration in the commercial register in Germany. Under the terms of the DPLTA, upon its effectiveness, First Sensor minority shareholders can elect either (1) to remain First Sensor minority shareholders and receive recurring annual compensation of €0.56 per First Sensor share or (2) to put their First Sensor shares in exchange for compensation of €33.27 per First Sensor share. The ultimate amount and timing of any future cash payments related to the DPLTA is uncertain. Following the registration of the DPLTA, the First Sensor noncontrolling interest balance of €96 million (equivalent to $108 million using an exchange rate of $1.13 per €1.00) was reclassified and is now presented as redeemable noncontrolling interest outside of equity on the Consolidated Balance Sheet as the exercise of the put right by First Sensor minority shareholders is not within our control.

Other Acquisitions

During fiscal 2020, we acquired four additional businesses for a combined cash purchase price of $135 million, net of cash acquired. The acquisitions were reported as part of our Transportation Solutions and Industrial Solutions segments from the date of acquisition.

During fiscal 2019, we acquired three businesses for a combined cash purchase price of $296 million, net of cash acquired. The acquisitions were reported as part of our Transportation Solutions segment from the date of acquisition.

We acquired two businesses during fiscal 2018 for a combined cash purchase price of $153 million, net of cash acquired. In fiscal 2019, we received $13 million as a result of a customary net working capital settlement for one of the acquisitions. The acquisitions were reported as part of our Industrial Solutions segment from the date of acquisition.

6. Inventories

Inventories consisted of the following:


	Fiscal Year End
	2020		2019

	(in millions)
Raw materials	$	251	$	260
Work in progress		851		739
Finished goods		848		837
Inventories	$	1,950	$	1,836

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. Property, Plant, and Equipment, Net

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


	Fiscal Year End
	2020		2019

	(in millions)
Property, plant, and equipment, gross:
Land and improvements	$	147	$	152
Buildings and improvements		1,442		1,393
Machinery and equipment		7,849		7,298
Construction in process		516		637
		9,954		9,480
Accumulated depreciation		(6,304)		(5,906)
Property, plant, and equipment, net	$	3,650	$	3,574

Depreciation expense was $529 million, $510 million, and $487 million in fiscal 2020, 2019, and 2018, respectively.

8. Goodwill

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


	Transportation		Industrial		Communications
	Solutions		Solutions		Solutions		Total

	(in millions)
Balance at fiscal year end 2018(1)	$	1,993	$	3,104	$	587	$	5,684
Acquisitions		167		—		—		167
Purchase price adjustments		—		(12)		—		(12)
Currency translation		(36)		(53)		(10)		(99)
Balance at fiscal year end 2019(1)		2,124		3,039		577		5,740
Impairment of goodwill		(900)		—		—		(900)
Acquisitions		276		18		—		294
Purchase price adjustments		(1)		—		—		(1)
Currency translation		28		53		10		91
Balance at fiscal year end 2020(2)	$	1,527	$	3,110	$	587	$	5,224

(1)	At fiscal year end 2019 and 2018, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $2,191 million, $669 million, and $489 million, respectively.

(2)	At fiscal year end 2020, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $3,091 million, $669 million, and $489 million, respectively.

During fiscal 2020, we completed the acquisition of First Sensor and recognized goodwill of $215 million in the Transportation Solutions segment. Further adjustments to the purchase price allocation may be needed in fiscal 2021. In addition, during fiscal 2020 and 2019, we recognized goodwill in connection with other recent acquisitions. See Note 5 for additional information regarding acquisitions.

We test goodwill allocated to reporting units for impairment annually during the fourth fiscal quarter, or more frequently if events occur or circumstances exist that indicate that a reporting unit’s carrying value may exceed its fair value. As a result of current and projected declines in sales and profitability, due in part to the impact of the COVID-19 pandemic and projected reductions in global automotive production as of March 2020, of the Sensors reporting unit of the Transportation Solutions segment during the quarter ended March 27, 2020, we determined that an indicator of impairment had occurred and goodwill impairment testing of this reporting unit was required.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As discussed in Note 2, during the quarter ended March 27, 2020, we adopted ASU No. 2017-04 which simplifies the subsequent measurement of goodwill by eliminating step 2 of the goodwill impairment test. Under the new standard, goodwill impairment is measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. We determined the fair value of the Sensors reporting unit to be $1.0 billion as of March 27, 2020. This valuation was based on a discounted cash flows analysis incorporating our estimate of future operating performance, which we consider to be a level 3 unobservable input in the fair value hierarchy, and was corroborated using a market approach valuation. The goodwill impairment test indicated that the carrying value of the reporting unit exceeded its fair value by $900 million. As a result, we recorded a partial impairment charge of $900 million in the quarter ended March 27, 2020. As of fiscal year end 2020, the Sensors reporting unit had a remaining goodwill allocation of $511 million.

We completed our annual goodwill impairment test in the fourth quarter of fiscal 2020 and determined that no impairment existed.

9. Intangible Assets, Net

Intangible assets consisted of the following:


	Fiscal Year End
	2020						2019
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount

	(in millions)
Customer relationships	$	1,648	$	(554)	$	1,094	$	1,513	$	(459)	$	1,054
Intellectual property		1,225		(739)		486		1,260		(734)		526
Other		19		(6)		13		33		(17)		16
Total	$	2,892	$	(1,299)	$	1,593	$	2,806	$	(1,210)	$	1,596

Intangible asset amortization expense was $182 million, $180 million, and $180 million for fiscal 2020, 2019, and 2018, respectively. At fiscal year end 2020, the aggregate amortization expense on intangible assets is expected to be as follows:


	(in millions)
Fiscal 2021	$	190
Fiscal 2022		190
Fiscal 2023		189
Fiscal 2024		158
Fiscal 2025		141
Thereafter		725
Total	$	1,593

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following:


	Fiscal Year End
	2020		2019

	(in millions)
Accrued payroll and employee benefits	$	460	$	455
Dividends payable to shareholders		317		308
Restructuring reserves		229		245
Lease liability		116		—
Income taxes payable		113		94
Deferred revenue		47		36
Interest payable		30		31
Other		408		444
Accrued and other current liabilities	$	1,720	$	1,613

11. Debt

Debt was as follows:


	Fiscal Year End
	2020		2019

	(in millions)
Principal debt:
Commercial paper, at a weighted-average interest rate of 2.20% at fiscal year end 2019	$	—	$	219
Floating rate senior notes due 2020(1)		—		350
4.875% senior notes due 2021		250		250
Euro-denominated fixed-to-floating rate senior notes due 2021(2)		407		383
3.50% senior notes due 2022		500		500
1.10% euro-denominated senior notes due 2023		639		602
3.45% senior notes due 2024		350		350
0.00% euro-denominated senior notes due 2025		639		—
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		149		94
		4,161		3,975
Unamortized discounts, premiums, and debt issuance costs, net		(23)		(19)
Effects of fair value hedge-designated interest rate swap contracts		8		9
Total debt	$	4,146	$	3,965

	(1)	The floating rate senior notes due 2020 bore interest at a rate of three-month London Interbank Offered Rate (“LIBOR”) plus 0.45% per year.

	(2)	The euro-denominated fixed-to-floating rate senior notes due 2021 bore interest at a rate of 0% until June 2020 and then bear interest at a rate of three-month Euro Interbank Offered Rate (“EURIBOR”) plus 0.30%, with the minimum interest rate of 0%, per year until maturity.

During fiscal 2020, Tyco Electronics Group S.A. (“TEGSA”), our wholly-owned subsidiary, issued €550 million aggregate principal amount of 0.00% senior notes due in February 2025. The notes are TEGSA’s unsecured senior

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

obligations and rank equally in right of payment with all existing and any future senior indebtedness of TEGSA and senior to any subordinated indebtedness that TEGSA may incur.

TEGSA has a five-year unsecured senior revolving credit facility (“Credit Facility”) with a maturity date of November 2023 and total commitments of $1.5 billion. The Credit Facility contains provisions that allow for incremental commitments of up to $500 million, an option to temporarily increase the financial ratio covenant following a qualified acquisition, and borrowings in designated currencies. TEGSA had no borrowings under the Credit Facility at fiscal year end 2020 or 2019.

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 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 on an unsecured basis by its parent, TE Connectivity Ltd.

At fiscal year end 2020, principal payments required for debt are as follows:


	(in millions)
Fiscal 2021	$	693
Fiscal 2022		506
Fiscal 2023		641
Fiscal 2024		352
Fiscal 2025		641
Thereafter		1,328
Total	$	4,161

The fair value of our debt, based on indicative valuations, was approximately $4,550 million and $4,278 million at fiscal year end 2020 and 2019, respectively.

12. Leases

The components of lease cost were as follows:


	Fiscal
	2020
	(in millions)
Operating lease cost	$	108
Variable lease cost		49
Total lease cost	$	157

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Amounts recognized on the Consolidated Balance Sheet were as follows:


	Fiscal Year End
	2020
	($ in millions)
Operating lease ROU assets:
Other assets	$	453
Operating lease liabilities:
Accrued and other current liabilities	$	116
Other liabilities		347
Total operating lease liabilities	$	463

Weighted-average remaining lease term (in years)		5.8
Weighted-average discount rate		1.6	%

Cash flow information, including significant non-cash transactions, related to leases was as follows:


	Fiscal
	2020
	(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Payments for operating leases(1)	$	108

ROU assets obtained in exchange for new operating lease liabilities		28

	(1)	These payments are included in cash flows from continuing operating activities, primarily in changes in other liabilities.

At fiscal year end 2020, the maturities of operating lease liabilities were as follows:


	(in millions)
Fiscal 2021	$	116
Fiscal 2022		98
Fiscal 2023		75
Fiscal 2024		60
Fiscal 2025		49
Thereafter		87
Total lease payments		485
Less: interest		(22)
Present value of lease liabilities	$	463

ASC 840 Comparative Disclosures

Prior to fiscal 2020, we accounted for our leases in accordance with ASC 840, Leases. Under ASC 840, rental expense for operating leases was $162 million and $141 million for fiscal 2019 and 2018, respectively.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table presents the future minimum lease payments under non-cancelable operating lease obligations as of September 27, 2019 under ASC 840:


	(in millions)
Fiscal 2020	$	117
Fiscal 2021		102
Fiscal 2022		81
Fiscal 2023		67
Fiscal 2024		55
Thereafter		118
Total	$	540

13. 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 2020, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $16 million to $45 million, and we accrued $20 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.

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 2020, we had outstanding letters of credit, letters of guarantee, and surety bonds of $249 million.

We sold our SubCom business during fiscal 2019. In connection with the sale, we contractually agreed to honor certain performance guarantees and letters of credit related to the SubCom business. See Note 4 for additional information regarding these guarantees and the divestiture of the SubCom business.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

14. 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.

Foreign Currency Exchange Rate Risk

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 to reduce our exposure to foreign currency exchange rate risk associated with certain intercompany loans. The aggregate notional value of these contracts was €700 million and €1,000 million at fiscal year end 2020 and 2019, respectively. Certain contracts were terminated during fiscal 2020; the remaining contracts mature in fiscal 2022. Under the terms of these contracts, which have been designated as cash flow hedges, we make interest payments in euros at 3.50% per annum and receive interest in U.S. dollars at a weighted-average rate of 5.34% per annum. Upon maturity, 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, both counterparties to each contract are required to provide cash collateral.

These cross-currency swap contracts were recorded on the Consolidated Balance Sheets as follows:


	Fiscal Year End
	2020		2019

	(in millions)
Other assets	$	1	$	19
Other liabilities		9		—

At fiscal year end 2020 and 2019, collateral received from or paid to our counterparties approximated the net derivative position. Collateral is recorded in accrued and other current liabilities when the contracts are in a net asset position, or prepaid expenses and other current assets when the contracts are in a net liability position on the Consolidated Balance Sheets. The impacts of these cross-currency swap contracts were as follows:


	Fiscal
	2020		2019		2018

	(in millions)
Gains (losses) recorded in other comprehensive income (loss)	$	28	$	53	$	(25)
Gains (losses) excluded from the hedging relationship(1)		(48)		66		21

(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.

Hedge of Net Investment

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 $3,511 million and $3,374 million at fiscal year end 2020 and 2019, respectively.

We also use a cross-currency swap program to hedge our net investment in certain foreign operations. The aggregate notional value of the contracts under this program was $1,664 million and $1,844 million at fiscal year end 2020 and 2019, respectively. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 2.4% per annum and pay no interest. Upon the maturity of these contracts at various dates through fiscal 2024, we will pay the notional

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

value of the contracts in the designated foreign currency and receive U.S. dollars from our counterparties. We are not required to provide collateral for these contracts.

These cross-currency swap contracts were recorded on the Consolidated Balance Sheets as follows:


	Fiscal Year End
	2020		2019

	(in millions)
Prepaid expenses and other current assets	$	1	$	27
Other assets		3		46
Accrued and other current liabilities		6		2
Other liabilities		16		1

The impacts of our hedge of net investment programs were as follows:


	Fiscal
	2020		2019		2018

	(in millions)
Foreign currency exchange gains (losses) on intercompany loans and external borrowings(1)	$	(172)	$	162	$	36
Gains (losses) on cross-currency swap contracts designated as hedges of net investment(1)		(69)		74		—

(1)	Recorded as currency translation, a component of accumulated other comprehensive income (loss).

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. During fiscal 2020 and 2019, we entered into forward starting interest rate swap contracts which had an aggregate notional value of $450 million and $350 million at fiscal year end 2020 and 2019, respectively, and were designated as cash flow hedges. These forward starting interest rate swap contracts were recorded on the Consolidated Balance Sheets as follows:


	Fiscal Year End
	2020		2019

	(in millions)
Other liabilities	$	64	$	34

The impacts of these forward starting interest rate swap contracts were as follows:


	Fiscal
	2020		2019		2018

	(in millions)
Losses recorded in other comprehensive income (loss)	$	(30)	$	(34)	$	—

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)

At fiscal year end 2020 and 2019, our commodity hedges had notional values of $312 million and $316 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 marketable securities and derivative instruments not discussed above, were immaterial at fiscal year end 2020 and 2019.

15. Retirement Plans

Defined Benefit Pension Plans

We have several 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 (credit) for all non-U.S. and U.S. defined benefit pension plans was as follows:


	Non-U.S. Plans									U.S. Plans
	Fiscal									Fiscal
	2020			2019			2018			2020			2019			2018

	($ in millions)
Operating expense:
Service cost	$	52		$	47		$	46		$	10		$	13		$	14
Other (income) expense:
Interest cost		25			42			42			36			46			43
Expected return on plan assets		(61)			(64)			(69)			(59)			(58)			(59)
Amortization of net actuarial loss		41			24			24			9			17			22
Amortization of prior service credit and other		(6)			(8)			(6)			—			—			—
Net periodic pension benefit cost (credit)	$	51		$	41		$	37		$	(4)		$	18		$	20
Weighted-average assumptions used to determine net pension benefit cost (credit) during the fiscal year:
Discount rate		1.01	%		1.94	%		1.87	%		3.14	%		4.35	%		3.77	%
Expected return on plan assets		4.07	%		4.65	%		4.92	%		6.50	%		6.57	%		6.45	%
Rate of compensation increase		2.53	%		2.57	%		2.53	%		—	%		—	%		—	%

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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
	2020			2019			2020			2019

	($ in millions)
Change in benefit obligation:
Benefit obligation at beginning of fiscal year	$	2,483		$	2,220		$	1,195		$	1,093
Service cost		52			47			10			13
Interest cost		25			42			36			46
Actuarial (gains) losses		(44)			347			65			125
Benefits and administrative expenses paid		(88)			(82)			(87)			(82)
Currency translation		111			(92)			—			—
Other		(20)			1			—			—
Benefit obligation at end of fiscal year		2,519			2,483			1,219			1,195

Change in plan assets:
Fair value of plan assets at beginning of fiscal year		1,489			1,390			937			917
Actual return on plan assets		39			186			114			100
Employer contributions		43			43			4			2
Benefits and administrative expenses paid		(88)			(82)			(87)			(82)
Currency translation		52			(42)			—			—
Other		2			(6)			—			—
Fair value of plan assets at end of fiscal year		1,537			1,489			968			937
Funded status	$	(982)		$	(994)		$	(251)		$	(258)

Amounts recognized on the Consolidated Balance Sheets:
Other assets	$	120		$	128		$	—		$	—
Accrued and other current liabilities		(28)			(25)			(5)			(5)
Long-term pension and postretirement liabilities		(1,074)			(1,097)			(246)			(253)
Net amount recognized	$	(982)		$	(994)		$	(251)		$	(258)

Pre-tax amounts included in accumulated other comprehensive income (loss) which have not yet been recognized in net periodic pension benefit cost:
Net actuarial loss	$	(597)		$	(656)		$	(291)		$	(290)
Prior service (cost) credit		37			43			(2)			(2)
Total	$	(560)		$	(613)		$	(293)		$	(292)

Weighted-average assumptions used to determine pension benefit obligation at fiscal year end:
Discount rate		1.13	%		1.01	%		2.57	%		3.14	%
Rate of compensation increase		2.50	%		2.53	%		—	%		—	%

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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
	2020		2019		2020		2019

	(in millions)
Current year net actuarial gain (loss) recorded in accumulated other comprehensive income (loss)	$	18	$	(204)	$	(10)	$	(83)
Amortization of net actuarial loss		41		24		9		17
Current year prior service cost recorded in accumulated other comprehensive income (loss)		—		(8)		—		—
Amortization of prior service credit		(6)		(7)		—		—
	$	53	$	(195)	$	(1)	$	(66)

In fiscal 2020, unrecognized actuarial gains recorded in accumulated other comprehensive income (loss) were primarily the result of favorable asset performance for our U.S. defined benefit pension plans, partially offset by lower U.S. discount rates and unfavorable asset performance for our non-U.S. defined benefit pension plans as compared to fiscal 2019. In fiscal 2019, unrecognized actuarial losses recorded in accumulated other comprehensive income (loss) were primarily the result of lower discount rates, partially offset by favorable asset performance for both non-U.S. and U.S. defined benefit pension plans as compared to fiscal 2018.

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 2021 is expected to be $31 million and $9 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 2021 is expected to be $6 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 2020, the long-term target asset allocation in our U.S. plans’ master trust is 5% return-seeking assets and 95% 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. 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 115%. Based on the funded status of the plans as of fiscal year end 2020, our target asset allocation is 67% return-seeking and 33% liability-hedging.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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
			Fiscal		Fiscal				Fiscal		Fiscal
			Year End		Year End				Year End		Year End
	Target		2020		2019		Target		2020		2019
Asset category:
Equity securities	27	%	25	%	26	%	67	%	45	%	41	%
Fixed income	54		55		53		33		55		59
Other	19		20		21		—		—		—
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 $45 million and $24 million to our non-U.S. and U.S. pension plans, respectively, in fiscal 2021. We may also make voluntary contributions at our discretion.

At fiscal year end 2020, 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 2021	$	117	$	78
Fiscal 2022		85		74
Fiscal 2023		90		74
Fiscal 2024		86		74
Fiscal 2025		91		74
Fiscal 2026-2030		516		354

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
	2020		2019		2020		2019

	(in millions)
Accumulated benefit obligation	$	2,394	$	2,340	$	1,219	$	1,195
Pension plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation		1,324		1,304		1,219		1,195
Fair value of plan assets		338		316		968		937
Pension plans with projected benefit obligations in excess of plan assets:
Projected benefit obligation		1,458		1,453		1,219		1,195
Fair value of plan assets		356		331		968		937

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 2020
	Non-U.S. Plans								U.S. Plans
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

	(in millions)
Equity:
Commingled equity funds(1)	$	—	$	357	$	—	$	357	$	—	$	447	$	—	$	447
Fixed income:
Government bonds(2)		—		347		—		347		—		—		—		—
Corporate bonds(3)		—		146		—		146		—		—		—		—
Commingled bond funds(4)		—		366		—		366		—		494		—		494
Other(5)		—		167		141		308		—		26		—		26
Subtotal	$	—	$	1,383	$	141		1,524	$	—	$	967	$	—		967
Items to reconcile to fair value of plan assets(6)								13								1
Fair value of plan assets							$	1,537							$	968


	Fiscal Year End 2019
	Non-U.S. Plans								U.S. Plans
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

	(in millions)
Equity:
Commingled equity funds(1)	$	—	$	339	$	—	$	339	$	—	$	385	$	—	$	385
Fixed income:
Government bonds(2)		—		315		—		315		—		—		—		—
Corporate bonds(3)		—		137		—		137		—		—		—		—
Commingled bond funds(4)		—		359		—		359		—		540		—		540
Other(5)		—		162		157		319		—		11		—		11
Subtotal	$	—	$	1,312	$	157		1,469	$	—	$	936	$	—		936
Items to reconcile to fair value of plan assets(6)								20								1
Fair value of plan assets							$	1,489							$	937

(1)	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.

(2)	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.

(3)	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.

(4)	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.

(5)

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).

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(6)	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.

Changes in Level 3 assets in non-U.S. plans were primarily the result of net investment losses in fiscal 2020 and purchases in 2019.

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 $60 million, $63 million, and $62 million for fiscal 2020, 2019, and 2018, 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 several funds in our 401(k) plans and the account balance fluctuates with the investment returns on those funds. At fiscal year end 2020 and 2019, total deferred compensation liabilities were $218 million and $203 million, respectively, and were recorded in other liabilities on the Consolidated Balance Sheets. See Note 14 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 or lifetime, as applicable. The accumulated postretirement benefit obligation was $17 million and $18 million at fiscal year end 2020 and 2019, 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 2020, 2019, and 2018 was not significant.

16. Income Taxes

Income Tax Expense (Benefit)

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


	Fiscal
	2020		2019		2018

	(in millions)
Current income tax expense (benefit):
U.S. Federal	$	9	$	(28)	$	20
U.S. State		(23)		2		21
Non-U.S.		262		229		406
		248		203		447
Deferred income tax expense (benefit):
U.S. Federal		(16)		(25)		499
U.S. State		(10)		(8)		(30)
Non-U.S.		561		(185)		(1,260)
		535		(218)		(791)
Income tax expense (benefit)	$	783	$	(15)	$	(344)

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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


	Fiscal
	2020		2019		2018

	(in millions)
U.S.	$	(1,053)	$	(216)	$	(245)
Non-U.S.		1,577		2,147		2,485
Income from continuing operations before income taxes	$	524	$	1,931	$	2,240

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


	Fiscal
	2020		2019		2018

	(in millions)
Notional U.S. federal income tax expense at the statutory rate(1)	$	110	$	406	$	551
Adjustments to reconcile to the income tax expense (benefit):
U.S. state income tax benefit, net		(26)		(5)		(7)
Tax law changes		349		15		638
Tax credits		(13)		(22)		(8)
Non-U.S. net earnings(2)		(88)		(166)		(213)
Change in accrued income tax liabilities		30		(61)		13
Valuation allowance		231		(163)		33
Divestitures and goodwill impairments		185		—		—
Legal entity restructuring and intercompany transactions		—		3		(1,329)
Excess tax benefits from share-based payments		(6)		(8)		(24)
Other		11		(14)		2
Income tax expense (benefit)	$	783	$	(15)	$	(344)

	(1)	The U.S. federal statutory rate was 21% for fiscal 2020 and 2019 and 24.58% for fiscal 2018.

	(2)	Excludes items which are separately presented.

The income tax expense for fiscal 2020 included $355 million of income tax expense related to the tax impacts of certain measures of the Switzerland Federal Act on Tax Reform and AHV Financing (“Swiss Tax Reform”) and an income tax benefit of $31 million related to pre-separation tax matters and the termination of the Tax Sharing Agreement. See “Swiss Tax Reform” and “Tax Sharing Agreement” below for additional information. In addition, the income tax expense for fiscal 2020 included $226 million of income tax expense related to increases to the valuation allowance for certain deferred tax assets, related primarily to the COVID-19 pandemic. As a result of the pandemic and its negative impact on our current and expected future operating profit and taxable income, we believed it was more likely than not that a portion of our deferred tax assets will not be realized. Depending on the duration and severity of COVID-19 disruptions to our business, additional adjustments to our valuation allowance may be required in future periods. The pre-tax goodwill impairment charge of $900 million recorded during fiscal 2020 resulted in a tax benefit of $4 million as the associated goodwill was primarily not deductible for income tax purposes. See Note 8 for additional information regarding the impairment of goodwill.

The income tax benefit for fiscal 2019 included a $216 million income tax benefit related to the tax impacts of certain measures of Swiss Tax Reform, a $90 million income tax benefit related to the effective settlement of a tax audit in a non-U.S. jurisdiction, and $15 million of income tax expense associated with the tax impacts of certain legal entity restructurings and intercompany transactions. See “Swiss Tax Reform” below for additional information regarding Swiss Tax Reform.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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
	2020		2019

	(in millions)
Deferred tax assets:
Accrued liabilities and reserves	$	248	$	245
Tax loss and credit carryforwards		5,338		6,041
Inventories		45		43
Intangible assets		572		964
Pension and postretirement benefits		223		248
Deferred revenue		4		4
Interest		180		134
Unrecognized income tax benefits		3		7
Lease liabilities		106		—
Other		11		8
Gross deferred tax assets		6,730		7,694
Valuation allowance		(4,429)		(4,970)
Deferred tax assets, net of valuation allowance		2,301		2,724

Deferred tax liabilities:
Property, plant, and equipment		(108)		(57)
Lease ROU assets		(93)		—
Other		(65)		(47)
Total deferred tax liabilities		(266)		(104)

Net deferred tax assets	$	2,035	$	2,620

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our tax loss and credit carryforwards (tax effected) at fiscal year end 2020 were as follows:


	Expiration Period
			Fiscal 2026
	Through		Through		No
	Fiscal 2025		Fiscal 2040		Expiration		Total

	(in millions)
U.S. Federal:
Net operating loss carryforwards	$	155	$	386	$	42	$	583
Tax credit carryforwards		53		122		—		175
Capital loss carryforwards		1		—		—		1
U.S. State:
Net operating loss carryforwards		65		35		—		100
Tax credit carryforwards		9		8		7		24
Non-U.S.:
Net operating loss carryforwards		177		2,575		1,668		4,420
Tax credit carryforwards		—		1		1		2
Capital loss carryforwards		—		3		30		33
Total tax loss and credit carryforwards	$	460	$	3,130	$	1,748	$	5,338

The valuation allowance for deferred tax assets of $4,429 million and $4,970 million at fiscal year end 2020 and 2019, 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 2020, tax loss and credit carryforwards decreased primarily as a result of a $818 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 2020, certain subsidiaries had approximately $29 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 2020, we had approximately $5.3 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 $0.8 billion of tax expense would be recognized on the Consolidated Financial 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 2020, we had total unrecognized income tax benefits of $414 million. If recognized in future years, $393 million of these currently unrecognized income tax benefits would reduce income tax expense and the effective tax rate. As of fiscal year end 2019, we had total unrecognized income tax benefits of $542 million. If recognized in future

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

years, $397 million of these currently unrecognized income tax benefits would reduce income tax expense and the effective tax rate. The following table summarizes the activity related to unrecognized income tax benefits:


	Fiscal
	2020		2019		2018

	(in millions)
Balance at beginning of fiscal year	$	542	$	566	$	501
Additions related to prior years tax positions		29		13		14
Reductions related to prior years tax positions		(87)		(101)		(11)
Additions related to current year tax positions		39		98		105
Settlements		(12)		(2)		(7)
Reductions due to lapse of applicable statute of limitations		(97)		(32)		(36)
Balance at end of fiscal year	$	414	$	542	$	566

We record accrued interest and penalties related to uncertain tax positions as part of income tax expense (benefit). As of fiscal year end 2020 and 2019, we had $42 million of accrued interest and penalties related to uncertain tax positions on the Consolidated Balance Sheets, recorded primarily in income taxes. During fiscal 2020, 2019, and 2018, we recognized income tax benefits of $1 million, benefits of $14 million, and expense of $5 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.

As of fiscal year end 2020, under applicable statutes, the following tax years remained subject to examination in the major tax jurisdictions indicated:


Jurisdiction		Open Years
Brazil		2015 through 2020
China		2010 through 2020
Czech Republic		2017 through 2020
France		2017 through 2020
Germany		2013 through 2020
Hong Kong		2014 through 2020
Ireland		2015 through 2020
Italy		2015 through 2020
Japan		2014 through 2020
Luxembourg		2015 through 2020
Mexico		2015 through 2020
Singapore		2015 through 2020
South Korea		2015 through 2020
Spain		2016 through 2020
Switzerland		2015 through 2020
Thailand		2018 through 2020
United Kingdom		2018 through 2020
U.S.—federal		2017 through 2020

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.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the Consolidated Balance Sheet as of fiscal year end 2020.

Other Income Tax Matters

Swiss Tax Reform

Swiss Parliament approved the Federal Act on Tax Reform and AHV Financing in September 2018, and it was approved by public vote on May 19, 2019. Swiss Tax Reform eliminates certain preferential tax items and implements new tax rates at both the federal and cantonal levels.

On May 24, 2019, the federal tax authority issued guidance abolishing certain interest deductions effective January 1, 2020. As a result, during fiscal 2019, we recorded a $216 million income tax benefit related primarily to the reduction to the valuation allowance for deferred tax assets. Based on our forecast of taxable income and the abolishment of certain interest deductions, we believed it was more likely than not that additional deferred tax assets for tax loss carryforwards in Switzerland would be realized in the future. The federal provisions of Swiss Tax Reform were enacted into law in the quarter ended September 27, 2019.

In October 2019, the canton of Schaffhausen enacted Swiss Tax Reform into law, including reductions in tax rates. During fiscal 2020, we recognized $355 million of income tax expense related primarily to cantonal implementation and the resulting write-down of certain deferred tax assets to the lower tax rates.

Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act, which was enacted in December 2017, included numerous significant changes to existing tax law, including a permanent reduction in the U.S. federal corporate income tax rate to 21%, effective January 1, 2018; 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. In the period of enactment, we revalued our U.S. federal deferred tax assets and liabilities at the 21% tax rate and 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 tax benefit of $34 million related to the reduction in the existing valuation allowance recorded against certain U.S. federal tax credit carryforwards.

Tax Sharing Agreement

Upon our separation from Tyco International plc in fiscal 2007, we entered into a Tax Sharing Agreement with Tyco International plc (now part of Johnson Controls International plc) and Covidien plc (now part of Medtronic plc) under which we shared certain income tax liabilities for periods prior to and including June 29, 2007. Pursuant to the Tax Sharing Agreement, we entered into certain guarantee commitments and indemnifications.

In fiscal 2020, we, Johnson Controls International plc, and Medtronic plc entered into an agreement to terminate the Tax Sharing Agreement. We believe that substantially all income tax matters that may be subject to the Tax Sharing Agreement have been settled with tax authorities and we do not expect any remaining tax matters to have a material effect on our results of operations, financial position, or cash flows. Accordingly, during fiscal 2020, we recognized an income tax benefit of $31 million and net other income of $8 million representing settlement of the remaining shared pre-separation income tax matters and indemnification balances.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

17. Earnings (Loss) Per Share

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


	Fiscal
	2020	2019	2018

	(in millions)
Basic	332	338	350
Dilutive impact of share-based compensation arrangements	—	2	3
Diluted	332	340	353

For fiscal 2020, there were two million nonvested share awards and options outstanding with underlying exercise prices less than the average market prices of our common shares; however, these were excluded from the calculation of diluted loss per share as inclusion would be antidilutive as a result of our loss during the period.

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


	Fiscal
	2020	2019	2018

	(in millions)
Antidilutive share options	3	1	1

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 2020, our shareholders reapproved and extended through March 11, 2022, 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.

Common Shares Held in Treasury

At fiscal year end 2020, approximately 8 million common shares were held in treasury, of which 5 million were owned by one of our subsidiaries. At fiscal year end 2019, approximately 16 million common shares were held in treasury, of which 4 million were owned by one of our subsidiaries. Shares held both directly by us and by our subsidiary are presented as treasury shares on the Consolidated Balance Sheets.

In fiscal 2020 and 2019, our shareholders approved the cancellation of 12 million and 6 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.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Contributed Surplus

As a result of cumulative equity transactions, including dividend activity and treasury share cancellations, our contributed surplus balance was reduced 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 2020 and 2019, Swiss Contributed Surplus was CHF 5,513 million and CHF 6,107 million, respectively (equivalent to $4,561 million and $5,195 million, respectively).

Dividends

We paid cash dividends to shareholders of $1.88, $1.80, and $1.68 per share in fiscal 2020, 2019, and 2018, 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.

Our shareholders approved the following dividends on our common shares:


Approval Date	Annual Payment Per Share	Payment Timing
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
March 2019	$1.84, payable in four quarterly installments of $0.46	Third quarter of fiscal 2019 Fourth quarter of fiscal 2019 First quarter of fiscal 2020 Second quarter of fiscal 2020
March 2020	$1.92, payable in four quarterly installments of $0.48	Third quarter of fiscal 2020 Fourth quarter of fiscal 2020 First quarter of fiscal 2021 Second quarter of fiscal 2021

Upon shareholders’ approval of a dividend payment, we record a liability with a corresponding charge to shareholders’ equity. At fiscal year end 2020 and 2019, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Consolidated Balance Sheets totaled $317 million and $308 million, respectively.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Share Repurchase Program

In both fiscal 2019 and 2018, our board of directors authorized increases of $1.5 billion in our share repurchase program. Common shares repurchased under the share repurchase program were as follows:


	Fiscal
	2020		2019		2018

	(in millions)
Number of common shares repurchased		6		12		10
Repurchase value	$	505	$	1,014	$	966

At fiscal year end 2020, we had $1.0 billion of availability remaining under our share repurchase authorization.

19. Accumulated Other Comprehensive Income (Loss)

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


	Foreign			Unrecognized		Gains (Losses)		Accumulated
	Currency			Pension and		on Cash		Other
	Translation			Postretirement		Flow		Comprehensive
	Adjustments(1)			Benefit Costs		Hedges		Income (Loss)

	(in millions)
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)
Other comprehensive income (loss), net of tax:
Other comprehensive income (loss) before reclassifications		(115)			(295)		35		(375)
Amounts reclassified from accumulated other comprehensive income (loss)		67	(2)		34		15		116
Income tax (expense) benefit		—			66		(4)		62
Other comprehensive income (loss), net of tax		(48)			(195)		46		(197)
Balance at fiscal year end 2019		188			(647)		(44)		(503)
Other comprehensive income (loss), net of tax:
Other comprehensive income (loss) before reclassifications		(11)			8		58		55
Amounts reclassified from accumulated other comprehensive income (loss)		—			44		(13)		31
Income tax expense		—			(18)		(5)		(23)
Other comprehensive income (loss), net of tax		(11)			34		40		63
Less: other comprehensive income attributable to noncontrolling interests		(5)			—		—		(5)
Balance at fiscal year end 2020	$	172		$	(613)	$	(4)	$	(445)

(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.

(2)	Represents net foreign currency translation adjustments reclassified as a result of the sale of the SubCom business. This net loss is included in income (loss) from discontinued operations on the Consolidated Statement of Operations. See Note 4 for additional information regarding the divestiture of SubCom.

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 September 17, 2020 (the “2007 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 2020, 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 15 million shares remained available for issuance under the 2007 Plan as of fiscal year end 2020.

Share-Based Compensation Expense

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


	Fiscal
	2020		2019		2018

	(in millions)
Share-based compensation expense	$	74	$	75	$	95

We recognized a related tax benefit associated with our share-based compensation arrangements of $15 million, $16 million, and $20 million in fiscal 2020, 2019, and 2018, 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, all or a portion of the award may vest, depending on the terms and conditions of the particular grant. Recipients of restricted share units have no voting rights, but do receive dividend equivalents. For grants that vest through passage of time, the fair value of the award at the time of the grant is amortized to expense over the period of vesting. The fair value of restricted share awards is determined based on the closing value of our shares on the grant date. Restricted share awards generally vest in increments over a period of four years as determined by the management development and compensation committee.

Restricted share award activity was as follows:


		Weighted-Average
		Grant-Date
	Shares	Fair Value
Nonvested at fiscal year end 2019	1,402,419	$	78.36
Granted	716,886		92.94
Vested	(574,628)		75.98
Forfeited	(125,250)		83.40
Nonvested at fiscal year end 2020	1,419,427	$	86.15

The weighted-average grant-date fair value of restricted share awards granted during fiscal 2020, 2019, and 2018 was $92.94, $77.77, and $93.45, respectively.

The total fair value of restricted share awards that vested during fiscal 2020, 2019, and 2018 was $44 million, $48 million, and $50 million, respectively.

As of fiscal year end 2020, there was $72 million of unrecognized compensation expense related to nonvested restricted share awards, which is expected to be recognized over a weighted-average period of 1.8 years.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Performance Share Awards

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

Performance share award activity was as follows:


		Weighted-Average
		Grant-Date
	Shares	Fair Value
Outstanding at fiscal year end 2019	585,123	$	77.44
Granted	277,126		83.30
Vested	(343,750)		67.44
Forfeited	(4,254)		84.18
Outstanding at fiscal year end 2020	514,245	$	87.30

The weighted-average grant-date fair value of performance share awards granted during fiscal 2020, 2019, and 2018 was $83.30, $71.38, and $92.96, respectively.

The total fair value of performance share awards that vested during fiscal 2020, 2019, and 2018 was $20 million, $30 million, and $19 million, respectively.

As of fiscal year end 2020, there was $15 million of unrecognized compensation expense related to nonvested performance share awards, which is expected to be recognized over a weighted-average period of 1.1 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, all or a portion of the award may vest, depending on the terms and conditions of the particular grant. Options generally vest and become exercisable in equal annual installments over a period of four years and expire ten years after the date of grant.

Share option award activity was as follows:


				Weighted-Average
		Weighted-Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Shares	Price		Term	Value
				(in years)	(in millions)
Outstanding at fiscal year end 2019	6,344,943	$	70.72
Granted	1,543,450		93.39
Exercised	(973,754)		55.42
Expired	(34,982)		82.91
Forfeited	(221,941)		83.25
Outstanding at fiscal year end 2020	6,657,716	$	77.73	6.9	$	117
Vested and expected to vest at fiscal year end 2020	6,316,850	$	70.66	6.9	$	114
Exercisable at fiscal year end 2020	3,243,765	$	69.46	5.5	$	84

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The weighted-average exercise price of share option awards granted during fiscal 2020, 2019, and 2018 was $93.39, $76.91, and $93.44, respectively.

The total intrinsic value of options exercised during fiscal 2020, 2019, and 2018 was $39 million, $58 million, and $106 million, respectively. We received cash related to the exercise of options of $55 million, $85 million, and $100 million in fiscal 2020, 2019, and 2018, respectively.

As of fiscal year end 2020, there was $31 million of unrecognized compensation expense related to nonvested share options granted under our share option plans, which is expected to be recognized over a weighted-average period of 1.7 years.

Share-Based Compensation Assumptions

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

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


	Fiscal
	2020			2019			2018
Weighted-average grant-date fair value	$	15.49		$	13.40		$	16.49

Assumptions:
Expected share price volatility		21	%		20	%		20	%
Risk-free interest rate		1.7	%		3.0	%		2.2	%
Expected annual dividend per share	$	1.84		$	1.76		$	1.60
Expected life of options (in years)		5.1			5.2			5.3

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 are not material. Corporate assets are allocated to the segments based on segment assets.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Net sales by segment and industry end market(1) were as follows:


	Fiscal
	2020		2019		2018

	(in millions)
Transportation Solutions:
Automotive	$	4,903	$	5,686	$	6,092
Commercial transportation		1,051		1,221		1,280
Sensors		891		914		918
Total Transportation Solutions		6,845		7,821		8,290
Industrial Solutions:
Aerospace, defense, oil, and gas		1,201		1,306		1,157
Industrial equipment		1,098		1,242		1,322
Medical(2)		697		707		665
Energy		717		699		712
Total Industrial Solutions		3,713		3,954		3,856
Communications Solutions:
Data and devices		973		993		1,068
Appliances		641		680		774
Total Communications Solutions		1,614		1,673		1,842
Total	$	12,172	$	13,448	$	13,988

	(1)	Industry end market information is presented consistently with our internal management reporting and may be revised periodically as management deems necessary.

	(2)	Effective for fiscal 2020, we are separately presenting net sales in the medical end market. Such amounts were previously included in net sales in the industrial equipment end market.

Net sales by geographic region and segment were as follows:


	Fiscal
	2020		2019		2018

	(in millions)
Asia–Pacific:
Transportation Solutions	$	2,662	$	2,812	$	3,025
Industrial Solutions		604		625		668
Communications Solutions		980		964		1,069
Total Asia–Pacific		4,246		4,401		4,762
Europe/Middle East/Africa (“EMEA”):
Transportation Solutions		2,625		3,099		3,417
Industrial Solutions		1,359		1,466		1,534
Communications Solutions		236		258		304
Total EMEA		4,220		4,823		5,255
Americas:
Transportation Solutions		1,558		1,910		1,848
Industrial Solutions		1,750		1,863		1,654
Communications Solutions		398		451		469
Total Americas		3,706		4,224		3,971
Total	$	12,172	$	13,448	$	13,988

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Operating income by segment was as follows:


	Fiscal
	2020		2019		2018

	(in millions)
Transportation Solutions	$	(93)	$	1,226	$	1,578
Industrial Solutions		412		543		465
Communications Solutions		218		209		288
Total	$	537	$	1,978	$	2,331

No single customer accounted for a significant amount of our net sales in fiscal 2020, 2019, or 2018.

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

Depreciation and amortization and capital expenditures were as follows:


	Depreciation and
	Amortization						Capital Expenditures
	Fiscal						Fiscal
	2020		2019		2018		2020		2019		2018

	(in millions)
Transportation Solutions	$	463	$	442	$	416	$	365	$	530	$	711
Industrial Solutions		184		181		178		139		145		145
Communications Solutions		64		67		73		56		74		79
Total	$	711	$	690	$	667	$	560	$	749	$	935

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


	Segment Assets
	Fiscal Year End
	2020		2019		2018

	(in millions)
Transportation Solutions	$	4,973	$	4,781	$	4,707
Industrial Solutions		2,117		2,100		2,049
Communications Solutions		887		849		959
Total segment assets(1)		7,977		7,730		7,715
Other current assets		1,457		1,398		1,981
Other non-current assets		9,808		10,566		10,690
Total assets	$	19,242	$	19,694	$	20,386

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

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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


							Property, Plant, and
	Net Sales(1)						Equipment, Net
	Fiscal						Fiscal Year End
	2020		2019		2018		2020		2019		2018

	(in millions)
Asia–Pacific:
China	$	2,459	$	2,443	$	2,739	$	659	$	642	$	627
Other Asia–Pacific		1,787		1,958		2,023		418		449		436
Total Asia–Pacific		4,246		4,401		4,762		1,077		1,091		1,063
EMEA:
Switzerland		2,878		3,251		3,478		79		92		94
Germany		343		404		443		559		443		448
Other EMEA		999		1,168		1,334		871		851		829
Total EMEA		4,220		4,823		5,255		1,509		1,386		1,371
Americas:
U.S.		3,348		3,794		3,583		963		991		964
Other Americas		358		430		388		101		106		99
Total Americas		3,706		4,224		3,971		1,064		1,097		1,063
Total	$	12,172	$	13,448	$	13,988	$	3,650	$	3,574	$	3,497

(1)	Net sales to external customers are attributed to individual countries based on the legal entity that records the sale.

22. Quarterly Financial Data (unaudited)

Summarized quarterly financial data was as follows:


	Fiscal
	2020								2019
	First		Second		Third		Fourth		First		Second		Third		Fourth
	Quarter(1)		Quarter(2)		Quarter(3)		Quarter		Quarter(4)		Quarter		Quarter(5)		Quarter

	(in millions, except per share data)
Net sales	$	3,168	$	3,195	$	2,548	$	3,261	$	3,347	$	3,412	$	3,389	$	3,300
Gross margin		1,030		1,029		707		969		1,114		1,118		1,110		1,052
Acquisition and integration costs		7		12		8		9		5		7		9		6
Restructuring and other charges, net		24		22		98		113		75		42		67		71
Impairment of goodwill		—		900		—		—		—		—		—		—
Income (loss) from continuing operations		23		(452)		(58)		228		383		429		758		376
Income (loss) from discontinued operations, net of income taxes		3		(4)		17		2		(107)		10		(1)		(4)
Net income (loss)		26		(456)		(41)		230		276		439		757		372
Basic earnings (loss) per share:
Income (loss) from continuing operations	$	0.07	$	(1.35)	$	(0.18)	$	0.69	$	1.12	$	1.27	$	2.25	$	1.12
Net income (loss)		0.08		(1.37)		(0.12)		0.70		0.81		1.30		2.25		1.11
Diluted earnings (loss) per share:
Income (loss) from continuing operations	$	0.07	$	(1.35)	$	(0.18)	$	0.69	$	1.11	$	1.26	$	2.24	$	1.11
Net income (loss)		0.08		(1.37)		(0.12)		0.69		0.80		1.29		2.23		1.10

(1)	Results for the quarter ended December 27, 2019 included $355 million of income tax expense related to the tax impacts of certain measures of Swiss Tax Reform. See Note 16 for additional information regarding income taxes.

TE CONNECTIVITY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(2)	Results for the quarter ended March 27, 2020 included a pre-tax goodwill impairment charge of $900 million relating to the Sensors reporting unit in our Transportation Solutions segment. See Note 8 for additional information regarding goodwill impairment.

(3)	Results for the quarter ended June 26, 2020 included $170 million of income tax expense related to an increase to the valuation allowance for certain non-U.S. deferred tax assets. See Note 16 for additional information regarding income taxes.

(4)	Results for the quarter ended December 28, 2018 included a pre-tax loss of $86 million on the sale of our SubCom business which was reported as a discontinued operation on our Consolidated Financial Statements. See Note 4 for additional information regarding discontinued operations.

(5)	Results for the quarter ended June 28, 2019 included a $214 million income tax benefit related to the tax impacts of certain measures of Swiss Tax Reform and a $93 million income tax benefit related to the effective settlement of a tax audit in a non-U.S. jurisdiction. See Note 16 for additional information regarding income taxes.

TE CONNECTIVITY LTD.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

Fiscal Years Ended September 25, 2020, September 27, 2019, and September 28, 2018


			Additions
	Balance at		Charged to		Acquisitions,		Write-offs		Balance at
	Beginning of		Costs and		Divestitures,		and		End of
Description	Fiscal Year		Expenses		and Other		Deductions		Fiscal Year

	(in millions)
Fiscal 2020:
Allowance for doubtful accounts receivable	$	25	$	10	$	(1)	$	(5)	$	29
Valuation allowance on deferred tax assets		4,970		493		—		(1,034)		4,429

Fiscal 2019:
Allowance for doubtful accounts receivable	$	22	$	9	$	—	$	(6)	$	25
Valuation allowance on deferred tax assets		2,191		3,248		—		(469)		4,970

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

Previous: Item 9B. OTHER INFORMATION