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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

(Mark One)

    

ý

  

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

For the Quarterly Period Ended June 29, 2018

Or

o

  

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

001-33260
(Commission File Number)


LOGO

TE CONNECTIVITY LTD.
(Exact name of registrant as specified in its charter)

Switzerland
(Jurisdiction of Incorporation)		   98-0518048
(I.R.S. Employer Identification No.)

Rheinstrasse 20
CH-8200 Schaffhausen, Switzerland
(Address of principal executive offices)

+41 (0)52 633 66 61
(Registrant's telephone number)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
 (Do not check if a smaller
reporting company)		   Smaller reporting company o   Emerging growth company o

        If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        The number of common shares outstanding as of July 20, 2018 was 348,458,740.

   

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TE CONNECTIVITY LTD.
INDEX TO FORM 10-Q

 
    
   Page  

Part I.

  

Financial Information

        

Item 1.

  

Financial Statements

     1  

 

Condensed Consolidated Statements of Operations for the Quarters and Nine Months Ended June 29, 2018 and June 30, 2017 (unaudited)

     1  

 

Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended June 29, 2018 and June 30, 2017 (unaudited)

     2  

 

Condensed Consolidated Balance Sheets as of June 29, 2018 and September 29, 2017 (unaudited)

     3  

 

Condensed Consolidated Statements of Shareholders' Equity for the Nine Months Ended June 29, 2018 and June 30, 2017 (unaudited)

     4  

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 29, 2018 and June 30, 2017 (unaudited)

    5  

 

Notes to Condensed Consolidated Financial Statements (unaudited)

     6  

Item 2.

  

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

     27  

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     42  

Item 4.

  

Controls and Procedures

     42  

Part II.

  

Other Information

        

Item 1.

  

Legal Proceedings

     43  

Item 1A.

  

Risk Factors

     43  

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     43  

Item 6.

  

Exhibits

     44  

Signatures

     45  

i

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PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS


TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 29,
2018 		  June 30,
2017 		  June 29,
2018 		  June 30,
2017 		 
 
   (in millions, except per share data)
  

Net sales

   $ 3,764   $ 3,367   $ 10,989   $ 9,657  

Cost of sales

     2,547     2,227     7,352     6,340  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross margin

     1,217     1,140     3,637     3,317  

Selling, general, and administrative expenses

     409     408     1,220     1,182  

Research, development, and engineering expenses

     181     168     539     485  

Acquisition and integration costs

     4     1     9     5  

Restructuring and other charges, net

     65     19     106     125  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating income

     558     544     1,763     1,520  

Interest income

     3     3     11     14  

Interest expense

     (25 )   (32 )   (80 )   (95 )

Other income (expense), net

     (1 )   (12 )   2     (31 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations before income taxes

     535     503     1,696     1,408  

Income tax expense

     (81 )   (71 )   (789 )   (164 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations

     454     432     907     1,244  

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

     —     3     (3 )   5  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income

   $ 454   $ 435   $ 904   $ 1,249  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Basic earnings per share:

    
 		    
 		    
 		    
 		  

Income from continuing operations

   $ 1.30   $ 1.22   $ 2.58   $ 3.50  

Income (loss) from discontinued operations

     —     0.01     (0.01 )   0.01  

Net income

     1.30     1.23     2.58     3.52  

Diluted earnings per share:

    
 		    
 		    
 		    
 		  

Income from continuing operations

   $ 1.29   $ 1.21   $ 2.56   $ 3.47  

Income (loss) from discontinued operations

     —     0.01     (0.01 )   0.01  

Net income

     1.29     1.22     2.55     3.48  

Dividends paid per common share

  
$
0.44		  
$
0.40		  
$
1.24		  
$
1.14		  

Weighted-average number of shares outstanding:

    
 		    
 		    
 		    
 		  

Basic

     349     355     351     355  

Diluted

     352     358     354     359  

   

See Notes to Condensed Consolidated Financial Statements.

1

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 29,
2018 		  June 30,
2017 		  June 29,
2018 		  June 30,
2017 		 
 
   (in millions)
  

Net income. 

   $ 454   $ 435   $ 904   $ 1,249  

Other comprehensive income (loss):

                          

Currency translation

     (244 )   77     (63 )   (25 )

Adjustments to unrecognized pension and postretirement benefit costs, net of income taxes

     8     13     23     38  

Gains (losses) on cash flow hedges, net of income taxes

     (14 )   (12 )   (61 )   23  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other comprehensive income (loss)

     (250 )   78     (101 )   36  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Comprehensive income. 

   $ 204   $ 513   $ 803   $ 1,285  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

   

See Notes to Condensed Consolidated Financial Statements.

2

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 
   June 29,
2018 		  September 29,
2017 		 
 
   (in millions, except share
data)
  

Assets

              

Current assets:

              

Cash and cash equivalents

   $ 770   $ 1,218  

Accounts receivable, net of allowance for doubtful accounts of $21

     2,591     2,290  

Inventories

     1,961     1,813  

Prepaid expenses and other current assets

     619     605  
​ ​ ​ ​ ​ ​ ​ ​

Total current assets

     5,941     5,926  

Property, plant, and equipment, net

     3,633     3,400  

Goodwill

     5,616     5,651  

Intangible assets, net

     1,698     1,841  

Deferred income taxes

     1,672     2,141  

Other assets

     453     444  
​ ​ ​ ​ ​ ​ ​ ​

Total Assets

   $ 19,013   $ 19,403  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

Liabilities and Shareholders' Equity

    
 		    
 		  

Current liabilities:

              

Short-term debt

   $ 714   $ 710  

Accounts payable

     1,583     1,436  

Accrued and other current liabilities

     1,625     1,626  

Deferred revenue

     124     75  
​ ​ ​ ​ ​ ​ ​ ​

Total current liabilities

     4,046     3,847  

Long-term debt

     3,294     3,634  

Long-term pension and postretirement liabilities

     1,119     1,160  

Deferred income taxes

     227     236  

Income taxes

     311     293  

Other liabilities

     524     482  
​ ​ ​ ​ ​ ​ ​ ​

Total Liabilities

     9,521     9,652  
​ ​ ​ ​ ​ ​ ​ ​

Commitments and contingencies (Note 7)

              

Shareholders' equity:

              

Common shares, CHF 0.57 par value, 357,069,981 shares authorized and issued

     157     157  

Accumulated earnings

     10,432     10,175  

Treasury shares, at cost, 8,658,869 and 5,356,369 shares, respectively

     (798 )   (421 )

Accumulated other comprehensive loss

     (299 )   (160 )
​ ​ ​ ​ ​ ​ ​ ​

Total Shareholders' Equity

     9,492     9,751  
​ ​ ​ ​ ​ ​ ​ ​

Total Liabilities and Shareholders' Equity

   $ 19,013   $ 19,403  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

   

See Notes to Condensed Consolidated Financial Statements.

3

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

 
   Common
Shares 		  Treasury
Shares 		   
    
    
    
  
 
    
    
   Accumulated
Other
Comprehensive
Loss 		   
  
 
   Contributed
Surplus 		  Accumulated
Earnings 		  Total
Shareholders'
Equity 		 
 
   Shares   Amount   Shares   Amount  
 
   (in millions)
  

Balance at September 29, 2017

     357   $ 157     (5 ) $ (421 ) $ —   $ 10,175   $ (160 ) $ 9,751  

Adoption of ASU No. 2018-02

     —     —     —     —     —     38     (38 )   —  

Net income

     —     —     —     —     —     904     —     904  

Other comprehensive loss

     —     —     —     —     —     —     (101 )   (101 )

Share-based compensation expense

     —     —     —     —     74     —     —     74  

Dividends approved

     —     —     —     —     —     (613 )   —     (613 )

Exercise of share options

     —     —     2     96     —     —     —     96  

Restricted share award vestings and other activity

     —     —     —     139     (74 )   (72 )   —     (7 )

Repurchase of common shares

     —     —     (6 )   (612 )   —     —     —     (612 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Balance at June 29, 2018

     357   $ 157     (9 ) $ (798 ) $ —   $ 10,432   $ (299 ) $ 9,492  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Balance at September 30, 2016

    
383		  
$
168		    
(28
)
$
(1,624
)
$
1,801		  
$
8,682		  
$
(542
)
$
8,485		  

Adoption of ASU No. 2016-09

     —     —     —     —     —     165     —     165  

Net income

     —     —     —     —     —     1,249     —     1,249  

Other comprehensive income

     —     —     —     —     —     —     36     36  

Share-based compensation expense

     —     —     —     —     73     —     —     73  

Dividends approved

     —     —     —     —     (566 )   —     —     (566 )

Exercise of share options

     —     —     3     86     —     —     —     86  

Restricted share award vestings and other activity

     —     —     1     155     (156 )   —     —     (1 )

Repurchase of common shares

     —     —     (5 )   (386 )   —     —     —     (386 )

Cancellation of treasury shares

     (26 )   (11 )   26     1,512     (1,152 )   (349 )   —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Balance at June 30, 2017

     357   $ 157     (3 ) $ (257 ) $ —   $ 9,747   $ (506 ) $ 9,141  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

   

See Notes to Condensed Consolidated Financial Statements.

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TE CONNECTIVITY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
   For the
Nine Months Ended 		 
 
   June 29,
2018 		  June 30,
2017 		 
 
   (in millions)
  

Cash Flows From Operating Activities:

              

Net income

   $ 904   $ 1,249  

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

     3     (5 )
​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations

     907     1,244  

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:

              

Depreciation and amortization

     514     469  

Deferred income taxes

     447     (146 )

Provision for losses on accounts receivable and inventories

     28     15  

Share-based compensation expense

     74     73  

Other

     (12 )   23  

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

              

Accounts receivable, net

     (317 )   (260 )

Inventories

     (184 )   (195 )

Prepaid expenses and other current assets

     (52 )   (6 )

Accounts payable

     180     217  

Accrued and other current liabilities

     (154 )   56  

Deferred revenue

     49     (150 )

Income taxes

     24     54  

Other

     23     55  
​ ​ ​ ​ ​ ​ ​ ​

Net cash provided by continuing operating activities

     1,527     1,449  

Net cash used in discontinued operating activities

     —     (1 )
​ ​ ​ ​ ​ ​ ​ ​

Net cash provided by operating activities

     1,527     1,448  
​ ​ ​ ​ ​ ​ ​ ​

Cash Flows From Investing Activities:

              

Capital expenditures

     (686 )   (452 )

Proceeds from sale of property, plant, and equipment

     19     12  

Acquisition of business, net of cash acquired

     —     (77 )

Other

     (8 )   (21 )
​ ​ ​ ​ ​ ​ ​ ​

Net cash used in investing activities

     (675 )   (538 )
​ ​ ​ ​ ​ ​ ​ ​

Cash Flows From Financing Activities:

              

Net increase (decrease) in commercial paper

     271     (162 )

Proceeds from issuance of debt

     119     89  

Repayment of debt

     (708 )   —  

Proceeds from exercise of share options

     96     86  

Repurchase of common shares

     (611 )   (376 )

Payment of common share dividends to shareholders

     (435 )   (405 )

Other

     (34 )   (24 )
​ ​ ​ ​ ​ ​ ​ ​

Net cash used in continuing financing activities

     (1,302 )   (792 )

Net cash provided by discontinued financing activities

     —     1  
​ ​ ​ ​ ​ ​ ​ ​

Net cash used in financing activities

     (1,302 )   (791 )
​ ​ ​ ​ ​ ​ ​ ​

Effect of currency translation on cash

     2     (11 )

Net increase (decrease) in cash and cash equivalents

     (448 )   108  

Cash and cash equivalents at beginning of period

     1,218     647  
​ ​ ​ ​ ​ ​ ​ ​

Cash and cash equivalents at end of period

   $ 770   $ 755  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

   

See Notes to Condensed Consolidated Financial Statements.

5

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TE CONNECTIVITY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation and Accounting Pronouncements

        The unaudited Condensed Consolidated Financial Statements of TE Connectivity Ltd. ("TE Connectivity" or the "Company," which may be referred to as "we," "us," or "our") have been prepared in United States ("U.S.") dollars, in accordance with accounting principles generally accepted in the U.S. ("GAAP") and the instructions to Form 10-Q under the Securities Exchange Act of 1934. In management's opinion, the unaudited Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire fiscal year or any subsequent interim period.

        The year-end balance sheet data was derived from audited financial statements, but does not include all of the information and disclosures required by GAAP. These financial statements should be read in conjunction with our audited Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2017.

        Unless otherwise indicated, references in the Condensed Consolidated Financial Statements to fiscal 2018 and fiscal 2017 are to our fiscal years ending September 28, 2018 and ended September 29, 2017, respectively.

        In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 which codified Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. This guidance supersedes ASC 605, Revenue Recognition, and introduces a single, comprehensive, five-step revenue recognition model. ASC 606 also enhances disclosures related to revenue recognition. ASC 606, as amended, is effective for us beginning in fiscal 2019. Significantly all our revenues are generated from the sale of products and construction related projects. Our review of these existing contracts, which is substantially complete, affirms that product revenue will continue to be recognized at a point in time in a manner consistent with current practice. In addition, construction related projects, which are accounted for primarily using the percentage-of-completion method, will continue to qualify for revenue recognition over time. In the quarter ended June 29, 2018, we continued the process of updating policies, internal controls, financial statement disclosures, and systems to incorporate the impact of the new standard in our financial reporting processes. We intend to adopt the new standard using the modified retrospective approach and have begun quantifying the impact of the cumulative effect of applying this new standard on existing, uncompleted contracts at the adoption date, which will result in an adjustment to the opening balance of accumulated earnings as of September 29, 2018. We do not expect that the cumulative impact of adoption will be material to our results of operations or financial position.

        In February 2018, the FASB issued ASU No. 2018-02, an update to ASC 220, Income Statement–Reporting Comprehensive Income, to allow a reclassification from accumulated other comprehensive income (loss) for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Act"). See Note 10 for additional information regarding the Act. We elected to early adopt this update in the quarter ended March 30, 2018 and reclassify the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate. This change in accounting principle resulted in a

6

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TE CONNECTIVITY LTD.

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

1. Basis of Presentation and Accounting Pronouncements (Continued)

reclassification of $38 million, primarily associated with our pension plans, during the period of adoption. The reclassification increased both accumulated other comprehensive loss and accumulated earnings with no impact to total shareholders' equity.

        In March 2017, the FASB issued ASU No. 2017-07, an update to ASC 715, Compensation–Retirement Benefits, which changes the income statement presentation of net periodic pension and postretirement benefit costs. The ASU requires that service costs be presented with other employee compensation costs within operating income and that other cost components be presented outside of operating income. We elected to early adopt this update in the quarter ended December 29, 2017. The update was applied retrospectively and did not have a material impact on our Condensed Consolidated Statements of Operations.

2. Restructuring and Other Charges, Net

        Net restructuring and other charges consisted of the following:

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 29,
2018 		  June 30,
2017 		  June 29,
2018 		  June 30,
2017 		 
 
   (in millions)
  

Restructuring charges, net

   $ 75   $ 19   $ 120   $ 124  

Other charges (credits), net

     (10 )   —     (14 )   1  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  $ 65   $ 19   $ 106   $ 125  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

        Net restructuring charges by segment were as follows:

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 29,
2018 		  June 30,
2017 		  June 29,
2018 		  June 30,
2017 		 
 
   (in millions)
  

Transportation Solutions

   $ 17   $ 3   $ 22   $ 60  

Industrial Solutions

     48     14     78     53  

Communications Solutions

     10     2     20     11  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Restructuring charges, net

   $ 75   $ 19   $ 120   $ 124  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

7

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TE CONNECTIVITY LTD.

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

2. Restructuring and Other Charges, Net (Continued)

        Activity in our restructuring reserves was as follows:

 
   Balance at
September 29,
2017 		  Charges   Changes
in
Estimates 		  Cash
Payments 		  Non-Cash
Items 		  Currency
Translation 		  Balance at
June 29,
2018 		 
 
   (in millions)
  

Fiscal 2018 Actions:

                                            

Employee severance

   $ —   $ 102   $ —   $ (11 ) $ —   $ —   $ 91  

Facility and other exit costs

     —     6     —     (1 )   —     —     5  

Property, plant, and equipment

     —     3     —     —     (3 )   —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

     —     111     —     (12 )   (3 )   —     96  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Fiscal 2017 Actions:

                                            

Employee severance

     103     4     (2 )   (54 )   —     (1 )   50  

Facility and other exit costs

     1     2     —     (2 )   —     —     1  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

     104     6     (2 )   (56 )   —     (1 )   51  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Pre-Fiscal 2017 Actions:

                                            

Employee severance

     36     6     (4 )   (18 )   —     (1 )   19  

Facility and other exit costs

     9     5     —     (6 )   —     —     8  

Property, plant, and equipment

     —     1     (3 )   3     (1 )   —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

     45     12     (7 )   (21 )   (1 )   (1 )   27  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Activity

   $ 149   $ 129   $ (9 ) $ (89 ) $ (4 ) $ (2 ) $ 174  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

        During fiscal 2018, we initiated a restructuring program associated with footprint consolidation and structural improvements primarily impacting the Industrial Solutions segment. In connection with this program, during the nine months ended June 29, 2018, we recorded restructuring charges of $111 million. We expect to complete significantly all restructuring actions commenced during the nine months ended June 29, 2018 by the end of fiscal 2020 and to incur total charges of approximately $130 million. Remaining charges primarily relate to employee severance.

        During fiscal 2017, we initiated a restructuring program associated with footprint consolidation related to recent acquisitions and structural improvements impacting all segments. In connection with this program, during the nine months ended June 29, 2018 and June 30, 2017, we recorded net restructuring charges of $4 million and $119 million, respectively. We expect to complete all restructuring actions commenced during fiscal 2017 by the end of fiscal 2019 and anticipate that any additional charges will be insignificant.

        Prior to fiscal 2017, we initiated a restructuring program associated with headcount reductions impacting all segments and product line closures in the Communications Solutions segment. During

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

2. Restructuring and Other Charges, Net (Continued)

each of the nine months ended June 29, 2018 and June 30, 2017, we recorded net restructuring charges of $5 million related to pre-fiscal 2017 actions. We expect to incur additional charges of approximately $15 million related to pre-fiscal 2017 actions with the remaining charges related to employee severance primarily in the Communications Solutions segment.

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

 
   June 29,
2018 		  September 29,
2017 		 
 
   (in millions)
  

Accrued and other current liabilities

   $ 137   $ 130  

Other liabilities

     37     19  
​ ​ ​ ​ ​ ​ ​ ​

Restructuring reserves

   $ 174   $ 149  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

3. Inventories

        Inventories consisted of the following:

 
   June 29,
2018 		  September 29,
2017 		 
 
   (in millions)
  

Raw materials

   $ 337   $ 306  

Work in progress

     668     580  

Finished goods

     877     810  

Inventoried costs on long-term contracts

     79     117  
​ ​ ​ ​ ​ ​ ​ ​

Inventories

   $ 1,961   $ 1,813  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

4. Goodwill

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

 
   Transportation
Solutions 		  Industrial
Solutions 		  Communications
Solutions 		  Total  
 
   (in millions)
  

September 29, 2017(1)

   $ 2,011   $ 3,047   $ 593   $ 5,651  

Currency translation and other

     (16 )   (15 )   (4 )   (35 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

June 29, 2018(1)

   $ 1,995   $ 3,032   $ 589   $ 5,616  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(1)
At June 29, 2018 and September 29, 2017, accumulated impairment losses for the Transportation Solutions, Industrial Solutions, and Communications Solutions segments were $2,191 million, $669 million, and $1,514 million, respectively.

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

5. Intangible Assets, Net

        Intangible assets consisted of the following:

 
   June 29, 2018   September 29, 2017  
 
   Gross
Carrying
Amount 		  Accumulated
Amortization 		  Net
Carrying
Amount 		  Gross
Carrying
Amount 		  Accumulated
Amortization 		  Net
Carrying
Amount 		 
 
   (in millions)
  

Customer relationships

   $ 1,424   $ (367 ) $ 1,057   $ 1,433   $ (300 ) $ 1,133  

Intellectual property

     1,259     (637 )   622     1,263     (575 )   688  

Other

     35     (16 )   19     36     (16 )   20  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 2,718   $ (1,020 ) $ 1,698   $ 2,732   $ (891 ) $ 1,841  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

        Intangible asset amortization expense was $45 million and $43 million for the quarters ended June 29, 2018 and June 30, 2017, respectively, and $135 million and $126 million for the nine months ended June 29, 2018 and June 30, 2017, respectively.

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

 
   (in millions)  

Remainder of fiscal 2018

   $ 46  

Fiscal 2019

     181  

Fiscal 2020

     173  

Fiscal 2021

     170  

Fiscal 2022

     169  

Fiscal 2023

     169  

Thereafter

     790  
​ ​ ​ ​ ​

Total

   $ 1,698  
​ ​ ​ ​ ​
​ ​ ​ ​ ​
​ ​ ​ ​ ​

6. Debt

        During the nine months ended June 29, 2018, Tyco Electronics Group S.A. ("TEGSA"), our 100%-owned subsidiary, repaid, at maturity, $708 million of 6.55% senior notes due October 2017.

        We reclassified $325 million of 2.375% senior notes due December 2018 from long-term debt to short-term debt on the Condensed Consolidated Balance Sheet during the nine months ended June 29, 2018.

        During the nine months ended June 29, 2018, TEGSA entered into an uncommitted revolving credit facility under which it borrowed €100 million at a 0% interest rate with repayment due at maturity in December 2018.

        As of June 29, 2018, TEGSA had $271 million of commercial paper outstanding at a weighted-average interest rate of 2.33%. TEGSA had no commercial paper outstanding at September 29, 2017.

        The fair value of our debt, based on indicative valuations, was approximately $4,188 million and $4,622 million at June 29, 2018 and September 29, 2017, respectively.

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

7. Commitments and Contingencies

        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.

        We are involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods. As of June 29, 2018, we concluded that we would incur investigation and remediation costs at these sites in the reasonably possible range of $15 million to $43 million, and we accrued $18 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.

        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 June 29, 2018, we had outstanding letters of credit, letters of guarantee, and surety bonds of $283 million.

        We generally record estimated product warranty costs when contract revenues are recognized under the percentage-of-completion method for construction related contracts; other warranty reserves are not significant. The estimation is based primarily on historical experience and actual warranty claims. Amounts accrued for warranty claims were $46 million and $50 million at June 29, 2018 and September 29, 2017, respectively.

        Under a Tax Sharing Agreement, we, Tyco International plc ("Tyco International"), and Covidien plc ("Covidien") share 31%, 27%, and 42%, respectively, of income tax liabilities that arise from adjustments made by tax authorities to the collective income tax returns for certain of our, Tyco International's, and Covidien's 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

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

7. Commitments and Contingencies (Continued)

indemnifications with Tyco International and Covidien. As a result of subsequent transactions, Tyco International and Covidien now operate as part of Johnson Controls International plc and Medtronic plc, respectively. We have substantially settled all U.S. federal income tax matters with the Internal Revenue Service ("IRS") for periods covered under the Tax Sharing Agreement. Certain shared U.S. state and non-U.S. income tax matters remain open. We do not expect these matters will have a material effect on our results of operations, financial position, or cash flows.

8. Financial Instruments

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

        At June 29, 2018 and September 29, 2017, our cross-currency swap contracts were in a liability position of $107 million and $96 million, respectively, and were recorded in other liabilities on the Condensed Consolidated Balance Sheets. At June 29, 2018 and September 29, 2017, collateral paid to our counterparties approximated the derivative positions and was recorded in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. The impacts of our cross-currency swap contracts were as follows:

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 29,
2018 		  June 30,
2017 		  June 29,
2018 		  June 30,
2017 		 
 
   (in millions)
  

Gains (losses) recorded in other comprehensive income (loss)

   $ 7   $ 2   $ (25 ) $ (6 )

Gains (losses) excluded from the hedging relationship(1)

     64     (71 )   14     (17 )
(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.

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8. Financial Instruments (Continued)

        We hedge our net investment in certain foreign operations using intercompany loans denominated in the same currencies. The aggregate notional value of these hedges was $2,986 million and $3,110 million at June 29, 2018 and September 29, 2017, respectively. The impacts of our hedging program were as follows:

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 29,
2018 		  June 30,
2017 		  June 29,
2018 		  June 30,
2017 		 
 
   (in millions)
  

Foreign currency exchange gains (losses)(1)

   $ 153   $ (129 ) $ 8   $ 15  
(1)
Foreign currency exchange gains and losses are recorded as currency translation, a component of accumulated other comprehensive loss, and are offset by changes attributable to the translation of the net investment.

9. Retirement Plans

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

 
   U.S. Plans   Non-U.S. Plans  
 
   For the
Quarters Ended 		  For the
Quarters Ended 		 
 
   June 29,
2018 		  June 30,
2017 		  June 29,
2018 		  June 30,
2017 		 
 
   (in millions)
  

Service cost

   $ 3   $ 3   $ 12   $ 13  

Interest cost

     11     11     10     9  

Expected return on plan assets

     (15 )   (13 )   (18 )   (18 )

Amortization of net actuarial loss

     6     10     7     11  

Amortization of prior service credit

     —     —     (2 )   (2 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net periodic pension benefit cost

   $ 5   $ 11   $ 9   $ 13  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

 
   U.S. Plans   Non-U.S. Plans  
 
   For the
Nine Months Ended 		  For the
Nine Months Ended 		 
 
   June 29,
2018 		  June 30,
2017 		  June 29,
2018 		  June 30,
2017 		 
 
   (in millions)
  

Service cost

   $ 10   $ 9   $ 35   $ 39  

Interest cost

     33     33     31     27  

Expected return on plan assets

     (45 )   (40 )   (52 )   (53 )

Amortization of net actuarial loss

     17     30     18     32  

Amortization of prior service credit

     —     —     (5 )   (5 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net periodic pension benefit cost

   $ 15   $ 32   $ 27   $ 40  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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

9. Retirement Plans (Continued)

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

        During the nine months ended June 29, 2018, we contributed $36 million to our non-U.S. pension plans.

10. Income Taxes

        We recorded income tax expense of $81 million and $71 million for the quarters ended June 29, 2018 and June 30, 2017, respectively. The income tax expense for the quarter ended June 29, 2018 included a $17 million income tax benefit resulting from lapses of statutes of limitations in the U.S. and certain non-U.S. jurisdictions. The income tax expense for the quarter ended June 30, 2017 included a $14 million income tax benefit associated with pre-separation tax matters.

        We recorded income tax expense of $789 million and $164 million for the nine months ended June 29, 2018 and June 30, 2017, respectively. The tax expense for the nine months ended June 29, 2018 included $567 million of income tax expense related to the tax impacts of the Tax Cuts and Jobs Act, a $61 million net income tax benefit related to certain legal entity restructurings, and a $34 million income tax benefit resulting from lapses of statutes of limitations in the U.S. and certain non-U.S. jurisdictions. See "Tax Cuts and Jobs Act" below for additional information. The tax expense for the nine months ended June 30, 2017 included a $52 million income tax benefit associated with the tax impacts of certain intercompany transactions and the corresponding reduction in the valuation allowance for U.S. tax loss carryforwards, a $24 million income tax benefit resulting from lapses of statutes of limitations in the U.S. and certain non-U.S. jurisdictions, and a $14 million income tax benefit associated with pre-separation tax matters.

        We record accrued interest and penalties related to uncertain tax positions as part of income tax expense. As of June 29, 2018 and September 29, 2017, we had $60 million of accrued interest and penalties related to uncertain tax positions on the Condensed Consolidated Balance Sheets, recorded primarily in income taxes. During the nine months ended June 29, 2018, we recognized $2 million of income tax expense related to interest and penalties on the Condensed Consolidated Statement of Operations.

        Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that approximately $30 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 Condensed Consolidated Balance Sheet as of June 29, 2018.

        On December 22, 2017, the President of the U.S. signed the Tax Cuts and Jobs Act (the "Act") into law. The Act includes numerous significant changes to existing tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, further limitations on the deductibility of interest expense and certain executive compensation, repeal of the corporate Alternative Minimum Tax, and imposition of a territorial tax system with a one-time repatriation tax on

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

10. Income Taxes (Continued)

deemed repatriated earnings of foreign subsidiaries. While some of the new provisions of the Act will impact us in fiscal 2019 and beyond, the change in the tax rate was effective January 1, 2018. In the period of enactment, we were required to revalue our U.S. federal deferred tax assets and liabilities at the new tax rate. Accordingly, during the quarter ended December 29, 2017, we recorded income tax expense of $567 million primarily in connection with the write-down of our U.S. federal deferred tax asset for net operating loss and interest carryforwards to the lower tax rate. Included in the expense of $567 million was an income tax benefit of $34 million related to the reduction in the existing valuation allowance recorded against certain U.S. federal tax credit carryforwards. The limitations on interest expense deductions contained in the Act are expected to increase prospective taxable income and thereby allow the utilization of more tax credits in future years. As a Swiss corporation, the one-time repatriation tax imposed by the Act will not be significant to us.

        The Act makes broad and complex changes to the U.S. Internal Revenue Code, and in certain instances, lacks clarity and is subject to interpretation until additional IRS guidance is issued. The ultimate impact of the Act may differ from our estimates due to changes in the interpretations and assumptions we made as well as any forthcoming regulatory guidance. One area requiring guidance is a transition rule regarding limitations on interest expense deductions. The Act does not address the treatment of the carryforward of disallowed interest expense generated under the prior law. Our interpretation is that the carryforward of interest should survive and will be deductible in future periods subject to the new interest limitations. Accordingly, during the quarter ended December 29, 2017, we revalued our beginning deferred tax asset related to our interest carryforwards to $223 million to reflect the lower tax rate. It is possible additional regulatory guidance could be issued contrary to this interpretation at which point we may be required to record a charge to income tax expense to revalue or eliminate the related deferred tax asset. On April 2, 2018, the Treasury Department and the IRS issued Notice 2018-28 stating their intention to issue regulations consistent with our position related to the carryforward of the disallowed interest expense.

11. Earnings Per Share

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

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 29,
2018 		  June 30,
2017 		  June 29,
2018 		  June 30,
2017 		 
 
   (in millions)
  

Basic

     349     355     351     355  

Dilutive impact of share-based compensation arrangements

     3     3     3     4  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Diluted

     352     358     354     359  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

        There were one million share options that were not included in the computation of diluted earnings per share for the nine months ended June 30, 2017 because the instruments' underlying exercise price were greater than the average market prices of our common shares and inclusion would be antidilutive.

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

12. Shareholders' Equity

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

        We paid a cash dividend of $0.40 per share to shareholders in each of the quarters ended December 29, 2017 and March 30, 2018.

        In March 2018, our shareholders approved a dividend payment to shareholders of $1.76 per share, payable in four equal quarterly installments beginning in the third quarter of fiscal 2018 and ending in the second quarter of fiscal 2019. We paid the first installment of the dividend at a rate of $0.44 per share in the quarter ended June 29, 2018.

        Upon shareholders' approval of a dividend payment, we record a liability with a corresponding charge to shareholders' equity. At June 29, 2018 and September 29, 2017, the unpaid portion of the dividends recorded in accrued and other current liabilities on the Condensed Consolidated Balance Sheets totaled $459 million and $281 million, respectively.

        During the nine months ended June 29, 2018, our board of directors authorized an increase of $1.5 billion in the share repurchase program. Common shares repurchased under the share repurchase program were as follows:

 
   For the
Nine Months Ended 		 
 
   June 29,
2018 		  June 30,
2017 		 
 
   (in millions)
  

Number of common shares repurchased

     6     5  

Repurchase value

   $ 612   $ 386  

        At June 29, 2018, we had $1.4 billion of availability remaining under our share repurchase authorization.

13. Share Plans

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

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 29,
2018 		  June 30,
2017 		  June 29,
2018 		  June 30,
2017 		 
 
   (in millions)
  

Share-based compensation expense

   $ 22   $ 26   $ 74   $ 73  

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

13. Share Plans (Continued)

        As of June 29, 2018, there was $153 million of unrecognized compensation expense related to share-based awards, which is expected to be recognized over a weighted-average period of 1.8 years.

        During the quarter ended December 29, 2017, we granted the following share-based awards as part of our annual incentive plan grant:

 
   Shares   Weighted-Average
Grant-Date
Fair Value 		 
 
   (in millions)
    
  

Share options

     1.4   $ 16.47  

Restricted share awards

     0.5     93.36  

Performance share awards

     0.2     93.36  

        As of June 29, 2018, we had 20 million shares available for issuance under our stock and incentive plans, of which the TE Connectivity Ltd. 2007 Stock and Incentive Plan, amended and restated as of March 8, 2017, was the primary plan.

        The weighted-average assumptions we used in the Black-Scholes-Merton option pricing model for the options granted as part of our annual incentive plan grant were as follows:

Expected share price volatility

     20 %

Risk free interest rate

     2.2 %

Expected annual dividend per share

   $ 1.60  

Expected life of options (in years)

     5.3  

14. Segment Data

        Net sales by segment were as follows:

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 29,
2018 		  June 30,
2017 		  June 29,
2018 		  June 30,
2017 		 
 
   (in millions)
  

Transportation Solutions

   $ 2,112   $ 1,765   $ 6,278   $ 5,195  

Industrial Solutions

     988     905     2,842     2,553  

Communications Solutions

     664     697     1,869     1,909  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total(1)

   $ 3,764   $ 3,367   $ 10,989   $ 9,657  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(1)
Intersegment sales were not material and were recorded at selling prices that approximated market prices.

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

14. Segment Data (Continued)

        Operating income by segment was as follows:

 
   For the
Quarters Ended 		  For the
Nine Months Ended 		 
 
   June 29,
2018 		  June 30,
2017 		  June 29,
2018 		  June 30,
2017 		 
 
   (in millions)
  

Transportation Solutions

   $ 394   $ 333   $ 1,242   $ 986  

Industrial Solutions

     93     100     321     258  

Communications Solutions

     71     111     200     276  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 558   $ 544   $ 1,763   $ 1,520  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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

15. Tyco Electronics Group S.A.

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


Condensed Consolidating Statement of Operations (UNAUDITED)
For the Quarter Ended June 29, 2018

 
   TE
Connectivity
Ltd. 		  TEGSA   Other
Subsidiaries 		  Consolidating
Adjustments 		  Total  
 
   (in millions)
  

Net sales

   $ —   $ —   $ 3,764   $ —   $ 3,764  

Cost of sales

     —     —     2,547     —     2,547  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross margin

     —     —     1,217     —     1,217  

Selling, general, and administrative expenses, net

     19     —     390     —     409  

Research, development, and engineering expenses

     —     —     181     —     181  

Acquisition and integration costs

     —     —     4     —     4  

Restructuring and other charges, net

     —     —     65     —     65  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating income (loss)

     (19 )   —     577     —     558  

Interest income

     —     —     3     —     3  

Interest expense

     —     (24 )   (1 )   —     (25 )

Other expense, net

     —     —     (1 )   —     (1 )

Equity in net income of subsidiaries

     491     499     —     (990 )   —  

Intercompany interest income (expense), net

     (18 )   16     2     —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations before income taxes

     454     491     580     (990 )   535  

Income tax expense

     —     —     (81 )   —     (81 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income

     454     491     499     (990 )   454  

Other comprehensive loss

     (250 )   (250 )   (255 )   505     (250 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Comprehensive income

   $ 204   $ 241   $ 244   $ (485 ) $ 204  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

19

Table of Contents


TE CONNECTIVITY LTD.

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

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


Condensed Consolidating Statement of Operations (UNAUDITED)
For the Quarter Ended June 30, 2017

 
   TE
Connectivity
Ltd. 		  TEGSA   Other
Subsidiaries 		  Consolidating
Adjustments 		  Total  
 
   (in millions)
  

Net sales

   $ —   $ —   $ 3,367   $ —   $ 3,367  

Cost of sales

     —     —     2,227     —     2,227  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross margin

     —     —     1,140     —     1,140  

Selling, general, and administrative expenses, net

     68     18     322     —     408  

Research, development, and engineering expenses

     —     —     168     —     168  

Acquisition and integration costs

     —     —     1     —     1  

Restructuring and other charges, net

     —     —     19     —     19  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating income (loss)

     (68 )   (18 )   630     —     544  

Interest income

     —     —     3     —     3  

Interest expense

     —     (32 )   —     —     (32 )

Other expense, net

     —     —     (12 )   —     (12 )

Equity in net income of subsidiaries

     507     530     —     (1,037 )   —  

Equity in net income of subsidiaries of discontinued operations

     3     4     —     (7 )   —  

Intercompany interest income (expense), net

     (7 )   27     (20 )   —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations before income taxes

     435     511     601     (1,044 )   503  

Income tax expense

     —     —     (71 )   —     (71 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations

     435     511     530     (1,044 )   432  

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

     —     (1 )   4     —     3  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income

     435     510     534     (1,044 )   435  

Other comprehensive income

     78     78     83     (161 )   78  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Comprehensive income

   $ 513   $ 588   $ 617   $ (1,205 ) $ 513  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

20

Table of Contents


TE CONNECTIVITY LTD.

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

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


Condensed Consolidating Statement of Operations (UNAUDITED)
For the Nine Months Ended June 29, 2018

 
   TE
Connectivity
Ltd. 		  TEGSA   Other
Subsidiaries 		  Consolidating
Adjustments 		  Total  
 
   (in millions)
  

Net sales

   $ —   $ —   $ 10,989   $ —   $ 10,989  

Cost of sales

     —     —     7,352     —     7,352  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross margin

     —     —     3,637     —     3,637  

Selling, general, and administrative expenses, net

     107     6     1,107     —     1,220  

Research, development, and engineering expenses

     —     —     539     —     539  

Acquisition and integration costs

     —     —     9     —     9  

Restructuring and other charges, net

     —     —     106     —     106  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating income (loss)

     (107 )   (6 )   1,876     —     1,763  

Interest income

     —     1     10     —     11  

Interest expense

     —     (79 )   (1 )   —     (80 )

Other income, net

     —     —     2     —     2  

Equity in net income of subsidiaries

     1,062     1,072     —     (2,134 )   —  

Equity in net loss of subsidiaries of discontinued operations

     (3 )   (3 )   —     6     —  

Intercompany interest income (expense), net

     (48 )   74     (26 )   —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations before income taxes

     904     1,059     1,861     (2,128 )   1,696  

Income tax expense

     —     —     (789 )   —     (789 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations

     904     1,059     1,072     (2,128 )   907  

Loss from discontinued operations, net of income taxes

     —     —     (3 )   —     (3 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income

     904     1,059     1,069     (2,128 )   904  

Other comprehensive loss

     (101 )   (101 )   (74 )   175     (101 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Comprehensive income

   $ 803   $ 958   $ 995   $ (1,953 ) $ 803  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

21

Table of Contents


TE CONNECTIVITY LTD.

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

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


Condensed Consolidating Statement of Operations (UNAUDITED)
For the Nine Months Ended June 30, 2017

 
   TE
Connectivity
Ltd. 		  TEGSA   Other
Subsidiaries 		  Consolidating
Adjustments 		  Total  
 
   (in millions)
  

Net sales

   $ —   $ —   $ 9,657   $ —   $ 9,657  

Cost of sales

     —     —     6,340     —     6,340  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross margin

     —     —     3,317     —     3,317  

Selling, general, and administrative expenses, net

     144     (52 )   1,090     —     1,182  

Research, development, and engineering expenses

     —     —     485     —     485  

Acquisition and integration costs

     —     —     5     —     5  

Restructuring and other charges, net

     —     —     125     —     125  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating income (loss)

     (144 )   52     1,612     —     1,520  

Interest income

     —     —     14     —     14  

Interest expense

     —     (95 )   —     —     (95 )

Other expense, net

     —     —     (31 )   —     (31 )

Equity in net income of subsidiaries

     1,409     1,369     —     (2,778 )   —  

Equity in net income of subsidiaries of discontinued operations

     5     18     —     (23 )   —  

Intercompany interest income (expense), net

     (21 )   83     (62 )   —     —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations before income taxes

     1,249     1,427     1,533     (2,801 )   1,408  

Income tax expense

     —     —     (164 )   —     (164 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from continuing operations

     1,249     1,427     1,369     (2,801 )   1,244  

Income (loss) from discontinued operations, net of income taxes(1)

     —     (13 )   18     —     5  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income

     1,249     1,414     1,387     (2,801 )   1,249  

Other comprehensive income

     36     36     14     (50 )   36  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Comprehensive income

   $ 1,285   $ 1,450   $ 1,401   $ (2,851 ) $ 1,285  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(1)
Includes the internal allocation of gains and losses associated with the divestiture of our Broadband Network Solutions business.

22

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TE CONNECTIVITY LTD.

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

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

Condensed Consolidating Balance Sheet (UNAUDITED)
As of June 29, 2018

 
   TE
Connectivity
Ltd. 		  TEGSA   Other
Subsidiaries 		  Consolidating
Adjustments 		  Total  
 
   (in millions)
  

Assets

                                

Current assets:

                                

Cash and cash equivalents

   $ —   $ —   $ 770   $ —   $ 770  

Accounts receivable, net

     —     —     2,591     —     2,591  

Inventories

     —     —     1,961     —     1,961  

Intercompany receivables

     39     2,644     49     (2,732 )   —  

Prepaid expenses and other current assets

     6     108     505     —     619  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total current assets

     45     2,752     5,876     (2,732 )   5,941  

Property, plant, and equipment, net

     —     —     3,633     —     3,633  

Goodwill

     —     —     5,616     —     5,616  

Intangible assets, net

     —     —     1,698     —     1,698  

Deferred income taxes

     —     —     1,672     —     1,672  

Investment in subsidiaries

     12,615     25,097     —     (37,712 )   —  

Intercompany loans receivable

     2     6,562     17,639     (24,203 )   —  

Other assets

     —     —     453     —     453  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Assets

   $ 12,662   $ 34,411   $ 36,587   $ (64,647 ) $ 19,013  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Liabilities and Shareholders' Equity

    
 		    
 		    
 		    
 		    
 		  

Current liabilities:

                                

Short-term debt

   $ —   $ 712   $ 2   $ —   $ 714  

Accounts payable

     2     —     1,581     —     1,583  

Accrued and other current liabilities

     475     43     1,107     —     1,625  

Deferred revenue

     —     —     124     —     124  

Intercompany payables

     2,693     —     39     (2,732 )   —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total current liabilities

     3,170     755     2,853     (2,732 )   4,046  

Long-term debt

     —     3,289     5     —     3,294  

Intercompany loans payable

     —     17,640     6,563     (24,203 )   —  

Long-term pension and postretirement liabilities

     —     —     1,119     —     1,119  

Deferred income taxes

     —     —     227     —     227  

Income taxes

     —     —     311     —     311  

Other liabilities

     —     112     412     —     524  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Liabilities

     3,170     21,796     11,490     (26,935 )   9,521  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Shareholders' Equity

     9,492     12,615     25,097     (37,712 )   9,492  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Liabilities and Shareholders' Equity

   $ 12,662   $ 34,411   $ 36,587   $ (64,647 ) $ 19,013  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

23

Table of Contents


TE CONNECTIVITY LTD.

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

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


Condensed Consolidating Balance Sheet (UNAUDITED)
As of September 29, 2017

 
   TE
Connectivity
Ltd. 		  TEGSA   Other
Subsidiaries 		  Consolidating
Adjustments 		  Total  
 
   (in millions)
  

Assets

                                

Current assets:

                                

Cash and cash equivalents

   $ —   $ —   $ 1,218   $ —   $ 1,218  

Accounts receivable, net

     —     —     2,290     —     2,290  

Inventories

     —     —     1,813     —     1,813  

Intercompany receivables

     49     1,914     60     (2,023 )   —  

Prepaid expenses and other current assets

     4     96     505     —     605  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total current assets

     53     2,010     5,886     (2,023 )   5,926  

Property, plant, and equipment, net

     —     —     3,400     —     3,400  

Goodwill

     —     —     5,651     —     5,651  

Intangible assets, net

     —     —     1,841     —     1,841  

Deferred income taxes

     —     —     2,141     —     2,141  

Investment in subsidiaries

     11,960     20,109     —     (32,069 )   —  

Intercompany loans receivable

     —     4,027     9,700     (13,727 )   —  

Other assets

     —     6     438     —     444  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Assets

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

Liabilities and Shareholders' Equity

                                

Current liabilities:

                                

Short-term debt

   $ —   $ 708   $ 2   $ —   $ 710  

Accounts payable

     2     —     1,434     —     1,436  

Accrued and other current liabilities

     286     59     1,281     —     1,626  

Deferred revenue

     —     —     75     —     75  

Intercompany payables

     1,974     —     49     (2,023 )   —  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total current liabilities

     2,262     767     2,841     (2,023 )   3,847  

Long-term debt

     —     3,629     5     —     3,634  

Intercompany loans payable

     —     9,700     4,027     (13,727 )   —  

Long-term pension and postretirement liabilities

     —     —     1,160     —     1,160  

Deferred income taxes

     —     —     236     —     236  

Income taxes

     —     —     293     —     293  

Other liabilities

     —     96     386     —     482  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Liabilities

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

Total Shareholders' Equity

     9,751     11,960     20,109     (32,069 )   9,751  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Liabilities and Shareholders' Equity

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

24

Table of Contents


TE CONNECTIVITY LTD.

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

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


Condensed Consolidating Statement of Cash Flows (UNAUDITED)
For the Nine Months Ended June 29, 2018

 
   TE
Connectivity
Ltd. 		  TEGSA   Other
Subsidiaries 		  Consolidating
Adjustments 		  Total  
 
   (in millions)
  

Cash Flows From Operating Activities:

                                

Net cash provided by (used in) operating activities(1)

   $ (152 ) $ (34 ) $ 1,728   $ (15 ) $ 1,527  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​