6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2019

Commission File Number:  001-37775

BROOKFIELD BUSINESS PARTNERS L.P.

(Exact name of registrant as specified in its charter)

73 Front Street, 5th Floor

Hamilton, HM 12 Bermuda

(441) 294-3309

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F x          Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

DOCUMENTS FILED AS PART OF THIS FORM 6-K

On March 1, 2019, Brookfield Business Partners L.P. (the “Company”) filed a Canadian base shelf prospectus.  In connection therewith, the Company provided certain information to the Canadian securities regulatory authorities, which is set forth in the exhibits filed herewith.  See the Exhibit Index to this Form 6-K.

2

SIGNATURES

Pursuant to the requirements 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.

Date:March 5, 2019

BROOKFIELD BUSINESS PARTNERS, L.P.,
by its general partner, BROOKFIELD BUSINESS
PARTNERS LIMITED
By:	/s/ Jane Sheere
Name:	Jane Sheere
Title:	Corporate Secretary

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EXHIBIT INDEX

EXHIBIT	DESCRIPTION
99.1	The Company’s unaudited condensed pro forma financial statements, comprising (A) the Company’s unaudited pro forma statement of financial position as of September 30, 2018, and (B) the Company’s unaudited pro forma statement of operating results for the nine months ended September 30, 2018 and the year ended December 31, 2017
99.2	The audited combined financial statements of Toshiba Nuclear Energy Holdings (US), Inc. and Toshiba Nuclear Energy Holdings (UK) Ltd. and their subsidiaries (a debtor-in-possession), which comprise the combined balance sheets as of March 31, 2018 and 2017 and the related combined statements of operations and comprehensive loss, of equity (deficit) and of cash flows for the year ended March 31, 2018 and the related notes thereto, together with the report thereon of the independent auditors
99.3	The unaudited combined financial statements of Toshiba Nuclear Energy Holdings (US), Inc. and Toshiba Nuclear Energy Holdings (UK) Ltd. and their subsidiaries (a debtor-in-possession) as of June 30, 2018 and March 31, 2018 and for the three months ended June 30, 2018 and June 30, 2017
99.4	The audited combined financial statements of the Power Solutions Business of Johnson Controls International plc, which comprise the combined statements of financial position as of September 30, 2018 and 2017 and the related combined statements of income, comprehensive income (loss), invested equity and cash flows for the three years in the period ended September 30, 2018, together with the report thereon of the independent auditors
99.5	The unaudited combined financial statements of the Power Solutions Business of Johnson Controls International plc as of December 31, 2018 and September 30, 2018 and for the three months ended December 31, 2018 and 2017

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EX-99.1

Exhibit 99.1

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

In fiscal 2018 Brookfield Business Partners L.P. (the “partnership”) entered into the following transactions (the “Transactions”):

·On August 1, 2018, the partnership, together with institutional investors, completed the acquisition of Toshiba Nuclear Energy Holdings (US), Inc. and Toshiba Nuclear Energy Holdings (UK) Limited (collectively “Westinghouse”) for total consideration of $3.8 billion. The acquisition was funded with $2.9 billion in long-term debt and $920 million in cash.  The partnership acquired its share which amounted to a 44% economic interest and a 100% voting interest in Westinghouse for consideration of $1.7 billion, comprised of approximately $405 million of cash and approximately $1.3 billion of long-term financing at Westinghouse.

·On November 13, 2018, the partnership announced that it, together with its institutional partners and the Caisse de dépôt et placement du Québec, reached an agreement to acquire 100% of the Power Solutions Business of Johnson Controls International plc (“Power Solutions”) for $13.2 billion.  Completion of the acquisition is subject to various closing conditions and is expected to be a combination of share and asset purchases.  The partnership expects to finance the acquisition with approximately $10.2 billion in long-term debt and $3.0 billion in cash.  The partnership’s share is expected to be a 25% economic interest that will be funded through $750 million of cash and approximately $2.4 billion of long term debt at Power Solutions.  Prior to or following closing, a portion of the partnership’s commitment may be syndicated to other institutional investors.

·On November 26, 2018, the partnership disposed of its equity accounted investment in Quadrant Energy for proceeds of $229 million before taxes.

These unaudited pro forma financial statements have been prepared to illustrate the effects of the Transactions. The information in the unaudited pro forma statement of operating results gives effect to these transactions as if they had occurred on January 1, 2017. The information in the unaudited pro forma statement of financial position gives effect to these transactions as if they had occurred on September 30, 2018.

All financial data in the unaudited pro forma financial statements is presented in US dollars and has been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.  The unaudited pro forma financial statements have been derived by the application of pro forma adjustments to the historical financial information of the partnership and the Transactions.  The historical information has been adjusted in the unaudited pro forma financial statements to give effect to pro forma adjustments that are (1) directly attributable to the Transactions, (2) factually supportable, and (3) with respect to the unaudited pro forma statement of operating results, expected to have a continuing impact on the results of the partnership.

The unaudited pro forma financial statements are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable. The notes to the unaudited pro forma financial statements provide a detailed discussion of how such adjustments were derived and presented in the unaudited pro forma financial statements. The unaudited pro forma financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the financial position or results of operations of the partnership had the Transactions for which the partnership is giving pro forma effect actually occurred on the dates or for the periods indicated, nor is such unaudited pro forma financial information necessarily indicative of the results to be expected for any future period. A number of factors may affect our results.

UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION

US$ MILLIONS September 30, 2018	Brookfield Business Partners L.P		Westinghouse acquisition		Power Solutions acquisition		Quadrant disposition			Other pro-forma adjustments		Total pro-forma adjustments			Pro forma
Notes			(1)		(2)		(3)			(4)
Assets
Cash and cash equivalents	$	1,770	$	—	$	17	$	—		$	—	$	17		$	1,787
Financial assets	795		—		—		—			—		—			795
Accounts and other receivable, net	4,646		—		1,466		—			—		1,466			6,112
Inventory, net	1,769		—		1,559		—			—		1,559			3,328
Assets held for sale	145		—		—		(73		)	—		(73		)	72
Other assets	1,075		—		192		—			—		192			1,267
Current assets	10,200		—		3,234		(73		)	—		3,161			13,361
Financial assets	457		—		—		—			—		—			457
Accounts and other receivable, net	784		—		—		—			—		—			784
Other assets	518		—		56		—			—		56			574
Property, plant and equipment	7,067		—		2,762		—			—		2,762			9,829
Deferred income tax assets	217		—		—		—			—		—			217
Intangible assets	5,427		—		7,155		—			—		7,155			12,582
Equity accounted investments	536		—		734		—			—		734			1,270
Goodwill	2,420		—		2,362		—			—		2,362			4,782
Total assets	$	27,626	$	—	$	16,303	$	(73	)	$	—	$	16,230		43,856
Liabilities and equity
Liabilities
Accounts payable and other	$	7,683	$	—	$	1,667	$	—		$	—	$	1,667		$	9,350
Liabilities associated with assets held for sale	12		—		—		—			—		—			12
Borrowings	1,172		—		7		—			—		7			1,179
Current liabilities	8,867		—		1,674		—			—		1,674			10,541
Accounts payable and other	1,703		—		147		—			—		147			1,850
Borrowings	9,693		—		9,871		—			—		9,871			19,564
Deferred income tax liabilities	887		—		1,233		—			—		1,233			2,120
Total liabilities	21,150		—		12,925		—			—		12,925			34,075
Equity
Limited Partners	$	1,519	$	—	$	366	$	(24	)	—		$	342		$	1,861
Non-controlling interests attributable to:
Redemption-Exchange Units, Preferred Shares and Special Limited Partnership Units held by Brookfield Asset Management Inc.	1,386		—		351		(23		)	—		328			1,714
Interest of others in operating subsidiaries	3,571		—		2,661		(26		)	—		2,635			6,206
Total equity	6,476		—		3,378		(73		)	—		3,305			9,781
Total liabilities and equity	$	27,626	$	—	$	16,303	$	(73	)	$	—	$	16,230		$	43,856

UNAUDITED PRO FORMA STATEMENT OF OPERATING RESULTS

US$ MILLIONS Nine months ended September 30, 2018	Brookfield Business Partners L.P			Westinghouse acquisition			Power Solutions acquisition			Quadrant disposition			Other pro- forma adjustments		Total pro-forma adjustments			Pro forma
Notes				(1)			(2)			(3)			(4)
Revenue	$	26,959		$	2,210		$	6,720		$	—		$	—	$	8,930		$	35,889
Direct operating costs	(24,929		)	(1,651		)	(5,337		)	—			—		(6,988		)	(31,917		)
General and administrative expenses	(434		)	(267		)	(317		)	—			—		(584		)	(1,018		)
Depreciation and amortization expense	(462		)	(179		)	(475		)	—			—		(654		)	(1,116		)
Interest income (expense), net	(317		)	(129		)	(526		)	—			—		(655		)	(972		)
Equity accounted income (loss), net	1			(7		)	45			(8		)	—		30			31
Impairment expense, net	(180		)	(38		)	(4		)	—			—		(42		)	(222		)
Gain (loss) on acquisitions/dispositions, net	353			—			—			—			—		—			353
Other income (expenses), net	(63		)	(39		)	(3		)	—			—		(42		)	(105		)
Income (loss) before income tax	928			(100		)	103			(8		)	—		(5		)	923
Income tax (expense) recovery
Current	(123		)	(57		)	(161		)	3			—		(215		)	(338		)
Deferred	4			1			52			2			12		67			71
Net income (loss)	$	809		$	(156	)	$	(6	)	$	(3	)	$	12	$	(153	)	$	656
Attributable to:
Limited Partners	$	4		$	(28	)	$	(1	)	$	(1	)	$	6	$	(24	)	$	(20	)
Non — controlling interests attributable to:
Redemption-Exchange Units held by Brookfield Asset Management Inc.	4			(26		)	—			(1		)	6		(21		)	(17		)
Special Limited Partners	278			—			—			—			—		—			278
Interests of others in operating subsidiaries	523			(102		)	(5		)	(1		)	—		(108		)	415
	$	809		$	(156	)	$	(6	)	$	(3	)	$	12	$	(153	)	$	656
Basic and diluted earnings per limited partner unit (5)	$	0.06																$	(0.30	)

UNAUDITED PRO FORMA STATEMENT OF OPERATING RESULTS

US$ MILLIONS Year ended December 31, 2017	Brookfield Business Partners L.P			Westinghouse acquisition			Power Solutions acquisition			Quadrant disposition			Other pro-forma adjustments		Total pro-forma adjustments			Pro forma
Notes				(1)			(2)			(3)			(4)
Revenues	$	22,823		$	3,645		$	8,300		$	—		$	—	$	11,945		$	34,768
Direct operating costs	(21,876		)	(2,740		)	(6,401		)	—			—		(9,141		)	(31,017		)
General and administrative expenses	(340		)	(465		)	(505		)	—			—		(970		)	(1,310		)
Depreciation and amortization expense	(371		)	(317		)	(627		)	—			—		(944		)	(1,315		)
Interest expense, net	(202		)	(233		)	(690		)	—			—		(923		)	(1,125		)
Equity accounted income (loss), net	69			(8		)	70			(47		)	—		15			84
Impairment expense, net	(39		)	(38		)	(7		)	—			—		(45		)	(84		)
Gain on acquisitions/dispositions, net	267			—			—			—			—		—			267
Other income (expenses), net	(108		)	(69		)	(13		)	—			—		(82		)	(190		)
Income (loss) before income tax	223			(225		)	127			(47		)	—		(145		)	78
Income tax (expense) recovery
Current	(30		)	(46		)	(226		)	—			—		(272		)	(302		)
Deferred	22			85			81			5			13		184			206
Net income (loss)	$	215		$	(186	)	$	(18	)	$	(42	)	$	13	$	(233	)	$	(18	)
Attributable to:
Limited Partners	$	(58	)	$	(30	)	$	(2	)	$	(14	)	$	7	$	(39	)	$	(97	)
Non — controlling interests attributable to:
Redemption-Exchange Units held by Brookfield Asset Management	(60		)	(30		)	(2		)	(13		)	6		(39		)	(99		)
Special Limited Partners	142			—			—			—			—		—			142
Interests of others in operating subsidiaries	191			(126		)	(14		)	(15		)	—		(155		)	36
	$	215		$	(186	)	$	(18	)	$	(42	)	$	13	$	(233	)	$	(18	)
Basic and diluted earnings per limited partner unit (5)	$	(1.04	)															$	(1.75	)

NOTES TO THE UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS

(1)Acquisition of Westinghouse Electric Company

On August 1, 2018, the partnership completed the acquisition of Westinghouse.  The acquisition was accounted for using the acquisition method under IFRS 3, Business combinations (“IFRS 3”) with the partnership being identified as the accounting acquirer. Acquisition related costs were $51 million in the nine month period ended September 30, 2018 (year ended December 31, 2017: Nil).

The final purchase price allocation may vary based on final appraisals, valuations and analyses of the fair value of the acquired assets and assumed liabilities. Accordingly, the unaudited pro forma represents the effect of purchase accounting based on a preliminary valuation. The following shows the preliminary allocation of the purchase price for the Westinghouse acquisition for acquired identifiable assets, liabilities assumed and pro forma goodwill:

US$ MILLIONS
BBU consideration paid	$	1,686

US$ MILLIONS
Working capital	$	475
Property, plant and equipment	933
Intangible assets	2,613
Goodwill	205
Other long term assets	498
Borrowings and other non-current liabilities	(785		)
Deferred income tax liability	(97		)
Net assets acquired before non-controlling interest	3,842
Non-controlling interest	(2,156		)
Net assets acquired	$	1,686

The historical financial statements of Westinghouse are prepared in accordance with generally accepted accounting principles of the United States (“U.S. GAAP”). There are differences between U.S. GAAP and IFRS, which have been presented in the table below.  Further, the following table reflects the pro forma adjustments made to give effect to the acquisition as if it had occurred for the period beginning January 1, 2017 for the unaudited pro forma statement of operating results for the year ended December 31, 2017 and for the unaudited condensed statement of operating results for the nine month period ended September 30, 2018.

As a result of the acquisition of Westinghouse on August 1, 2018, the acquired assets and liabilities are included within in the statement of financial position as at September 30, 2018.

Westinghouse has a March 31 year end and therefore the unaudited annual pro forma statement of operating results are based on Westinghouse annual results for the twelve months ended March 31, 2018. The unaudited pro forma statement of operating results include Westinghouse pre-acquisition results from the period January 1, 2018 to July 31, 2018.

US$ MILLIONS Seven months ended July 31, 2018	Westinghouse historical US GAAP financial results			Notes	US GAAP to IFRS adjustments			Notes	Pro forma adjustments			Pro forma results for Westinghouse
Revenues	$	2,210			$	—			$	—		$	2,210
Direct operating costs	(1,650		)	(a)	(19		)	(e)	18			(1,651		)
General and administrative expenses(1)	(334		)	(b)	15			(e)	52			(267		)
Depreciation and amortization expenses	(112		)		—			(c)	(67		)	(179		)
Interest expense(2)	(43		)		—			(d)	(86		)	(129		)
Equity accounted income (loss), net	(7		)		—				—			(7		)
Impairment expense, net	(38		)		—				—			(38		)
Gain (loss) on acquisitions/dispositions, net	(208		)		—			(e)	208			—
Other income (expense), net	6,139				—			(e)	(6,178		)	(39		)
Income (loss) before income tax	5,957				(4		)		(6,053		)	(100		)
Income tax (expense) recovery
Current	(38		)		—			(f)	(19		)	(57		)
Deferred	(19		)		—			(f)	20			1
Net income (loss)	$	5,900			$	(4	)		$	(6,052	)	$	(156	)

(1)Includes research and development expenses, selling and administrative expenses and rationalizations as reported in the Westinghouse financial statements.

(2)Includes interest expense net of interest income as reported in the Westinghouse financial statements.

US$ MILLIONS Twelve months ended March 31, 2018	Westinghouse historical US GAAP financial results			Notes	US GAAP to IFRS adjustments			Notes	Pro forma adjustments			Pro forma results for Westinghouse
Revenues	$	3,645			$	—			$	—		$	3,645
Direct operating costs	(2,719		)	(a)	(39		)	(e)	18			(2,740		)
General and administrative expenses(1)	(564		)	(b)	26			(e)	73			(465		)
Depreciation and amortization expenses	(203		)		—			(c)	(114		)	(317		)
Interest expense(2)	(92		)		—			(d)	(141		)	(233		)
Equity accounted income (loss), net	(8		)		—				—			(8		)
Impairment expense, net	(38		)		—				—			(38		)
Gain (loss) on acquisitions/dispositions, net	(215		)		—			(e)	215			—
Other income (expense), net	(282		)		—			(e)	213			(69		)
Income (loss) before income tax	(476		)		(13		)		264			(225		)
Income tax (expense) recovery
Current	(22		)		—			(f)	(24		)	(46		)
Deferred	86			(f)	1			(f)	(2		)	85
Net income (loss)	$	(412	)		$	(12	)		$	238		$	(186	)

(1)Includes research and development expenses, selling and administrative expenses and rationalizations as reported in the Westinghouse financial statements.

(2)Includes interest expense net of interest income as reported in the Westinghouse financial statements.

(a)Westinghouse contributes to a defined benefit plans. The accounting for retirement benefit plans differs under U.S. GAAP and IFRS and results in differences in the measurement of net benefit expense and actuarial gains and losses).  Under U.S. GAAP, Westinghouse presented actuarial gains and losses in profit or loss. Under IFRS, all actuarial gains and losses are recognized in other comprehensive income and not included in profit and loss in subsequent periods. These measurement differences resulted in a $19 million increase in direct costs for the seven month period ended July 31, 2018 (year ended March 31, 2018: $39 million).

(b)The accounting for research and development costs differs under US GAAP and IFRS and results in differences in amounts that are permitted to be capitalized under IFRS whereas they must be expensed under US GAAP.  This has resulted in $15 million in research and development expenses being deducted from direct operating costs for the seven months ended July 31, 2018 (year ended March 31, 2018: $26 million).

(c)As a part of the acquisition, fair value adjustments applied to property, plant and equipment, and intangible assets resulted in a final carrying value of $933 million and $2.6 billion respectively with an average useful life between 10 to 15 years.  As a result, depreciation and amortization expense for the seven month period ended July 31, 2018 has increased by $67 million (year ended March 31, 2018: increase $114 million).

(d)Westinghouse received $2.9 billion in borrowings associated with the acquisition at an average interest rate of 6.9%.  An increase in interest expense associated with these new loans of $86 million has been recorded in interest expense for the seven months ended July 31, 2018 (year ended March 31, 2018: increase $141 million).

(e)One-time gains and losses associated with Westinghouse’s emergence from bankruptcy and reported in direct costs, general and administrative, and gains of acquisitions/dispositions, net and other income (expense) amounted to $18 million, $52 million, $208 million and $(6.2) billion, respectively have been removed from operating results for the seven month period ended July 31, 2018 (year ended March 31, 2018: $18 million, $73 million, $215 million, and $213 million) as they do not have a continuing impact on operating results.

(f)Where applicable, an effective tax rate of 26.5% has been applied to pro-forma adjustments related to the Westinghouse acquisition.

(2)Proposed acquisition of the Power Solutions Business of Johnson Controls International plc

On November 13, 2018, the partnership announced plans to acquire the Power Solutions business.  It is expected that the acquisition will be accounted for under the acquisition method under IFRS 3 with the partnership being identified as the accounting acquirer. Total consideration is inclusive of acquisition related costs of $354 million, of which $309 million has been capitalized net of borrowing costs, in the nine month period ended September 30, 2018 (year ended September 30, 2017: nil). The final determination of non-controlling interests and the accounting thereof is preliminary and is dependent on the completion of certain transactions and legal agreements that will effect the acquisition and are not expected to be completed until the acquisition closes.

The total consideration transferred by the partnership to complete the acquisition of Power Solutions will be allocated to assets and liabilities based upon their estimated fair values as of the date of completion of the acquisition. The allocation is dependent upon certain agreements, valuations and other studies that have not progressed to a stage where there is sufficient information to make a definitive allocation.  The pro forma purchase price adjustments are preliminary, subject to further adjustments as additional information becomes available and as additional analyses are performed, and have been made solely for the purpose of providing the unaudited pro forma financial information presented below.  Upon completion of the acquisition, final valuations will be performed. Increases or decreases in the fair value of relevant balance sheet amounts will result in adjustments to the balance sheet and/or statement of operations. There can be no assurances that the final determination will not result in material changes.

The following shows the preliminary allocation of the purchase price for the Power Solutions acquisition for acquired identifiable assets, liabilities assumed and pro forma goodwill:

US$ MILLIONS
BBU consideration paid	$	3,180

US$ MILLIONS
Working capital	$	1,502
Property, plant and equipment	2,762
Intangible assets	7,155
Goodwill	2,362
Other long term assets	790
Borrowings and other liabilities	(147		)
Deferred income tax liability	(1,728		)
Net assets acquired before non-controlling interest	12,696
Non-controlling interest	(9,516		)
Net assets acquired	$	3,180

The pro forma purchase price allocation for the Power Solutions business has been developed based on preliminary estimates of the fair values of the assets acquired and liabilities assumed, including estimates of the fair value of identifiable intangible assets acquired.  The fair value of accounts receivables, accounts payables, accrued compensation and benefits and certain portions of other assets and liabilities assumed was presumed by management to approximate their respective net book values.  The fair value of pension and postretirement benefits is recorded at fair value and therefore no adjustments are necessary.

There has been no determination as to the fair value of property and equipment for the Power Solutions Business; however, based on information received to date, management does not believe the fair value will be materially different from the historical carrying value. As such, the historical carrying value has been used in the preliminary purchase price allocation. This assertion remains contingent upon receiving additional information and performing procedures to calculate the fair value of property and equipment.

The historical financial statements of Power Solutions were prepared in accordance with U.S. GAAP. There are differences between U.S. GAAP and IFRS, which have been adjusted for in the table below.  Further, the following table reflects the pro forma adjustments made to give effect to the acquisition as if it had occurred for the period beginning January 1, 2017 for the unaudited pro forma statement of operating results for the year ended December 31, 2017 and for the unaudited pro forma statement of operating results for the nine month period ended September 30, 2018 and as if it had occurred on September 30, 2018 for the purpose of the unaudited pro forma statement of financial position.

Power Solutions has a September 30 year end and therefore the unaudited pro forma interim statement of operating results has been derived from Power Solutions annual results for the twelve months ended September 30, 2018 less the Power Solutions first quarter results for the three month period ended December 31, 2017.  The unaudited pro forma annual statement of operating results are based on Power Solutions annual results for the twelve months ended September 30, 2017.

US$ MILLIONS As at December 31, 2018	Power Solutions historical US GAAP financial results		Notes	US GAAP to IFRS adjustments			Notes	Pro forma adjustments			Pro forma results for Power Solutions
Assets
Cash and cash equivalents	$	17		$	—			$	—		$	17
Financial assets	—			—				—			—
Accounts and other receivable, net	1,466			—				—			1,466
Inventory, net	1,370			—			(d)	189			1,559
Assets held for sale	—			—				—			—
Other assets	249			—			(e)	(57		)	192
Current assets	3,102			—				132			3,234
Financial assets	—			—				—			—
Accounts and other receivable, net	—			—				—			—
Other assets	56			—				—			56
Property, plant and equipment	2,762			—				—			2,762
Deferred income tax assets	495			—			(c)	(495		)	—
Intangible assets	156			—			(k)	6,999			7,155
Equity accounted investments	463			—			(f)	271			734
Goodwill	1,085			—				1,277			2,362
Total assets	$	8,119		$	—			$	8,184		$	16,303
Liabilities and equity
Liabilities
Accounts payable and other(1)	$	1,647	(a)	$	42		(h)	$	(22	)	$	1,667
Liabilities associated with assets held for sale	—			—				—			—
Borrowings	30			—			(g)	(23		)	7
Current liabilities	1,677			42				(45		)	1,674
Accounts payable and other	147			—				—			147
Borrowings	30			—			(g)	9,841			9,871
Deferred income tax liabilities	307			—			(c)	926			1,233
Total liabilities	$	2,161		$	42			$	10,722		$	12,925
Equity
Limited Partners	$	723		$	(5	)		$	(352	)	$	366
Non-controlling interests attributable to
Redemption-Exchange Units, Preferred Shares and Special Limited Partnership Units held by Brookfield Asset Management Inc.	694			(5		)		(338		)	351
Interest of others in operating subsidiaries	4,541			(32		)		(1,848		)	2,661
Total equity	5,958		(i)	(42		)	(i)	(2,538		)	3,378
Total liabilities and equity	$	8,119		$	—			$	8,184		$	16,303

(1)Includes accounts payable, accrued income and other taxes, rationalizations and other accrued liabilities as presented in Power Solutions standalone financial statements as at September 30, 2018

(2)Includes Power Solutions equity balances with the exception of accumulated other comprehensive income as at September 30, 2018

US$ MILLIONS Nine months end September 30, 2018	Power Solutions historical US GAAP financial results			Notes	US GAAP to IFRS adjustments			Notes	Pro forma adjustments			Pro forma results for Power Solutions
Revenues	$	5,870		(a)	$	850			$	—		$	6,720
Direct operating costs	(4,470		)	(a), (b)	(860		)	(j)	(7		)	(5,337		)
General and administrative expenses(1)	(324		)		—			(j)	7			(317		)
Depreciation and amortization expenses	(184		)		—			(k)	(291		)	(475		)
Interest expense(2)	(26		)		—			(l)	(500		)	(526		)
Equity accounted income, net	45				—				—			45
Impairment expense, net	(4		)		—				—			(4		)
Gain on acquisitions/dispositions, net	—				—				—			—
Other income (expense)	(3		)		—				—			(3		)
Income (loss) before income tax	904				(10		)		(791		)	103
Income tax (expense) recovery
Current	(396		)		—			(c)	235			(161		)
Deferred	47				—			(c)	5			52
Net income	$	555			$	(10	)		$	(551	)	$	(6	)

(1)Includes research and development expenses, selling and administrative expenses and rationalizations as reported in the Power Solutions financial statements.

(2)Includes interest expense net of interest income as reported in the Power Solutions financial statements.

US$ MILLIONS Twelve months ended September 30, 2017	Power Solutions historical US GAAP financial statements			Notes	US GAAP to IFRS adjustments			Notes	Pro forma adjustments			Pro forma results for Power Solutions
Revenues	$	7,337		(a)	$	963			$	—		$	8,300
Direct operating costs	(5,341		)	(a), (b)	(1,030		)	(j)	(30		)	(6,401		)
General and administrative expenses(1)	(505		)		—				—			(505		)
Depreciation and amortization expenses	(239		)		—			(k)	(388		)	(627		)
Interest expense(2)	(30		)		—			(l)	(660		)	(690		)
Equity accounted income, net	70				—				—			70
Impairment expense, net	(7		)		—				—			(7		)
Gain on acquisitions/dispositions, net	—				—				—			—
Other income (expense)	(13		)		—				—			(13		)
Income (loss) before income tax	1,272				(67		)		(1,078		)	127
Income tax (expense) recovery
Current	(491		)		—			(c)	265			(226		)
Deferred	20			(c)	5			(c)	56			81
Net income	$	801			$	(62	)		$	(757	)	(18		)

(3)Includes research and development expenses, selling and administrative expenses and rationalizations as reported in the Power Solutions financial statements.

(4)Includes interest expense net of interest income as reported in the Power Solutions financial statements.

(a)Power Solutions recognizes revenue at the point in time when control over the goods or services transfers to the customer.  The transaction price includes the total consideration expected to be received under the contract which may include both cash and noncash components. The calculation of the transaction price for contracts containing noncash consideration includes the fair value of the noncash consideration to be received as of the contract’s inception date. Certain agreements contain price arrangements that represent material rights to customers for battery core returns. Material rights are accounted for as separate performance obligations and recognized as a deferred revenue within other current liabilities in the combined statements of financial position. Material rights are recognized as revenue as the option is exercised or expires.

Upon adoption of IFRS 15, Contracts with customers (“IFRS 15”), Power Solutions applied the new revenue standard to contracts that were not completed as of this date and recognized a cumulative-effect adjustment of a reduction to equity of $42 million, which relates primarily to deferred revenue recorded for certain battery core returns that represent a material right provided to customers.  The impact of adoption of the new revenue standard for the nine months ended September 30, 2018 resulted in an increase in revenue of $850 million and an increase in direct costs of $850 million (year ended September 30, 2017: $963 million and $963 million).

(b)Power Solutions contributes to a defined benefit plan. The accounting for retirement benefit plans differs under U.S. GAAP and IFRS and results in differences in the measurement of net benefit expense and actuarial gains and losses.  These measurement differences resulted in a $10 million increase in direct costs for the nine month period ended September 30, 2017 (year ended September 30, 2018: increase of $67 million).

(c)Net deferred tax liability reflects an increase of $926 million to adjust for the tax impact of the pro forma purchase price allocation. Upon acquisition, $495 million in deferred tax assets were written off.

Where applicable, the income tax expense for the pro forma adjustments related to Power Solutions is based on a 28% composite tax rate on the pro forma non-US earnings. The pro forma US earnings includes income attributable to flow through entities and therefore no tax expense is recorded.

(d)Inventory reflects an increase of $189 million to the carrying value of the Power Solutions Business’ inventory to adjust it to its preliminary estimated fair value.

(e)Other assets reflects a decrease in short-term derivatives in the amount of $57 million associated with the estimated extinguishment of these financial instruments that will not be acquired at the close of the acquisition.

(f)Equity accounted investments reflects an increase of $271 million to the carrying value of the Power Solutions equity accounted investments to adjust for fair value increments pertaining to the acquisition.

(g)Borrowings reflects a net increase in total debt of $9.8 billion, consisting of:

i.an increase of $10.15 billion aggregate principal amount of long-term debt relating to the acquisition of Power Solutions with a weighted average interest rate of 6.80% and maturity dates ranging from 2026 to 2027.

ii.a decrease of $309 million relating to the incurrence of debt issuance costs which have been capitalized and will be recognized as non-cash interest expense periodically over the estimated life of the related long-term debt; and

iii.$60 million of debt is expected to be repaid, which includes $30 million of debt classified as current liabilities as of December 31, 2018.

(h)Adjustments to other current liabilities reflects a decrease of $22 million associated with the estimated extinguishment of derivative liabilities that will not be assumed at the close of the acquisition.

(i)Adjustments to equity reflect a net decrease in the amount of $2.5 billion, consisting of:

i.an increase in equity to reflect the estimated Equity Contribution in the amount of $2.5 billion;

ii.a decrease in equity to reflect the elimination of Power Solutions Business’ historical equity of $5.7 billion;

iii.an increase in equity to reflect the elimination of Power Solutions Business’ historical accumulated other comprehensive loss of $442 million;

iv.a decrease in equity of $45 million relating to the portion of estimated acquisition-related, and a portion of the financing-related, transaction costs and fees, that will be expensed immediately as incurred in the future, net of the related tax benefit; and

v.an increase of $224 million to adjust the non-controlling interests to fair value in connection with the allocation of the purchase price.

(j)A decrease to cost of sales of $7 million for the nine months ended September 30, 2018 (year end September 30, 2017: $30 million) for the impact of gains and losses of derivative instruments that have been assumed to be settled as part of the acquisition. In addition, Power Solutions incurred $7 million in transaction fees which are not indicative of continuing operating expenses.

(k)As a part of the acquisition, fair value adjustments applied to technology and customer relationships resulted in an increase to the carrying of intangible assets of $7.0 billion with an average useful life of 10-15 years.  If the acquisition had occurred on January 1, 2017, the depreciation expense for the nine month period ended September 30, 2018 would have been increased by $291 million (year ended September 30, 2017: increase $388 million).  The preliminary amortization expense was calculated on a straight-line basis over the respective estimated weighted-average lives of all intangible assets.

(l)Adjustments to interest expense for the nine months ended September 30, 2018 reflect a net increase in the amount of $500 million (for the year ended September 30, 2017: $660 million), as a result of an increase to interest expense, based on an assumed weighted-average interest rate of approximately 6.8% incurred as a result of the acquisition of Power Solutions, non-cash amortization on $309 million in capitalized borrowing costs and commitment fees to be paid on certain credit facilities at a weighted average rate of approximately 45 basis points per annum; which was offset in part by an immaterial decrease in historical interest expense due to the repayment of debt.

(3)Quadrant Disposition

On November 26, 2018, the partnership disposed of its equity accounted investment in Quadrant Energy (“Quadrant”) for proceeds of $229 million.  The carrying value of the equity accounted investment in Quadrant, which was presented as an asset held for sale has been eliminated from the pro forma balance sheet.  Equity accounted earnings related to Quadrant for the nine month ended September 30, 2018 of $8 million (year ended December 31, 2017: $47 million) have also been removed for the pro forma financial statements.

(4)Other pro forma adjustments

The tax impacts of the reorganization after giving effect to certain elements of the Transactions as though they occurred on January 1, 2017 is a decrease in deferred tax expense of $12 million for the nine month period ended September 30, 2018 (year ended December 31, 2017: $13 million).

(5)Pro forma earnings per unit

The unaudited pro forma weighted average number of basic units and basic earnings per unit for the nine months ended September 30, 2018 and the year ended December 31, 2017 are based on a weighted average number of outstanding units of 66 million limited partnership units and 4 general partner units and 56 million limited partnership units and 4 general partnership units, respectively.   The unaudited pro forma weighted average number of diluted units and diluted earnings per unit for the nine months September 30, 2018 and the year ended December 31, 2017 give effect to the conversion of 63 million redemption-exchange units, which are convertible on a one to one basis for limited partnership units, by treating all units/shares as if they had been converted to limited partnership units in all periods presented.

EX-99.2

Exhibit 99.2

COMBINED FINANCIAL STATEMENTS

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

As of March 31, 2018 and 2017 and for the

Fiscal Year Ended March 31, 2018

With Report of the Independent Auditors

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Combined Financial Statements

As of March 31, 2018 and 2017 and for the Fiscal Year Ended March 31, 2018

Contents

Report of Independent Auditors	1
Combined Balance Sheets	3
Combined Statement of Operations and Comprehensive Loss	4
Combined Statement of Equity (Deficit)	5
Combined Statement of Cash Flows	6
Notes to Combined Financial Statements	7

Report of Independent Auditors

To Management and the Board of Directors of

Toshiba Nuclear Energy Holdings (US), Inc. and

Toshiba Nuclear Energy Holdings (UK) Ltd.

We have audited the accompanying combined financial statements of Toshiba Nuclear Energy Holdings (US), Inc. and Toshiba Nuclear Energy Holdings (UK) Ltd. and their subsidiaries (collectively the “Company,” a debtor-in-possession), which comprise the combined balance sheets as of March 31, 2018 and March 31, 2017, and the related combined statements of operations and comprehensive loss, equity and cash flows for the year ended March 31, 2018.

Management’s Responsibility for the Combined Financial Statements

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the combined financial statements based on our audits.  We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error.  In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.  Accordingly, we express no such opinion.  An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.  We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Toshiba Nuclear Energy Holdings (US), Inc. and Toshiba Nuclear Energy Holdings (UK) Ltd. and their subsidiaries as of March 31, 2018 and March 31, 2017, and the results of their operations and their cash flows for the year ended March 31, 2018 in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

The accompanying combined financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the combined financial statements, on March 29, 2017, Toshiba Nuclear Energy Holdings (UK) Ltd., Westinghouse Electric Company LLC (a subsidiary of Toshiba Nuclear Energy Holdings (US), Inc.) and other subsidiaries of Toshiba Nuclear Energy Holdings (US), Inc. filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, and have stated that substantial doubt exists about the Company’s ability to continue as a going concern.  Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 2.  The combined financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Our opinion is not modified with respect to this matter.

PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania

June 15, 2018

Toshiba Nuclear Energy Holdings (US), Inc. and

Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Combined Balance Sheets

	March 31
	2018			2017
	(In Thousands)
Assets
Current assets:
Cash and cash equivalents	$	845,424		$	681,569
Receivables, net of allowance for doubtful accounts of $3,130 and $9,085	483,597			502,609
Related-party receivables	12,844			17,557
Inventories, net	485,275			608,377
Costs and estimated earnings in excess of billings on uncompleted contracts	517,314			406,403
Amounts earned in excess of billings	39,605			32,914
Assets held for sale	203,124			—
Other current assets	405,016			213,827
Total current assets	2,992,199			2,463,256
Noncurrent assets:
Property, plant and equipment, net	748,543			834,610
Other intangible assets, net	969,310			1,055,269
Uranium assets	417,271			485,493
Deferred income tax assets	36,613			9,983
Investment in unconsolidated subsidiaries	6,891			18,619
Other noncurrent assets	123,865			119,396
Total noncurrent assets	2,302,493			2,523,370
Total assets	$	5,294,692		$	4,986,626
Liabilities and equity
Current liabilities:
Accounts payable	$	325,025		$	150,691
Related-party payables	1,512			668,601
Billings in excess of costs and estimated earnings on uncompleted contracts	138,484			71,173
Amounts billed in excess of revenue	270,646			247,567
Debtor-in possession loan	600,000			350,000
Liabilities held for sale	269,712			—
Other current liabilities	481,803			219,809
Total current liabilities	2,087,182			1,707,841
Noncurrent liabilities:
Reserves for decommissioning matters	30,897			46,643
Benefit obligations	121,969			145,162
Deferred income tax liabilities	67,615			125,139
Notes due to related party	—			30,590
Other noncurrent liabilities	150,237			200,626
Liabilities subject to compromise	9,103,420			8,694,395
Total noncurrent liabilities	9,474,138			9,242,555
Equity (deficit):
TNEH-US and TNEH-UK stockholders’ deficit	(6,243,418		)	(6,028,199		)
Noncontrolling interests	(23,210		)	64,429
Total equity (deficit)	(6,266,628		)	(5,963,770		)
Total liabilities and equity (deficit)	$	5,294,692		$	4,986,626

See notes to combined financial statements.

3

Toshiba Nuclear Energy Holdings (US), Inc. and

Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Combined Statement of Operations and Comprehensive Loss

	Year Ended March 31
	2018
	(In Thousands)
Net revenues	$	3,644,517
Cost of goods sold	2,809,385
Gross profit	835,132
Marketing, administrative and general expenses	605,717
Amortization of intangibles	71,402
Impairment of goodwill	37,693
Income from operations	120,320
Interest and other (expense) income:
Interest income	8,746
Interest expense	(92,041		)
Loss on foreign currency transactions, net	(59,710		)
Other expense, net	(240,589		)
Total interest and other (expense) income	(383,594		)
Loss before reorganization items and income taxes	(263,274		)
Reorganization items, net	(213,211		)
Loss before income taxes	(476,485		)
Income tax provision (benefit)	(63,692		)
Combined net loss	(412,793		)
Less net loss attributable to noncontrolling interests	(109,561		)
Net loss attributable to TNEH-US and TNEH-UK	$	(303,232	)
Combined net loss	$	(412,793	)
Other comprehensive income, net of tax:
Unrealized gain on derivatives	325
Change in unrecognized losses and prior service cost related to pension and other postretirement benefit plans	(6,419		)
Unrealized foreign currency gain on translation adjustment	96,008
Other comprehensive income, net of tax	89,914
Comprehensive loss	(322,879		)
Less comprehensive loss attributable to noncontrolling interests	(107,660		)
Comprehensive loss attributable to TNEH-US and TNEH-UK	$	(215,219	)

See notes to combined financial statements.

4

Toshiba Nuclear Energy Holdings (US), Inc. and

Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Combined Statement of Equity (Deficit)

						Accumulated			TNEH-US and
	Capital Stock of		Retained			Other			TNEH-UK
	TNEH-US and		Earnings			Comprehensive			Stockholders’			Noncontrolling			Total
	TNEH-UK		(Deficit)			Income (Loss)			Equity (Deficit)			Interests			Equity (Deficit)
	(In Thousands)
Balance at March 31, 2017	$	5,400,000	$	(10,358,278	)	$	(1,069,921	)	$	(6,028,199	)	$	64,429		$	(5,963,770	)
Comprehensive (loss) income:
Net loss attributable to controlling and noncontrolling interests	—		(303,232		)	—			(303,232		)	(109,561		)	(412,793		)
Unrealized gain on derivatives, net of tax effect of $424	—		—			325			325			—			325
Change in unrecognized losses and prior service cost related to pension and other postretirement benefit plans, net of tax effect of $(3,959)	—		—			(6,419		)	(6,419		)	—			(6,419		)
Unrealized foreign currency gain on translation adjustment	—		—			94,107			94,107			1,901			96,008
Total comprehensive (loss) income	—		(303,232		)	88,013			(215,219		)	(107,660		)	(322,879		)
Deconsolidation of subsidiary	—		—			—			—			20,206			20,206
Dividends	—		—			—			—			(193		)	(193		)
Other	—		—			—			—			8			8
Balance at March 31, 2018	$	5,400,000	$	(10,661,510	)	$	(981,908	)	$	(6,243,418	)	$	(23,210	)	$	(6,266,628	)

See notes to combined financial statements.

5

Toshiba Nuclear Energy Holdings (US), Inc. and

Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Combined Statement of Cash Flows

	Year Ended March 31
	2018
	(In Thousands)
Operating activities
Combined net loss	$	(412,793	)
Adjustments to reconcile combined net loss to net cash used in operating activities:
Depreciation and amortization	202,842
NFI held for sale impairment charge	214,134
Gain on settlement of preexisting relationship	(106,978		)
Impairment of goodwill	37,693
Deferred income taxes	(85,300		)
Loss on disposal of property, plant and equipment	8,014
Loss on foreign currency transactions, net	59,710
Equity in losses of unconsolidated subsidiaries	7,810
Pension and OPEB expense	9,758
Other	589
Changes in:
Receivables	34,508
Inventories, net	27,487
Costs and estimated earnings in excess of billings on uncompleted contracts	(109,503		)
Amounts earned in excess of billings	(6,134		)
Other current assets	(231,459		)
Other noncurrent assets	16,562
Accounts payable and other current liabilities	311,817
Billings in excess of costs and estimated earnings on uncompleted contracts	243,910
Amounts billed in excess of revenue	8,269
Noncurrent liabilities	(269,904		)
Net cash used in operating activities	(38,968		)
Investing activities
Purchases of property, plant and equipment	(106,811		)
Proceeds from sale of property, plant and equipment	17,942
Acquisitions of business, net of cash acquired	12,415
Other investing activities	(310		)
Net cash used in investing activities	(76,764		)
Financing activities
Proceeds from DIP financing	450,000
Repayment on DIP financing	(200,000		)
Other financing activities	(1,428		)
Net cash provided by financing activities	248,572
Effect of foreign currency translation	56,814
Net increase in cash and cash equivalents	189,654
Less cash included in assets held for sale	(25,799		)
Cash and cash equivalents, beginning of year	681,569
Cash and cash equivalents, end of year	$	845,424
Supplemental disclosures of cash flow information
Cash paid for interest	$	87,395
Cash paid for income taxes	$	14,103

See notes to combined financial statements.

6

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements

As of March 31, 2018 and 2017 and for the Fiscal Year Ended March 31, 2018

(In thousands)

1. Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and Significant Accounting Policies

Description of Business

The accompanying combined financial statements include the accounts of the holding companies Toshiba Nuclear Energy Holdings (US), Inc. (TNEH-US) and subsidiaries and Toshiba Nuclear Energy Holdings (UK) Ltd. (TNEH-UK) and subsidiaries (collectively, the Company). The Company operates as Westinghouse, serving the domestic and international nuclear electric power industry by supplying advanced nuclear plant designs and equipment, fuel and a wide range of other products and services to the owners and operators of commercial nuclear power plants.

At March 31, 2017, Toshiba Corporation (Toshiba) had an 87% controlling ownership in the Company. The remaining ownership was held by the National Atomic Company Kazatomprom (Kazatomprom), 10%, and IHI Corporation (IHI), 3%. On February 15, 2017, IHI notified Toshiba that it exercised its put option for the sale of all the shares it holds in the Company. Sale of the shares to Toshiba occurred on May 17, 2017. On October 2, 2017, Kazatomprom exercised its put option and sold its shares in the Company to Toshiba in January 2018. As of March 31, 2018, Toshiba owns 100% of the Company.

Basis of Financial Statement Presentation

TNEH-US and TNEH-UK are under common ownership and management, and therefore, their accounts have been combined. The Company operates on a fiscal year ended March 31st.

The accompanying combined financial statements include the assets and liabilities of the Company, its wholly-owned subsidiaries, jointly-owned subsidiaries over which it exercises control and entities for which it has been determined to be the primary beneficiary as of March 31, 2018 and 2017, and the results of operations for the fiscal year ended March 31, 2018. Noncontrolling interest amounts relating to the Company’s less-than-wholly owned consolidated subsidiaries are included within net loss attributable to noncontrolling interests in the combined statement of operations and comprehensive loss and within noncontrolling interests in the accompanying combined balance sheets. Investments in entities in which the Company has the ability to exercise significant influence but does not exercise control are accounted for using the equity method and are included in Investment in unconsolidated subsidiaries in the accompanying combined balance sheets. Unless otherwise indicated, all dollar amounts in these combined financial statements and notes thereto are presented in thousands. All significant intercompany transactions and balances have been eliminated in combination.

On March 29, 2017 (the Petition Date), TNEH-UK, Westinghouse Electric Company LLC (a subsidiary of TNEH-US), and other indirect subsidiaries of TNEH-US (collectively, the Debtors) filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York in New York City (Bankruptcy Court). The bankruptcy will allow the Company to undertake a strategic restructuring to address the financial challenges arising from construction obligations of the Vogtle and V.C. Summer AP1000 projects. Refer to Note 4 for further discussion of the U.S. AP1000 projects.

7

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

1. Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and Significant Accounting Policies (continued)

On January 29, 2018, the Company filed a joint chapter 11 plan of reorganization (the Plan) and related disclosure statement with the Bankruptcy Court. The Plan and disclosure statement were subsequently amended and/or modified. On February 22, 2018, the Bankruptcy Court approved the disclosure statement. On March 27, 2018, the Bankruptcy Court entered into an order confirming the Plan pursuant to which, upon consummation of the Plan, the Company would emerge from bankruptcy, and Brookfield Business Partners L.P. together with institutional partners (collectively, Brookfield) would acquire the Company, subject to receiving regulatory approval and satisfying other closing conditions.

On January 12, 2018, TSB Nuclear Energy Services Inc. (TNESI), TNEH-UK and Brookfield WEC Holdings LLC entered into a plan funding agreement. As contemplated in the Plan, Brookfield will provide funding, which will be used to pay the Company’s creditors, in exchange for acquiring (i) all of the newly issued shares in TNESI upon emergence from the bankruptcy cases and (ii) all of the shares of Westinghouse Electric UK Holdings Limited (WECHOL) from TNEH-UK. For further discussion of the bankruptcy, refer to Note 2.

Bankruptcy Accounting

During the pendency of the Chapter 11 proceedings, the Debtors have operated their businesses as “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the U.S. Bankruptcy Code.

The accompanying combined financial statements reflect the application of ASC 852, “Reorganizations.” ASC 852 requires that the financial statements, for periods subsequent to the Chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that are realized or incurred in the bankruptcy proceedings are recorded in reorganization items, net on the Company’s combined statement of operations and comprehensive loss. In addition, prepetition unsecured and under-secured obligations that may be impacted by the bankruptcy reorganization process have been classified as liabilities subject to compromise on the Company’s accompanying combined balance sheets at March 31, 2018 and 2017. These liabilities are reported at the amounts expected to be addressed in the Chapter 11 proceedings, although they may be settled for less.

The accompanying combined financial statements do not purport to reflect or provide for the consequences of the Chapter 11 proceedings. In particular, the combined financial statements do not purport to show: (i) the realizable value of assets on a liquidation basis or their availability to satisfy liabilities; (ii) the amount of prepetition liabilities that may be allowed for claims or contingencies, or the status and priority thereof; (iii) the effect on stockholders’ (deficit) equity accounts of any changes that may be made to the Company’s capitalization; or (iv) the effect on operations of any changes that may be made to the Company’s business. While operating as debtor-in-possession under Chapter 11 of the U.S. Bankruptcy Code, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities in amounts other than those reflected on its combined financial statements, subject to the approval of the Bankruptcy Court or otherwise as permitted in the ordinary course of business. Further, implementation of the Plan could materially change the amounts and classifications on the Company’s combined financial statements.

8

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

1. Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and Significant Accounting Policies (continued)

Going Concern

The accompanying combined financial statements have been prepared assuming the Company will continue as a going concern. Given risks involved with respect to the Chapter 11 proceedings, there is no assurance that the Company will emerge from bankruptcy proceedings as a going concern, and the realization of assets and satisfaction of liabilities, without substantial adjustments and/or changes in ownership, are also subject to uncertainty. As a result of these uncertainties, management has concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern within one year after the date the accompanying combined financial statements are issued. The Company’s ability to continue as a going concern is contingent upon the Company’s ability to comply with debtor-in-possession financing covenants, successfully implement its reorganization plan, and obtain exit financing, among other factors.

Significant Accounting Policies

Use of estimates — Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition — The Company’s products are generally sold based upon purchase orders or contracts with customers that do not include right of return provisions or other significant post-delivery obligations, beyond warranty obligations.

Revenue is recognized from product sales when title passes to the customer, the customer assumes risks and rewards of ownership, and collectability is reasonably assured. Revenue from contracts to provide construction, engineering, design or other services is reported on the percentage-of-completion method of accounting. In almost all instances, the Company bases its estimate of the degree of completion of the contract by reviewing the relationship of costs incurred to date to the expected total costs that will be incurred on the project. In the case of modifications to the contract, revenue is recognized when the change order has been agreed to by the customer and approval is probable, but generally no margin is recognized until a final executed change order is obtained.

Estimated contract earnings are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimate is recognized in the period in which the change is identified. Estimated losses are charged against earnings in the period such losses are identified. The Company recognizes revenue, but not profit, arising from contract claims either as income or as an offset against a potential loss only when the amount of the claim can be estimated reliably, realization is probable and there is a legal basis of the claim. Revenue is recorded only to the extent that costs associated with claims or unapproved change orders have been incurred. See Note 24 for additional information on claims and change orders.

9

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

1. Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and Significant Accounting Policies (continued)

Revenue for sales of multiple deliverables (which could be different combinations of the Company’s products and services in one or a series of related contracts) is recognized based on the relative selling price of the deliverables. Relative selling price is generally determined based on sales of similar products and services in standalone contracts.

Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change orders for scope and pricing, and customer acceptance issues. The reliability of these cost estimates is critical to the Company’s revenue recognition as a significant change in the estimates can cause the Company’s revenue and related margins to change significantly from the amounts estimated in the early stages of a project.

Costs and estimated earnings in excess of billings on uncompleted contracts (an asset) represent costs and estimated profit thereon in excess of related contract billings on contracts that are accounted for under the percentage-of-completion method and in progress at the balance sheet date. Billings in excess of costs and estimated earnings on uncompleted contracts (a liability) represent billings on contracts in excess of related contract costs and estimated profit thereon at the balance sheet date. Billings are generally based on the invoicing terms for contracts accounted for under the percentage-of-completion method and may have no direct relationship to the actual costs incurred at a given point in time.

Under certain contracts to supply nuclear fuel to operating plants, the Company may receive advanced payments ahead of shipments or it may ship and defer billing for a short period of time. Revenue is generally recognized when the product is shipped and risk of loss is transferred to the customer for these contracts. Billings prior to revenue recognition for these contracts are reported as amounts billed in excess of revenue in the accompanying combined balance sheets. Deferred billings after product has shipped are reported as amounts earned in excess of billings in the accompanying combined balance sheets.

Shipping and handling costs — The Company expenses shipping and handling costs as incurred. These costs are included in cost of goods sold.

Research and development expenditures — Research and development expenditures on projects not specifically recoverable directly from customers are charged to operations in the year in which incurred. The Company recorded research and development costs, which are included in marketing, administrative and general expenses in the accompanying combined statement of operations and comprehensive loss, of $57,740 for the fiscal year ended March 31, 2018.

Environmental cost — Environmental expenditures that do not extend the service lives of assets or otherwise benefit future years are expensed. Environmental expenditures related to operations that generate current or future revenues are expensed or capitalized, as appropriate. The Company records liabilities when environmental assessments or remedial efforts are probable and the costs can be reasonably estimated. Such estimates are adjusted, if necessary, as new remediation requirements are defined or as additional information becomes available.

10

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

1. Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and Significant Accounting Policies (continued)

Income taxes — TNEH-US and its U.S.-based subsidiaries file a consolidated federal income tax return. The Company files other state and foreign jurisdictional returns as required. Deferred income taxes have been provided for temporary differences between the financial reporting basis and tax carrying amounts of assets and liabilities. These differences create taxable or tax deductible amounts in future periods. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets unless it is more likely than not that such assets will be realized. Interest and penalties on uncertain tax positions are recorded in income tax expense. See Note 16 for additional information.

Translation of foreign currencies — In general, the local currencies of the Company’s foreign operations have been determined to be their functional currencies. Assets and liabilities of foreign operations are translated into U.S. dollars at exchange rates at the balance sheet date. Translation adjustments resulting from fluctuations in exchange rates are included as a separate component of accumulated other comprehensive income (AOCI). Revenue and expense accounts of these operations are translated at average exchange rates prevailing during the period. Gains and losses arising from transactions denominated in currencies other than the functional currency are included in the results of operations of the period in which they occur. Deferred taxes are not provided on translation gains and losses because the Company expects earnings of all foreign operations to be permanently reinvested.

Cash and cash equivalents — For the purposes of the accompanying combined financial statements, all highly liquid debt instruments with original maturities of three months or less are considered to be cash equivalents. Cash and cash equivalents may at times exceed federally insured amounts for U.S. bank accounts.

Receivables — Credit is regularly extended to customers for purchases made in the ordinary course of business based upon the Company’s assessment of creditworthiness. An allowance for doubtful accounts is provided for those accounts for which collection is estimated as doubtful; uncollectible accounts are written off and charged against the allowance. Increases in the allowance are charged to marketing, administrative and general expenses in the accompanying combined statement of operations and comprehensive loss. Accounts are judged to be delinquent principally based on contractual terms. In estimating the allowance, management considers, among other things, how recently and how frequently payments have been received and the financial position of the customer.

Inventories — Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out (FIFO) or average cost method depending on the nature of the inventory. Inventories are reported net of any related reserves. The elements of cost included in inventories are direct labor, direct material and certain overhead, including depreciation.

Uranium assets — Uranium, held in various forms, is used in the nuclear fuel fabrication operations of the business. The Company maintains uranium working stock in order to ensure efficient manufacturing processes. The Company classifies all uranium working stock as a noncurrent asset, and the majority of this is denominated in United States dollars. The Company also holds an amount of surplus uranium inventory, for which it periodically enters into transactions to sell uranium when appropriate opportunities arise. Such sales depend on many factors, including market price conditions, availability of willing purchasers and projected internal needs for uranium. Surplus uranium inventory is stated at the lower of cost or net realizable value and included in inventories. See Note 11 for additional information.

11

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

1. Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and Significant Accounting Policies (continued)

Property, plant and equipment — Additions and improvements to property, plant and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. Construction in progress is recorded at cost and is not depreciated until placed in service. Leasehold improvements are depreciated over the shorter of the remaining expected lease term or the estimated useful lives of the assets. The estimated lives used for depreciation purposes are as follows:

Buildings and improvements	15 to 45 years
Machinery and equipment	3 to 20 years
Computer software	3 to 10 years

Assets held under capital leases are capitalized and depreciated over their useful lives. Interest expense related to the capital lease obligations is charged to earnings over the period of the lease. Rentals under operating leases are charged on a straight-line basis over the lease term, although the payments may not be made on such a basis.

Costs of improvements and renewals are capitalized, while costs of normal maintenance and repairs are charged to expense as incurred. When property, plant and equipment are sold or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved and any resulting gain or loss is reflected in earnings.

Asset retirement obligations are recognized for decommissioning and other legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The Company recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred, if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset. This additional carrying amount is then depreciated over the estimated useful life of the asset. See Note 14 for additional information.

Goodwill and other intangible assets — Goodwill consists of the cost in excess of the fair value of the identifiable net assets of entities acquired in business combinations. Goodwill is not amortized but is tested annually for impairment, with more frequent tests required if indications of impairment exist. The Company conducts its tests of goodwill impairment on an annual basis on January 1st and on an interim basis as necessary.

Goodwill is evaluated using a one-step process: the fair value of the reporting units are estimated and compared to their respective carrying amounts. If the carrying amount exceeds the fair value, the goodwill of the reporting unit is determined be impaired. The amount of the impairment is the lesser of total goodwill for the reporting unit or the amount by which carrying value exceeds fair value for the reporting unit. If the fair value of the reporting unit exceeds the carrying value, the goodwill of the reporting report is determined to not be impaired.

12

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

1. Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and Significant Accounting Policies (continued)

The Company determines the fair values of its reporting units using a weighting of fair values derived most significantly from the income approach and, to a lesser extent, the market approach. The weighting depends on the level of comparability of publicly traded companies to the reporting unit. Under the income approach, the Company estimates the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management’s estimates of revenue growth rates, operating margins and general and administrative expenses, taking into consideration industry and market conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business’ ability to generate the projected cash flows. Under the market approach, the Company estimates fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit.

Indefinite-lived intangible assets, consisting of the Westinghouse trade name, are also evaluated for impairment on an annual basis on January 1st and on an interim basis if events or changes in circumstances between annual tests indicate that the asset might be impaired. See Note 10 for the results of these impairment tests.

The trade name is valued using the relief-from-royalty method, estimating the amount of royalty income that would be generated if the assets were licensed in an arm’s-length transaction to a third party. An impairment loss is recognized when the estimated fair value of the indefinite-lived intangible asset is less than its carrying value.

Other intangible assets with definite lives are recorded at fair market value at the time of acquisition and are amortized over their estimated useful lives. The method of amortization reflects the expected realization pattern of the economic benefits relevant to the intangible assets, or if the Company is unable to determine the expected realization pattern reliably, they are amortized using the straight-line method. See Note 10 for additional information about intangible assets.

Impairment of long-lived assets — The carrying values of long-lived assets, which include property, plant and equipment, uranium working stock and definite-lived intangible assets (developed technology, customer relationships, etc.), are evaluated whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. When factors indicate that an asset should be evaluated for possible impairment, the Company reviews long-lived assets to assess recoverability from future operations using undiscounted cash flows. If future undiscounted cash flows are less than the carrying value, an impairment is recognized to the extent that the carrying value exceeds fair value. With the exception of Nuclear Fuel Industries, Ltd. (NFI) assets classified as held for sale as discussed in Note 12, during the fiscal year ended March 31, 2018 there were no other triggering events that required long-lived assets to be evaluated for impairment.

Pensions and postretirement benefits — The Company provides postretirement benefits in the form of pensions, defined medical, dental and life insurance for eligible retirees and dependents for the benefit of the majority of employees.

13

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

1. Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and Significant Accounting Policies (continued)

The contributions to each of the funded pension plans are based on independent actuarial valuations designed to secure or partially secure the benefits as defined by local country rules. The plans are funded by contributions from the Company, and for certain plans partly from the contributions of employees, to separately administered funds. Actuarially calculated costs are charged in the accompanying combined statement of operations and comprehensive loss so as to spread the cost of pensions over the employees’ working lives. The normal cost is attributed to years of employment using a projected unit credit method. Variations in projected net pension liability from the actuarial assumptions, which are identified as a result of actuarial valuations, are amortized over the average expected remaining working lives of employees. The disclosures for the Company’s pension plans are detailed in Note 15.

Derivative instruments — The Company has entered into derivative contracts to minimize the risk to cash flows from exposure to fluctuations in foreign exchange rates. The Company recognizes all derivatives as either assets or liabilities on the combined balance sheets at fair value. Derivative contracts entered into by the Company may be designated as either a hedge of a forecasted transaction or future cash flows (cash flow hedge) if certain conditions are met. For all hedge contracts, the Company prepares formal documentation of the hedge in accordance with ASC 815, “Derivatives and Hedging”. In addition, at inception and every three months, the Company formally assesses whether the hedge contract is highly effective in offsetting changes in cash flows or fair values of hedged items.

The Company documents hedging activity by transaction type and risk management strategy. The effective portion of the derivative instruments’ gains or losses due to change in fair value, associated with the cash flow hedges, are recorded as a component of AOCI and are reclassified into earnings when the hedged items settle. Any ineffective portion of a derivative instrument’s change in fair value is recognized in earnings immediately. Cash inflows and outflows related to derivative instruments are a component of operating cash flows in the accompanying combined statement of cash flows. Recognized gains or losses on hedged instruments are included in gain on foreign currency transactions, net in the accompanying combined statement of operations and comprehensive loss. A nonhedged derivative’s change in fair value is recognized in earnings. The Company does not enter into derivative instruments or hedging activities for speculative or trading purposes. See Note 6 for additional information.

Concentrations of credit and other risks — Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash equivalents and trade receivables. It is the Company’s practice to place its cash equivalents in high-quality securities with various investment institutions.

The Company has limited exposure to credit-related losses in the event of nonperformance by counterparties to derivative instruments. The Company enters into derivative instruments with a diverse group of financial institutions, which are selected based on their credit ratings, profitability, and a capacity for timely payment of financial commitments. Agreements with certain counterparties contain master netting arrangements that allow for offsetting of all contracts with a given counterparty in the event of bankruptcy or default. The Company continually monitors its positions and the credit ratings of its counterparties. Under these master netting agreements, net settlement generally permits the Company or the counterparty to determine the net amount payable for contracts due on the same date and in the same currency for similar types of derivative transactions. In these combined financial statements derivative transactions are presented on a gross basis.

14

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

1. Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and Significant Accounting Policies (continued)

Approximately 5.1% of the Company’s workforce in the U.S. is union represented subject to collective bargaining agreements as of March 31, 2018. The individual unions may limit the Company’s flexibility in dealing with its workforce. Any work stoppage or instability within the workforce could delay the production or development of the Company’s products. This could strain relationships with customers and cause a loss of revenues, which would adversely affect the Company’s operations.

See Note 5 for additional information on concentrations.

Subsequent events — The Company has evaluated subsequent events through June 15, 2018, the date the financial statements were available to be issued. The Company has determined any subsequent events that would require disclosure in or adjustment to the accompanying combined financial statements have been properly recognized or disclosed.

Recently adopted accounting standards — The following new accounting standards have been adopted by the Company during the fiscal year ended March 31, 2018:

In July 2015, the FASB issued an ASU that simplifies the accounting for inventory and more closely aligns the measurement of inventory under U.S. GAAP with the measurement of inventory under IFRS. The ASU requires that inventory be measured at the lower of cost or net realizable value, and defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for the Company beginning April 1, 2017. The adoption of this ASU did not have an impact on the Company’s combined financial statements.

In February 2015, the FASB issued an ASU on consolidation including accounting for variable interest entities. The ASU intends to improve financial reporting by clarifying and updating the requirements for when a company should consolidate an entity such as a variable interest entity. The ASU is expected to reduce the number of variable interest entities consolidated. This ASU is effective for the Company beginning April 1, 2017. The adoption of this ASU did not have an impact on the Company’s combined financial statements.

Recently issued accounting standards — The following new accounting standards have been issued, but have not yet been adopted by the Company, as of March 31, 2018:

In May 2014, the FASB issued an ASU on revenue recognition that clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP and IFRS. The ASU intends to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, and provide more useful information to users of financial statements through improved disclosure requirements. In August 2015, and March, April, May and December 2016, the FASB issued additional ASUs on revenue recognition designed to clarify the requirements of the original revenue recognition ASU from May 2014. The Company is required to adopt this ASU on April 1, 2019 as a nonpublic entity. The new ASU is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company is currently evaluating which transition approach it will utilize and the impact this ASU will have on its combined financial statements.

15

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

1. Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and Significant Accounting Policies (continued)

In February 2016, the FASB issued an ASU on leases with the goals of increasing transparency and comparability among organizations by recognizing operating lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU also intends to bring the accounting for leases under U.S. GAAP more consistent with the accounting for leases under IFRS. For nonpublic entities such as the Company, this ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company is currently evaluating the potential impact this ASU will have on its combined financial statements.

In August 2016, the FASB issued an ASU on the statement of cash flows with the goal of standardizing the treatment of certain items not otherwise addressed in GAAP. The ASU includes guidance on debt prepayment/extinguishment costs, settlement of zero-coupon debt, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and the application of the predominance principle. For nonpublic entities such as the Company, this ASU is effective for fiscal years beginning after December 15, 2018 and for interim periods within fiscal years beginning after December 15, 2019. The Company is currently evaluating the potential impact this ASU will have on its combined financial statements.

In November 2016, the FASB issued an additional ASU on the statement of cash flows designed to further standardize the treatment of certain items not otherwise addressed in GAAP. Specifically, the ASU clarifies the presentation and classification of restricted cash. This ASU is effective as of the same reporting period as the original statement of cash flows update. The Company is currently evaluating the potential impact this ASU will have on its combined financial statements.

In March 2017, the FASB issued an ASU on retirement benefits, which changes the presentation of net periodic pension cost and net periodic postretirement benefit cost components. This update is effective for the Company for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the potential impact this ASU will have on its combined financial statements. See Note 15 for the Company’s components of net periodic pension cost and net periodic postretirement benefit cost.

In August 2017, the FASB issued an ASU on derivatives and hedging with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. This update is effective for the Company for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020, and early adoption is permitted. The Company is currently evaluating the potential impact this ASU will have on its combined financial statements.

In February 2018, the FASB issued an ASU on comprehensive income, which allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from tax reform. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the potential impact this ASU will have on its combined financial statements.

16

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

1. Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and Significant Accounting Policies (continued)

All other issued but not yet effective accounting pronouncements are not expected to have a material impact on the Company’s combined financial statements.

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code

TNEH-UK, Westinghouse Electric Company LLC (a subsidiary of TNEH-US), and other indirect subsidiaries of TNEH-US filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York in New York City on March 29, 2017. The bankruptcy will allow the Company to undertake a strategic restructuring to address the financial challenges arising from construction obligations of the Vogtle and V.C. Summer AP1000 projects.

On March 31, 2017, the Company received interim approval of an $800,000 debtor-in-possession (DIP) financing arrangement with a third-party lender to help fund and protect its core businesses during its reorganization. The Company was authorized to borrow, and borrowed, $350,000 on the DIP financing arrangement as of March 31, 2017. The Company received final approval on May 26, 2017 to borrow, and borrowed, the remaining $450,000. Pursuant to an amendment dated March 29, 2018, the DIP financing arrangement was reduced to $600,000. The DIP financing will fund the Company’s core businesses of servicing and fueling nuclear power plants as the Company works to reorganize around these business units. Prior to the Petition Date, certain existing letters of credit were cash collateralized in full by Toshiba. The DIP financing will allow for new letters of credit to be issued. See Note 17 for additional information.

The Company’s affiliates in its Europe and Asia regions, other than TNEH-UK, are not debtors in the Chapter 11 filings. However, certain Europe and Asia legal entities historically participated in a cash pooling arrangement (cash pool) that enabled global management of liquidity. Subsequent to the Company’s filing of Chapter 11, these legal entities no longer had access to this common source of liquidity. The Company has the ability to lend cash (on-lending) to these legal entities through the DIP financing that was secured by the Debtors, subject to various limitations. This practice of on-lending cash to Europe and Asia entities from the DIP has ensured no disruption to the Europe and Asia operations as a result of the Chapter 11 filings.

On the Petition Date, the Debtors filed a number of motions with the Bankruptcy Court (First Day Motions) generally designed to enable the Debtors to transition into the Chapter 11 cases and minimize disruptions to their business operations. In particular, the First Day Motions sought authority from the Bankruptcy Court for the Debtors to: (i) continue its existing cash management system; (ii) pay certain prepetition wages, salaries and other compensation and benefits of employees; (iii) pay certain prepetition claims of vendors and other providers essential to the Debtors’ businesses; (iv) pay local, state, federal and foreign taxing authorities taxes that arose prior to the Petition Date; and (v) enter into the DIP financing arrangement discussed above. The Bankruptcy Court has entered orders approving the relief sought in these motions.

17

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code (continued)

Pursuant to the U.S. Bankruptcy Code, the filing of bankruptcy petitions automatically stayed most actions against the Debtors, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Debtors’ property. Subject to certain exceptions, the filing of the petitions also automatically stayed the continuation of legal proceedings or the filing of other actions against or on behalf of the Debtors or their property to recover on, collect or secure a claim arising prior to the Petition Date unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim.

The U.S. Trustee for the Southern District of New York appointed an official committee of unsecured creditors (the statutory unsecured claimholders’ committee or UCC) on April 7, 2017. On October 2, 2017 and December 19, 2017, the U.S. Trustee filed amended notices of appointment. The UCC represents all unsecured creditors of the Debtors and has a right to be heard on all matters that come before the Bankruptcy Court.

Business Plan

The Company has developed a business plan intended to provide for a competitive cost structure necessary to improve its financial position, provide long-term stability for its stakeholders, and support the successful operation of the Company’s core businesses. Important aspects of the Company’s emergence business strategy include: (i) a continued focus on safe, cost-disciplined operations; (ii) maximization of the most profitable elements of its asset base and potential divesture of non-strategic assets; (iii) strategic investment; and (iv) a reduction of overall fixed costs.

In order to successfully emerge from the bankruptcy proceedings, the Debtors must propose and obtain confirmation from the Bankruptcy Court of a plan of reorganization that satisfies the requirements of the U.S. Bankruptcy Code. On January 29, 2018, the Company filed the Plan and the Disclosure Statement with the Bankruptcy Court. The Company subsequently filed amendments to the Plan and Disclosure Statement. On March 27, 2018, the Bankruptcy Court entered into an order confirming the Plan pursuant to which the Company can emerge from bankruptcy, subject to receiving regulatory approval and satisfying other closing conditions.

Claims Process

The Debtors have filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of the Debtors, subject to the assumptions filed in connection therewith. The schedules and statements may be subject to further amendment or modification after filing. Certain holders of pre-petition claims were required to file proofs of claim by the deadline for general claims of September 1, 2017 (the general bar date) and governmental claims of September 25, 2017 (the governmental bar date). Additional claims may be filed subsequently, if, for example, the Debtors reject executory contracts. Differences between amounts scheduled by the Debtors and claims by creditors will be investigated and resolved in connection with the claims resolution process. The Company has identified, and expects to continue to identify, many claims that it believes should be disallowed by the Bankruptcy Court. Filed claims may be disallowed if considered duplicative, without merit, later amended or superseded, overstated or for other reasons. Filed claims may also result in the recognition of additional liabilities. In light of the expected number of creditors, the claims resolution process may take considerable time to complete and will extend well past the bar dates. Accordingly, the ultimate number and amount of allowed claims is not presently known, nor can the ultimate recovery with respect to allowed claims be presently ascertained.

18

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code (continued)

Pursuant to the Plan and subject to the satisfaction or waiver of certain closing conditions:

·Brookfield will provide funding (the Purchase Price) for the Plan in the bankruptcy cases in exchange for acquiring, as provided in the Plan, (i) newly issued shares in TNESI upon emergence from the bankruptcy cases (such interests, constituting one-hundred percent (100%) of the issued and outstanding shares of the reorganized company) and (ii) all of the issued and outstanding shares in WECHOL from TNEH UK.

·The Purchase Price shall be an amount in cash equal to the sum of (a) $3,802,000 plus (b) the final acquired company cash, minus (c) the final acquired company debt, plus (d) the final working capital increase (if any), minus (e) the final working capital decrease (if any), plus (f) the final solvency tax adjustment (which can be a negative number), if any.

·A limited liability company (Wind Down Co) will be established for the benefit of holders of claims against the Debtors. Brookfield shall deliver the net plan investment proceeds to Wind Down Co and the excluded assets and excluded liabilities shall be transferred from the Debtors to Wind Down Co.

·Wind Down Co will have the responsibility to pay the allowed administrative expense claims, allowed professional fee claims, allowed priority tax claims and DIP claims in full.

·Other claims and interests will be treated as follows:

·Other Priority Claims (Class 1) - Each holder of an allowed Other Priority Claim shall receive, in full and final satisfaction of such claim, cash distributions in an amount equal to the allowed amount of such claim.

·Other Secured Claims (Class 2) - Each holder of an allowed Other Secured Claim shall, at the option of Wind Down Co or the reorganized Debtors (as applicable): (i) be paid the allowed amount of such Other Secured Claim in full in cash in full and final satisfaction of such claim, (ii) receive delivery of the collateral securing such allowed Other Secured Claim and payment of any interest required under the Bankruptcy Code, or (iii) have its allowed Other Secured Claim reinstated pursuant to the Bankruptcy Code.

·General Unsecured Claims (Class 3A) - Each holder of an allowed Class 3A General Unsecured Claim (other than holders of Cash Pool Claims) shall receive, in full and final satisfaction of such claim, cash distributions, in an amount equal to (as defined in the Plan) the lesser of (1) its pro rata share of $1,150,000, and (2) 100% of the amount of such allowed 3A General Unsecured Claim. In no event shall the holder of a Class 3A General Unsecured Claim receive distributions in excess of the allowed amount of such Claim, or in respect of postpetition interest.

19

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code (continued)

·General Unsecured Claims (Class 3B) — Each holder of an allowed Class 3B General Unsecured Claim shall receive its pro rata share of 100% of the membership interests in Wind Down Co, which pursuant to the provisions of the Plan, the plan oversight board by-laws and the Wind Down Co organizational documents, will be obligated to distribute available cash from time to time to its members. Certain allowed Class 3B General Unsecured Claims shall be deemed to be subordinated to all other allowed Class 3B General Unsecured Claims.

·Intercompany Claims (Class 4) - At the option of the Debtors, subject to the terms of the plan funding agreement, holders of allowed Intercompany Claims shall have such claims reinstated, settled, offset, cancelled, extinguished or eliminated, including by way of capital contribution.

·TNESI Claims (Class 5) - The holders of interests in TNESI shall not receive or retain any property or distributions under the Plan on account of such interests. Interests in TNESI shall be cancelled upon consummation of the Plan.

·TNEH-UK Interests (Class 6) - The holders of interests in TNEH-UK shall not receive or retain any property or distributions under the Plan on account of such interests. Interests in TNEH-UK shall be cancelled upon consummation of the Plan.

·Intercompany Interests (Class 7) - Each Intercompany Interest shall be reinstated upon consummation of the Plan.

Debtor Financial Statements

The following condensed combined financial statements represent the financial statements for the Debtors only. The Company’s Non-Debtor Subsidiaries are accounted for as non-consolidated subsidiaries in these financial statements and, as such, their net income is included in income from non-debtor entities in the condensed combined statement of operations, and their net assets are included as investments in non-debtor entities in the condensed combined balance sheets. The Debtors’ condensed combined financial statements have been prepared in accordance with the guidance in ASC 852.

Intercompany transactions between the Debtors have been eliminated in the condensed combined financial statements. Intercompany transactions between the Debtors and Non-Debtor Subsidiaries have not been eliminated in the Debtors’ condensed combined financial statements.

20

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code (continued)

The condensed combined balance sheets of the Debtors as of March 31, 2018 and 2017, and condensed combined statements of operations and cash flows for the fiscal year ended March 31, 2018 consist of the following:

Debtor Only Condensed Combined Balance Sheets

	2018			2017
Assets
Current assets:
Cash and cash equivalents	$	540,502		$	531,438
Accounts receivables, net	237,331			303,866
Inventories, net	282,394			250,499
Costs and estimated earnings in excess of billings on uncompleted contracts	263,299			254,151
Amounts earned in excess of billings	34,655			26,010
Intercompany receivables from non-debtor subsidiaries	296,624			57,931
Other current assets	249,047			162,067
Total current assets	1,903,852			1,585,962
Noncurrent assets:
Property, plant and equipment, net	447,185			484,298
Other intangible assets, net	728,086			783,719
Deferred income tax assets	11,926			—
Loans receivable from non-debtor affiliates	817,911			700,041
Investment in non-debtor subsidiaries	395,417			667,082
Other noncurrent assets	344,668			225,570
Total noncurrent assets	2,745,193			2,860,710
Total assets	$	4,649,045		$	4,446,672
Liabilities and equity (deficit)
Current liabilities:
Accounts payable	$	188,622		$	29,028
Billings in excess of costs and estimated earnings on uncompleted contracts	136,211			—
Debtor-in-possession loan	600,000			350,000
Other current liabilities	124,206			43,845
Total current liabilities	1,049,039			422,873
Noncurrent liabilities:
Deferred income tax liabilities	—			43,542
Other noncurrent liabilities	98,596			52,497
Liabilities subject to compromise	10,139,810			10,267,945
Total noncurrent liabilities	10,238,406			10,363,984
Equity (deficit)	(6,638,400		)	(6,340,185		)
Total liabilities and equity (deficit)	$	4,649,045		$	4,446,672

21

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code (continued)

Debtor Only Condensed Combined Statement of Operations

	2018
Net revenues	$	2,570,331
Cost of goods sold	1,990,600
Gross profit	579,731
Marketing, administrative and general expenses	390,879
Amortization and impairment of intangibles	55,633
Income from operations	133,219
Interest and other (expense) income:
Interest income	25,159
Interest expense	(75,297		)
Equity in losses of non-debtor subsidiaries	(347,344		)
Gain on foreign currency transactions, net	3,139
Other (expense) income, net	(22,504		)
Total interest and other expense	(416,847		)
Loss before reorganization items and income taxes	(283,628		)
Reorganization items, net	(190,635		)
Loss before income taxes	(474,263		)
Income tax benefit	(67,519		)
Combined net loss	$	(406,744	)

22

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code (continued)

Debtor Only Condensed Combined Statement of Cash Flows

	2018
Operating activities
Combined net loss	$	(406,744	)
Adjustments to reconcile combined net loss to net cash used in operating activities:
Depreciation, amortization, and impairment	148,528
Equity in losses and tax impact of unconsolidated subsidiaries	325,913
Loss on forgiveness of loans	5,838
Other operating activities	(130,327		)
Net cash used in operating activities	(56,792		)
Investing activities
Purchases of property, plant and equipment	(64,680		)
Other investing activities	17,872
Net cash used in investing activities	(46,808		)
Financing activities
Proceeds from DIP financing	250,000
Net proceeds from related-party loans	(137,417		)
Net cash provided by financing activities	112,583
Effect of foreign currency translation	81
Net increase in cash and cash equivalents	9,064
Cash and cash equivalents, beginning of year	531,438
Cash and cash equivalents, end of year	$	540,502

Reorganization items, net

In accordance with ASC 852, the statement of operations shall portray the results of operations of the reporting entity during the pendency of the Chapter 11 cases. Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses resulting from reorganization of the business are reported separately as reorganization items, net in the accompanying combined statement of operations and comprehensive loss. The Company’s reorganization items for the fiscal year ended March 31, 2018 consist of the following:

	2018
Legal and professional fees	$	182,104
Contract rejections and claim settlements	29,008
Other	2,099
Reorganization items, net	$	213,211

23

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code (continued)

Cash paid for reorganization items was $130,935 during the fiscal year ended March 31, 2018.

Liabilities Subject to Compromise

Liabilities subject to compromise include unsecured or under-secured liabilities incurred prior to the Petition Date. These liabilities represent the amounts expected to be allowed on known or potential claims to be resolved through the Chapter 11 cases and remain subject to future adjustments based on negotiated settlements with claimants, actions of the Bankruptcy Court, rejection of executory contracts, proofs of claims or other events. Additionally, liabilities subject to compromise also include certain items that may be assumed, and as such, may be subsequently reclassified to liabilities not subject to compromise. The following table summarizes the components of liabilities subject to compromise included accompanying combined balance sheets as of March 31, 2018 and 2017:

	2018			2017
Accounts payable	$	769,899		$	840,342
Billings in excess of costs and estimated earnings on uncompleted contracts (1)	678,509			870,000
Other current liabilities	94,687			83,479
Reserves for decommissioning matters	139,337			134,886
Benefit obligations (2)	426,036			419,371
Loans due to Toshiba	—			257,190
Loans due to third-parties	906,600			—
Loans due to non-debtor affiliates	1,036,390			1,573,550
Stone & Webster deferred purchase price	163,196			163,196
U.S. AP1000 EPC contract liability (3)	5,848,000			5,848,000
Other noncurrent liabilities	77,156			77,931
Liabilities subject to compromise (Debtors only)	$	10,139,810		$	10,267,945
Less: amounts related to non-debtor affiliates eliminated in consolidation	(1,036,390		)	(1,573,550		)
Liabilities subject to compromise	$	9,103,420		$	8,694,395

(1)Balances pertain to contracts commencing prior to the Petition Date. Until these contracts are assumed or rejected by the Company through court proceedings, or otherwise completed, these balances are considered subject to compromise. Upon assumption or rejection, the balances will be reclassified to liabilities not subject to compromise or adjusted to the determined allowed claim amount, respectively. Inclusion of these balances in liabilities subject to compromise is not an indication that contracts have been or will be rejected.

(2)Includes liabilities for pension of $375,181 and $362,156, deferred compensation of $8,809 and $8,809 and other postretirement benefit plans of $42,046 and $48,406 at March 31, 2018 and 2017, respectively.

(3)See Note 4 for additional information.

24

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

3. Acquisitions

On November 23, 2017 (the Acquisition Date), the Company signed an agreement to purchase Toshiba’s 70% equity interest in Mangiarotti S.p.A. (Mangiarotti), an Italian manufacturer of components for the nuclear, oil, and gas industries. Combined with the Company’s existing 30% equity interest in Mangiarotti, the transaction provided the Company with 100% of the outstanding share capital of Mangiarotti. The acquisition of Mangiarotti will help the Company better support its customer relationships, enhance its ability to deliver results on customer projects and expand its capabilities in the non-nuclear market (particularly oil and gas).

The Company acquired Mangiarotti for cash consideration of one euro, but certain other transactions have also been deemed part of the business combination and therefore the consideration transferred was as follows:

NFI Transfer — The Company agreed to sell, and Toshiba agreed to purchase, the Company’s 52% interest in Nuclear Fuel Industries, Ltd. (NFI) for one whole U.S. dollar. As of March 31, 2018, the NFI Transfer had not yet closed, and the assets and liabilities of NFI have been classified as held for sale in the accompanying combined balance sheet as of that date (see Note 12). However, as of the Acquisition Date, the fair value of the Company’s 52% interest in NFI was negative $17,678, thus reducing total consideration transferred. A valuation allowance was recognized to adjust the carrying amount of NFI to fair value less cost to sell. This resulted in a charge to other expense, net of $214,497 in the accompanying combined statement of operations and comprehensive loss for the fiscal year ended March 31, 2018. Of the loss recorded, $111,538 was reported in net loss attributable to TNEH-US & TNEH-UK, and $102,959 was reported in net loss attributable to noncontrolling interests.

Claim Swap — WECHOL Toshiba agreed to exchange a portion of WECHOL’s unsecured bankruptcy claim against WEC LLC in the principal amount of $650,000 (the WECHOL Cash Pooling Claim) and Toshiba’s loan to WECHOL in the principal amount of $650,000 (including any interest, fees, or other amounts accrued in connection with the loan) (the WECHOL Loan). As of the Acquisition Date, the fair value of the Claim Swap was estimated to be negative $10,257, thus reducing total consideration transferred.

Effective Settlement of Supply Contract — Westinghouse Electrique France (WEF), a wholly-owned subsidiary of WECHOL and the Company, has subcontracted Mangiarotti for the fabrication and assembly of replacement steam generators on behalf of a third-party customer. In accordance with ASC 805, “Business Combinations,” the Company recognized a gain on the effective settlement of this preexisting relationship of $106,978 recorded as a reduction to cost of goods sold in the accompanying combined statement of operations and comprehensive loss for the fiscal year ended March 31, 2018. This represents the estimated amount the contract terms are favorable to WECHOL compared to pricing for current market transactions for the same deliverables and therefore the amount Mangiarotti would need to pay WECHOL to assume the contract in a separate market transaction.

Equity Method Accounting — As of the Acquisition Date, the historical basis of WECHOL’s 30% investment in Mangiarotti had been reduced to zero, resulting in the suspension of subsequent equity method losses. Upon agreeing to purchase a controlling interest in Mangiarotti, the Company became committed to providing financial support to Mangiarotti. Accordingly, previously suspended equity method losses of $9,712 were recognized in other expense, net in the accompanying combined statement of operations and comprehensive loss for the fiscal year ended March 31, 2018.

25

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

3. Acquisitions (continued)

In summary, the fair value of the consideration transferred as of the Acquisition Date is the following:

	November 23, 2017
Consideration transferred:
Fair value of NFI Transfer	$	(17,678	)
Fair value of Claim Swap	(10,257		)
Fair value of existing equity interest and previously unrecognized equity method losses in Mangiarotti	(9,712		)
Gain on effective settlement of supply contract	106,978
Total consideration transferred	$	69,331

26

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

3. Acquisitions (continued)

The acquisition was accounted for under the acquisition method of accounting. As such, consideration was allocated to acquired tangible and intangible assets and liabilities according to their fair values. The following table summarizes the final amounts recognized for assets acquired and liabilities assumed as of the Acquisition Date:

	November 23, 2017
Assets acquired
Current assets:
Cash and cash equivalents	$	12,417
Receivables, net	4,929
Inventories, net	6,477
Costs and estimated earnings in excess of billings on uncompleted contracts	27,409
Other current assets	6,761
Total current assets	57,993
Noncurrent assets:
Property, plant and equipment, net	34,203
Goodwill	37,693
Other noncurrent assets	273
Total noncurrent assets	72,169
Total assets acquired	$	130,162
Liabilities assumed
Current liabilities:
Accounts payable	$	17,632
Billings in excess of costs and estimated earnings on uncompleted contracts	13,486
Contract loss reserve	12,025
Short-term bank borrowing	1,426
Other current liabilities	12,581
Total current liabilities	57,150
Noncurrent liabilities:
Long-term bank borrowing	3,142
Deferred income tax liabilities	539
Total noncurrent liabilities	3,681
Total liabilities assumed	$	60,831
Total consideration transferred	$	69,331

Of the goodwill recognized, none is expected to be deductible for income tax purposes. See Note 10 for additional information on goodwill and goodwill impairment.

27

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

3. Acquisitions (continued)

The Company calculated the pro forma impact of the Mangiarotti acquisition on its operating results for the year ended March 31, 2018. The following unaudited combined pro forma summary gives effect to the acquisition as if it had occurred on April 1, 2017:

	2018
Net revenues	$	3,682,688
Combined net loss	(431,631		)

4. U.S. AP1000 Projects

As a result of the aforementioned AP1000 financial and construction challenges and the resulting Chapter 11 filing, there was substantial uncertainty whether the Company would be able to continue performing under the Vogtle and V.C. Summer Engineering, Procurement, & Construction (EPC) contracts without substantial modification. As of March 31, 2017, the Company had reached agreements, in conjunction with its filing for Chapter 11, to continue both U.S. AP1000 projects under interim service contracts during an initial assessment period.

In June 2017 and July 2017, respectively, Toshiba, as the guarantor of the U.S. AP1000 projects, entered into settlement agreements with the owners of Vogtle and V.C. Summer to settle the maximum obligations under its guarantees. The Company determined there was substantial uncertainty as to whether it could complete the Vogtle and V.C. Summer AP1000 contracts for less than certain maximum project costs and the liability for these projects was adjusted to $5,848,000. This liability is recorded within liabilities subject to compromise in the accompanying combined balance sheets as of March 31, 2018 and 2017.

In July 2017, the Company entered into a new long-term fully cost reimbursable services contract for the Vogtle AP1000 project. On August 31, 2017, owners of the Vogtle AP1000 project filed a recommendation with the Georgia Public Service Commission to continue construction. The Company is currently performing to the requirements of the July 2017 Vogtle AP1000 services contract.

On July 31, 2017, owners of the V.C. Summer AP1000 project announced that they would cease construction and seek to abandon the project. The Company is no longer required to satisfy the performance obligations of the V.C. Summer EPC contract or the V.C. Summer interim services contracts.

The Company has developed a business plan, as described in Note 2. As a matter of strategy considered in the development of the business plan, the Company has said it will no longer serve as the constructor in the execution of the nuclear construction scope of any future EPC project; however, it remains committed to its AP1000 technology as the industry’s premier Gen III+ nuclear power plant design and will continue its existing projects in China as well as pursuit of other potential projects in the future.

28

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

5. Concentrations

The Company derives the majority of its revenue from sales and services, including engineering and construction, to the energy industry. Sales to individual customers representing 10% or more of net sales were:

Customers	2018
Number of customers	Two
Respective percentage of total revenue	16% and 14%

Trade receivables are generated from a broad and diverse group of customers. As of March 31, 2018 and 2017, there were customers who individually accounted for at least 10% of total receivables as follows:

Customers	2018	2017
Number of customers	Two	One
Respective percentage of total receivables	27% and 13%	19%

The Company maintains an allowance for losses based upon the expected collectability of all trade receivables.

6. Fair Value Measurements and Derivative Instruments

Assets and Liabilities Measured At Fair Value on a Recurring Basis

The fair value of financial instruments classified as cash and cash equivalents, receivables, related-party receivables, accounts payable, related-party payables and notes due to related party approximate carrying value due to the short-term nature and the relative liquidity of the instruments.

The Company uses derivative financial instruments as part of its risk management program to mitigate the market risk that occurs from its exposure to changes in foreign exchange rates. Techniques for managing foreign exchange risk include, but are not limited to, foreign currency borrowing and investing and the use of currency derivative instruments. The purpose of the Company’s foreign currency management activities is to protect from the risk that the eventual cash flows resulting from the sale and purchase of services and products in foreign currencies will be adversely affected by changes in exchange rates, not for speculative or trading purposes.

Changes in the fair value of a derivative designed and qualified as a cash flow hedge, to the extent effective, are included in equity as accumulated other comprehensive income (loss) until earnings are affected by the hedged transaction. The Company discontinues hedge accounting prospectively when it has determined that a derivative no longer qualifies as an effective hedge. No outstanding derivatives as of March 31, 2018 are designated in a hedging relationship. Amounts in accumulated other comprehensive income (loss) associated with de-designated hedges will be reclassified into income when the underlying exposure is set to mature and also when an exposure changes enough that it no longer would qualify for hedge accounting.

29

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

6. Fair Value Measurements and Derivative Instruments (continued)

The degree of judgment utilized in measuring the fair value of the instruments generally correlates to the level of pricing observability. Pricing observability is impacted by a number of factors, including the type of asset or liability, whether the asset or liability has an established market and the characteristics specific to the transaction. Instruments with readily active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, assets rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment utilized in measuring fair value.

Under existing GAAP, there is a disclosure framework hierarchy associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by the hierarchy are as follows:

·Level 1 — Quoted prices in active markets for identical assets and liabilities at the measurement date.

·Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities including the following:

·Quoted prices for similar assets and liabilities in active markets

·Quoted prices for identical or similar assets or liabilities in markets that are not active

·Inputs that are derived principally from or corroborated by observable market data by correlation or other means

·Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The Company has classified all foreign exchange contracts as Level 2 with respect to the fair value hierarchy and there were no transfers between the levels during this or comparable periods.

Derivative Instruments and Hedging Activities

Forward foreign exchange contracts, which are commitments to buy or sell a specified amount of a foreign currency at a specified price and time, are primarily utilized to reduce the risk from foreign currency price fluctuations related to firm or anticipated sales transactions, commitments to purchase or sell equipment, materials and/or services, and principal and interest payments denominated in a foreign currency. These contracts generally have an expiration date of five years or less.

The Company determines the fair value of foreign exchange contracts using a mark-to-market model, incorporating real market pricing with probable variables, with all amounts recognized in the combined statement of operations and comprehensive loss.

30

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

6. Fair Value Measurements and Derivative Instruments (continued)

Although the Company is party to master netting agreements (ISDA agreements) with all derivative counterparties, the fair values in the tables below and in the combined balance sheets at March 31, 2018 and 2017 have been presented on a gross basis. The amounts subject to netting agreements that the Company choose not to offset are presented later in this note. According to the netting agreements, transaction amounts payable to a counterparty on the same date and in the same currency can be netted.

Derivatives Not Designated As Hedging Instruments

Derivatives, not designated as hedging instruments, relate to economic hedges and are marked-to-market with all amounts recognized in the combined statement of operations and comprehensive loss. The derivatives not designated as hedging instruments outstanding at March 31, 2018 and 2017 are foreign exchange swaps and forwards.

The following table presents the fair values of derivative instruments included in the accompanying combined balance sheets as of March 31, 2018 and 2017:

	Asset Derivatives
		Fair Value
	Balance Sheet Location	2018		2017
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other current assets	$	6,303	$	13,035
Foreign exchange contracts	Other noncurrent assets	12,209		38,415
Total asset derivatives		$	18,512	$	51,450

	Liability Derivatives
		Fair Value
	Balance Sheet Location	2018			2017
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other current liabilities	$	(17,201	)	$	(25,295	)
Foreign exchange contracts	Other noncurrent liabilities	(21,383		)	(24,745		)
Total liability derivatives		(38,584		)	(50,040		)
Less: amount subject to compromise (see Note 2)		815			815
Derivative liability not subject to compromise		$	(37,769	)	$	(49,225	)
Net (liability) asset position		$	(19,257	)	$	2,225

31

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

6. Fair Value Measurements and Derivative Instruments (continued)

The following table presents the pretax effect of derivative instruments in the accompanying combined statement of operations and comprehensive loss for the fiscal year ended March 31, 2018:

Derivatives not designated	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
as hedging instruments	2018		Location
Foreign exchange contracts	$	717	Loss on foreign currency transactions, net

Derivatives not designated	Amount of Gain (Loss) Recognized in Income on Derivatives
as hedging instruments	2018			Location
Foreign exchange contracts	$	(20,728	)	Loss on foreign currency transactions, net

Assuming market rates remain the same, the Company estimates $1,301 of the unrealized net losses on these derivatives to be reclassified into earnings in the next 12 months. At March 31, 2018, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows associated with foreign currency forecasted transactions is through December 2021.

32

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

6. Fair Value Measurements and Derivative Instruments (continued)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company also has assets and liabilities in its balance sheet that are measured at fair value on a non-recurring basis. Assets and liabilities that are measured at fair value on a non-recurring basis include long-lived assets.

The Company has determined that the fair value measurements included in each of these assets and liabilities rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets and settlements of liabilities, as observable inputs are not available. The Company has determined that each of these fair value measurements reside within Level 3 of the fair value hierarchy.

In conjunction with the acquisition of Mangiarotti, assets acquired, including goodwill which was immediately impaired, and liabilities assumed were measured on a nonrecurring basis using Level 3 inputs. For additional information, see policy on “goodwill and other intangible assets” in Note 1 and discussion of the acquisition and impairment in Notes 3 and 10, respectively.

7. Receivables, net

At March 31, 2018 and 2017, receivables, net consist of the following:

	2018			2017
Trade receivables	$	486,727		$	511,694
Allowance for doubtful accounts	(3,130		)	(9,085		)
Receivables, net	$	483,597		$	502,609

Amounts presented above for the fiscal year ended March 31, 2018 exclude NFI assets held for sale. See Note 12.

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the trade receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. Activity in the allowance for doubtful accounts during the fiscal year ended March 31, 2018 was as follows:

	2018
Balance, beginning of year	$	(9,085	)
Increase in allowance recognized in profit or loss	(2,495		)
Amounts written off during the year	8,587
Foreign currency translation effect	(137		)
Balance, end of year	$	(3,130	)

33

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

8. Inventories

At March 31, 2018 and 2017, inventories consist of the following:

	2018			2017
Raw materials and consumables	$	157,586		$	200,380
Work in process	98,614			172,625
Finished goods	161,138			230,964
Engineering inventory	4,947			2,910
Uranium inventory available for sale	80,704			15,051
Gross inventories	502,989			621,930
Inventory reserve	(17,714		)	(13,553		)
Inventories, net	$	485,275		$	608,377

Amounts presented above for the fiscal year ended March 31, 2018 exclude NFI assets held for sale. See Note 12.

9. Property, Plant and Equipment

At March 31, 2018 and 2017, property, plant and equipment consist of the following:

	2018			2017
Land	$	38,794		$	36,848
Buildings and improvements	274,031			388,059
Machinery and equipment	1,158,499			1,186,783
Computer software	185,218			186,108
Construction in progress	143,258			105,391
Total	1,799,800			1,903,189
Accumulated depreciation	(1,051,257		)	(1,068,579		)
Property, plant and equipment, net	$	748,543		$	834,610

Amounts presented above for the fiscal year ended March 31, 2018 exclude NFI assets held for sale. See Note 12.

Depreciation expense for the fiscal year ended March 31, 2018 has been classified in the accompanying combined statement of operations and comprehensive loss as follows:

	2018
Cost of goods sold	$	89,715
Marketing, administrative and general expenses	41,725
Total	$	131,440

34

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

10. Goodwill and Intangible Assets

Goodwill

Changes in the carrying amount of goodwill during the fiscal year ended March 31, 2018, are as follows:

	2018
Balance at March 31, 2017	$	—
Acquisition of Mangiarotti	37,693
Impairment of goodwill	(37,693		)
Balance at March 31, 2018	$	—

The goodwill recognized during the fiscal year ended March 31, 2018 of $37,693 is related to Mangiarotti acquisition. See Note 3 for additional information on acquisitions. Goodwill at March 31, 2018 is net of accumulated impairment losses of $37,693, which all is related to Mangiarotti.

Intangible Assets

The carrying amounts (net of accumulated impairments) and accumulated amortization of identifiable intangible assets as of March 31, 2018 and 2017 are as follows:

		2018						2017
	Life(in years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Contracted customer relationships	5–24	$	30,119	$	30,119	$	—	$	92,362	$	51,673	$	40,689
Noncontracted customer relationships	25	194,492		89,466		105,026		189,914		79,764		110,150
Developed technology	5–25	1,372,998		710,859		662,139		1,348,050		636,342		711,708
Trade name	10	521		71		450		—		—		—
Trade name	Indefinite	198,070		—		198,070		188,722		—		188,722
Patent	20	7,485		3,860		3,625		7,486		3,486		4,000
Total		$	1,803,685	$	834,375	$	969,310	$	1,826,534	$	771,265	$	1,055,269

Amounts presented above for the fiscal year ended March 31, 2018 exclude NFI assets held for sale. See Note 12.

Amortization expense was $71,402 for the fiscal year ended March 31, 2018. There were no significant intangible assets acquired during 2018.

35

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

10. Goodwill and Intangible Assets (continued)

The table below presents the expected amortization expense for definite-lived intangible assets for the next five years and thereafter as of March 31, 2018. The amortization amounts disclosed below are estimates. Actual amounts may differ from these estimates due to such factors as sales or impairments of intangible assets, acquisition of additional intangible assets, foreign currency translation and other events.

For the fiscal year ending March 31:
2019	$	70,165
2020	70,162
2021	70,016
2022	70,016
2023	70,016
Thereafter	420,865
Total	$	771,240

11. Uranium Assets

Below is the classification of uranium assets within the accompanying combined balance sheets as of March 31, 2018 and 2017:

	2018		2017
Current uranium assets:
Available for sale (included within inventories, net)	$	80,704	$	15,051
Uranium assets on loan from customer (included within other current assets)	—		43,965
Uranium assets on loan from related party (included within other current assets)	15,065		—
Total current uranium assets	95,769		59,016
Noncurrent uranium assets:
Long-term uranium working stock	37,108		38,811
Uranium held for sales commitments	218,713		270,167
Uranium leased to external party	132,950		132,950
Uranium assets on loan from related party	28,500		43,565
Total noncurrent uranium assets	417,271		485,493
Net uranium assets	$	513,040	$	544,509

36

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

12. Assets Held for Sale

As discussed in Note 3, on November 23, 2017, the Company signed an agreement to purchase Toshiba’s 70% equity interest in Mangiarotti. As part of the consideration transferred in exchange for Mangiarotti, the Company agreed to sell, and Toshiba agreed to purchase, the Company’s 52% interest in NFI for one whole U.S. dollar (the NFI Transfer). However, as of March 31, 2018, the NFI Transfer had not yet closed, and the assets and liabilities of NFI have been classified as held for sale in the Company’s combined balance sheet as of that date. The NFI Transfer is expected to close during the fiscal year ending March 31, 2019. The Company determined that the pending disposal of NFI does not meet the criteria for discontinued operations reporting, as it does not represent a strategic shift that will have a major effect on the Company’s operations and financial results.

In conjunction with classifying the assets and liabilities of NFI as held for sale, the Company revalued the subsidiary to fair value less costs to sell, recognizing a loss for the difference between that amount and the previous adjusted carrying amount. Of the aggregate $214,497 loss recorded, $111,538 was reported in net loss attributable to TNEH-US & TNEH-UK and $102,959 was reported in net loss attributable to noncontrolling interests.

The following table summarizes the major classes of assets and liabilities classified as held for sale in the Company’s combined balance sheet as of March 31, 2018:

	2018
Assets held for sale:
Cash and cash equivalents	$	25,799
Receivables	28,152
Inventories, net	174,389
Costs and estimated earnings in excess of billings on uncompleted contracts	4,297
Other current assets	32,291
Property, plant and equipment, net	76,327
Other intangible assets, net	45,363
Investments in unconsolidated subsidiaries	13,532
Other noncurrent assets	17,108
Held for sale valuation reserve	(214,134		)
Total assets held for sale	$	203,124
Liabilities held for sale:
Accounts payable	$	2,526
Billings in excess of costs and estimated earnings on uncompleted contracts	181,065
Reserves for decommissioning matters	20,662
Benefit obligations	10,958
Deferred income tax liabilities	3,118
Other noncurrent liabilities	51,383
Total liabilities held for sale	$	269,712

37

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

12. Assets Held for Sale (continued)

For the fiscal year ended March 31, 2018, NFI’s loss before income taxes was $226,369, of which $117,712 is attributable to the Company’s controlling interest.

13. Other Current and Noncurrent Assets

At March 31, 2018 and 2017, other current and noncurrent assets consist of the following:

	2018		2017
Other current assets:
Restricted cash	$	183,846	$	4
Prepaid insurance, taxes and other services	108,222		123,486
Derivative instruments, at fair value	6,303		13,035
Contract receivable	38,150		54,021
Uranium assets on loan from related party	15,065		—
Other	53,430		23,281
Other current assets	$	405,016	$	213,827

	2018		2017
Other noncurrent assets:
Restricted cash	$	80,916	$	12,324
Derivative instruments, at fair value	12,209		38,415
Contract receivable	—		29,841
Pension asset	6,163		—
Contractual asset for postretirement benefit costs	4,204		6,932
Other	20,373		31,884
Other noncurrent assets	$	123,865	$	119,396

Amounts presented above for the fiscal year ended March 31, 2018 exclude NFI assets held for sale. See Note 12.

Current restricted cash at March 31, 2018 is primarily advanced funding from U.S. AP1000 project customers under interim assessment agreements.  This cash will be paid to third party vendors or returned to customers.

Noncurrent restricted cash of $80,916 and $12,324 at March 31, 2018 and 2017, respectively, is primarily cash collateral supporting letters of credit and hedges.  Additionally, an amount is held pursuant to a legal requirement in Germany to ensure pay to employees in the case of company liquidation and a requirement to fund nuclear decommissioning in Sweden and the United Kingdom.

38

Toshiba Nuclear Energy Holdings (US), Inc. and

Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

14. Asset Retirement Obligations

The Company’s asset retirement obligations relate primarily to the decommissioning of licensed nuclear facilities. These obligations address the decommissioning, cleanup and release for acceptable alternate use of such facilities. The Company recognizes an asset retirement obligation at its fair value in the period in which it is incurred, if a reasonable estimate of fair value can be made. The present value of the initial obligation and subsequent updates are based on discounted cash flows, which include estimates regarding timing of future cash flows, selection of discount rates and cost escalation rates, among other factors. The liability is adjusted for any revisions to the expected value of the retirement obligation (with corresponding adjustments to the related asset) and for accretion of the liability due to passage of time.

Changes to asset retirement obligations for the fiscal year ended March 31, 2018 are as follows:

	2018
Balance, beginning of year	$	181,529
Liabilities settled	(1,845		)
Accretion expense	6,939
Foreign currency translation effect	4,034
Revisions in estimated cash flows	239
Balance, end of year	$	190,896
Less: amount subject to compromise (see Note 2)	(139,337		)
Less: NFI amounts held for sale (see Note 12)	(20,662		)
Reserves for decommissioning matters	$	30,897

As of March 31, 2018, $1,651 is considered an other current liability and is included in amounts subject to compromise in the accompanying combined balance sheets, which represents the expected settlement of liabilities over the next 12 months.

39

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

15. Pension and Other Postretirement Benefit Plans

Pension Plans

The majority of the employees of the Company are covered under separate pension plans sponsored by Westinghouse Electric Company LLC (U.S. Plans), and separate plans sponsored by Westinghouse Electric UK/Uranium Asset Management, Ltd., Springfields Fuels Limited, Westinghouse Electric Belgium SA, Westinghouse Electric Germany GmbH, Westinghouse Electrique France SAS, Westinghouse Electric Sweden AB, and NFI (Non-U.S. Plans). Details of the aforementioned plans can be found in the following tables.

In prior years, the U.S. Plans had been closed to new entrants. In February 2017, the Company announced that the U.S. Plans will be further amended to freeze future benefit accruals. Consequently, participants in the U.S. Plans will cease earning additional benefits. This amendment was effective for non-represented employees and represented employees on April 1, 2017 and January 1, 2018, respectively.

The following table presents the net periodic pension costs covering current and former employees of the Company for the fiscal year ended March 31, 2018:

	2018
	U.S.			Non-U.S.			Total
Service cost	$	3,981		$	26,485		$	30,466
Interest cost	56,202			9,232			65,434
Expected return on plan assets	(78,992		)	(13,253		)	(92,245		)
Amortization of prior service cost	(99		)	242			143
Amortization of unrecognized net loss	1,987			3,162			5,149
Ongoing net periodic pension (benefit) cost	(16,921		)	25,868			8,947
Settlement or curtailment (benefit) charges	(539		)	246			(293		)
Net periodic pension (benefit) cost	$	(17,460	)	$	26,114		$	8,654

The weighted-average assumptions used to develop the net periodic pension cost for the fiscal year ended March 31, 2018 and the present value of benefit obligations as of March 31, 2018 and 2017 are shown below:

	2018				2017
	U.S.		Non-U.S.		U.S.		Non-U.S.
Discount rate for obligations	4.15	%	2.07	%	4.35	%	1.98	%
Compensation increase rate for obligations	N/A		2.57		N/A		2.39
Long-term rate of return on plan assets	7.49		3.81		7.50		4.11
Discount rate for expense	4.35		1.98
Compensation increase rate for expense	2.78		2.77

40

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

15. Pension and Other Postretirement Benefit Plans (continued)

Discount rate assumptions used to value pension and other postretirement benefit obligations reflect the rates available on high-quality, fixed income investments as of the measurement date with similar terms as the projected future cash outflows.

The following tables’ sets forth the aggregate funded status and changes in benefit obligations and plan assets of the defined benefit pension plans and amounts recognized in the accompanying combined balance sheets as of March 31, 2018 and 2017, respectively:

	2018
	U.S.			Non-U.S.			Total
Accumulated benefit obligation	$	1,386,539		$	442,537		$	1,829,076
Change in benefit obligation
Benefit obligation, beginning of year	$	1,316,736		$	441,637		$	1,758,373
Service cost	3,981			26,485			30,466
Interest cost	56,202			9,232			65,434
Employee contributions	386			2,534			2,920
Curtailments	(4,430		)	—			(4,430		)
Settlements	—			(3,441		)	(3,441		)
Benefits paid	(41,478		)	(12,023		)	(53,501		)
Actuarial loss (gain)	55,142			(19,867		)	35,275
Foreign currency exchange rate changes	—			49,638			49,638
Benefit obligation, end of year	$	1,386,539		$	494,195		$	1,880,734
Change in plan assets
Plan assets at fair value, beginning of year	$	1,046,773		$	290,672		$	1,337,445
Actual return on plan assets	97,032			13,836			110,868
Employer contributions	885			33,792			34,677
Employee contributions	386			2,534			2,920
Benefits paid from plan assets	(41,478		)	(12,023		)	(53,501		)
Settlements	—			(3,441		)	(3,441		)
Foreign currency exchange rate changes	—			35,391			35,391
Plan assets at fair value, end of year	1,103,598			360,761			1,464,359
Funded status, end of year	$	(282,941	)	$	(133,434	)	$	(416,375	)

	2017
	U.S.		Non-U.S.		Total
Accumulated benefit obligation	$	1,403,986	$	392,120	$	1,796,106

41

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

15. Pension and Other Postretirement Benefit Plans (continued)

	2018									2017
	U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total
Accrued cost as included in the combined balance sheets:
Noncurrent assets	$	—		$	6,163		$	6,163		$	—		$	—		$	—
Other current liabilities	(4,577		)	(6,670		)	(11,247		)	(4,529		)	(5,803		)	(10,332		)
Noncurrent benefit obligation	(370,604		)	(132,927		)	(503,531		)	(357,627		)	(145,162		)	(502,789		)
Total	$	(375,181	)	$	(133,434	)	$	(508,615	)	$	(362,156	)	$	(150,965	)	$	(513,121	)
Less: amount subject to compromise (see Note 2)	(375,181		)	—			(375,181		)	(362,156		)	—			(362,156		)
Less: NFI amounts held for sale (see Note 12)	—			(10,958		)	(10,958		)	—			—			—
Net benefit obligation	$	—		$	(122,476	)	$	(122,476	)	$	—		$	(150,965	)	$	(150,965	)
Amounts recognized in accumulated other comprehensive income (loss) consist of:
Net actuarial loss	$	(253,360	)	$	(63,073	)	$	(316,433	)	$	(241,843	)	$	(79,322	)	$	(321,165	)
Prior service cost	—			(2,856		)	(2,856		)	638			(2,929		)	(2,291		)
Net amount recognized, before tax effect	$	(253,360	)	$	(65,929	)	$	(319,289	)	$	(241,205	)	$	(82,251	)	$	(323,456	)
Amounts expected to be amortized from other comprehensive income (loss) into net periodic benefit cost over the next fiscal year	$	3,634		$	2,050		$	5,684		$	2,560		$	3,331		$	5,891

Plan Assets

The following table sets forth by level, within the fair value hierarchy, the Master Trust’s assets carried at fair value as of March 31, 2018 and 2017, respectively:

	Assets at Fair Value as of March 31, 2018
	Level 1		Level 2		Level 3		Total
Equities	$	140,012	$	—	$	—	$	140,012
Corporate and municipal obligations	—		171,584		—		171,584
Mutual funds	973,805		—		—		973,805
Money market funds	8,911		—		—		8,911
Investment contracts issued by insurance companies (1)	—		—		39,510		39,510
Total assets at fair value	$	1122,728	$	171,584	$	39,510	$	1,333,822
Investments measured at net asset value (2)							130,537
Total investments at fair value							$	1,464,359

42

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

15. Pension and Other Postretirement Benefit Plans (continued)

	Assets at Fair Value as of March 31, 2017
	Level 1		Level 2		Level 3		Total
Equities	$	121,031	$	—	$	—	$	121,031
Corporate and municipal obligations	—		125,270		—		125,270
Mutual funds	928,108		—		—		928,108
Money market funds	8,912		—		—		8,912
Investment contracts issued by insurance companies (1)	—		—		37,464		37,464
Total assets at fair value	$	1,058,051	$	125,270	$	37,464	$	1,220,785
Investments measured at net asset value (2)							116,660
Total investments at fair value							$	1,337,445

(1)Investment contracts issued by insurance companies are valued as reported by the issuer and classified as level 3.

(2)In accordance with ASC 820-10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to total plan assets at fair value.

The changes in fair value measurements using significant unobservable inputs (Level 3) for the fiscal year ended March 31, 2018 are as follows:

	2018
Balance, beginning of year	$	37,464
Unrealized gain included in other comprehensive income	2,046
Balance, end of year	$	39,510

The U.S. Plans — The assets of the U.S. Plans are managed via the Westinghouse Electric Company Pension Master Trust (Trust). The Westinghouse Electric Company Pension Investment Committee (Committee) has been appointed to review the investment performance and other matters of the U.S. Plans, including development of investment policies and strategies. The asset allocation decision reflects the plans’ return requirements, as well as the Committee’s tolerance for return variability (risk). The assets are invested in long-term strategies and evaluated within the context of a long-term investment horizon. Investments will generally be restricted to marketable securities. Leveraged and high-risk derivative strategies will not be employed.

43

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

15. Pension and Other Postretirement Benefit Plans (continued)

Investment objectives are designed to provide quantitative standards against which to measure and evaluate the progress of the plans, their major asset class composites and each individual investment manager. The overall objective for the Trust is to generate a rate of return, net of all fees and expenses, in excess of a policy index that is comprised of a weighted average of the market benchmarks for each asset class.

The Non-U.S. Plans — The investment management of the Non-U.S. Plans is handled by an appointed Asset Manager located in the country of the plan sponsor. This Asset Manager is required to meet established targets by investing the plan assets following the prudent person principle in a mix of different adequate assets.

There is an established Strategic Asset Allocation agreed to by the Company for these plans, but in some cases, the Asset Manager has the flexibility to modify the allocation while still adhering to set minimal and maximal bounds for each class of asset. This allows the Asset Manager to optimize the portfolio within defined risk guidelines.

The assumed long-term rate of return for U.S. and Non-U.S. plan assets was determined by taking a weighted average of the expected rates of return on the asset classes. The weights are equal to the portion of the portfolio invested in each class.

The Company’s target and pension asset allocations at March 31, 2018 consist of the following:

Asset Category	Target		Actual
U.S. Plans:
U.S. equity securities	41	%	41	%
Non-U.S. equity securities	11		12
Debt securities	48		47
Total	100	%	100	%
Non-U.S. Plans (weighted average):
Equity securities	44	%	41	%
Debt securities	44		48
Investment contracts issued by insurance companies	12		11
Total	100	%	100	%

44

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

15. Pension and Other Postretirement Benefit Plans (continued)

Estimated Future Benefit Payments

Annual benefit payments for the years subsequent to March 31, 2018 are estimated as follows:

	U.S.		Non-U.S.		Total
Fiscal years ending March 31:
2019	$	46,723	$	12,707	$	59,430
2020	51,658		11,334		62,992
2021	56,271		12,498		68,769
2022	60,622		18,504		79,126
2023	64,748		11,179		75,927
2024–2028	370,380		64,805		435,185

Contributions

Additionally, the Company anticipates that the required cash contributions to be paid during the fiscal year ending March 31, 2019 to fund its defined benefit pension plans will be as follows:

	U.S.		Non-U.S.		Total
Expected contributions	$	100,739	$	29,814	$	130,553

Other Postretirement Benefit Plan

The Company also sponsors a postretirement benefits plan in the U.S. that provides defined medical, dental and life insurance for eligible retirees and dependents.

The components of net periodic postretirement benefit cost for the fiscal year ended March 31, 2018 was as follows:

	2018
Service cost	$	962
Interest cost	1,863
Expected return on plan assets	(389		)
Amortization of prior service cost	(126		)
Amortization of (gain) loss	(1,206		)
Net periodic postretirement benefit costs	$	1,104

45

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

15. Pension and Other Postretirement Benefit Plans (continued)

The assumptions used to develop the net periodic postretirement benefit cost for the fiscal year ended
March 31, 2018 and the present value of benefit obligations as of March 31, 2018 and 2017 are shown below.

	2018		2017
Discount rate for obligations	4.05	%	4.05	%
Long-term rate of return on plan assets	7.25	%	7.25	%
Discount rate for expense	4.05	%
Health care cost trend rates:
Initial	4.00	%
Ultimate	4.00	%
Year in which ultimate rates were reached	2015

A one-percentage-point change in the assumed health care cost trend rate would have the following effects:

	Increase		Decrease
Effect on 2018 total service and interest cost	$	11	$	(9	)
Effect on postretirement benefit obligation as of March 31, 2018	117		(104		)

Net periodic postretirement benefit cost is determined using the assumptions as of the beginning of the year. The funded status is determined using the assumptions as of the end of the year. The funded status and amounts recognized in the accompanying combined balance sheets as of March 31, 2018 and 2017 are as follows:

	2018
Change in benefit obligation
Benefit obligation, beginning of year	$	48,406
Service cost	962
Interest cost	1,863
Employee contributions	3,558
Actuarial gain	(4,789		)
Benefits paid	(7,954		)
Benefit obligation, end of year (1)	$	42,046

	2018		2017
Net actuarial gain recognized in accumulated other comprehensive income (loss), before tax effect	$	17,847	$	14,390

(1)Amount subject to compromise (see Note 2)

46

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

15. Pension and Other Postretirement Benefit Plans (continued)

Annual benefit payments for the other postretirement benefit plan, net of employee contributions, for the fiscal years subsequent to March 31, 2018 are estimated to be as follows:

For the fiscal year ending March 31:
2019	$	3,268
2020	3,490
2021	3,575
2022	3,470
2023	3,358
2024–2028	13,704

Savings Plans

The Company also provides a defined contribution (DC) plan to U.S. employees. Employees may contribute from 2% to 35% of their compensation on a pretax or after-tax basis. The Company matches 50% of the first 6% of an employee’s compensation contribution. Effective for employees hired after July 1, 2013 or those that elected not to participate in the U.S. pension plan at that time, the Company makes an additional 3% of pay contribution annually to a new Retirement Contribution Account (RCA) within the savings plan, subject to the condition of earning eligibility service on December 31 of the given year. The Company contributed $29,412 to the DC plan for the fiscal year ended March 31, 2018. The Company established a separate DC plan as of January 1, 2016 for WECTEC employees. The Company contributed $4,350 to the WECTEC DC plan for the fiscal year ended March 31, 2018.

In addition, the Company offers similar plans to employees in other countries outside of the U.S. Westinghouse Electric Spain S.A.U. and Westinghouse Technology Services, S.A. in Spain are the sponsors of an occupational DC plan where employees’ annual contributions equal to 1%—2% of their pension-qualifying salary, which is matched by the sponsor with a contribution equal to 250% of the participant’s annual basic contribution. Westinghouse Electric South Africa (Pty) Ltd. is a sponsor of a DC plan, where employees can contribute 5%—20% of their annual salary to this fund, but the sponsor does not contribute to the fund. Westinghouse Electric UK, Uranium Asset Management, Ltd. and Springfields Fuels Limited in the U.K. sponsor DC plans where employees’ annual contributions equal 3%—100% of their pensionable pay, which is matched by the sponsor equal to 7.0%—13.5% of the participants’ annual contribution. The Company contributed $3,077 to Non-U.S. DC plans for the fiscal year ended March 31, 2018.

47

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

16. Income Taxes

Components of the Company’s income tax provision (benefit) from continuing operations for the fiscal year ended March 31, 2018 are as follows:

	2018
Current income taxes:
U.S. Federal	$	2,119
State	6,225
Non-U.S.	13,264
Total current income tax provision	21,608
Deferred income taxes:
U.S. Federal	(50,320		)
State	(2,140		)
Non-U.S.	(32,840		)
Total deferred income tax benefit	(85,300		)
Total income tax benefit	$	(63,692	)

Loss before income taxes and noncontrolling interest for the fiscal year ended March 31, 2018 was:

	2018
U.S. loss	$	(101,359	)
Non-U.S. loss	(375,126		)
Loss before income taxes and noncontrolling interest	$	(476,485	)

48

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

16. Income Taxes (continued)

On December 22, 2017, new U.S. tax legislation was enacted that lowered the corporate income tax rate from 35% to 21% and fundamentally changed the taxation of international operations of U.S. shareholders. Commonly referred to as the Tax Cuts and Jobs Act (the Act), the new law changes the tax treatment of certain cross border payments, imposes a one-time transition tax on certain previously untaxed earnings and profits, and establishes a minimum tax on future earnings of U.S.-owned foreign subsidiaries. It also permits immediate expensing of qualified capital expenditures for the next several years and establishes limitations on the deductibility of interest expense. Many of the provisions of this legislation are effective for the Company’s tax year beginning April 1, 2018, while others, such as the change in tax rate, took effect on January 1, 2018. Accordingly, the Company’s blended federal income tax rate for its fiscal year ended March 31, 2018 is 31.55%.

Changes in tax law and the related impact on deferred taxes are accounted for in the period of enactment. Because of the substantial impact of the Act, the SEC staff issued Staff Accounting Bulletin (SAB) 118 which allows a company to record a provisional amount when it does not have the necessary information available, prepared or analyzed in reasonable detail to complete its accounting for the change in the tax law. The FASB issued guidance shortly thereafter allowing non-public companies to follow the SAB 118 guidance which provides for a measurement period that ends on the earlier of when the Company has finalized its accounting or one year from the date of enactment.

The effects of enactment resulted in a benefit of $52,150 in the tax provision for the fiscal year ended March 31, 2018, comprised of a $14,555 reduction in the deferred tax liability associated with certain indefinite-lived intangible assets for the change in tax rate, a $23,152 adjustment to release a valuation allowance on deductible temporary differences that may now be carried forward indefinitely to reduce this deferred tax liability, and a $14,443 reversal of the valuation allowance related to minimum tax credit carryforwards. The new law permits minimum tax credits to be used to reduce future regular tax liabilities with 50% of any excess refunded in cash until the entire amount of minimum tax credits are recovered. Amounts refunded in cash are subject to reduction under certain sequestration provisions of previous U.S. Budget Acts and have been taken into account in reversing the valuation allowance. As a result of this change in tax law, realization of the deferred tax assets related to minimum tax credits is no longer dependent upon generating future taxable income.

The Company has made a reasonable estimate of the effects of the Act on its existing deferred tax balances and the one-time transition tax on unremitted earnings and profits of its two U.S. owned foreign corporate joint ventures in Korea and Ukraine. The estimated mandatory repatriation of previously untaxed earnings and profits increased taxable income by $3,684, which was fully offset by net operating losses. These amounts are considered provisional and may be affected by interpretations of the statute and additional guidance issued by the tax authorities and standard-setting bodies.

As a result of the mandatory repatriation provision of the Act, all previously unremitted earnings for which a U.S. deferred tax liability had not been accrued have now been subject to U.S. tax. At March 31, 2018, there was approximately $9,823 of such unremitted earnings which remain indefinitely reinvested for the benefit of the working capital required by the joint ventures. These joint ventures have regularly distributed dividends from current earnings which are included in current taxable income. In the event that accumulated previously taxed earnings and profits are remitted as a dividend, there could be additional taxable income associated with currency gains or losses, state taxes, and foreign withholding taxes which are not expected to be material.

49

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

16. Income Taxes (continued)

The provision (benefit) for income taxes from continuing operations for the fiscal year ended March 31, 2018 is reconciled to the tax on income at the blended federal statutory rate as follows:

	2018
Income tax benefit, computed at the statutory rate of 31.55%	$	(150,331	)
State income taxes, net of U.S. Federal income tax effect	4,261
Tax effect of foreign earnings	4,885
U.S. tax reform adjustments	(52,150		)
Non-deductible bankruptcy related costs	26,140
Impairment of Mangiarotti goodwill	10,516
Unrecognized tax benefits	4,417
Valuation allowance adjustments	88,314
Other permanent differences	256
Total income tax benefit	$	(63,692	)
Effective tax rate	13.4		%

U.S. tax reform adjustments relate to a reduction in the U.S. statutory tax rate and the recognition of a benefit for deferred tax assets associated with certain deductible temporary differences and tax credits that can now be realized because of a change in tax law. The increase in valuation allowances are primarily attributable to the impairment of deferred tax assets associated with the Company’s acquisition of Toshiba’s 70% interest in Mangiarotti and the write down of the Company’s 52% interest in NFI (see Note 3), offset by the utilization of certain deferred tax temporary differences for which a valuation allowance was previously provided.

50

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

16. Income Taxes (continued)

Significant components of the Company’s deferred tax assets and liabilities are:

	2018			2017
Deferred tax assets:
U.S. AP1000 contract liability	$	1,471,891		$	2,209,122
Net operating loss carryforwards	224,453			328,306
Goodwill and intangible assets	132,009			264,460
Compensation and benefits	126,170			176,450
Reserves and accruals	64,207			132,798
Decommissioning liability	55,750			68,962
Property, plant and equipment	52,814			—
U.S. tax credits	52,338			45,581
Deferred revenue	13,546			72,290
Other	81,611			62,244
Gross deferred tax assets	2,274,789			3,360,213
Valuation allowance	(2,268,384		)	(3,125,498		)
Net deferred tax assets	$	6,405		$	234,715
Deferred tax liabilities:
Revenue recognized	$	—		$	(255,460	)
Capital leases	(24,637		)	(40,457		)
Property, plant and equipment	—			(35,285		)
Inventory	(181		)	(2,259		)
Other	(15,707		)	(16,410		)
Deferred tax liabilities	(40,525		)	(349,871		)
Less: NFI amounts held for sale (see Note 12)	3,118			—
Net deferred tax liabilities	$	(31,002	)	$	(115,156	)

51

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

16. Income Taxes (continued)

A valuation allowance is necessary when it is more likely than not that a deferred tax asset will not be realized.  In jurisdictions where there is a three-year cumulative loss, there is a general presumption that deferred tax assets in those jurisdictions will not be realized, and a valuation allowance is recorded, after due consideration of potential future taxable income, or tax planning strategies in relevant jurisdictions. Principal components of the valuation allowance were:

	2018			2017
U.S.
Net operating losses	$	(140,216	)	$	(283,774	)
Tax credits	(36,874		)	(45,581		)
Other temporary differences	(1,853,296		)	(2,712,350		)
Total U.S. valuation allowance	$	(2,030,386	)	$	(3,041,705	)
Non-U.S.
Belgium	$	(5,993	)	$	(103	)
Germany	(16,417		)	(16,714		)
Japan	(117,819		)	(42,760		)
Italy	(59,046		)	—
United Kingdom	(17,985		)	(3,756		)
China	(17,065		)	(15,605		)
Other jurisdictions	(3,673		)	(4,855		)
Total non-U.S. valuation allowance	$	(237,998	)	$	(83,793	)
Total valuation allowance	$	(2,268,384	)	$	(3,125,498	)

U.S. valuation allowances were reduced when related deferred tax assets were remeasured at the lower statutory tax rate enacted by tax reform, as well as by the utilization of certain deferred tax temporary differences that were previously impaired by a valuation allowance.

Any subsequent recognition of deferred tax assets that have been impaired with a valuation allowance will reduce income tax expense in the period recognized.

As discussed in Note 2, the Bankruptcy Court entered an order confirming the Company’s bankruptcy plan on March 27, 2018 whereby it would emerge from bankruptcy and be acquired by Brookfield subject to receiving regulatory approval and the satisfaction of other closing conditions. Upon emergence, certain liabilities will be satisfied, while others will be discharged generating cancellation of debt income (CODI). Although CODI is excluded from taxable income, existing tax attributes such as net operating losses, tax credits and the basis in property will be reduced to offset amounts that have been excluded, subject to certain limitations. As a consequence, certain of the deferred tax assets and their related valuation allowances in the tables above will be reduced or eliminated upon the Company’s emergence from bankruptcy.

52

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

16. Income Taxes (continued)

As of March 31, 2018, the Company has the following net operating loss carryforwards:

	2018
U.S.	$	436,537
Japan	12,203
Italy	121,051
United Kingdom	74,843
Germany	9,434
France	22,307
Belgium	20,958
China	69,399
Other jurisdictions	14,358

U.S. net operating losses expire between 2025 and 2037, while most outside the U.S. have an indefinite carryforward period.

An unrecognized tax benefit includes not only tax deductions and credits but also decisions not to file in a particular jurisdiction, as well as the taxability of transactions. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

	2018
Unrecognized tax benefit, beginning of year	$	2,263
Increases in tax positions in current year	3,479
Increases in tax positions of prior years	3,457
Decreases in tax positions in current year	(99		)
Decreases in tax positons of prior years	(2		)
Unrecognized tax benefits, end of year	$	9,098

The increase in unrecognized tax benefits of the current year are for certain transfer pricing matters relating to the allocation of expenses to foreign related parties, whereas the increase related to prior periods are to disclose certain unrecognized tax credits which are netted directly against the related deferred tax asset.

53

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

16. Income Taxes (continued)

The company recognizes interest expense and any related penalties associated with unrecognized tax benefits in income tax expense. For the fiscal year ended March 31, 2018, the Company recognized $512 in interest and penalties. As of March 31, 2018 and 2017, the Company had accrued interest and penalties of approximately $1,482 and $969, respectively.

It is reasonably possible that the amount of unrecognized tax benefits will decrease in the next twelve months attributable to expirations of certain foreign and state statutes of limitation and the resolution of certain examinations by tax authorities. Such changes are not expected to have a significant impact on the results of operations or financial position of the Company; however, actual settlements may be different from amounts accrued.

The Company’s income tax returns are subject to examination by the relevant tax authorities for a number of years after the returns have been filed. Generally, the Company is no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2014, although earlier years will remain open to the extent a U.S. net operating loss for such earlier year is used in the future. The Company’s tax years for 2014 and forward are generally subject to examination by the tax authorities in the U.S. and in various state and foreign jurisdictions.

17. Debt and Credit Facilities

The Company maintained, and Toshiba guaranteed, a credit agreement for the purpose of issuing standby letters of credit. Pursuant to an amendment dated March 28, 2017, new letters of credit can no longer be issued and existing letters of credit can no longer be amended or extended under this agreement. At March 31, 2018 and 2017, $5,467 and $493,394, respectively, were utilized from this old agreement for letters of credit.

On March 31, 2017, the Company received interim approval of an $800,000 debtor-in-possession financing arrangement with a third-party lender to help fund and protect its core businesses during its reorganization. The Company was authorized to borrow, and borrowed, $350,000 on the DIP financing arrangement as of March 31, 2017. The Company received final approval on May 26, 2017 to borrow, and borrowed, the remaining $450,000. Pursuant to an amendment dated March 29, 2018, the DIP financing arrangement was reduced to $600,000.  The amended borrowing arrangement is subject to a 1.50% amendment fee and carries an interest rate of one-month LIBOR plus 4.50%. Under the DIP financing agreement, the Company has the ability to issue new standby letters of credit. At March 31, 2018, and 2017, $40,696 and $0, respectively, have been utilized from the DIP financing arrangement for standby letters of credit.

The DIP financing includes covenants that, subject to certain conditions, require the Company to maintain certain minimum thresholds of liquidity. As of March 31, 2018 and 2017, the Company has complied with covenants, and there have been no events of default.

54

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

18. Commitments and Contingencies

Environmental Matters

Compliance with federal, state and local laws and regulations relating to the discharge of pollutants into the environment, the disposal of hazardous wastes and other related activities affecting the environment have had and will continue to have an impact on the Company. It is difficult to estimate the timing and ultimate costs to be incurred in the future due to uncertainties about the status of laws, regulations and technology, the adequacy of information available for individual sites, the extended time periods over which site remediation occurs, the availability of waste disposal capacity and the identification of new sites.

The Company has, however, recognized an estimated liability of $70,522 and $64,498 as of March 31, 2018 and 2017, respectively, measured in current dollars, for those sites where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company recognizes changes in estimates as new remediation requirements are defined or as more information becomes available. Of the liability as of March 31, 2018, $41,991 relates to NFI and is classified as held for sale in the accompanying combined balance sheets.

Operating expenses that are recurring and associated with managing hazardous waste and pollutants in ongoing operations totaled $14,269 for the fiscal year ended March 31, 2018. These expenses are included in cost of goods sold in the accompanying combined statement of operations and comprehensive loss.

Management believes that the Company has adequately provided for its present environmental obligations and that complying with existing governmental regulations will not materially impact the Company’s financial position, liquidity or results of operations. The Company intends to satisfy/settle environmental obligations that become due during the bankruptcy proceedings.

Legal Proceedings

The Company is involved in various litigation matters in the ordinary course of business. Reserves are included in the accompanying combined balance sheets for issues when a negative outcome is probable and the amount is reasonably estimable. In the opinion of management, while it is possible that certain outcomes could be unfavorable to the Company, the ultimate resolution of such matters will not result in judgments that, in the aggregate, would materially affect the Company’s financial position or results of operations. As of March 31, 2018, several matters were in the litigation and dispute resolution process. The following discussion provides a background and the current status on the most significant of these matters:

55

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

18. Commitments and Contingencies (continued)

Levy County Nuclear Project — In December 2008, the Company signed an Engineering, Procurement and Construction (EPC) agreement to provide two AP1000 units in Levy County, Florida. Work on the project commenced before it was put into partial suspension in April 2009. In January 2014, the customer terminated the EPC agreement without cause. In March 2014, the Company and customer commenced litigation against each other and the case proceeded in the U.S. District Court for the Western District of North Carolina. The Company was seeking an agreement termination fee and termination costs as defined in the EPC agreement. The customer was seeking repayment of certain milestone payments related to particular work scope. The Company had recognized revenue from its claim. In December 2016, the Court provided its decision, which awarded the Company the $30,000 termination fee, plus interest, but no additional termination costs. This amount is included in costs and estimated earnings in excess of billings on uncompleted contracts in the accompanying combined balance sheets. The Court also ruled in favor of the Company and against the customer’s counterclaim. In January 2017, the Company appealed the decision as it relates to unawarded termination costs to the U.S. Court of Appeals for the 4th Circuit. The customer cross appealed. Litigation involving the Debtors was stayed in conjunction with the Chapter 11 filing, but the stay has been lifted for this matter by order of the Bankruptcy Court.

The parties have agreed to settle the case and dismiss their respective appeals. The customer will pay the Company the amount previously awarded by the Court. The settlement agreement is awaiting Bankruptcy Court approval.

Stone & Webster Acquisition — The Company acquired Stone & Webster, the nuclear construction and nuclear integrated services businesses of Chicago Bridge & Iron Company N.V. (CB&I) on December 31, 2015. The purchase agreement for this transaction contains, among other things, a detailed purchase price determination process. If the parties are unable to reach agreement on their differences, the matter is submitted to an independent auditor (as defined in the purchase agreement). On July 21, 2016, CB&I filed a suit in the Delaware Chancery Court seeking to prevent the Company from submitting its calculation to the independent auditor for a final and binding determination. On December 2, 2016, the Court dismissed CB&I’s complaint; however, CB&I then filed an appeal to the Delaware Supreme Court. In July 2017, the Delaware Supreme Court reversed the Delaware Chancery Court which has limited the amount the Company can seek as part of the working capital adjustment. The independent auditor process as outlined in the purchase agreement can move forward. If CB&I is successful, any amount would represent a prepetition liability subject to compromise and only be paid out of profits, if any, upon completion of the Vogtle and V.C. Summer AP1000 projects. If the Company is successful, any recovery would represent income in the period received.

56

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

18. Commitments and Contingencies (continued)

Product Warranty

The Company provides various warranties on its products and contracts for specific periods of time. Warranties vary depending upon the nature of the product or contract and other factors. The liability for warranties is based upon future product performance and durability and is estimated largely based upon historical experience. Adjustments are made to accruals as claim data and historical experience warrant.

The changes in the provision for those warranties for the period ended March 31, 2018, are as follows:

	2018
Balance, beginning of year	$	20,546
Liabilities settled	(4,759		)
Additional liabilities accrued	9,548
Adjustment in warranty provision	(1,751		)
Foreign currency translation effect	357
Balance, end of year	$	23,941
Recorded in balance sheet as:
Other current liabilities	$	11,128
Other noncurrent liabilities	12,813
Balance, end of year	$	23,941
Less: amount subject to compromise (see Note 2)	(5,917		)
Remaining balance, not subject to compromise	$	18,024

Commitments

In the ordinary course of business, letters of credit, bank guarantees, and surety bonds are issued on behalf of the Company. As of March 31, 2018, the Company had $97,926 under letters of credit and bank guarantees, including $46,163 under the facilities disclosed in Note 17, and $15,306 under surety bond obligations. As of March 31, 2017, the Company had $518,510 under letters of credit and bank guarantees, including $493,394 under the facilities disclosed in Note 17, and $37,825 under surety bond obligations.

19. Leases

The Company has commitments under operating leases for certain machinery and equipment and facilities used in various operations. Certain of these leases contain renewal options for additional periods of five years and contain certain rent escalation clauses. Rental expense was $90,097 for the fiscal year ended March 31, 2018.

57

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

19. Leases (continued)

Minimum lease payments under the Company’s operating leases as of March 31, 2018 are presented in the table below:

For the fiscal year ending March 31:
2019	$	49,775
2020	43,659
2021	35,422
2022	29,746
2023	25,960
Thereafter	187,049
Minimum lease payments	$	371,611

The Company leases three facilities under capital lease. These facilities are included within buildings and improvements under property, plant and equipment in the accompanying combined balance sheets. The gross and net carrying values of facilities under capital leases are approximately $46,131 and $34,616, respectively, as of March 31, 2018 and $43,628 and $34,027, respectively, as of March 31, 2017. Certain of these facilities are leased from related parties. One of the facilities is being leased from a partner in the NuCrane Manufacturing, LLC joint venture formed to fabricate, assemble and test specialty cranes for nuclear power plants. The gross and net carrying value of the leased facility is approximately $6,230 and $2,907, respectively, as of March 31, 2018 and $6,230 and $3,323, respectively, as of March 31, 2017. Another facility is being leased from the minority owner of NFI. The gross and net carrying values of the leased facility are approximately $28,576 and $20,988, respectively, as of March 31, 2018 and is classified as held for sale in the accompanying combined balance sheets, and $27,351 and $21,126, respectively, as of March 31, 2017.

Minimum lease payments under all of the Company’s capital lease obligations as of March 31, 2018 are as follows:

For the fiscal year ending March 31:
2019	$	5,841
2020	5,778
2021	5,778
2022	5,778
2023	5,778
Thereafter	168,772
Total future minimum lease payments	197,725
Less: amount representing interest	(148,348		)
Less: NFI amounts held for sale (see Note 12)	(23,372		)
Present value of minimum lease payments	$	26,005

58

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

20. Other Current and Noncurrent Liabilities

At March 31, 2018 and March 31, 2017 other current and noncurrent liabilities consist of the following:

	2018			2017
Other current liabilities:
Other short term loans	$	275,200		$	—
Contract and other reserves	151,402			46,488
Accrued reorganization expenses	84,783			—
Accrued payroll and other employee compensation	56,250			49,490
Accrued income and other taxes	52,081			40,688
Vacation liability	26,869			22,390
Deferred revenue	26,434			14,084
Reserve for restructuring liabilities	21,830			7,988
Derivative instruments, at fair value	17,201			25,295
Accrued royalties and commissions	12,062			7,952
Pension liability	11,247			10,332
Accrued product warranty	11,128			9,563
Environmental liabilities	4,417			7,060
Reserve for decommissioning matters	1,651			1,141
Obligations under capital leases	1,558			1,846
Other	85,204			65,055
Total	$	839,317		$	309,372
Less: amount subject to compromise (see Note 2)	(357,514		)	(89,563		)
Other current liabilities	$	481,803		$	219,809
Other noncurrent liabilities:
U.S. AP1000 EPC contract liability	$	5,848,000		$	5,848,000
Other long term loans	650,000			—
Stone & Webster deferred purchase price	163,196			163,196
Obligations under capital leases	24,447			43,435
Environmental liabilities	24,114			57,438
Derivative instruments, at fair value	21,383			24,745
Deferred income on sale-leaseback	15,304			15,304
Accrued product warranty	12,813			10,983
Other	94,576			91,897
Total	$	6,853,833		$	6,254,998
Less: amount subject to compromise (see Note 2)	(6,703,596		)	(6,054,372		)
Other noncurrent liabilities	$	150,237		$	200,626

Amounts presented above for the fiscal year ended March 31, 2018 exclude NFI liabilities held for sale. See Note 12.

59

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

21. Restructuring Activities

The Company has engaged in certain restructuring activities related to overhead processes and the disposition of assets. These activities included an employee headcount reduction and exiting certain facilities and/or businesses. For the fiscal year ended March 31, 2018, costs incurred related to the restructuring activities consist of the following:

	2018
Severance costs	$	22,268
Asset impairments	4,228
Exit costs	17,648
Other associated costs	2,261
Total restructuring and other costs	$	46,405

Of total restructuring and other costs recorded during the fiscal years ended March 31, 2018, $17,648 was included in costs of goods sold and $28,757 was included in marketing, administrative and general expenses in the accompanying combined statement of operations and comprehensive loss.

Amounts accrued for severance, terminated leases, and other exit-related obligations are included in other current liabilities in the accompanying combined balance sheets. The following table summarizes activity and liability balances associated with the Company’s restructuring liabilities at March 31, 2018 and 2017:

	2018
Balance, beginning of year	$	7,988
Accruals	46,405
Payments	(32,563		)
Balance, end of year	$	21,830

60

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

22. Related-Party Transactions

At March 31, 2018 and 2017, related-party receivables reported in the accompanying combined balance sheets consist of the following:

	2018		2017
Trade receivables from Toshiba companies	$	401	$	16,724
Loans receivable from related parties	12,443		833
Total related-party receivables	$	12,844	$	17,557

At March 31, 2018 and 2017, related-party payables reported in the accompanying combined balance sheets consist of the following:

	2018			2017
Loans payable to Toshiba	$	—		$	925,377
Trade payables to Toshiba companies	1,512			1
Uranium assets loan payable to Advanced Uranium Asset Management Limited	15,065			—
Total	$	16,577		$	925,378
Less: amount subject to compromise (see Note 2)	(15,065		)	(256,777		)
Related-party payables	$	1,512		$	668,601

Toshiba sold its loans due from the Company to a third party during the fiscal year ended March 31, 2018.

Payables to related parties shown above are with the Company’s debtor and non-debtor affiliates. Amounts that the Company’s debtor affiliates owe related parties are reported as liabilities subject to compromise in the accompanying combined balance sheets (see Note 2).

At March 31, 2018 and 2017, notes due to related parties reported within noncurrent liabilities in the accompanying combined balance sheets consist of the following:

	2018			2017
Notes due to related party of State Nuclear WEC Zirconium Hafnium Co., Ltd.	$	—		$	30,590
Uranium assets loan payable to Advanced Uranium Asset Management Limited	28,500			43,565
Total	$	28,500		$	74,155
Less: amount subject to compromise (see Note 2)	(28,500		)	(43,565		)
Total notes due to related party	$	—		$	30,590

The Company has leased certain facilities from related parties. See Note 19 for additional information.

61

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

23. Variable Interest Entities

The Company evaluates at inception each joint venture to determine if it qualifies as a variable interest entity (VIE) under ASC 810, “Consolidation”. If the joint venture does not meet the scope exception under ASC 810, an entity is considered a VIE if either (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity), or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. The majority of the Company’s joint ventures qualify as VIEs because the total equity investment is typically nominal and not sufficient to permit the entity to finance its activities without additional subordinated financial support.

The Company also evaluates whether it is the primary beneficiary of each VIE in accordance with ASC 810 by determining if the Company has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the variable interest entity. The Company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining whether it qualifies as the primary beneficiary. The Company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary. If the Company is deemed to be the primary beneficiary, the Company will consolidate the VIE into its combined financial statements.

Each quarter, the Company reassesses its VIEs in accordance with ASC 810 to determine whether there are any changes in the status of the VIEs or changes to the primary beneficiary designation of each VIE. As of March 31, 2018, the Company concluded that no unconsolidated joint ventures should be consolidated. However, the Company concluded that one previously consolidated joint venture, State-Nuclear WEC Zirconium Hafnium Co., Ltd (SNWZH), should be deconsolidated because the Company is no longer the primary beneficiary.

Unconsolidated VIEs

The Company uses the equity method of accounting for its unconsolidated entities. Under the equity method, the Company recognizes its proportionate share of the net earnings of the joint ventures within other income, net in the accompanying combined statement of operations and comprehensive loss. Based on the Company’s evaluation, it was noted that the Company was not the primary beneficiary for the following entities:

Advance Uranium Asset Management Limited (AUAM) — AUAM was established with a related party to market uranium after it has been mined, milled, converted and/or enriched in multiple forms. The Company has a 40% equity ownership and does not have the decision-making power through majority voting rights. Additionally, the customer base for the entity is that of the other party.

62

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

23. Variable Interest Entities (continued)

Nuclear Engineering Limited (NEL) — NEL provides nuclear power plant related nondestructive inspection, core management, plant engineering and software engineering services. The Company holds equity interests in NEL of 44.45% through NFI, which has been classified as held for sale as of March 31, 2018 in the accompanying combined balance sheets (see Note 12). The Company does not have the decision-making power through majority voting rights. The assets and liabilities of NEL as of March 31, 2018 are not included in the summarized financial information below.

Enwesa Operaciones, S.A. — Enwesa Operaciones, S.A. provides repair and maintenance services for electric energy plants. The Company has a 25% ownership and does not have the decision-making power through majority voting rights..

Enusa-Enwesa, A.I.E. — Enusa-Enwesa, A.I.E. provides fuel related services to Spanish nuclear power plants and other European customers whose fuel is supplied by Enusa. The Company has a 25% ownership and does not have the decision-making power through majority voting rights. As of November 30, 2017, the Company sold its ownership in Enusa-Enwesa, A.I.E.

Mangiarotti S.p.A. — Until November 23, 2017, the Company had a 30% ownership and did not have the decision-making power through majority voting rights. On November 23, 2017, the Company purchased the remaining ownership interest. Mangiarotti is therefore a wholly-owned consolidated subsidiary of the Company as of that date. The assets and liabilities of Mangiarotti as of March 31, 2018, and the revenue, income from operations, and net income after November 23, 2017, are not included in the summarized financial information below.

Mid-American Conversion Services LLC (MACS) — MACS was formed to bid on and, if awarded, perform a U.S. government contract. The Company has a 33% ownership and does not have the decision-making power through majority voting rights.

SNWZH — SNWZH is a joint venture established to manufacture and sell nuclear grade zirconium sponge, industrial grade zirconium sponge, hafnium oxide or hafnium sponge and relevant by-products. Previously, the Company held the power to direct the activity that most significantly impacts the performance of the joint venture by purchasing a majority of the annual production. As of December 31, 2017, the Company lost influence over the operations of and agreed to reduce its purchases from the joint venture. It was then determined that the Company was no longer the primary beneficiary and, accordingly, the entity was deconsolidated from the accompanying combined financial statements as of that date. The assets and liabilities of SNWZH as of March 31, 2018, and the revenue, income from operations, and net income from SNWZH after December 31, 2017, are included in the summarized financial information below.

63

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

23. Variable Interest Entities (continued)

The Company does not have the power to direct the activity that most significantly impacts the performance of the aforementioned entities. Based on these facts, the Company does not consolidate the entities and accounts for the entities under the equity method of accounting. As of March 31, 2018 and 2017 and for the fiscal year ended March 31, 2018, summarized financial information for all jointly owned entities that are accounted for using the equity method of accounting is as follows:

	2018			2017
Current assets	$	40,597		$	177,593
Noncurrent assets	83,342			125,362
Total assets	$	123,939		$	302,955
Current liabilities	$	84,579		$	151,723
Noncurrent liabilities	86,022			162,102
Member’s deficit	(46,662		)	(10,870		)
Total liabilities and member’s equity	$	123,939		$	302,955

	2018
Revenue	$	242,848
Loss from operations	(9,029		)
Net loss	(12,821		)

Consolidated VIEs

KW Nuclear Components Co. LTD (KWN) — The purpose of this joint venture is to design, manufacture and supply control element assemblies (CEAs) for use in nuclear power plants. The Company has the power to most significantly impact the economic performance as it maintains design authority for products manufactured and sold through the joint venture.

Westinghouse Technology Services S.A. (WTS) — WTS is a joint venture formed to conduct nuclear field and engineering services in Spain. The Company is the primary service provider of the entity, which is attributable to the power to direct the economic performance of the entity through provided services.

Westron — Westron is a joint venture that was created to design, manufacture, sell and service process control systems for nuclear and conventional electric power stations, thermal power stations and industrial plants. The Company is the primary service provider of the entity and therefore has the power to direct the economic performance.

NuCrane Manufacturing, LLC — NuCrane Manufacturing, LLC was formed to fabricate, assemble and test specialty cranes for nuclear power plants. The Company provides senior management oversight to the entity. The Company is also the primary customer of the entity to purchase cranes for the production of AP1000 nuclear power plants. This gives the Company the power to direct the economic performance of the entity.

64

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

23. Variable Interest Entities (continued)

Springfields Segregated Assets Limited (SSAL) — SSAL was formed to hold the Company’s funds restricted for the sole purpose of decommissioning the Springfields Nuclear Fuel manufacturing site in Lancashire, England. The Company has been leasing the Springfields facility from the Nuclear Decommissioning Authority since April 1, 2010 and is responsible for all decommissioning obligations arising since that date.

SNPTC-WEC Nuclear Power Technical Services (Beijing) Company, Ltd. — The entity is a joint venture formed to further develop the supply chain within China for AP1000 nuclear power plant equipment and components. The joint venture will provide supplier qualification services, export equipment and components made by qualified Chinese suppliers to other global markets and import components and equipment made by qualified suppliers elsewhere in the world for use in China. The Company is a key service provider and will have the power to direct the activities that most significantly impact the entity’s economic performance.

Kontec — Kontec is an entity established to operate the biannual, international conference for conditioning of radioactive operational and decommissioning waste. The Company has the power to direct the activity that most significantly impacts the performance through the voting power of the managing director on the board of directors.

The above entities have been determined to be VIEs, and the Company has the power to direct the significant activities and right to receive benefits or obligation to absorb losses. The Company is also required to contribute capital to each entity on an as-needed basis based on percentage of ownership interest. Based on these facts, the Company is the primary beneficiary and has consolidated these entities in the accompanying combined financial statements. The creditors of the consolidated VIEs above do not have recourse to the general credit of the primary beneficiary.

The following is a summary of the consolidated VIEs of the Company at March 31, 2018 and 2017:

	2018
	Total Assets		Total Liabilities
KW Nuclear Components Co. LTD	$	23,615	$	13,070
Westron	14,295		5,357
Westinghouse Technology Services S.A.	13,765		7,984
Springfields Segregated Assets Limited	5,425		5,715
NuCrane Manufacturing, LLC	5,130		18,707
SNPTC-WEC Nuclear Power Technical Services (Beijing) Co.	648		3,413
Kontec	593		342

65

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

23. Variable Interest Entities (continued)

	2017
	Total Assets		Total Liabilities
KW Nuclear Components Co. LTD	$	22,825	$	13,730
Westron	7,647		606
Westinghouse Technology Services S.A.	8,491		4,482
Springfields Segregated Assets Limited	4,668		4,819
NuCrane Manufacturing, LLC	4,348		17,275
SNPTC-WEC Nuclear Power Technical Services (Beijing) Co.	739		3,181
Kontec	938		354

The assets of the Company’s consolidated joint ventures are restricted for use only by the particular joint venture and are not available for the Company’s general operations.

24. Claims and Unapproved Change Orders

The Company has recognized revenue from several claims and unapproved change orders where the amount has been estimated reliably, realization is probable and there is a legal basis for the claim. The following table summarizes significant claims and unapproved change orders included in determining the profit or loss on contracts as of March 31, 2018 and 2017:

	2018		2017
Claims and unapproved change orders	$	19,671	$	14,915

These amounts have been included in costs and estimated earnings in excess of billings on uncompleted contracts or in billings in excess of costs and estimated earnings on uncompleted contracts in the accompanying combined balance sheets.

66

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

25. Accumulated Other Comprehensive Income (Loss)

At March 31, 2018 and 2017, the components of AOCI, and the activity for the fiscal year ended March 31, 2018 are as follows:

	Net Unrealized Gain (Loss) on Derivatives			Unrealized (Loss) Gain on Foreign Currency Translation Adjustment			Pension and Other Postretirement Benefits Adjustment			Total
Balance at March 31, 2017	$	8,196		$	(862,245	)	$	(215,872	)	$	(1,069,921	)
Other comprehensive gains (losses) before reclassifications (1)	908			90,446			(15,989		)	75,365
Reclassifications to net income of previously deferred (gains) losses (2)	(583		)	3,661			9,570			12,648
Other comprehensive income (loss)	325			94,107			(6,419		)	88,013
Balance at March 31, 2018	$	8,521		$	(768,138	)	$	(222,291	)	$	(981,908	)

(1)  Net of tax of $290, $0, $(9,862) and $(9,572), respectively.

(2)  Net of tax of $134, $0, $5,903 and $6,037, respectively.

The following table summarizes the reclassifications from AOCI to the accompanying combined statement of operations and comprehensive loss for the fiscal year ended March 31, 2018:

	2018
Net unrealized gain (loss) on derivatives
Gains from cash flow hedges — foreign exchange contracts (1)	$	(717	)
Total before tax	(717		)
Tax expense	134
Total net of tax	$	(583	)
Unrealized gain (loss) on foreign currency translation adjustments
Gain on disposition (2)	$	3,661
Total before tax	3,661
Tax expense	—
Total net of tax	$	3,661

67

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Combined Financial Statements (continued)

(In thousands)

25. Accumulated Other Comprehensive Income (Loss) (continued)

	2018
Pension and other postretirement benefits adjustment
Amortization of prior service cost (3)	$	17
Amortization of unrecognized net loss (3)	3,943
Settlement or curtailment charges (3)	(293		)
Total before tax	3,667
Tax benefit	5,903
Total net of tax	$	9,570

(1)Amount recorded to loss on foreign currency transactions, net. See Note 6 for additional information.

(2)Foreign currency translation adjustment related to an investment in a foreign subsidiary is reclassified to income upon sale or upon complete or substantially complete liquidation of the respective entity. Amount recorded to other (expense) income, net.

(3)Amounts reclassed out of AOCI are included in the computation of net periodic benefit costs.

68

EX-99.3

Exhibit 99.3

UNAUDITED COMBINED FINANCIAL STATEMENTS

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

As of June 30 and March 31, 2018 and for the

Three Month Periods Ended June 30, 2018 and 2017

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Unaudited Combined Financial Statements

As of June 30 and March 31, 2018 and for the

Three Month Periods Ended June 30, 2018 and 2017

Contents

Unaudited Combined Balance Sheets	1
Unaudited Combined Statements of Operations and Comprehensive (Loss) Income	2
Unaudited Combined Statements of Equity	3
Unaudited Combined Statements of Cash Flows	4
Notes to Unaudited Combined Financial Statements	5

Toshiba Nuclear Energy Holdings (US), Inc. and

Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Unaudited Combined Balance Sheets

	June 30			March 31
	2018			2018
	(In Thousands)			(In Thousands)
Assets
Current assets:
Cash and cash equivalents	$	679,190		$	845,424
Receivables, net of allowance for doubtful accounts of $2,418 and $3,130	547,836			483,597
Related-party receivables	14,169			12,844
Inventories, net	543,714			485,275
Costs and estimated earnings in excess of billings on uncompleted contracts	448,266			517,314
Amounts earned in excess of billings	49,811			39,605
Assets held for sale	—			203,124
Other current assets	381,399			405,016
Total current assets	2,664,385			2,992,199
Noncurrent assets:
Property, plant and equipment, net	718,454			748,543
Other intangible assets, net	936,519			969,310
Uranium assets	409,117			417,271
Deferred income tax assets	348			36,613
Investment in unconsolidated subsidiaries	6,747			6,891
Other noncurrent assets	127,390			123,865
Total noncurrent assets	2,198,575			2,302,493
Total assets	$	4,862,960		$	5,294,692
Liabilities and equity
Current liabilities:
Accounts payable	$	246,875		$	325,025
Related-party payables	1,175			1,512
Billings in excess of costs and estimated earnings on uncompleted contracts	131,149			138,484
Amounts billed in excess of revenue	318,388			270,646
Debtor-in possession loan	600,000			600,000
Liabilities held for sale	—			269,712
Other current liabilities	469,858			481,803
Total current liabilities	1,767,445			2,087,182
Noncurrent liabilities:
Reserves for decommissioning matters	29,266			30,897
Benefit obligations	114,820			121,969
Deferred income tax liabilities	71,642			67,615
Other noncurrent liabilities	147,345			150,237
Liabilities subject to compromise	9,054,134			9,103,420
Total noncurrent liabilities	9,417,207			9,474,138
Equity (deficit):
TNEH-US and TNEH-UK stockholders’ deficit	(6,328,911		)	(6,243,418		)
Noncontrolling interests	7,219			(23,210		)
Total equity (deficit)	(6,321,692		)	(6,266,628		)
Total liabilities and equity (deficit)	$	4,862,960		$	5,294,692

See notes to unaudited combined financial statements.

1

Toshiba Nuclear Energy Holdings (US), Inc. and

Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Unaudited Combined Statements of Operations and Comprehensive (Loss) Income

	Three Months Ended June 30
	2018			2017
	(In Thousands)
Net revenues	$	836,489		$	882,587
Cost of goods sold	641,180			663,769
Gross profit	195,309			218,818
Marketing, administrative and general expenses	139,038			147,787
Amortization of intangibles	17,468			17,772
Income from operations	38,803			53,259
Interest and other (expense) income:
Interest income	3,129			512
Interest expense	(14,864		)	(24,614		)
Gain (loss) on foreign currency transactions, net	19,698			(18,992		)
Other income, net	9,369			1,616
Total interest and other income (expense)	17,332			(41,478		)
Reorganization items, net	(38,608		)	(27,020		)
Income (loss) before income taxes	17,527			(15,239		)
Income tax provision (benefit)	57,670			(1,182		)
Combined net loss	(40,143		)	(14,057		)
Less net income attributable to noncontrolling interests	1,564			1,971
Net loss attributable to TNEH-US and TNEH-UK	$	(41,707	)	$	(16,028	)
Combined net loss	$	(40,143	)	$	(14,057	)
Other comprehensive (loss) income, net of tax:
Unrealized gain on derivatives	2,418			2,937
Change in unrecognized gains and prior service cost related to pension and other postretirement benefit plans	5,149			309
Unrealized foreign currency (loss) gain on translation adjustment	(50,624		)	19,244
Other comprehensive (loss) income, net of tax	(43,057		)	22,490
Comprehensive (loss) income	(83,200		)	8,433
Less comprehensive income attributable to noncontrolling interests	2,293			780
Comprehensive (loss) income attributable to TNEH-US and TNEH-UK	$	(85,493	)	$	7,653

See notes to unaudited combined financial statements.

2

Toshiba Nuclear Energy Holdings (US), Inc. and

Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Unaudited Combined Statements of Equity

						Accumulated			TNEH-US and
	Capital Stock of		Retained			Other			TNEH-UK
	TNEH-US and		Earnings			Comprehensive			Stockholders’			Noncontrolling			Total
	TNEH-UK		(Deficit)			(Loss) Income			Equity (Deficit)			Interests			Equity (Deficit)
	(In Thousands)
Balance at March 31, 2017	$	5,400,000	$	(10,358,278	)	$	(1,069,921	)	$	(6,028,199	)	$	64,429		$	(5,963,770	)
Comprehensive income:
Net (loss) income attributable to controlling and noncontrolling interests	—		(16,028		)	—			(16,028		)	1,971			(14,057		)
Unrealized gain on derivatives	—		—			2,937			2,937			—			2,937
Change in unrecognized gains and prior service cost related to pension and other postretirement benefit plans	—		—			309			309			—			309
Unrealized foreign currency gain (loss) on translation adjustment	—		—			20,435			20,435			(1,191		)	19,244
Total comprehensive (loss) income	—		(16,028		)	23,681			7,653			780			8,433
Dividends	—		—			—			—			—			—
Balance at June 30, 2017	$	5,400,000	$	(10,374,306	)	$	(1,046,240	)	$	(6,020,546	)	$	65,209		$	(5,955,337	)
Balance at March 31, 2018	$	5,400,000	$	(10,661,510	)	$	(981,908	)	$	(6,243,418	)	$	(23,210	)	$	(6,266,628	)
Comprehensive (loss) income:
Net loss attributable to controlling and noncontrolling interests	—		(41,707		)	—			(41,707		)	1,564			(40,143		)
Unrealized loss on derivatives	—		—			2,418			2,418			—			2,418
Change in unrecognized gains and prior service cost related to pension and other postretirement benefit plans	—		—			5,149			5,149			—			5,149
Unrealized foreign currency (loss) gain on translation adjustment	—		—			(51,353		)	(51,353		)	729			(50,624		)
Total comprehensive (loss) income	—		(41,707		)	(43,786		)	(85,493		)	2,293			(83,200		)
Mangiarotti transaction	—		—			—			—			(39		)	(39		)
Deconsolidation of noncontrolling interest	—		—			—			—			28,368			28,368
Dividends	—		—			—			—			(193		)	(193		)
Balance at June 30, 2018	$	5,400,000	$	(10,703,217	)	$	(1,025,694	)	$	(6,328,911	)	$	7,219		$	(6,321,692	)

See notes to unaudited combined financial statements.

3

Toshiba Nuclear Energy Holdings (US), Inc. and

Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Unaudited Combined Statements of Cash Flows

	Three Months Ended June 30
	2018			2017
	(In Thousands)			(In Thousands)
Operating activities
Combined net loss	$	(40,143	)	$	(14,057	)
Adjustments to reconcile combined net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	48,887			57,901
Gain on sale of NFI assets & liabilities classified as held for sale	(7,407		)	—
Deferred income taxes	39,059			(3,055		)
Gain on disposal of property, plant and equipment, net	(1,119		)	(679		)
(Gain) loss on foreign currency transactions, net	(19,698		)	18,992
Equity in losses (earnings) of unconsolidated subsidiaries	434			(139		)
Changes in:
Receivables	(69,056		)	77,143
Inventories and uranium assets	(72,074		)	(26,360		)
Costs and estimated earnings in excess of billings on uncompleted contracts	64,170			(17,823		)
Amounts earned in excess of billings	(10,590		)	12,076
Other current assets	(727		)	(391,034		)
Other noncurrent assets	906			(2,542		)
Accounts payable and other current liabilities	(66,557		)	47,912
Billings in excess of costs and estimated earnings on uncompleted contracts	(49,262		)	346,263
Amounts billed in excess of revenue	58,498			(85,823		)
Noncurrent liabilities	994			431
Net cash (used in) provided by operating activities	(123,685		)	19,206
Investing activities
Purchases of property, plant and equipment	(26,363		)	(11,107		)
Proceeds from sale of property, plant and equipment	1,992			927
Other investing activities	—			(72		)
Net cash used in investing activities	(24,371		)	(10,252		)
Financing activities
Proceeds from DIP financing	—			450,000
Payment on capital lease obligations	(104		)	(298		)
Other financing activities	(233		)	—
Net cash (used in) provided by financing activities	(337		)	449,702
Effect of foreign currency translation	(17,841		)	5,259
Net (decrease) increase in cash and cash equivalents	(166,234		)	463,915
Cash and cash equivalents, beginning of period	845,424			681,569
Cash and cash equivalents, end of period	$	679,190		$	1,145,484
Supplemental disclosures of cash flow information
Cash paid for interest	$	10,347		$	24,022
Cash paid for income taxes	$	707		$	6,563

See notes to unaudited combined financial statements.

4

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements

As of June 30 and March 31, 2018 and for the

Three Month Periods Ended June 30, 2018 and 2017

(in thousands)

1.Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and New Accounting Standards

Description of Business

The accompanying unaudited combined financial statements include the accounts of the holding companies Toshiba Nuclear Energy Holdings (US), Inc. (TNEH-US) and subsidiaries and Toshiba Nuclear Energy Holdings (UK) Ltd. (TNEH-UK) and subsidiaries (collectively, the Company). The Company operates as Westinghouse, serving the domestic and international nuclear electric power industry by supplying advanced nuclear plant designs and equipment, fuel and a wide range of other products and services to the owners and operators of commercial nuclear power plants.

As of June 30, 2018, Toshiba Corporation owns 100% of the Company.

Basis of Financial Statement Presentation

TNEH-US and TNEH-UK are under common ownership and management, and therefore, their accounts have been combined. The Company operated on a fiscal year ended March 31st prior to its acquisition by Brookfield Business Partners L.P. together with institutional partners (Brookfield) (see Note 2) at which time the Company changed its fiscal year end to December 31st to align with that of Brookfield.

The accompanying combined financial statements are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in audited annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. Management of the Company believes that the disclosures included herein are adequate to make the information presented not misleading when read in conjunction with the Company’s audited combined financial statements and the notes included therein for the year ended March 31, 2018.

In management’s opinion, the accompanying unaudited combined financial statements reflect all adjustments, which are of a normal and recurring nature, and which are necessary for a fair presentation, in all material respects, of financial results for the interim periods presented. Operating results for the three months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the nine months ending December 31, 2018.

5

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

1.Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and New Accounting Standards (continued)

The accompanying unaudited combined financial statements include the assets and liabilities of the Company, its wholly-owned subsidiaries, jointly-owned subsidiaries over which it exercises control and entities for which it has been determined to be the primary beneficiary as of June 30 and March 31, 2018, and the results of operations and cash flows for the three month periods ended June 30, 2018 and 2017. Noncontrolling interest amounts relating to the Company’s less-than-wholly owned consolidated subsidiaries are included within net income attributable to noncontrolling interests in the accompanying unaudited combined statements of operations and comprehensive (loss) income and within noncontrolling interests in the accompanying unaudited combined balance sheets. Investments in entities in which the Company has the ability to exercise significant influence but does not exercise control are accounted for using the equity method and are included in investment in unconsolidated subsidiaries in the accompanying unaudited combined balance sheets.

Unless otherwise indicated, all dollar amounts in these unaudited combined financial statements and notes thereto are presented in thousands. All significant intercompany transactions and balances have been eliminated in combination.

On March 29, 2017 (the Petition Date), TNEH-UK, Westinghouse Electric Company LLC (a subsidiary of TNEH-US), and other indirect subsidiaries of TNEH-US (collectively, the Debtors) filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York in New York City (Bankruptcy Court). The bankruptcy will allow the Company to undertake a strategic restructuring to address the financial challenges arising from construction obligations of the Vogtle and V.C. Summer AP1000 projects.

On January 29, 2018, the Company filed a joint chapter 11 plan of reorganization (the Plan) and related disclosure statement with the Bankruptcy Court. The Plan and disclosure statement were subsequently amended and/or modified. On February 22, 2018, the Bankruptcy Court approved the disclosure statement. On March 27, 2018, the Bankruptcy Court entered into an order confirming the Plan pursuant to which, upon consummation of the Plan, the Company would emerge from bankruptcy, and Brookfield would acquire the Company, subject to receiving regulatory approval and satisfying other closing conditions.

On January 12, 2018, TSB Nuclear Energy Services Inc. (TNESI), TNEH-UK and Brookfield WEC Holdings LLC entered into a plan funding agreement. As contemplated in the Plan, Brookfield will provide funding, which will be used to pay the Company’s creditors, in exchange for acquiring (i) all of the newly issued shares in TNESI upon emergence from the bankruptcy cases and (ii) all of the shares of Westinghouse Electric UK Holdings Limited (WECHOL) from TNEH-UK. For further discussion of the bankruptcy, refer to Note 2.

Bankruptcy Accounting

During the pendency of the Chapter 11 proceedings, the Debtors have operated their businesses as “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the U.S. Bankruptcy Code.

6

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

1.Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and New Accounting Standards (continued)

The accompanying unaudited combined financial statements reflect the application of ASC 852, “Reorganizations.” ASC 852 requires that the financial statements, for periods subsequent to the Chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that are realized or incurred in the bankruptcy proceedings are recorded in reorganization items, net on the accompanying unaudited combined statements of operations and comprehensive (loss) income. In addition, prepetition unsecured and under-secured obligations that may be impacted by the bankruptcy reorganization process have been classified as liabilities subject to compromise on the accompanying unaudited combined balance sheets at June 30 and March 31, 2018. These liabilities are reported at the amounts expected to be addressed in the Chapter 11 proceedings, although they may be settled for less.

The accompanying unaudited combined financial statements do not purport to reflect or provide for the consequences of the Chapter 11 proceedings. In particular, the unaudited combined financial statements do not purport to show: (i) the realizable value of assets on a liquidation basis or their availability to satisfy liabilities; (ii) the amount of prepetition liabilities that may be allowed for claims or contingencies, or the status and priority thereof; (iii) the effect on stockholders’ (deficit) equity accounts of any changes that may be made to the Company’s capitalization; or (iv) the effect on operations of any changes that may be made to the Company’s business. While operating as debtor-in-possession under Chapter 11 of the U.S. Bankruptcy Code, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities in amounts other than those reflected on its combined financial statements, subject to the approval of the Bankruptcy Court or otherwise as permitted in the ordinary course of business. Further, implementation of the Plan could materially change the amounts and classifications on the Company’s combined financial statements.

Going Concern

The accompanying unaudited combined financial statements have been prepared assuming the Company will continue as a going concern. Given risks involved with respect to the Chapter 11 proceedings, there was no assurance that the Company would emerge from bankruptcy proceedings as a going concern, and the realization of assets and satisfaction of liabilities, without substantial adjustments and/or changes in ownership, were also subject to uncertainty. However, the Company’s emergence from bankruptcy and acquisition by Brookfield on August 1, 2018 has alleviated the risks and uncertainties which previously raised substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying unaudited combined financial statements are issued.

New Accounting Standards

Recently adopted accounting standards — There have been no new accounting standards adopted by the Company during the three month period ended June 30, 2018.

7

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

1.Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and New Accounting Standards (continued)

Recently issued accounting standards — The following new accounting standards have been issued, but have not yet been adopted by the Company, as of June 30, 2018:

In May 2014, the FASB issued an ASU on revenue recognition that clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP and IFRS. The ASU intends to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, and provide more useful information to users of financial statements through improved disclosure requirements. In August 2015, and March, April, May and December 2016, the FASB issued additional ASUs on revenue recognition designed to clarify the requirements of the original revenue recognition ASU from May 2014. The Company was required to adopt this ASU on April 1, 2019 as a nonpublic entity. However, the Company was acquired by Brookfield, a public company, on August 1, 2018 (Note 2) and in conforming with Brookfield’s accounting policies, adopted this ASU as of that date using the modified retrospective method. The effect of adoption did not have an effect upon the Company.

In February 2016, the FASB issued an ASU on leases with the goals of increasing transparency and comparability among organizations by recognizing operating lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU also intends to bring the accounting for leases under U.S. GAAP more consistent with the accounting for leases under IFRS. The Company was required to adopt this ASU effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020 as a nonpublic entity. However, the Company was acquired by Brookfield, a public company, on August 1, 2018 (Note 2) and accordingly this ASU will be effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the potential impact this ASU will have on its combined financial statements.

In August 2016, the FASB issued an ASU on the statement of cash flows with the goal of standardizing the treatment of certain items not otherwise addressed in GAAP. The ASU includes guidance on debt prepayment/extinguishment costs, settlement of zero-coupon debt, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and the application of the predominance principle. The Company was required to adopt this ASU effective for fiscal years beginning after December 15, 2018 and for interim periods within fiscal years beginning after December 15, 2019 as a nonpublic entity. However, the Company was acquired by Brookfield, a public company, on August 1, 2018 (Note 2) and accordingly this ASU is effective as of that date. The unaudited combined financial statements herein do not reflect the potential impact of adopting this ASU as it was not effective for the Company as of June 30, 2018. The Company is currently evaluating the potential impact this ASU will have on its combined financial statements.

In November 2016, the FASB issued an additional ASU on the statement of cash flows designed to further standardize the treatment of certain items not otherwise addressed in GAAP. Specifically, the ASU clarifies the presentation and classification of restricted cash. This ASU is effective as of the same reporting period as the original statement of cash flows update. The Company is currently evaluating the potential impact this ASU will have on its combined financial statements.

8

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

1.Description of Business, Basis of Financial Statement Presentation, Bankruptcy Accounting, Going Concern and New Accounting Standards (continued)

In March 2017, the FASB issued an ASU on retirement benefits, which changes the presentation of net periodic pension cost and net periodic postretirement benefit cost components. This Company was required to adopt this ASU effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019, and early adoption is permitted as a nonpublic entity. However, the Company was acquired by Brookfield, a public company, on August 1, 2018 (Note 2) and accordingly this ASU is effective as of that date. The unaudited combined financial statements herein do not reflect the potential impact of adopting this ASU as it was not effective for the Company as of June 30, 2018. The Company is currently evaluating the potential impact this ASU will have on its combined financial statements.

In August 2017, the FASB issued an ASU on derivatives and hedging with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The Company was required to adopt this ASU effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020, and early adoption is permitted, as a nonpublic entity. However, the Company was acquired by Brookfield, a public company, on August 1, 2018 (Note 2) and accordingly this ASU is effective for the Company for fiscal years beginning after December 31, 2018, and interim periods within those fiscal years. The Company is currently evaluating the potential impact this ASU will have on its combined financial statements.

In February 2018, the FASB issued an ASU on comprehensive income, which allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from tax reform. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the potential impact this ASU will have on its combined financial statements.

All other issued but not yet effective accounting pronouncements are not expected to have a material impact on the Company’s combined financial statements.

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code

TNEH-UK, Westinghouse Electric Company LLC (a subsidiary of TNEH-US), and other indirect subsidiaries of TNEH-US filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York in New York City on March 29, 2017.

On January 29, 2018, the Company filed the Plan and the Disclosure Statement with the Bankruptcy Court. The Company subsequently filed amendments to the Plan and Disclosure Statement. On March 27, 2018, the Bankruptcy Court entered into an order confirming the Plan pursuant to which the Company can emerge from bankruptcy, subject to receiving regulatory approval and satisfying other closing conditions.

9

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code (continued)

Pursuant to the Plan and subject to the satisfaction or waiver of certain closing conditions:

·Brookfield will provide funding (the Purchase Price) for the Plan in the bankruptcy cases in exchange for acquiring, as provided in the Plan, (i) newly issued shares in TNESI upon emergence from the bankruptcy cases (such interests, constituting one-hundred percent (100%) of the issued and outstanding shares of the reorganized company) and (ii) all of the issued and outstanding shares in WECHOL from TNEH UK.

·The Purchase Price shall be an amount in cash equal to the sum of (a) $3,802,000 plus (b) the final acquired company cash, minus (c) the final acquired company debt, plus (d) the final working capital increase (if any), minus (e) the final working capital decrease (if any), plus (f) the final solvency tax adjustment (which can be a negative number), if any.

·A limited liability company (Wind Down Co) will be established for the benefit of holders of claims against the Debtors. Brookfield shall deliver the net plan investment proceeds to Wind Down Co and the excluded assets and excluded liabilities shall be transferred from the Debtors to Wind Down Co.

On August 1, 2018, the Debtors satisfied the conditions to effectiveness set forth in the Plan, the Plan became effective in accordance with its terms and the Debtors emerged from bankruptcy. The Company was then acquired by Brookfield.

Debtor Financial Statements

The following condensed combined financial statements represent the financial statements for the Debtors only. The Company’s Non-Debtor Subsidiaries are accounted for as non-consolidated subsidiaries in these financial statements and, as such, their net income is included in income from non-debtor entities in the condensed combined statements of operations, and their net assets are included as investments in non-debtor entities in the condensed combined balance sheets. The Debtors’ condensed combined financial statements have been prepared in accordance with the guidance in ASC 852.

Intercompany transactions between the Debtors have been eliminated in the condensed combined financial statements. Intercompany transactions between the Debtors and Non-Debtor Subsidiaries have not been eliminated in the Debtors’ condensed combined financial statements.

10

Toshiba Nuclear Energy Holdings (US), Inc. and

Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code (continued)

The condensed combined balance sheets of the Debtors as of June 30 and March 31, 2018, and condensed combined statements of operations and cash flows for the three month periods ended June 30, 2018 and 2017 consist of the following:

Debtor Only Condensed Combined Balance Sheets

	June 302018			March 312018
Assets
Current assets:
Cash and cash equivalents	$	492,549		$	540,502
Accounts receivables, net	309,429			237,331
Inventories, net	347,482			282,394
Costs and estimated earnings in excess of billings on uncompleted contracts	235,724			263,299
Amounts earned in excess of billings	43,990			34,655
Intercompany receivables from non-debtor subsidiaries	288,041			296,624
Other current assets	238,724			249,047
Total current assets	1,955,939			1,903,852
Noncurrent assets:
Property, plant and equipment, net	439,128			447,185
Other intangible assets, net	714,177			728,086
Deferred income tax assets	—			11,926
Loans receivable from non-debtor affiliates	747,970			817,911
Investment in non-debtor subsidiaries	430,184			395,417
Other noncurrent assets	259,348			344,668
Total noncurrent assets	2,590,807			2,745,193
Total assets	$	4,546,746		$	4,649,045
Liabilities and equity (deficit)
Current liabilities:
Accounts payable	$	122,605		$	188,622
Billings in excess of costs and estimated earnings on uncompleted contracts	201,865			136,211
Debtor-in-possession loan	600,000			600,000
Other current liabilities	146,042			124,206
Total current liabilities	1,070,512			1,049,039
Noncurrent liabilities:
Deferred income tax liabilities	5,780			—
Other noncurrent liabilities	108,784			98,596
Liabilities subject to compromise	10,054,058			10,139,810
Total noncurrent liabilities	10,168,622			10,238,406
Equity (deficit)	(6,692,388		)	(6,638,400		)
Total liabilities and equity (deficit)	$	4,546,746		$	4,649,045

11

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code (continued)

Debtor Only Condensed Combined Statements of Operations

	Three Months Ended June 30
	2018			2017
Net revenues	$	538,489		$	616,889
Cost of goods sold	379,168			496,962
Gross profit	159,321			119,927
Marketing, administrative and general expenses	79,350			97,660
Amortization of intangibles	13,908			13,908
Income from operations	66,063			8,359
Interest and other (expense) income:
Interest income	9,632			2,618
Interest expense	(10,507		)	(19,409		)
(Loss) equity in income of non-debtor subsidiaries	(14,559		)	17,834
(Loss) gain on foreign currency transactions, net	(3,570		)	115
Other income, net	1,558			1,666
Total interest and other (expense) income	(17,446		)	2,824
Reorganization items, net	(30,009		)	(26,605		)
Income (loss) before income taxes	18,608			(15,422		)
Income tax provision (benefit)	57,940			(1,182		)
Combined net loss	$	(39,332	)	$	(14,240	)

12

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code (continued)

Debtor Only Condensed Combined Statements of Cash Flows

	Three Months Ended June 30
	2018			2017
Operating activities
Combined net loss	$	(39,332	)	$	(14,240	)
Adjustments to reconcile combined net loss to net cash used in operating activities:
Depreciation and amortization	35,329			44,022
Equity in losses (earnings) and tax impact of unconsolidated subsidiaries	43,446			(19,395		)
Other operating activities	(44,544		)	(15,322		)
Net cash used in operating activities	(5,101		)	(4,935		)
Investing activities
Purchases of property, plant and equipment	(14,225		)	(3,673		)
Other investing activities	1,992			927
Net cash used in investing activities	(12,233		)	(2,746		)
Financing activities
Proceeds from debtor-in-possession (DIP) financing	—			450,000
Net repayment of related-party loans	(29,350		)	(44,631		)
Net cash (used in) provided by financing activities	(29,350		)	405,369
Effect of foreign currency translation	(1,269		)	177
Net (decrease) increase in cash and cash equivalents	(47,953		)	397,865
Cash and cash equivalents, beginning of year	540,502			531,438
Cash and cash equivalents, end of year	$	492,549		$	929,303

Reorganization items, net

In accordance with ASC 852, the statement of operations shall portray the results of operations of the reporting entity during the pendency of the Chapter 11 cases. Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses resulting from reorganization of the business are reported separately as reorganization items, net in the accompanying unaudited combined statements of operations and comprehensive (loss) income. The Company’s reorganization items for the three month periods ended June 30, 2018 and 2017 consist of the following:

	Three Months Ended June 30
	2018		2017
Legal and professional fees	$	38,608	$	27,020
Reorganization items, net	$	38,608	$	27,020

13

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

2. Filing Under Chapter 11 of the United States’ Bankruptcy Code (continued)

Cash paid for reorganization items was $33,590 and $0 during the three month periods ended June 30, 2018 and 2017, respectively.

Liabilities Subject to Compromise

Liabilities subject to compromise include unsecured or under-secured liabilities incurred prior to the Petition Date. These liabilities represent the amounts expected to be allowed on known or potential claims to be resolved through the Chapter 11 cases and remain subject to future adjustments based on negotiated settlements with claimants, actions of the Bankruptcy Court, rejection of executory contracts, proofs of claims or other events. Additionally, liabilities subject to compromise also include certain items that may be assumed, and as such, may be subsequently reclassified to liabilities not subject to compromise. The following table summarizes the components of liabilities subject to compromise included in the accompanying unaudited combined balance sheets as of June 30 and
March 31, 2018:

	June 302018			March 312018
Accounts payable	$	774,460		$	769,899
Billings in excess of costs and estimated earnings on uncompleted contracts (1)	637,704			678,509
Other current liabilities	90,362			94,687
Reserves for decommissioning matters	136,818			139,337
Benefit obligations (2)	419,325			426,036
Loans due to third-parties	906,600			906,600
Loans due to non-debtor affiliates	999,924			1,036,390
Stone & Webster deferred purchase price	163,196			163,196
U.S. AP1000 EPC contract liability (3)	5,848,000			5,848,000
Other noncurrent liabilities	77,669			77,156
Liabilities subject to compromise (Debtors only)	$	10,054,058		$	10,139,810
Less: amounts related to non-debtor affiliates eliminated in consolidation	(999,924		)	(1,036,390		)
Liabilities subject to compromise	$	9,054,134		$	9,103,420

(1)Balances pertain to contracts commencing prior to the Petition Date. Until these contracts are assumed or rejected by the Company through court proceedings, or otherwise completed, these balances are considered subject to compromise. Upon assumption or rejection, the balances will be reclassified to liabilities not subject to compromise or adjusted to the determined allowed claim amount, respectively. Inclusion of these balances in liabilities subject to compromise is not an indication that contracts have been or will be rejected.

(2)Includes liabilities for pension of $367,906 and $375,181, deferred compensation of $8,809 and $8,809 and other postretirement benefit plans of $42,610 and $42,046 at June 30 and March 31, 2018, respectively.

(3)Represents liability associated with certain maximum project costs under the Vogtle and V.C. Summer Engineering, Procurement & Construction (EPC) contracts.

14

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

3. Income Taxes

The income tax provision for interim periods is ordinarily based on an estimated annual effective tax rate, which requires management to make its best estimate of annual pretax income and tax expense in each jurisdiction.  Discrete items, which are items of tax or income that are either unusual or infrequent or do not relate to the current period, are recognized entirely in the interim period in which they occur. During the year, management regularly updates its estimates based on changes in various factors including the mix of income by tax jurisdiction, recording the impact of such updates in the subsequent interim period.

Income tax expense for the three month period ended June 30, 2018 was $57,670 or 329.0% of pretax income. The provision exceeded the U.S. statutory rate of 21% principally due to the impairment of deferred tax assets of $22,893 associated with continued contract losses in France, U.S. minimum tax credits of $14,444 that became worthless following an interim transaction prior to the Plan’s effective date, and non-deductible expenses. Tax impacts associated with emergence from bankruptcy have been excluded from the determination of tax expense during the period as that event is considered unusual or infrequent.  Accordingly, these effects will be treated as a discrete item in the period in which the Plan goes effective.

Income tax benefit for the three month period ended June 30, 2017 was $1,182, or 7.8% of the pretax loss, and was based upon an annual effective tax rate that took into account those jurisdictions in which the Company forecast pretax income, and excluded those in which a loss was forecast for which we do not anticipate generating a future tax benefit.

4. Fair Value Measurements and Derivative Instruments

Assets and Liabilities Measured At Fair Value on a Recurring Basis

The fair value of financial instruments classified as cash and cash equivalents, receivables, related-party receivables, accounts payable, related-party payables and notes due to related party approximate carrying value due to the short-term nature and the relative liquidity of the instruments.

The Company uses derivative financial instruments as part of its risk management program to mitigate the market risk that occurs from its exposure to changes in foreign exchange rates. Techniques for managing foreign exchange risk include, but are not limited to, foreign currency borrowing and investing and the use of currency derivative instruments. The purpose of the Company’s foreign currency management activities is to protect from the risk that the eventual cash flows resulting from the sale and purchase of services and products in foreign currencies will be adversely affected by changes in exchange rates, not for speculative or trading purposes.

Changes in the fair value of a derivative designed and qualified as a cash flow hedge, to the extent effective, are included in equity as accumulated other comprehensive income (loss) until earnings are affected by the hedged transaction. The Company discontinues hedge accounting prospectively when it has determined that a derivative no longer qualifies as an effective hedge. No outstanding derivatives as of June 30 and March 31, 2018 are designated in a hedging relationship. Amounts in accumulated other comprehensive income (loss) associated with de-designated hedges will be reclassified into income when the underlying exposure is set to mature and also when an exposure changes enough that it no longer would qualify for hedge accounting.

15

Toshiba Nuclear Energy Holdings (US), Inc. and

Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

4. Fair Value Measurements and Derivative Instruments (continued)

The degree of judgment utilized in measuring the fair value of the instruments generally correlates to the level of pricing observability. Pricing observability is impacted by a number of factors, including the type of asset or liability, whether the asset or liability has an established market and the characteristics specific to the transaction. Instruments with readily active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, assets rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment utilized in measuring fair value.

Under existing GAAP, there is a disclosure framework hierarchy associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by the hierarchy are as follows:

·Level 1 — Quoted prices in active markets for identical assets and liabilities at the measurement date.

·Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities including the following:

·Quoted prices for similar assets and liabilities in active markets

·Quoted prices for identical or similar assets or liabilities in markets that are not active

·Inputs that are derived principally from or corroborated by observable market data by correlation or other means

·Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The Company has classified all foreign exchange contracts as Level 2 with respect to the fair value hierarchy and there were no transfers between the levels during this or comparable periods.

Derivative Instruments and Hedging Activities

Forward foreign exchange contracts, which are commitments to buy or sell a specified amount of a foreign currency at a specified price and time, are primarily utilized to reduce the risk from foreign currency price fluctuations related to firm or anticipated sales transactions, commitments to purchase or sell equipment, materials and/or services, and principal and interest payments denominated in a foreign currency. These contracts generally have an expiration date of five years or less.

The Company determines the fair value of foreign exchange contracts using a mark-to-market model, incorporating real market pricing with probable variables, with all amounts recognized in the combined statements of operations and comprehensive (loss) income.

16

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

4. Fair Value Measurements and Derivative Instruments (continued)

Although the Company is party to master netting agreements (ISDA agreements) with all derivative counterparties, the fair values in the tables below and in the unaudited combined balance sheets at June 30 and March 31, 2018 have been presented on a gross basis. The amounts subject to netting agreements that the Company choose not to offset are presented later in this note. According to the netting agreements, transaction amounts payable to counterparty on the same date and in the same currency can be netted.

Derivatives Not Designated As Hedging Instruments

Derivatives, not designated as hedging instruments, relate to economic hedges and are marked-to-market with all amounts recognized in the combined statement of operations and comprehensive (loss) income. The derivatives not designated as hedging instruments outstanding at June 30 and March 31, 2018 are foreign exchange swaps and forwards.

The following table presents the fair values of derivative instruments included in the accompanying unaudited combined balance sheets as of June 30 and March 31, 2018:

	Asset Derivatives
		Fair Value
	Balance Sheet Location	June 30 2018		March 31 2018
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other current assets	$	8,847	$	6,303
Foreign exchange contracts	Other noncurrent assets	16,894		12,209
Total asset derivatives		$	25,741	$	18,512

	Liability Derivatives
		Fair Value
	Balance Sheet Location	June 30 2018			March 31 2018
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other current liabilities	$	(9,190	)	$	(17,201	)
Foreign exchange contracts	Other noncurrent liabilities	(23,149		)	(21,383		)
Total liability derivatives		(32,339		)	(38,584		)
Less: amount subject to compromise (see Note 2)		815			815
Derivative liability not subject to compromise		$	(31,524	)	$	(37,769	)
Net liability position		$	(5,783	)	$	(19,257	)

17

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

4. Fair Value Measurements and Derivative Instruments (continued)

The following table presents the pretax effect of derivative instruments in the accompanying unaudited combined statements of operations and comprehensive (loss) income for the three month periods ended June 30, 2018 and 2017:

Amount of Gain (Loss) Reclassified from Accumulated OCI into Income

Derivatives not designated	Three Months Ended
as hedging instruments	June 30, 2018			June 30, 2017		Location
Foreign exchange contracts	$	(3,641	)	$	2,654	Gain (loss) on foreign currency transactions, net

Amount of Gain (Loss) Recognized in Income on Derivatives

Derivatives not designated	Three Months Ended
as hedging instruments	June 30, 2018		June 30, 2017			Location
Foreign exchange contracts	$	2,854	$	(3,816	)	Gain (loss) on foreign currency transactions, net

Assuming market rates remain the same, the Company estimates $1,848 of the unrealized net losses on these derivatives to be reclassified into earnings in the next 12 months. At June 30, 2018, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows associated with foreign currency forecasted transactions is through December 2021.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company also has assets and liabilities in its balance sheet that are measured at fair value on a non-recurring basis. Assets and liabilities that are measured at fair value on a non-recurring basis include long-lived assets.

The Company has determined that the fair value measurements included in each of these assets and liabilities rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets and settlements of liabilities, as observable inputs are not available. The Company has determined that each of these fair value measurements reside within Level 3 of the fair value hierarchy.

18

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

5. Inventories

At June 30 and March 31, 2018, inventories consist of the following:

	June 302018			March 312018
Raw materials and consumables	$	170,600		$	157,586
Work in process	108,358			98,614
Finished goods	206,752			161,138
Engineering inventory	8,021			4,947
Uranium inventory available for sale	66,905			80,704
Gross inventories	560,636			502,989
Inventory reserve	(16,922		)	(17,714		)
Inventories, net	$	543,714		$	485,275

Inventories, other than those related to long-term contracts and uranium inventory available for sale are generally sold within one year.

6. Uranium Assets

Below is the classification of uranium assets within the accompanying unaudited combined balance sheets as of June 30 and March 31, 2018:

	June 302018		March 312018
Current uranium assets:
Available for sale (included within inventories, net)	$	66,905	$	80,704
Uranium assets on loan from related party (included within other current assets)	15,065		15,065
Total current uranium assets	81,970		95,769
Noncurrent uranium assets:
Long-term uranium working stock	167,536		37,108
Uranium held for sales commitments	213,081		218,713
Uranium leased to external party	—		132,950
Uranium assets on loan from related party	28,500		28,500
Total noncurrent uranium assets	409,117		417,271
Net uranium assets	$	491,087	$	513,040

19

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

7. Assets Held for Sale

On November 23, 2017, the Company agreed to sell, and Toshiba agreed to purchase, the Company’s 52% interest in Nuclear Fuel Industries, Ltd. (NFI) for one whole U.S. dollar. However, as of March 31, 2018, the NFI Transfer had not yet closed, and the assets and liabilities of NFI have been classified as held for sale in the Company’s combined balance sheet as of that date. The Company determined that the pending disposal of NFI did not meet the criteria for discontinued operations reporting, as it does not represent a strategic shift that will have a major effect on the Company’s operations and financial results.

On June 29, 2018, the Company completed the sale of its 52% interest in NFI to Toshiba. At which point, the assets and liabilities of NFI that had previously been classified as held for sale were deconsolidated from the accompanying unaudited combined financial statements. The Company recognized a gain on deconsolidation of $7,407 within other income, net in the accompanying unaudited combined statement of operations and comprehensive (loss) income for the three month period ended June 30, 2018.

For the three month periods ended June 30, 2018 and 2017, NFI’s (loss) income before income taxes was $(168) and $2,718, respectively, of which $(87) and $1,413, respectively, is attributable to the Company’s controlling interest.

The following table summarizes the major classes of assets and liabilities classified as held for sale in the Company’s combined balance sheet as of March 31, 2018:

	March 31 2018
Assets held for sale:
Cash and cash equivalents	$	25,799
Receivables	28,152
Inventories, net	174,389
Costs and estimated earnings in excess of billings on uncompleted contracts	4,297
Other current assets	32,291
Property, plant and equipment, net	76,327
Other intangible assets, net	45,363
Investments in unconsolidated subsidiaries	13,532
Other noncurrent assets	17,108
Held for sale valuation reserve	(214,134		)
Total assets held for sale	$	203,124
Liabilities held for sale:
Accounts payable	$	2,526
Billings in excess of costs and estimated earnings on uncompleted contracts	181,065
Reserves for decommissioning matters	20,662
Benefit obligations	10,958
Deferred income tax liabilities	3,118
Other noncurrent liabilities	51,383
Total liabilities held for sale	$	269,712

20

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

8. Other Current and Noncurrent Assets

At June 30 and March 31, 2018, other current and noncurrent assets consist of the following:

	June 302018		March 312018
Other current assets:
Restricted cash	$	176,860	$	183,846
Prepaid insurance, taxes and other services	109,130		108,222
Derivative instruments, at fair value	8,847		6,303
Contract receivable	43,150		38,150
Uranium assets on loan from related party	15,065		15,065
Other	28,347		53,430
Other current assets	$	381,399	$	405,016

	June 302018		March 312018
Other noncurrent assets:
Restricted cash	$	74,244	$	80,916
Derivative instruments, at fair value	16,894		12,209
Pension asset	7,063		6,163
Contractual asset for postretirement benefit costs	4,204		4,204
Other	24,985		20,373
Other noncurrent assets	$	127,390	$	123,865

Current restricted cash is primarily advanced funding from U.S. AP1000 project customers under interim assessment agreements. This cash will be paid to third party vendors or returned to customers.

Noncurrent restricted cash is primarily cash collateral supporting letters of credit. Additionally, an amount is held pursuant to a legal requirement in Germany to ensure pay to employees in the case of company liquidation and a requirement to fund nuclear decommissioning in Sweden and the United Kingdom.

9. Debt and Credit Facilities

The Company maintained, and Toshiba guaranteed, a credit agreement for the purpose of issuing standby letters of credit. Pursuant to an amendment dated March 28, 2017, new letters of credit can no longer be issued and existing letters of credit can no longer be amended or extended under this agreement. At June 30 and March 31, 2018, $4,465 and $5,467, respectively, were utilized from this old agreement for letters of credit.

21

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

9. Debt and Credit Facilities (continued)

On March 31, 2017, the Company received interim approval of an $800,000 DIP financing arrangement with a third-party lender to help fund and protect its core businesses during its reorganization. The Company was authorized to borrow, and borrowed, $350,000 on the DIP financing arrangement as of March 31, 2017. The Company received final approval on May 26, 2017 to borrow, and borrowed, the remaining $450,000. Pursuant to an amendment dated March 29, 2018, the DIP financing arrangement was reduced to $600,000.  The amended borrowing arrangement is subject to a 1.50% amendment fee and carries an interest rate of one-month LIBOR plus 4.50%. Under the DIP financing agreement, the Company has the ability to issue new standby letters of credit. At June 30 and March 31, 2018, $46,047 and $40,696, respectively, have been utilized from the DIP financing arrangement for standby letters of credit.

The DIP financing includes covenants that, subject to certain conditions, require the Company to maintain certain minimum thresholds of liquidity. As of June 30 and March 31, 2018, the Company has complied with covenants, and there have been no events of default.

10. Commitments and Contingencies

Environmental Matters

Compliance with federal, state and local laws and regulations relating to the discharge of pollutants into the environment, the disposal of hazardous wastes and other related activities affecting the environment have had and will continue to have an impact on the Company. It is difficult to estimate the timing and ultimate costs to be incurred in the future due to uncertainties about the status of laws, regulations and technology, the adequacy of information available for individual sites, the extended time periods over which site remediation occurs, the availability of waste disposal capacity and the identification of new sites.

The Company has, however, recognized an estimated liability of $27,003 and $70,522 as of June 30 and March 31, 2018, respectively, measured in current dollars, for those sites where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company recognizes changes in estimates as new remediation requirements are defined or as more information becomes available. Of the liability as of March 31, 2018, $41,991 relates to NFI and is classified as held for sale in the accompanying unaudited combined balance sheets.

Operating expenses that are recurring and associated with managing hazardous waste and pollutants in ongoing operations totaled $3,753 and $3,889 for the three month periods ended June 30, 2018 and 2017, respectively. These expenses are included in cost of goods sold in the accompanying unaudited combined statements of operations and comprehensive (loss) income.

Management believes that the Company has adequately provided for its present environmental obligations and that complying with existing governmental regulations will not materially impact the Company’s financial position, liquidity or results of operations. The Company intends to satisfy/settle environmental obligations that become due during the bankruptcy proceedings.

22

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

10. Commitments and Contingencies (continued)

Legal Proceedings

The Company is involved in various litigation matters in the ordinary course of business. Reserves are included in the accompanying combined balance sheets for issues when a negative outcome is probable and the amount is reasonably estimable. In the opinion of management, while it is possible that certain outcomes could be unfavorable to the Company, the ultimate resolution of such matters will not result in judgments that, in the aggregate, would materially affect the Company’s financial position or results of operations. As of June 30, 2018, several matters were in the litigation and dispute resolution process. The following discussion provides a background and the current status on the most significant of these matters:

Levy County Nuclear Project — In December 2008, the Company signed an Engineering, Procurement and Construction (EPC) agreement to provide two AP1000 units in Levy County, Florida. Work on the project commenced before it was put into partial suspension in April 2009. In January 2014, the customer terminated the EPC agreement without cause. In March 2014, the Company and customer commenced litigation against each other and the case proceeded in the U.S. District Court for the Western District of North Carolina. The Company was seeking an agreement termination fee and termination costs as defined in the EPC agreement. The customer was seeking repayment of certain milestone payments related to particular work scope. The Company had recognized revenue from its claim. In December 2016, the Court provided its decision, which awarded the Company the $30,000 termination fee, plus interest, but no additional termination costs. This amount is included in costs and estimated earnings in excess of billings on uncompleted contracts in the accompanying unaudited combined balance sheets. The Court also ruled in favor of the Company and against the customer’s counterclaim. In January 2017, the Company appealed the decision as it relates to unawarded termination costs to the U.S. Court of Appeals for the 4th Circuit. The customer cross appealed. Litigation involving the Debtors was stayed in conjunction with the Chapter 11 filing, but the stay has been lifted for this matter by order of the Bankruptcy Court.

The parties have agreed to settle the case and dismiss their respective appeals. The customer paid the Company the amount previously awarded by the Court in July 2018.

Stone & Webster Acquisition — The Company acquired Stone & Webster, the nuclear construction and nuclear integrated services businesses of Chicago Bridge & Iron Company N.V. (CB&I) on December 31, 2015. The purchase agreement for this transaction contains, among other things, a detailed purchase price determination process. If the parties are unable to reach agreement on their differences, the matter is submitted to an independent auditor (as defined in the purchase agreement). On July 21, 2016, CB&I filed a suit in the Delaware Chancery Court seeking to prevent the Company from submitting its calculation to the independent auditor for a final and binding determination. On December 2, 2016, the Court dismissed CB&I’s complaint; however, CB&I then filed an appeal to the Delaware Supreme Court. In July 2017, the Delaware Supreme Court reversed the Delaware Chancery Court which has limited the amount the Company can seek as part of the working capital adjustment. The independent auditor process as outlined in the purchase agreement can move forward. If CB&I is successful, any amount would represent a prepetition liability subject to compromise and only be paid out of profits, if any, upon completion of the Vogtle and V.C. Summer AP1000 projects. If the Company is successful, any recovery would represent income in the period received.

23

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

10. Commitments and Contingencies (continued)

Commitments

In the ordinary course of business, letters of credit, bank guarantees, and surety bonds are issued on behalf of the Company. As of June 30, 2018, the Company had $98,846 under letters of credit and bank guarantees, including $50,512 under the facilities disclosed in Note 9, and $25,318 under surety bond obligations. As of March 31, 2018, the Company had $97,926 under letters of credit and bank guarantees, including $46,163 under the facilities disclosed in Note 9, and $15,306 under surety bond obligations.

11. Other Current and Noncurrent Liabilities

At June 30 and March 31, 2018 other current and noncurrent liabilities consist of the following:

	June 30 2018			March 31 2018
Other current liabilities:
Other short term loans	$	275,200		$	275,200
Contract and other reserves	161,014			151,402
Accrued reorganization expenses	67,209			84,783
Accrued payroll and other employee compensation	57,952			56,250
Accrued income and other taxes	52,709			52,081
Vacation liability	25,184			26,869
Deferred revenue	23,573			26,434
Reserve for restructuring liabilities	18,290			21,830
Accrued royalties and commissions	10,928			12,062
Accrued product warranty	9,506			11,128
Derivative instruments, at fair value	9,190			17,201
Pension liability	8,352			11,247
Reserve for decommissioning matters	3,509			1,651
Environmental liabilities	3,392			4,417
Obligations under capital leases	1,483			1,558
Other	97,415			85,204
Total	$	824,906		$	839,317
Less: amount subject to compromise (see Note 2)	(355,048		)	(357,514		)
Other current liabilities	$	469,858		$	481,803

24

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

11. Other Current and Noncurrent Liabilities (continued)

Other noncurrent liabilities:
U.S. AP1000 EPC contract liability	$	5,848,000		$	5,848,000
Other long term loans	650,000			650,000
Stone & Webster deferred purchase price	163,196			163,196
Environmental liabilities	23,611			24,114
Derivative instruments, at fair value	23,149			21,383
Obligations under capital leases	22,702			24,447
Deferred income on sale-leaseback	15,304			15,304
Accrued product warranty	13,075			12,813
Other	92,417			94,576
Total	$	6,851,454		$	6,853,833
Less: amount subject to compromise (see Note 2)	(6,704,109		)	(6,703,596		)
Other noncurrent liabilities	$	147,345		$	150,237

12. Restructuring Activities

The Company has engaged in certain restructuring activities related to overhead processes and the disposition of assets. These activities included an employee headcount reduction and exiting certain facilities and/or businesses. For the three month periods ended June 30, 2018 and 2017, costs incurred related to the restructuring activities consist of the following:

	Three Months Ended June 30
	2018		2017
Severance costs	$	5,822	$	—
Other associated costs	51		35
Total restructuring and other costs	$	5,873	$	35

Total restructuring and other costs recorded during the three month periods ended June 30, 2018 and 2017 was included in marketing, administrative and general expenses in the accompanying unaudited combined statements of operations and comprehensive (loss) income.

Amounts accrued for severance, terminated leases, and other exit-related obligations are included in other current liabilities in the accompanying combined balance sheets. The following table summarizes activity and liability balances associated with the Company’s restructuring liabilities for the periods ended June 30 and March 31, 2018:

	June 30 2018			March 31 2018
Balance, beginning of period	$	21,830		$	7,988
Accruals	5,873			46,405
Payments	(9,413		)	(32,563		)
Balance, end of period	$	18,290		$	21,830

25

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

13. Related-Party Transactions

At June 30 and March 31, 2018, related-party receivables reported in the accompanying unaudited combined balance sheets consist of the following:

	June 30 2018		March 31 2018
Trade receivables from Toshiba companies	$	2,083	$	401
Loans receivable from related parties	12,086		12,443
Total related-party receivables	$	14,169	$	12,844

At June 30 and March 31, 2018, related-party payables reported in the accompanying unaudited combined balance sheets consist of the following:

	June 30 2018			March 31 2018
Trade payables to Toshiba companies	$	1,175		$	1,512
Uranium assets loan payable to Advanced Uranium Asset Management Limited (AUAM)	15,065			15,065
Total	$	16,240		$	16,577
Less: amount subject to compromise (see Note 2)	(15,065		)	(15,065		)
Related-party payables	$	1,175		$	1,512

Payables to related parties shown above are with the Company’s debtor and non-debtor affiliates. Amounts that the Company’s debtor affiliates owe related parties are reported as liabilities subject to compromise in the accompanying unaudited combined balance sheets (see Note 2).

In addition to the portion of uranium assets loan payable to AUAM of $15,065 that is due within twelve months, the Company’s debtor affiliates owe an additional $28,500 to AUAM as of June 30 and March 31, 2018 reported as liabilities subject to compromise in the accompanying unaudited combined balance sheets.

14. Variable Interest Entities

Each quarter, the Company reassesses its VIEs in accordance with ASC 810, “Consolidation” to determine whether there are any changes in the status of the VIEs or changes to the primary beneficiary designation of each VIE. As of
June 30, 2018, the Company concluded that no unconsolidated joint ventures should be consolidated and that no consolidated joint ventures should be deconsolidated.

26

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

14. Variable Interest Entities (continued)

Unconsolidated VIEs

The Company uses the equity method of accounting for its unconsolidated entities. Under the equity method, the Company recognizes its proportionate share of the net earnings of the joint ventures within other income, net in the accompanying unaudited combined statements of operations and comprehensive (loss) income.

The Company does not have the power to direct the activity that most significantly impacts the performance of unconsolidated VIEs. Based on these facts, the Company does not consolidate the entities and accounts for the entities under the equity method of accounting. As of June 30 and March 31, 2018 and for the three month periods ended June 30 and 2018 and 2017, summarized financial information for all jointly owned entities that are accounted for using the equity method of accounting is as follows:

	June 30 2018		March 31 2018
Current assets	$	34,021	$	40,597
Noncurrent assets	115,675		83,342
Total assets	$	149,696	$	123,939
Current liabilities	$	62,486	$	84,579
Noncurrent liabilities	75,044		86,022
Member’s equity (deficit)	12,166		(46,662		)
Total liabilities and member’s equity	$	149,696	$	123,939

	Three Months Ended June 30
	2018		2017
Revenue	$	80,407	$	42,767
Income (loss) from operations	1,783		(10,205		)
Net income (loss)	14,730		(8,477		)

Consolidated VIEs

For consolidated VIEs, the Company has the power to direct the significant activities and right to receive benefits or obligation to absorb losses. The Company is also required to contribute capital to each entity on an as-needed basis based on percentage of ownership interest. Based on these facts, the Company is the primary beneficiary and has consolidated these entities in the accompanying unaudited combined financial statements. The creditors of the consolidated VIEs above do not have recourse to the general credit of the primary beneficiary.

27

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

14. Variable Interest Entities (continued)

The following is a summary of the consolidated VIEs of the Company at June 30 and March 31, 2018:

	June 30, 2018
	Total Assets		Total Liabilities
KW Nuclear Components Co. LTD	$	22,465	$	10,696
Westinghouse Technology Services S.A.	13,177		6,718
Westron	13,108		4,421
Springfields Segregated Assets Limited	5,316		5,587
NuCrane Manufacturing, LLC	4,180		18,186
SNPTC-WEC Nuclear Power Technical Services (Beijing) Co.	1,106		3,430
Kontec	407		171

	March 31, 2018
	Total Assets		Total Liabilities
KW Nuclear Components Co. LTD	$	23,615	$	13,070
Westron	14,295		5,357
Westinghouse Technology Services S.A.	13,765		7,984
Springfields Segregated Assets Limited	5,425		5,715
NuCrane Manufacturing, LLC	5,130		18,707
SNPTC-WEC Nuclear Power Technical Services (Beijing) Co.	648		3,413
Kontec	593		342

The assets of the Company’s consolidated joint ventures are restricted for use only by the particular joint venture and are not available for the Company’s general operations.

28

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

15. Accumulated Other Comprehensive Income (Loss)

At June 30 and March 31, 2018, the components of AOCI, and the activity for the three month periods ended
June 30, 2018 and 2017 are as follows:

	Net Unrealized Gain (Loss) on Derivatives			Unrealized (Loss) Gain on Foreign Currency Translation Adjustment			Pension and Other Postretirement Benefits Adjustment			Total
Balance at March 31, 2017	$	8,196		$	(862,245	)	$	(215,872	)	$	(1,069,921	)
Other comprehensive gains (losses) before reclassifications (1)	400			17,046			309			17,755
Reclassifications to net income of previously deferred (gains) losses (2)	2,537			3,389			—			5,926
Other comprehensive income (loss)	2,937			20,435			309			23,681
Balance at June 30, 2017	$	11,133		$	(841,810	)	$	(215,563	)	$	(1,046,240	)
Balance at March 31, 2018	$	8,521		$	(768,138	)	$	(222,291	)	$	(981,908	)
Other comprehensive gains (losses) before reclassifications (3)	(453		)	(61,719		)	5,149			(57,023		)
Reclassifications to net income of previously deferred (gains) losses (4)	2,871			10,366			—			13,237
Other comprehensive income (loss)	2,418			(51,353		)	5,149			(43,786		)
Balance at June 30, 2018	$	10,939		$	(819,491	)	$	(217,142	)	$	(1,025,694	)

(1)  Net of tax of $(24), $0, $0, and $(24), respectively.

(2)  Net of tax of $(117), $0, $0 and $(117), respectively.

(3)  Net of tax of $122, $0, $0, and $122, respectively.

(4)  Net of tax of $(770), $0, $0 and $(770), respectively.

29

Toshiba Nuclear Energy Holdings (US), Inc. and
Toshiba Nuclear Energy Holdings (UK) Ltd.

(Debtor-in-Possession)

Notes to Unaudited Combined Financial Statements (continued)

(in thousands)

15. Accumulated Other Comprehensive Income (Loss) (continued)

The following table summarizes the reclassifications from AOCI to the accompanying unaudited combined statements of operations and comprehensive (loss) income for the three month periods ended June 30, 2018 and 2017:

	Three Months Ended June 30
	2018			2017
Net unrealized gain (loss) on derivatives
Gains from cash flow hedges — foreign exchange contracts (1)	$	3,641		$	2,654
Total before tax	3,641			2,654
Tax expense	(770		)	(117		)
Total net of tax	$	2,871		$	2,537
Unrealized gain (loss) on foreign currency translation adjustments
Gain on disposition (2)	$	10,366		$	3,389
Total before tax	10,366			3,389
Tax expense	—			—
Total net of tax	$	10,366		$	3,389
Pension and other postretirement benefits adjustment
Amortization of prior service cost (3)	$	—		$	—
Amortization of unrecognized net loss (3)	—			—
Settlement or curtailment charges (3)	—			—
Total before tax	—			—
Tax benefit	—			—
Total net of tax	$	—		$	—

(1)Amount recorded to loss on foreign currency transactions, net. See Note 4 for additional information.

(2)Foreign currency translation adjustment related to an investment in a foreign subsidiary is reclassified to income upon sale or upon complete or substantially complete liquidation of the respective entity. Amount recorded to other income, net.

(3)Amounts reclassed out of AOCI are included in the computation of net periodic benefit costs.

16. Subsequent Events

The Company has evaluated subsequent events through December 12, 2018, the date the financial statements were available to be issued. The Company has determined any subsequent events that would require disclosure in or adjustment to the accompanying unaudited combined financial statements have been properly recognized or disclosed.

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EX-99.4

Exhibit 99.4

Power Solutions Business of Johnson Controls International plc

Combined Financial Statements

September 30, 2018

Power Solutions Business of Johnson Controls International plc

Index to Combined Financial Statements

	Page
Report of Independent Auditors	3
Combined Statements of Income	5
Combined Statements of Comprehensive Income (Loss)	6
Combined Statements of Financial Position	7
Combined Statements of Cash Flows	8
Combined Statements of Invested Equity	9
Notes to Combined Financial Statements	10

2

Report of Independent Auditors

To the Management and Board of Directors of Johnson Controls International plc:

We have audited the accompanying combined financial statements of the Power Solutions business of Johnson Controls International plc, which comprise the combined statements of financial position as of September 30, 2018 and September 30, 2017, and the related combined statements of income, comprehensive income (loss), invested equity and cash flows for each of the three years in the period ended September 30, 2018.

Management’s Responsibility for the Combined Financial Statements

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Power Solutions business of Johnson Controls International plc as of September 30, 2018 and September 30, 2017, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2018 in accordance with accounting principles generally accepted in the United States of America.

3

PricewaterhouseCoopers LLP

Milwaukee, Wisconsin

December 14, 2018, except for the effects of the revision discussed in Note 14 to the combined financial statements, as to which the date is February 8, 2019

4

Power Solutions Business of Johnson Controls International plc

Combined Statements of Income

(in millions)

	Year Ended September 30,
	2018			2017			2016
Net sales	$	8,000		$	7,337		$	6,653
Cost of sales	6,293			5,542			4,966
Gross profit	1,707			1,795			1,687
Selling, general and administrative expenses	(474		)	(543		)	(592		)
Restructuring and impairment costs	(11		)	(20		)	(66		)
Net financing charges	(40		)	(30		)	(13		)
Equity income	58			70			50
Income before income taxes	1,240			1,272			1,066
Income tax provision	601			471			391
Net income	639			801			675
Income attributable to noncontrolling interests	47			42			23
Net income attributable to Power Solutions	$	592		$	759		$	652

The accompanying notes are an integral part of the combined financial statements.

5

Power Solutions Business of Johnson Controls International plc

Combined Statements of Comprehensive Income (Loss)

(in millions)

	Year Ended September 30,
	2018			2017			2016
Net income	$	639		$	801		$	675
Other comprehensive income (loss), net of tax:
Foreign currency translation	(154		)	54			(26		)
Realized and unrealized gains (losses) on derivatives	(21		)	(17		)	9
Realized and unrealized losses on marketable securities	(4		)	(4		)	—
Other comprehensive income (loss), net of tax	(179		)	33			(17		)
Total comprehensive income	460			834			658
Comprehensive income attributable to noncontrolling interests	38			52			23
Comprehensive income attributable to Power Solutions	$	422		$	782		$	635

The accompanying notes are an integral part of the combined financial statements.

6

Power Solutions Business of Johnson Controls International plc

Combined Statements of Financial Position

(in millions)

	September 30,
	2018			2017
Assets
Cash and cash equivalents	$	15		$	20
Accounts receivable, net of allowance for doubtful accounts of $8 in both years	1,443			1,419
Inventories	1,405			1,429
Other current assets	185			416
Current assets	3,048			3,284
Property, plant and equipment - net	2,764			2,677
Goodwill	1,092			1,097
Other intangible assets - net	161			170
Investments in partially-owned affiliates	453			446
Noncurrent income tax assets	806			817
Other noncurrent assets	93			84
Total assets	$	8,417		$	8,575
Liabilities and Invested Equity
Short-term debt	$	9		$	3
Current portion of long-term debt	25			25
Accounts payable	1,237			1,325
Accrued compensation and benefits	152			161
Other current liabilities	405			634
Current liabilities	1,828			2,148
Long-term debt	31			79
Pension and postretirement benefits	103			100
Noncurrent income tax liabilities	253			119
Other noncurrent liabilities	50			71
Long-term liabilities	437			369
Commitments and contingencies (Note 16)
Redeemable noncontrolling interests	—			209
Parent company investment	6,285			6,071
Accumulated other comprehensive loss	(408		)	(238		)
Invested equity attributable to Power Solutions	5,877			5,833
Noncontrolling interest	275			16
Total invested equity	6,152			5,849
Total liabilities and invested equity	$	8,417		$	8,575

The accompanying notes are an integral part of the combined financial statements.

7

Power Solutions Business of Johnson Controls International plc

Combined Statements of Cash Flows

(in millions)

	Year Ended September 30,
	2018			2017			2016
Operating Activities
Net income attributable to Power Solutions	$	592		$	759		$	652
Income attributable to noncontrolling interests	47			42			23
Net income	639			801			675
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	251			232			233
Pension and postretirement benefit expense (income)	14			(35		)	54
Pension and postretirement contributions	(1		)	(5		)	(27		)
Equity in earnings of partially-owned affiliates, net of dividends received	(38		)	(56		)	(23		)
Deferred income taxes	(18		)	(20		)	(282		)
Non-cash restructuring and impairment charges	6			7			64
Share-based compensation	9			12			12
Other	(19		)	(2		)	3
Changes in assets and liabilities:
Accounts receivable	(38		)	(174		)	(182		)
Inventories	(2		)	(323		)	(150		)
Other assets	206			(188		)	(4		)
Restructuring reserves	(6		)	6			(14		)
Accounts payable and accrued liabilities	(399		)	508			93
Accrued income taxes	141			(23		)	23
Net cash provided by operating activities	745			740			475
Investing Activities
Capital expenditures	(372		)	(481		)	(357		)
Sale of property, plant and equipment	—			4			2
Changes in long-term investments	13			(15		)	—
Net cash used by investing activities	(359		)	(492		)	(355		)
Financing Activities
Increase (decrease) in short-term debt - net	11			(1		)	5
Increase in long-term debt	—			8			—
Repayment of long-term debt	(25		)	(22		)	(21		)
Change in noncontrolling interest share	15			16			—
Dividends paid to noncontrolling interests	(3		)	(31		)	(4		)
Net transfers to parent	(387		)	(210		)	(92		)
Net cash used by financing activities	(389		)	(240		)	(112		)
Effect of exchange rate changes on cash and cash equivalents	(2		)	(1		)	3
Net increase in cash and cash equivalents	(5		)	7			11
Cash and cash equivalents at beginning of period	20			13			2
Cash and cash equivalents at end of period	$	15		$	20		$	13

The accompanying notes are an integral part of the combined financial statements.

8

Power Solutions Business of Johnson Controls International plc

Combined Statements of Invested Equity

(in millions)

	Parent Company Investment			Accumulated Other Comprehensive Loss			Invested Equity Attributable to Power Solutions			Noncontrolling Interest		Total Invested Equity
Balance as of September 30, 2015	$	4,938		$	(244	)	$	4,694		$	—	$	4,694
Comprehensive income (loss):
Net income	652			—			652			—		652
Other comprehensive loss, net of tax	—			(17		)	(17		)	—		(17		)
Comprehensive income (loss)	652			(17		)	635			—		635
Change in parent company investment	(80		)	—			(80		)	—		(80		)
Balance as of September 30, 2016	5,510			(261		)	5,249			—		5,249
Comprehensive income:
Net income	759			—			759			—		759
Other comprehensive income, net of tax	—			23			23			—		23
Comprehensive income	759			23			782			—		782
Change in noncontrolling interest share	—			—			—			16		16
Change in parent company investment	(198		)	—			(198		)	—		(198		)
Balance as of September 30, 2017	6,071			(238		)	5,833			16		5,849
Comprehensive income (loss):
Net income	592			—			592			12		604
Other comprehensive income (loss), net of tax	—			(170		)	(170		)	1		(169		)
Comprehensive income (loss)	592			(170		)	422			13		435
Change in noncontrolling interest share	—			—			—			15		15
Reclassification from redeemable noncontrolling interest	—			—			—			231		231
Change in parent company investment	(378		)	—			(378		)	—		(378		)
Balance as of September 30, 2018	$	6,285		$	(408	)	$	5,877		$	275	$	6,152

   The accompanying notes are an integral part of the combined financial statements.

9

Power Solutions Business of Johnson Controls International plc

Notes to Combined Financial Statements

1.     Basis of Presentation and Summary of Significant Accounting Policies

On March 12, 2018, Johnson Controls International plc (“JCI” or the “Parent Company”) announced it is exploring strategic alternatives for its Power Solutions business (the “Company” or “Power Solutions”). On November 13, 2018, JCI entered into a Stock and Asset Purchase Agreement (“Purchase Agreement”) with BCP Acquisitions LLC (“Purchaser”). The Purchaser is a newly-formed entity controlled by investment funds managed by Brookfield Capital Partners LLC. Pursuant to the Purchase Agreement, on the terms and subject to the conditions therein, JCI has agreed to sell, and Purchaser has agreed to acquire, Power Solutions for a purchase price of $13.2 billion. Net cash proceeds are expected to be $11.4 billion after tax and transaction-related expenses. The transaction is expected to close by June 30, 2019, subject to customary closing conditions and required regulatory approvals.

These combined financial statements reflect the combined historical results of the operations, financial position and cash flows of Power Solutions. The Parent Company is a corporation organized under the laws of Ireland.

Basis of Presentation

These combined financial statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of JCI as if Power Solutions had been operating as a stand-alone company for all years presented. These combined financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The assets and liabilities in the combined financial statements have been reflected on a historical cost basis, as included in the consolidated statements of financial position of JCI. The combined statements of income include allocations for certain support functions that are provided on a centralized basis by the Parent Company and subsequently recorded at the business unit level, such as expenses related to employee benefits, finance, human resources, risk management, information technology, facilities, and legal, among others. These expenses have been allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on a proportional basis of combined sales, headcount or other measures of the Company or the Parent Company. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expenses from the Parent Company, are reasonable and applied consistently for all periods presented. Nevertheless, the combined financial statements may not include all actual expenses that would have been incurred by Power Solutions and may not reflect the combined results of operations, financial position and cash flows had it been a stand-alone company during the years presented. Actual costs that would have been incurred if Power Solutions had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

Principles of Combination

The combined financial statements include certain assets and liabilities that have historically been held at the Parent Company level but are specifically identifiable or otherwise attributable to Power Solutions. All significant intercompany transactions and accounts within the Company’s combined businesses have been eliminated. All intercompany transactions between the Company and the Parent Company have been included in these combined statements of financial position as parent company investment. Expenses related to corporate allocations from the Parent Company to the Company are considered to be effectively settled for cash in the combined financial statements at the time the transaction is recorded. See Note 17, “Related Party Transactions and Parent Company Investment,” of the notes to combined financial statements for further details.

The results of companies acquired or disposed of during the year are included in the combined financial statements from the effective date of acquisition or up to the date of disposal. During fiscal 2018, 2017 and 2016 the Company had no significant acquisitions or divestitures. Investments in partially-owned affiliates are accounted for by the equity method when the Company’s interest exceeds 20% and the Company does not have a controlling interest.

10

Under certain criteria as provided for in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation,” the Company may consolidate a partially-owned affiliate. To determine whether to consolidate a partially-owned affiliate, the Company first determines if the entity is a variable interest entity (“VIE”). An entity is considered to be a VIE if it has one of the following characteristics: 1) the entity is thinly capitalized; 2) residual equity holders do not control the entity; 3) equity holders are shielded from economic losses or do not participate fully in the entity’s residual economics; or 4) the entity was established with non-substantive voting rights. If the entity meets one of these characteristics, the Company then determines if it is the primary beneficiary of the VIE. The party with the power to direct activities of the VIE that most significantly impact the VIE’s economic performance and the potential to absorb benefits or losses that could be significant to the VIE is considered the primary beneficiary and consolidates the VIE. If the entity is not considered a VIE, then the Company applies the voting interest model to determine whether or not the Company shall consolidate the partially-owned affiliate.

Consolidated VIEs

Based upon the criteria set forth in ASC 810, the Company has determined that it was not the primary beneficiary in any VIEs for the reporting period ended September 30, 2018 and that it was the primary beneficiary in one VIE for the reporting period ended September 30, 2017, as the Company absorbed significant economics of the entity and had the power to direct the activities that are considered most significant to the entity.

In fiscal 2012, a pre-existing VIE accounted for under the equity method was reorganized into three separate investments as a result of the counterparty exercising its option to put its interest to the Company. The Company acquired additional interests in two of the reorganized group entities. The reorganized group entities are considered to be VIEs as the other owner party has been provided decision making rights but does not have equity at risk. The Company was considered the primary beneficiary of one of the entities due to the Company’s power pertaining to decisions over significant activities of the entity. As such, this VIE was consolidated within the Company’s combined statements of financial position as of September 30, 2017. During the fiscal year ended September 30, 2018, certain joint venture agreements were amended and, as a result, the Company can no longer make key operating decisions considered to be most significant to the VIE. As such, the Company is no longer considered the primary beneficiary of this entity, and the Company deconsolidated the entity during the fiscal year ended September 30, 2018. The impact of the entity on the Company’s combined statements of income for the years ended September 30, 2018, 2017 and 2016 was not material.

The carrying amounts and classification of assets (none of which are restricted) and liabilities included in the Company’s combined statements of financial position for the consolidated VIE is as follows (in millions):

	September 30,
	2017
Current assets	$	2
Noncurrent assets	53
Total assets	$	55
Current liabilities	$	6
Noncurrent liabilities	42
Total liabilities	$	48

The Company did not have a significant variable interest in any other consolidated VIEs for the presented reporting periods.

Nonconsolidated VIEs

As mentioned previously within the “Consolidated VIEs” section above, in fiscal 2012, a pre-existing VIE was reorganized into three separate investments as a result of the counterparty exercising its option to put its interest to the Company. The reorganized group entities are considered to be VIEs as the other owner party has been provided decision making rights but does not have equity at risk. The VIEs are named as co-obligors under a third party debt agreement in the amount of $155 million, maturing in fiscal 2020, under which a VIE could become subject to paying more than its allocated share of the third party debt in the event

11

of bankruptcy of one or more of the other co-obligors. The other co-obligors, all related parties in which the Company is an equity investor, consist of the remaining group entities involved in the reorganization. As part of the overall reorganization transaction, the Company has also provided financial support to the group entities in the form of loans totaling $38 million, which are subordinate to the third party debt agreement. The Company is a significant customer of certain co-obligors, resulting in a remote possibility of loss. Additionally, the Company is subject to a floor guaranty expiring in fiscal 2022; in the event that the other owner party no longer owns any part of the group entities due to sale or transfer, the Company has guaranteed that the proceeds received from the sale or transfer will not be less than $25 million. The Company has partnered with the group entities to design and manufacture battery components. The Company is not considered to be the primary beneficiary of three of the entities as of September 30, 2018 and two of the entities as of September 30, 2017, as the Company cannot make key operating decisions considered to be most significant to the VIEs. Therefore, the entities are accounted for under the equity method of accounting as the Company’s interest exceeds 20% and the Company does not have a controlling interest. The Company’s maximum exposure to loss includes the partially-owned affiliate investment balance of $43 million and $65 million at September 30, 2018 and 2017, respectively, as well as the subordinated loan from the Company, third party debt agreement and floor guaranty mentioned above. Current liabilities due to the VIEs are not material and represent normal course of business trade payables for all presented periods.

The Company did not have a significant variable interest in any other nonconsolidated VIEs for the presented reporting periods.

Description of Business

The Company is a leading global supplier of lead-acid automotive batteries for virtually every type of passenger car, light truck and utility vehicle. The Company serves both automotive original equipment manufacturers and the general vehicle battery aftermarket. The Company also supplies advanced battery technologies to power start-stop, hybrid and electric vehicles.

Use of Estimates

The preparation of combined financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The fair values of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. See Note 8, “Fair Value Measurements,” of the notes to combined financial statements for fair value of financial instruments, including derivative instruments, hedging activities and long-term debt.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents in the combined statement of financial position represent cash legally owned by the Company, and negative cash balances are reclassified to short term debt. Cash is managed by legal entity with cash pooling agreements in place for participating businesses within each cash pool master. Transfers of cash to and from the Parent Company’s cash management system are reflected as a component of parent company investment in the combined statements of financial position. Accordingly, the cash and cash equivalents held by the Parent Company were not attributed to the Company for any of the years presented, as legal ownership remained with the Parent Company.

Receivables

Receivables consist of amounts billed and currently due from customers and revenues that have been recognized for accounting purposes but not yet billed to customers. The Company extends credit to customers in the normal course of business and maintains

12

an allowance for doubtful accounts resulting from the inability or unwillingness of customers to make required payments. The allowance for doubtful accounts is based on historical experience, existing economic conditions and any specific customer collection issues the Company has identified. The Company enters into supply chain financing programs to sell certain accounts receivable without recourse to third-party financial institutions. Sales of accounts receivable are reflected as a reduction of accounts receivable on the combined statements of financial position and the proceeds are included in cash flows from operating activities in the combined statements of cash flows. Supply chain financing fees are included within net financing charges in the combined statements of income. Refer to Note 6, “Debt,” of the notes to combined financial statements for further details.

Inventories

Inventories are stated at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the respective assets using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The estimated useful lives generally range from 3 to 40 years for buildings and improvements, and from 3 to 15 years for machinery and equipment.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. The Company reviews goodwill for impairment during the fourth fiscal quarter or more frequently if events or changes in circumstances indicate the asset might be impaired. The Company performs impairment reviews for its reporting unit using a fair value method based on management’s judgments and assumptions or third party valuations. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. In estimating the fair value, the Company uses multiples of earnings based on the average of published multiples of earnings of comparable entities with similar operations and economic characteristics and applies to the Company’s average of historical and future financial results. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, “Fair Value Measurement.” The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill. The Company is subject to financial statement risk to the extent that the carrying amount exceeds the estimated fair value. Refer to Note 4, “Goodwill and Other Intangible Assets,” of the notes to combined financial statements for information regarding the goodwill impairment testing performed in the fourth quarters of fiscal years 2018, 2017 and 2016.

Indefinite-lived intangible assets are subject to at least annual impairment testing. Indefinite-lived intangible assets primarily consist of trademarks and tradenames and are tested for impairment using a relief-from-royalty method. A significant amount of management judgment and assumptions are required in performing the impairment tests.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property, plant and equipment and other intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment or Disposal of Long-Lived Assets.” ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.  Refer to Note 13, “Significant Restructuring and Impairment Costs,” of the notes to combined financial statements for information regarding the impairment testing performed in fiscal 2018, 2017 and 2016.

13

Revenue Recognition

The Company recognizes revenue when all of the following conditions are met: persuasive evidence of an agreement exists, delivery has occurred, the Company’s price to the buyer is fixed and determinable, and collectability is reasonably assured. Sales and related cost of sales are principally recognized at the time title passes to the customer. Provisions for estimated returns and allowances and customer rebates are recorded when the related products are sold. Rebates are recorded as a reduction of net sales and an increase in other current liabilities.

Research and Development Costs

Expenditures for research activities relating to product development and improvement are charged against income as incurred and included within selling, general and administrative expenses in the combined statement of income. Such expenditures for fiscal 2018, 2017 and 2016 were $57 million, $53 million and $56 million, respectively.

Foreign Currency Translation

The Company’s reporting currency is the U.S. dollar. Substantially all of the Company’s international operations use the respective local currency as the functional currency, with the exception of Mexico which is U.S. dollar functional. Assets and liabilities of international entities have been translated at period-end exchange rates, and income and expenses have been translated using average exchange rates for the period. Monetary assets and liabilities denominated in non-functional currencies are adjusted to reflect period-end exchange rates. The resulting translation adjustments are accumulated as a component of accumulated other comprehensive income. The aggregate transaction losses (gains), net of the impact of foreign currency hedges, included in net income for fiscal 2018, 2017 and 2016 were $5 million, $(34) million and $(30) million, respectively.

Derivative Financial Instruments

The Parent Company has written policies and procedures that place all financial instruments under the direction of the Parent Company and restrict all derivative transactions to those intended for hedging purposes. The use of financial instruments for speculative purposes is strictly prohibited. The Parent Company has historically used financial instruments to manage the Company’s market risk from changes in foreign exchange rates and commodity prices.

The fair values of all derivatives are recorded in the combined statements of financial position. The change in a derivative’s fair value is recorded each period in current earnings or accumulated other comprehensive income (“AOCI”), depending on whether the derivative is designated as part of a hedge transaction and if so, the type of hedge transaction. See Note 7, “Derivative Instruments and Hedging Activities,” of the notes to combined financial statements for disclosure of the Company’s derivative instruments and hedging activities.

Investments

The Company invests in equity securities which are classified as available for sale and are marked to market at the end of each accounting period. Unrealized gains and losses on these securities are recognized in AOCI within the combined statement of invested equity unless an unrealized loss is deemed to be other than temporary, in which case such loss is charged to earnings. Refer to Note 8, “Fair Value Measurements,” of the notes to combined financial statements for further details.

Short-Term and Long-Term Debt

From a historical perspective, the majority of short-term and long-term third-party debt has been held by the Parent Company and has not been recorded for each respective business in the Parent Company’s operating structure. For purposes of the combined financial statements, no short-term or long-term debt recorded by the Parent Company has been pushed-down to the Company in the combined financial statements, because the Company will not assume the debt of the Parent Company (either presently or in an anticipated transaction in the future).

14

The Parent Company provided intercompany loans to its legal entities to fund working capital or, in limited cases, acquisitions. These loans have been reflected within parent company investment in the combined statements of financial position. Net interest expense related to these loans pertains to certain foreign operations and has been reflected within parent company investment in the combined financial statements. Net interest expense on these loans was not significant for the years ended September 30, 2018, 2017 and 2016.

The short-term and long-term debt recorded in the combined financial statements is related directly to an arrangement between the Company and a third-party, and was not related to an intercompany arrangement between the Company and the Parent Company. Refer to Note 6, “Debt,” of the notes to combined financial statements for further information on short-term and long-term debt.

Stock-Based Compensation

Power Solutions employees have historically participated in JCI’s stock-based compensation plans. Stock-based compensation expense has been allocated to Power Solutions based on the awards and terms previously granted to Power Solutions employees.  Refer to Note 9, “Stock-Based Compensation,” for additional information.

Pension and Postretirement Benefits

The defined benefit plans in which the Company participates relate primarily to U.S. plans sponsored by the Parent Company and for which other wholly-owned subsidiaries (other than Power Solutions) of the Parent Company participate (the “Shared Plans”). Under the guidance in ASC 715, “Compensation—Retirement Benefits,” the Company accounts for the Shared Plans as multiemployer plans, recording contributions to the pension plans as an allocation of net periodic benefit costs associated with the Company’s employees. Expenses related to the employees’ participation in the Shared Plans were calculated using a proportional allocation based on headcount and payroll expense for the Company’s employees. The pension expense allocation related to the Shared Plans under the multiemployer approach contains all components of the periodic benefit cost, including interest and service costs and was recorded primarily as a component of selling, general and administrative expenses in the combined financial statements.

Various defined benefit plans that relate solely to the Company are included in these combined financial statements. The Company utilizes a mark-to-market approach for recognizing pension and postretirement benefit expenses, including measuring the market related value of plan assets at fair value and recognizing actuarial gains and losses in the fourth quarter of each fiscal year or at the date of a remeasurement event. Refer to Note 12, “Retirement Plans,” of the notes to combined financial statements for disclosure of the Company’s pension and postretirement benefit plans.

Loss Contingencies

Accruals are recorded for various contingencies including legal proceedings, environmental matters, self-insurance and other claims that arise in the normal course of business. The accruals are based on judgment, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarially determined estimates.

The Company is subject to laws and regulations relating to protecting the environment. The Company provides for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. Refer to Note 16, “Commitments and Contingencies,” of the notes to combined financial statements.

The Company recorded liabilities for its workers’ compensation, product, general and auto liabilities. The determination of these liabilities and related expenses is dependent on claims experience. For most of these liabilities, claims incurred but not yet reported are estimated by utilizing actuarial valuations based upon historical claims experience.

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Income Taxes

Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected in the combined financial statements. Deferred tax liabilities and assets are determined based on the differences between the book and tax basis 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, including consideration of tax planning strategies, it is more-likely-than-not that some or all of the deferred tax assets will not be realized. Refer to Note 14, “Income Taxes,” of the notes to combined financial statements for the Company’s income tax disclosures.

Parent Company Investment

Parent company investment includes capital contributions and/or dividends as well as the results of operations and other comprehensive income (loss). Refer to Note 17, “Related Party Transactions and Parent Company Investment,” of the notes to combined financial statements.

Date of Management’s Review

Management has evaluated subsequent events through December 14, 2018, the date the financial statements were issued.

Retrospective Changes

Certain amounts as of September 30, 2017 and 2016 have been revised to conform to the current year’s presentation.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In March 2018, the FASB issued ASU No. 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118” to add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118 (“SAB 118”) to ASC 740 “Income Taxes.” SAB 118 was issued by the SEC in December 2017 to provide immediate guidance for accounting implications of U.S. tax reform under the “Tax Cuts and Jobs Act” in the period of enactment. SAB 118 provides for a provisional one year measurement period for entities to finalize their accounting for certain income tax effects related to the “Tax Cuts and Jobs Act.” The Company applied this guidance to its combined financial statements and related disclosures beginning in the quarter ended December 31, 2017. Refer to Note 14, “Income Taxes,” of the notes to combined financial statements for further information.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The ASU more closely aligns the results of hedge accounting with risk management activities through amendments to the designation and measurement guidance to better reflect a company’s hedging strategy and effectiveness. During the quarter ended December 31, 2017, the Company early adopted ASU No. 2017-12. The adoption of this guidance did not have a material impact on the Company’s combined financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU No. 2016-09 impacts certain aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statements of cash flows. During the quarter ended December 31, 2017, the Company early adopted ASU No. 2016-09. The adoption of this guidance did not have a material impact on the Company’s combined financial statements.

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Recently Issued Accounting Pronouncements

In March 2017, the FASB issued ASU No. 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The ASU requires the service cost component of net periodic benefit cost to be presented with other compensation costs. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The ASU also allows only the service cost component of net periodic benefit cost to be eligible for capitalization. The guidance will be effective for the Company for the fiscal year ending September 30, 2020. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The Company expects to early adopt ASU No. 2017-07 as of the quarter ended December 31, 2018. The guidance will be effective retrospectively except for the capitalization of the service cost component which should be applied prospectively. The adoption of this guidance is not expected to have a significant impact on the Company’s combined financial statements as the Company does not present a subtotal of income from operations within its combined statements of income.

In October 2016, the FASB issued ASU No. 2016-16, “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory.” The ASU requires the tax effects of all intra-entity sales of assets other than inventory to be recognized in the period in which the transaction occurs. The guidance will be effective for the Company for the fiscal year ending September 30, 2020, with early adoption permitted but only in the first interim period of a fiscal year. The Company expects to early adopt ASU No. 2016-16 as of October 1, 2018. The changes are required to be applied by means of a cumulative-effect adjustment recorded in parent company investment as of the beginning of the fiscal year of adoption. The Company expects that the cumulative effect of the adoption of ASU No. 2016-16 will result in a reduction to parent company investment of approximately $275 million.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU No. 2016-15 provides clarification guidance on eight specific cash flow presentation issues in order to reduce the diversity in practice. ASU No. 2016-15 will be effective for the Company for the fiscal year ending September 30, 2020, with early adoption permitted. The Company expects to early adopt ASU No. 2016-15 as of the quarter ended December 31, 2018. The guidance should be applied retrospectively to all periods presented, unless deemed impracticable, in which case prospective application is permitted. The Company is currently assessing the impact adoption of this guidance will have on its combined financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires recognition of operating leases as lease assets and liabilities on the balance sheet, and disclosure of key information about leasing arrangements. The original standard was effective retrospectively for the Company for fiscal year ending September 30, 2021 with early adoption permitted; however in July 2018 the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” which provides an additional transition method that permits changes to be applied by means of a cumulative-effect adjustment recorded in parent company investment as of the beginning of the fiscal year of adoption. The Company expects to early adopt ASU No. 2016-02 and ASU No. 2018-11 as of the quarter ended December 31, 2019. The Company is currently assessing the impact adoption of this guidance will have on its combined financial statements. The Company has started the assessment process by evaluating the population of leases under the revised definition of what qualifies as a leased asset. The Company is the lessee under various agreements for facilities and equipment that are currently accounted for as operating leases. The new guidance will require the Company to record operating leases on the balance sheet with a right-of-use asset and corresponding liability for future payment obligations. Additionally in January 2018, the FASB issued ASU No. 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” which provides an optional transition practical expedient for existing or expired land easements that were not previously recorded as leases. The Company expects the new guidance will have a material impact on its combined statements of financial position for the addition of right-of-use assets and lease liabilities, but the Company does not expect it to have a material impact on its combined statements of income and its combined statements of cash flows.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU No. 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including marketable securities. ASU No. 2016-01 will be

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effective for the Company for fiscal year ending September 30, 2020, with early adoption permitted but not before the quarter ending December 31, 2018. The Company expects to apply this guidance to its combined financial statements and related disclosures beginning in the quarter ended December 31, 2018.The changes are required to be applied by means of a cumulative-effect adjustment on the balance sheet as of the beginning of the fiscal year of adoption. Additionally in February 2018, the FASB issued ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which provides additional clarification on certain topics addressed in ASU No. 2016-01. ASU No. 2018-01 will be effective for the Company when ASU No. 2016-01 is adopted. The impact of this guidance for the Company will depend on the magnitude of the unrealized gains and losses on the Company’s marketable securities investments. The impact to parent company investment as a result of the adoption of this guidance is not expected to be material.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU No. 2014-09 clarifies the principles for recognizing revenue when an entity either enters into a contract with customers to transfer goods or services or enters into a contract for the transfer of non-financial assets. The original standard was effective retrospectively for the Company for the fiscal year ending September 30, 2019; however in August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which defers the effective date of ASU No. 2014-09 by one year for all entities. The new standard will become effective retrospectively for the Company for the fiscal year ending September 30, 2020, with early adoption permitted, but not before the original effective date. Additionally, in March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” in April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” in May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” and in December 2016, the FASB issued ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” all of which provide additional clarification on certain topics addressed in ASU No. 2014-09. ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-12 and ASU No. 2016-20 follow the same implementation guidelines as ASU No. 2014-09 and ASU No. 2015-14. The Company expects to early adopt the new revenue guidance as of October 1, 2018 using the modified retrospective approach. The Company has completed its evaluation of the new revenue recognition standard and has assessed the impact on its combined financial statements. Based on the Company’s evaluation of current contracts and revenue streams, revenue recognition will be impacted as certain customers return battery cores which will be included in the transaction price as non-cash consideration under the new revenue standard.  This change is expected to result in an increase to the Company’s annual revenue of approximately 10% - 15% and an immaterial impact to gross profit.  The Company does not expect the new revenue standard will have a material impact on its combined statements of financial position and its combined statements of cash flows. Upon adoption of the new revenue recognition guidance, the Company expects to record $33 million to parent company investment, which relates primarily to deferred revenue recorded for certain battery core returns that represent a material right provided to customers.

Other recently issued accounting pronouncements are not expected to have a material impact on the Company’s combined financial statements.

2.Inventories

Inventories consisted of the following (in millions):

	September 30,
	2018		2017
Raw materials and supplies	$	384	$	331
Work-in-process	390		391
Finished goods	631		707
Inventories	$	1,405	$	1,429

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3.Property, Plant and Equipment

Property, plant and equipment consisted of the following (in millions):

	September 30,
	2018			2017
Buildings and improvements	$	1,283		$	1,224
Machinery and equipment	3,269			3,032
Construction in progress	570			641
Land	105			105
Total property, plant and equipment	5,227			5,002
Less: accumulated depreciation	(2,463		)	(2,325		)
Property, plant and equipment - net	$	2,764		$	2,677

Accumulated depreciation related to capital leases at September 30, 2018 and 2017 was $14 million and $10 million, respectively.

4.Goodwill and Other Intangible Assets

At September 30, 2018 and 2017, the carrying amount of goodwill was $1,092 million and $1,097 million, respectively. The changes in the carrying amount of goodwill for fiscal 2018 and 2017 was the result of currency translation. There were no goodwill impairments resulting from fiscal 2018 and 2017 annual impairment tests. At September 30, 2018, there are no accumulated goodwill impairment charges. No reporting unit was determined to be at risk of failing step one of the goodwill impairment test. The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term revenue growth projections, profitability, discount rates, recent market valuations from transactions by comparable companies, and general industry, market and macro-economic conditions. It is possible that future changes in such circumstances, or in the variables associated with the judgments, assumptions and estimates used in assessing the fair value of the reporting unit, would require the Company to record a non-cash impairment charge.

The assumptions included in the impairment tests require judgment, and changes to these inputs could impact the results of the calculations. The primary assumptions used in the impairment tests were the business growth rates. Although the Company’s forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and estimates management is using to operate the underlying businesses, there are significant judgments in determining the expected future growth rates of a reporting unit.

The Company’s other intangible assets, primarily from business acquisitions valued based on independent appraisals, consisted of (in millions):

	September 30, 2018							September 30, 2017
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Amortized intangible assets
Technology	$	17	$	(15	)	$	2	$	17	$	(14	)	$	3
Customer relationships	137		(65		)	72		137		(59		)	78
Miscellaneous	38		(14		)	24		40		(14		)	26
Total amortized intangible assets	192		(94		)	98		194		(87		)	107
Unamortized intangible assets	63		—			63		63		—			63
Total other intangible assets	$	255	$	(94	)	$	161	$	257	$	(87	)	$	170

Amortization of other intangible assets for fiscal years ended September 30, 2018 and 2017 was $8 million. Excluding the impact of any future acquisitions, the Company anticipates amortization for fiscal 2019, 2020, 2021, 2022 and 2023 will be approximately $8 million, $8 million, $7 million, $7 million and $6 million per year, respectively.

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5.    Leases

Certain administrative and production facilities and equipment are leased under long-term agreements. Most leases contain renewal options for varying periods, and certain leases include options to purchase the leased property during or at the end of the lease term. Leases generally require the Company to pay for insurance, taxes and maintenance of the property. Leased capital assets included in net property, plant and equipment were $32 million and $14 million at September 30, 2018 and 2017, respectively.

Other facilities and equipment are leased under arrangements that are accounted for as operating leases. Total rental expense for fiscal 2018, 2017 and 2016 was $48 million, $60 million and $64 million, respectively.

Future minimum capital and operating lease payments and the related present value of capital lease payments at September 30, 2018 were as follows (in millions):

	Capital Leases			Operating Leases
2019	$	5		$	21
2020	6			14
2021	6			8
2022	15			5
2023	2			4
After 2023	7			3
Total minimum lease payments	41			$	55
Interest	(7		)
Present value of net minimum lease payments	$	34

6.    Debt

Short-term debt consisted of the following (in millions):

	September 30,
	2018			2017
Bank borrowings	$	9		$	3
Weighted average interest rate on short-term debt outstanding	3.9		%	2.5		%

Long-term debt consisted of the following (in millions):

	September 30,
	2018		2017
Capital lease obligations	$	34	$	16
Euro note - 7%	21		43
Floating rate note	—		45
Other	1		—
Gross long-term debt	56		104
Less: current portion	25		25
Net long-term debt	$	31	$	79

The installments of long-term debt maturing in subsequent fiscal years are: 2019 - $25 million; 2020 - $4 million; 2021 - $5 million; 2022 - $14 million; 2023 - $2 million; 2024 and thereafter - $6 million. The floating rate note was recorded by a

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consolidated VIE, as disclosed in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies,” this VIE was deconsolidated by the Company during the quarter ended December 31, 2017.

Total interest paid on both short and long-term debt for the fiscal years ended September 30, 2018, 2017 and 2016 was $14 million,$15 million and $11 million, respectively.

Net Financing Charges

The Company’s net financing charges line item in the combined statement of income for the years ended September 30, 2018, 2017 and 2016 contained the following components (in millions):

	Year Ended September 30,
	2018			2017			2016
Interest expense	$	14		$	15		$	11
Supply chain financing fees	27			17			9
Banking fees	1			1			1
Interest income	(3		)	(3		)	(5		)
Net foreign exchange results for financing activities	1			—			(3		)
Net financing charges	$	40		$	30		$	13

7.    Derivative Instruments and Hedging Activities

The Parent Company selectively uses derivative instruments to reduce the Company’s market risk associated with changes in foreign currency and commodities. Under the Parent Company’s policy, the use of derivatives is restricted to those intended for hedging purposes; the use of any derivative instrument for speculative purposes is strictly prohibited. A description of each type of derivative utilized by the Parent Company to manage the Company’s risk is included in the following paragraphs.

Cash Flow Hedges

The Company has global operations and participates in the foreign exchange markets to minimize its risk of loss from fluctuations in foreign currency exchange rates. The Parent Company selectively hedges the Company’s anticipated transactions that are subject to foreign exchange rate risk primarily using foreign currency exchange hedge contracts. The Parent Company hedges 70% to 90% of the nominal amount of each of the Company’s known foreign exchange transactional exposures. As cash flow hedges under ASC 815, “Derivatives and Hedging,” the hedge gains or losses due to changes in fair value are initially recorded as a component of AOCI and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates at September 30, 2018 and 2017.

The Parent Company selectively hedges anticipated transactions that are subject to commodity price risk, primarily using commodity hedge contracts, to minimize overall price risk associated with the Company’s purchases of lead, tin and polypropylene in cases where commodity price risk cannot be naturally offset or hedged through supply base fixed price contracts. Commodity risks are systematically managed pursuant to policy guidelines. As cash flow hedges, the hedge gains or losses due to changes in fair value are initially recorded as a component of AOCI and are subsequently reclassified into earnings when the hedged transactions, typically sales, occur and affect earnings. The maturities of the commodity hedge contracts coincide with the expected purchase of the commodities. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in commodity prices at September 30, 2018 and 2017.

The Company had the following outstanding contracts to hedge forecasted commodity purchases (in metric tons):

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	Volume Outstanding as of
Commodity	September 30, 2018	September 30, 2017
Polypropylene	15,868	19,563
Lead	49,066	24,705
Tin	3,076	1,715

Derivatives Not Designated as Hedging Instruments

The Company also holds certain foreign currency forward contracts which do not qualify for hedge accounting treatment. The change in fair value of foreign currency exchange derivatives not designated as hedging instruments under ASC 815 are recorded in the combined statements of income.

Fair Value of Derivative Instruments

The following table presents the location and fair values of derivative instruments and hedging activities included in the Company’s combined statements of financial position (in millions):

	Derivatives and Hedging Activities Designated as Hedging Instruments under ASC 815				Derivatives and Hedging Activities Not Designated as Hedging Instruments under ASC 815
	September 30,		September 30,		September 30,		September 30,
	2018		2017		2018		2017
Other current assets
Foreign currency exchange derivatives	$	2	$	5	$	30	$	31
Commodity derivatives	1		8		—		—
Total assets	$	3	$	13	$	30	$	31
Other current liabilities
Foreign currency exchange derivatives	$	—	$	5	$	8	$	18
Commodity derivatives	12		1		—		—
Total liabilities	$	12	$	6	$	8	$	18

Counterparty Credit Risk

The use of derivative financial instruments exposes the Company to counterparty credit risk.  The Parent Company has established policies and procedures to limit the potential for counterparty credit risk, including establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. As a matter of practice, the Parent Company deals with major banks worldwide having strong investment grade long-term credit ratings. To further reduce the risk of loss, the Parent Company generally enters into International Swaps and Derivatives Association master netting agreements with substantially all of its counterparties. The Parent Company’s derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by the Parent Company or the counterparties. The Parent Company’s exposure to credit risk associated with its derivative instruments is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. The Parent Company does not anticipate any non-performance by any of its counterparties, and the concentration of risk with financial institutions does not present significant credit risk to the Parent Company or the Company.

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Derivatives Impact on the Statements of Income and Statements of Comprehensive Income

The following table presents the pre-tax gains (losses) recorded in other comprehensive income (loss) related to cash flow hedges for the fiscal years ended September 30, 2018, 2017 and 2016 (in millions):

	Year Ended September 30,
Derivatives in ASC 815 Cash Flow	September 30,			September 30,			September 30,
Hedging Relationships	2018			2017			2016
Foreign currency exchange derivatives	$	5		$	(2	)	$	32
Commodity derivatives	(15		)	8			5
Total	$	(10	)	$	6		$	37

The following tables present the location and amount of the pre-tax gains (losses) on cash flow hedges reclassified from AOCI into the Company’s combined statements of income for the fiscal years ended September 30, 2018, 2017 and 2016 (in millions):

	Location of Gain (Loss)
Derivatives in ASC 815 Cash Flow	Recognized in Income on	Year Ended September 30,
Hedging Relationships	Derivative	2018		2017		2016
Foreign currency exchange derivatives	Cost of sales	$	2	$	26	$	25
Commodity derivatives	Cost of sales	7		4		(2		)
Total		$	9	$	30	$	23

The following table presents the location and amount of pre-tax gains (losses) on derivatives not designated as hedging instruments recognized in the Company’s combined statements of income for the fiscal years ended September 30, 2018, 2017 and 2016 (in millions):

	Location of Gain (Loss)
Derivatives Not Designated as Hedging	Recognized in Income on	Year Ended September 30,
Instruments under ASC 815	Derivative	2018			2017			2016
Foreign currency exchange derivatives	Cost of sales	$	1		$	—		$	6
Foreign currency exchange derivatives	Net financing charges	(9		)	(4		)	5
Foreign currency exchange derivatives	Income tax provision	1			(2		)	—
Total		$	(7	)	$	(6	)	$	11

8. Fair Value Measurements

ASC 820, “Fair Value Measurement,” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2: Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.

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ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Recurring Fair Value Measurements

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value as of September 30, 2018 (in millions):

	Fair Value Measurements Using:
	Total as of September 30, 2018		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other current assets
Foreign currency exchange derivatives	$	32	$	—	$	32	$	—
Commodity derivatives	1		—		1		—
Other noncurrent assets
Investments in marketable common stock	2		2		—		—
Total assets	$	35	$	2	$	33	$	—
Other current liabilities
Foreign currency exchange derivatives	$	8	$	—	$	8	$	—
Commodity derivatives	12		—		12		—
Total liabilities	$	20	$	—	$	20	$	—

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value as of September 30, 2017 (in millions):

	Fair Value Measurements Using:
	Total as of September 30, 2017		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other current assets
Foreign currency exchange derivatives	$	36	$	—	$	36	$	—
Commodity derivatives	8		—		8		—
Other noncurrent assets
Investments in marketable common stock	6		6		—		—
Total assets	$	50	$	6	$	44	$	—
Other current liabilities
Foreign currency exchange derivatives	$	23	$	—	$	23	$	—
Commodity derivatives	1		—		1		—
Total liabilities	$	24	$	—	$	24	$	—

Valuation Methods

Foreign currency exchange derivatives: The foreign currency exchange derivatives are valued under a market approach using publicized spot and forward prices.

Commodity derivatives: The commodity derivatives are valued under a market approach using publicized prices, where available, or dealer quotes.

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Investments in marketable common stock:  Investments in marketable common stock are valued using a market approach based on the quoted market prices. The Company recorded unrealized losses of $8 million and $4 million on these investments as of September 30, 2018 and 2017, respectively, within AOCI in the combined statements of financial position.

The fair values of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. The fair value of long-term debt was $57 million and $110 million at September 30, 2018 and 2017, respectively, which was determined using a discounted cash flow approach based on observable market inputs for similar instruments classified as Level 2 inputs within the ASC 820 fair value hierarchy.

9.    Stock-Based Compensation

The Parent Company provides stock-based compensation to certain of the Company’s employees under various plans as described below.

On September 2, 2016, the shareholders of the Parent Company approved the Johnson Controls International plc 2012 Share and Incentive Plan (the “Plan”). The types of awards authorized by the Plan comprise of stock options, stock appreciation rights, performance shares, performance units and other stock-based awards. The Compensation Committee of the Parent Company’s Board of Directors will determine the types of awards to be granted to individual participants and the terms and conditions of the awards. The Plan provides that 76 million shares of the Parent Company’s common stock are reserved for issuance under the 2012 Plan, and 45 million shares remain available for issuance at September 30, 2018.

On September 2, 2016, Johnson Controls, Inc. (“JCI Inc.”) and Tyco International plc (“Tyco”) completed their combination pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of January 24, 2016, as amended by Amendment No. 1, dated as of July 1, 2016, by and among JCI Inc., Tyco and certain other parties named therein, including Jagara Merger Sub LLC, an indirect wholly owned subsidiary of Tyco (“Merger Sub”). Pursuant to the terms of the Merger Agreement, on September 2, 2016, Merger Sub merged with and into JCI Inc., with JCI Inc. being the surviving corporation in the merger and a wholly owned, indirect subsidiary of Tyco (the “Merger”). Following the Merger, Tyco changed its name to “Johnson Controls International plc.” Pursuant to the Merger Agreement, outstanding stock options held by JCI Inc. employees on September 2, 2016 (the “Merger Date”) were converted one-for-one into options to acquire the Parent Company’s shares in a manner designed to preserve the intrinsic value of such awards. In addition, pursuant to the Merger Agreement, nonvested restricted stock held by JCI Inc. employees on the Merger Date was converted one-for-one into nonvested restricted stock of the Parent Company in a manner designed to preserve the intrinsic value of such awards. Outstanding performance share awards held by JCI Inc. employees on the Merger Date were converted to nonvested restricted stock of the Parent Company based on certain performance factors. Except for the conversion of stock options, nonvested restricted stock and performance share awards discussed herein, the material terms of the awards remained unchanged, and no incremental fair value resulted from the conversion. References to the Parent Company’s stock herein refer to stock of JCI Inc. prior to the Merger Date and to stock of the Parent Company subsequent to the Merger Date.

On October 31, 2016, the Parent Company completed the spin-off of its Automotive Experience business by way of the transfer of the Automotive Experience Business from the Parent Company to Adient plc and the issuance of ordinary shares of Adient directly to holders of Parent Company ordinary shares on a pro rata basis. Prior to the open of business on October 31, 2016, each of the Company’s shareholders received one ordinary share of Adient plc for every ten ordinary shares of Parent Company held as of the close of business on October 19, 2016, the record date for the distribution. In connection with the Adient spin-off, pursuant to the Employee Matters Agreement between the Parent Company and Adient, outstanding stock options and SARs held on October 31, 2016 (the “Spin Date”) by employees remaining with the Parent Company were converted into options and SARs of the Parent Company using a 1.085317-for-one share ratio, which is based on the pre-spin and post-spin closing prices of the Parent Company’s ordinary shares. The exercise prices for options and SARs were converted using the inverse ratio in a manner designed to preserve the intrinsic value of such awards. In addition, pursuant to the Employee Matters Agreement, nonvested restricted stock held on the Spin Date by employees remaining with the Parent Company were converted into nonvested restricted stock of the Parent Company using the 1.085317-for-one share ratio in a manner designed to preserve the intrinsic value of such

25

awards. There were no performance share awards outstanding as of the Spin Date. Employees remaining with the Parent Company did not receive stock-based compensation awards of Adient as a result of the spin-off. Except for the conversion of awards and related exercise prices discussed herein, the material terms of the awards remained unchanged. No incremental fair value resulted from the conversion of the awards; therefore, no additional compensation expense was recorded related to the award modification.

For fiscal year ended September 30, 2018, 2017 and 2016, share-based compensation expense was approximately $9 million, $12 million and $12 million, respectively, all of which was recorded in selling, general and administrative expenses. The total income tax benefit recognized for continuing operations in the combined statements of income for share-based compensation arrangements was approximately $2 million, $5 million and $5 million for the fiscal years ended September 30, 2018, 2017 and 2016, respectively.

Stock Options

Stock options are granted with an exercise price equal to the market price of the Parent Company’s stock at the date of grant. Stock option awards typically vest between two and three years after the grant date and expire ten years from the grant date.

The fair value of each option is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table.  The expected life of options represents the period of time that options granted are expected to be outstanding, assessed separately for executives and non-executives. The risk-free interest rate for periods during the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. For fiscal 2018, the expected volatility is based on the historical volatility of the Parent Company’s stock after the Adient spin-off blended with the historical volatility of certain peer companies’ stock prior to the Adient spin-off over the most recent period corresponding to the expected life as of the grant date. For fiscal 2017, expected volatility is based on historical volatility of certain peer companies over the most recent period corresponding to the expected life as of the grant date.  For fiscal 2016, expected volatility is based on the historical volatility of the Parent Company’s stock and other factors. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of the Parent Company’s ordinary shares as of the grant date.  The Parent Company uses historical data to estimate option exercises and employee terminations within the valuation model.

	Year Ended September 30,
	2018	2017	2016
Expected life of option (years)	6.5	4.75 & 6.5	6.4
Risk-free interest rate	2.28%	1.23% - 1.48%	1.64%
Expected volatility of the Parent Company’s stock	23.70%	24.60%	36.00%
Expected dividend yield on the Parent Company’s stock	2.78%	2.21%	2.11%

A summary of stock option activity for employees of Power Solutions at September 30, 2018, and changes for the year then ended, is presented below:

	Weighted Average Option Price		Shares Subject to Option		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
Outstanding, September 30, 2017	$	31.93	1,056,960
Granted	37.30		190,408
Exercised	26.00		(225,242	)
Forfeited or expired	39.37		(8,120	)
Outstanding, September 30, 2018	$	34.21	1,014,006		4.8	$	4
Exercisable, September 30, 2018	$	32.67	690,438		3.1	$	4

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The weighted-average grant-date fair value of options granted during fiscal years ended September 30, 2018, 2017 and 2016 was $7.05, $8.28 and $13.15, respectively.

The total intrinsic value of options exercised during fiscal years ended September 30, 2018, 2017 and 2016 was approximately $3 million, $4 million, and $4 million, respectively.

At September 30, 2018, the total unrecognized compensation cost related to nonvested stock options granted was not significant.

Stock Appreciation Rights (“SARs”)

SARs vest under the same terms and conditions as stock option awards; however, they are settled in cash for the difference between the market price on the date of exercise and the exercise price. As a result, SARs are recorded in the Company’s combined statements of financial position as a liability until the date of exercise.

The fair value of each SAR award is estimated using a similar method described for stock options. The fair value of each SAR award is recalculated at the end of each reporting period and the liability and expense are adjusted based on the new fair value.

The assumptions used to determine the fair value of the SAR awards at September 30, 2018 were as follows:

Expected life of SAR (years)	0.4 - 1.6
Risk-free interest rate	2.29% - 2.72%
Expected volatility of the Parent Company’s stock	23.70%
Expected dividend yield on the Parent Company’s stock	2.78%

A summary of SAR activity for employees of Power Solutions at September 30, 2018, and changes for the year then ended, is presented below:

	Weighted Average SAR Price		Shares Subject to SAR		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
Outstanding, September 30, 2017	$	26.00	91,047
Exercised	25.65		(21,116	)
Forfeited or expired	26.82		(2,008	)
Outstanding, September 30, 2018	$	26.08	67,923		3.2	$	1
Exercisable, September 30, 2018	$	26.08	67,923		3.2	$	1

The payments made in conjunction with the exercise of SARs granted was not significant during the fiscal years ended September 30, 2018, 2017 and 2016.

Restricted (Nonvested) Stock

The Plan provides for the award of restricted stock or restricted stock units to certain employees. These awards are share settled.  Restricted awards typically vest over a period of three years from the grant date. The Plan allows for different vesting terms on specific grants with approval by the Board of Directors.  The value of restricted awards is based on the closing market value of the Parent Company’s ordinary shares on the date of grant.

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A summary of the status of the Parent Company’s nonvested restricted stock awards for employees of Power Solutions at September 30, 2018, and changes for the year then ended, is presented below:

	Weighted Average Price		Shares/Units Subject to Restriction
Nonvested, September 30, 2017	$	42.57	605,034
Granted	37.36		245,743
Vested	40.57		(277,529	)
Forfeited	42.53		(24,458	)
Nonvested, September 30, 2018	$	41.25	548,790

At September 30, 2018, the Company had approximately $9 million of total unrecognized compensation cost related to nonvested restricted stock arrangements granted. That cost is expected to be recognized over a weighted-average period of 1.8 years.

Performance Share Awards

The Plan permits the grant of performance-based share unit (“PSU”) awards.  The PSUs are generally contingent on the achievement of pre-determined performance goals over a three-year performance period as well as on the award holder’s continuous employment until the vesting date.  The PSUs are also indexed to the achievement of specified levels of total shareholder return versus a peer group over the performance period.  Each PSU that is earned will be settled with shares of the Parent Company’s ordinary shares following the completion of the performance period.

The fair value of each PSU is estimated on the date of grant using a Monte Carlo simulation that uses the assumptions noted in the following table.  The risk-free interest rate for periods during the contractual life of the PSU is based on the U.S. Treasury yield curve in effect at the time of grant.  For fiscal 2018, the expected volatility is based on the historical volatility of the Company’s stock after the Adient spin-off blended with the historical volatility of certain peer companies’ stock prior to the Adient spin-off over the most recent three-year period as of the grant date. For fiscal 2017, expected volatility is based on historical volatility of certain peer companies over the most recent three-year period as of the grant date.

	Year Ended September 30,
	2018		2017
Risk-free interest rate	1.92	%	1.40	%
Expected volatility of the Parent Company’s stock	21.70	%	21.00	%

A summary of the status of the Parent Company’s nonvested PSUs for employees of Power Solutions at September 30, 2018, and changes for the year then ended, is presented below:

	Weighted Average Price		Shares/Units Subject to PSU
Nonvested, September 30, 2017	$	44.98	55,628
Granted	37.36		60,917
Forfeited	42.33		(15,357	)
Nonvested, September 30, 2018	$	40.79	101,188

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10.    Redeemable Noncontrolling Interests

The Company consolidates certain subsidiaries in which the noncontrolling interest party has within their control the right to require the Company to redeem all or a portion of its interest in the subsidiary. The redeemable noncontrolling interests are reported at their estimated redemption value. Any adjustment to the redemption value impacts parent company investment but does not impact net income. Redeemable noncontrolling interests which are redeemable only upon future events, the occurrence of which is not currently probable, are recorded at carrying value. As of September 30, 2018, the Company does not have any subsidiaries for which the noncontrolling interest party has within their control the right to require the Company to redeem any portion of its interests.

The following schedules present changes in the redeemable noncontrolling interests (in millions):

	Year Ended September 30, 2018			Year Ended September 30, 2017			Year Ended September 30, 2016
Beginning balance, September 30	$	209		$	200		$	181
Net income	35			42			23
Foreign currency translation adjustments	(1		)	11			1
Realized and unrealized losses on derivatives	(9		)	(1		)	(1		)
Dividends	(3		)	(43		)	(4		)
Reclassification to noncontrolling interest	(231		)	—			—
Ending balance, September 30	$	—		$	209		$	200

11.    Accumulated Other Comprehensive Income

The following schedules present changes in AOCI attributable to the Company (in millions, net of tax):

	Year Ended September 30,
	2018			2017			2016
Foreign currency translation adjustments
Balance at beginning of period	$	(237	)	$	(280	)	$	(253	)
Aggregate adjustment for the period (net of tax effect of $0, $1 and $(5))	(154		)	43			(27		)
Balance at end of period	(391		)	(237		)	(280		)
Realized and unrealized gains (losses) on derivatives
Balance at beginning of period	5			21			11
Current period changes in fair value (net of tax effect of $(4), $2 and $11)	(6		)	4			26
Reclassification to income (net of tax effect of $(3), $(10) and $(7)) *	(6		)	(20		)	(16		)
Balance at end of period	(7		)	5			21
Realized and unrealized losses on marketable securities
Balance at beginning of period	(4		)	—			—
Current period changes in fair value (net of tax effect of $0)	(4		)	(4		)	—
Balance at end of period	(8		)	(4		)	—
Pension and postretirement plans
Balance at beginning of period	(2		)	(2		)	(2		)
Other changes	—			—			—
Balance at end of period	(2		)	(2		)	(2		)
Accumulated other comprehensive income (loss), end of period	$	(408	)	$	(238	)	$	(261	)

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*  Refer to Note 7, “Derivative Instruments,” of the notes to combined financial statements for disclosure of the line items on the combined statement of income affected by reclassifications from AOCI into income related to derivatives.

12.    Retirement Plans

Participation in Parent Company Defined Benefit Pension Plans (Shared Plans)

Certain retired U.S. employees of Power Solutions receive defined benefit pension benefits through various Parent Company pension plans. Eligible active employees will also receive defined benefit pension benefits through various Parent Company pension plans in the United States upon retirement. These assets or liabilities are not reflected in the combined statements of financial position. Allocated income in connection with these plans amounted to $7 million, $9 million and $7 million for the fiscal years ended 2018, 2017 and 2016, respectively, and is recorded in selling, general and administrative expenses.

Pension Benefits

The Company has non-contributory defined benefit pension plans covering certain U.S. and non-U.S. employees. The benefits provided are primarily based on years of service and average compensation or a monthly retirement benefit amount. Funding for U.S. pension plans equals or exceeds the minimum requirements of the Employee Retirement Income Security Act of 1974. Funding for non-U.S. plans observes the local legal and regulatory limits.

For pension plans with accumulated benefit obligations (“ABO”) that exceed plan assets, the projected benefit obligation (“PBO”), ABO and fair value of plan assets of those plans were $484 million, $440 million and $389 million, respectively, as of September 30, 2018 and $496 million, $453 million and $411 million, respectively, as of September 30, 2017.

In fiscal 2018, total employer contributions to the defined benefit pension plans were $1 million, of which none were voluntary contributions made by the Company. The Company expects to contribute approximately $1 million in cash to its defined benefit pension plans in fiscal 2019. Projected benefit payments from the plans as of September 30, 2018 are estimated as follows (in millions):

2019	$	33
2020	33
2021	33
2022	34
2023	34
2024-2028	168

Postretirement Benefits

The Company provides certain health care and life insurance benefits for eligible retirees and their dependents primarily in the U.S. Most non-U.S. employees are covered by government sponsored programs, and the cost to the Company is not significant.

Eligibility for coverage is based on meeting certain years of service and retirement age qualifications. These benefits may be subject to deductibles, co-payment provisions and other limitations, and the Company has reserved the right to modify these benefits.

The health care cost trend assumption does not have a significant effect on the amounts reported.

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In fiscal 2018, total employer contributions to the postretirement plans were not significant. The Company does not expect to make any significant contributions to its postretirement plans in fiscal 2019. Projected benefit payments from the plans as of September 30, 2019 are estimated as follows (in millions):

2019	$	4
2020	4
2021	4
2022	3
2023	3
2024-2028	16

In December 2003, the U.S. Congress enacted the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Act”) for employers sponsoring postretirement care plans that provide prescription drug benefits. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans providing a benefit that is at least actuarially equivalent to Medicare Part D.1. Under the Act, the Medicare subsidy amount is received directly by the plan sponsor and not the related plan. Further, the plan sponsor is not required to use the subsidy amount to fund postretirement benefits and may use the subsidy for any valid business purpose. Projected subsidy receipts for each of the next ten years are not expected to be significant.

Plan Assets

The Parent Company’s investment policies employ an approach whereby a mix of equities, fixed income and alternative investments are used to maximize the long-term return of plan assets for a prudent level of risk. The investment portfolio primarily contains a diversified blend of equity and fixed income investments. Equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value and small to large capitalizations. Fixed income investments include corporate and government issues, with short-, mid- and long-term maturities, with a focus on investment grade when purchased and a target duration close to that of the plan liability. Investment and market risks are measured and monitored on an ongoing basis through regular investment portfolio reviews, annual liability measurements and periodic asset/liability studies. The majority of the real estate component of the portfolio is invested in a diversified portfolio of high-quality, operating properties with cash yields greater than the targeted appreciation. Investments in other alternative asset classes, including hedge funds and commodities, diversify the expected investment returns relative to the equity and fixed income investments. As a result of the Parent Company’s diversification strategies, there are no significant concentrations of risk within the portfolio of investments.

The Parent Company’s actual asset allocations are in line with target allocations. The Parent Company rebalances asset allocations as appropriate, in order to stay within a range of allocation for each asset category. The expected return on plan assets is based on the Parent Company’s expectation of the long-term average rate of return of the capital markets in which the plans invest. The average market returns are adjusted, where appropriate, for active asset management returns. The expected return reflects the investment policy target asset mix and considers the historical returns earned for each asset category.

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The Company’s plan assets at September 30, 2018 and 2017, by asset category, are as follows (in millions):

	Fair Value Measurements Using:
Asset Category	Total as of September 30, 2018		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Pension
Cash and Cash Equivalents	$	2	$	—	$	2	$	—
Equity Securities
Large-Cap	49		35		14		—
Small-Cap	32		32		—		—
International - Developed	46		41		5		—
International - Emerging	11		9		2		—
Fixed Income Securities
Government	37		34		3		—
Corporate/Other	133		126		7		—
Total Investments in the Fair Value Hierarchy	310		$	277	$	33	$	—
Investments Measured at Net Asset Value, as Practical Expedient:
Real Estate Investments Measured at Net Asset Value*	33
Total Plan Assets	$	343
Non-U.S. Pension
Equity Securities
Large-Cap	$	14	$	—	$	14	$	—
International - Developed	4		—		4		—
International - Emerging	1		—		1		—
Fixed Income Securities
Corporate/Other	13		—		13		—
Hedge Fund	8		—		8		—
Total Investments in the Fair Value Hierarchy	40		$	—	$	40	$	—
Investments Measured at Net Asset Value, as Practical Expedient:
Real Estate Investments Measured at Net Asset Value*	6
Total Plan Assets	$	46
Postretirement
Cash and Cash Equivalents	$	2	$	2	$	—	$	—
Equity Securities
Large-Cap	9		—		9		—
Small-Cap	2		—		2		—
International - Developed	6		—		6		—
International - Emerging	3		—		3		—
Fixed Income Securities
Government	7		—		7		—
Corporate/Other	18		—		18		—
Commodities	5		—		5		—
Real Estate	3		—		3		—
Total Plan Assets	$	55	$	2	$	53	$	—

32

	Fair Value Measurements Using:
Asset Category	Total as of September 30, 2017		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Pension
Cash and Cash Equivalents	$	21	$	1	$	20	$	—
Equity Securities
Large-Cap	72		41		31		—
Small-Cap	31		31		—		—
International - Developed	72		63		9		—
International - Emerging	5		2		3		—
Fixed Income Securities
Government	30		27		3		—
Corporate/Other	101		94		7		—
Total Investments in the Fair Value Hierarchy	332		$	259	$	73	$	—
Investments Measured at Net Asset Value, as Practical Expedient:
Real Estate Investments Measured at Net Asset Value*	30
Total Plan Assets	$	362
Non-U.S. Pension
Equity Securities
Large-Cap	$	7	$	—	$	7	$	—
International - Developed	5		—		5		—
International - Emerging	2		—		2		—
Fixed Income Securities
Government	8		—		8		—
Corporate/Other	21		—		21		—
Total Investments in the Fair Value Hierarchy	43		$	—	$	43	$	—
Investments Measured at Net Asset Value, as Practical Expedient:
Real Estate Investments Measured at Net Asset Value*	6
Total Plan Assets	$	49
Postretirement
Cash and Cash Equivalents	$	1	$	—	$	1	$	—
Equity Securities
Large-Cap	9		—		9		—
Small-Cap	3		—		3		—
International - Developed	6		—		6		—
International - Emerging	3		—		3		—
Fixed Income Securities
Government	7		—		7		—
Corporate/Other	18		—		18		—
Commodities	5		—		5		—
Real Estate	3		—		3		—
Total Plan Assets	$	55	$	—	$	55	$	—

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* The fair value of certain investments in real estate do not have a readily determinable fair value and requires the fund managers to independently arrive at fair value by calculating net asset value (“NAV”) per share. In order to calculate NAV per share, the fund managers value the real estate investments using any one, or a combination of, the following methods: independent third party appraisals, discounted cash flow analysis of net cash flows projected to be generated by the investment and recent sales of comparable investments. Assumptions used to revalue the properties are updated every quarter. Due to the fact that the fund managers calculate NAV per share, the Company utilizes a practical expedient for measuring the fair value of its real-estate investments, as provided for under ASC 820, “Fair Value Measurement.” In applying the practical expedient, the Company is not required to further adjust the NAV provided by the fund manager in order to determine the fair value of its investment as the NAV per share is calculated in a manner consistent with the measurement principles of ASC 946, “Financial Services - Investment Companies,” and as of the Company’s measurement date. The Company believes this is an appropriate methodology to obtain the fair value of these assets. For the component of the real estate portfolio under development, the investments are carried at cost until they are completed and valued by a third party appraiser. In accordance with ASU No. 2015-07, “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” investments for which fair value is measured using the net asset value per share practical expedient should be disclosed separate from the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of total plan assets to the amounts presented in the notes to combined financial statements.

The following is a description of the valuation methodologies used for assets measured at fair value.  Certain assets are held within commingled funds which are valued at the unitized NAV or percentage of the net asset value as determined by the manager of the fund. These values are based on the fair value of the underlying net assets owned by the fund.

Cash and Cash Equivalents: The fair value of cash is valued at cost.

Equity Securities: The fair value of equity securities is determined by direct quoted market prices. The underlying holdings are direct quoted market prices on regulated financial exchanges.

Fixed Income Securities: The fair value of fixed income securities is determined by direct or indirect quoted market prices. If indirect quoted market prices are utilized, the value of assets held in separate accounts is not published, but the investment managers report daily the underlying holdings. The underlying holdings are direct quoted market prices on regulated financial exchanges.

Commodities: The fair value of the commodities is determined by quoted market prices of the underlying holdings on regulated financial exchanges.

Hedge Funds: The fair value of hedge funds is accounted for by the custodian. The custodian obtains valuations from underlying managers based on market quotes for the most liquid assets and alternative methods for assets that do not have sufficient trading activity to derive prices. The Company and custodian review the methods used by the underlying managers to value the assets. The Company believes this is an appropriate methodology to obtain the fair value of these assets.

Real Estate: The fair value of real estate is determined by quoted market prices of the underlying Real Estate Investment Trusts (“REITs”), which are securities traded on an open exchange.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

There were no Level 3 assets as of September 30, 2018 or 2017 or any Level 3 asset activity during fiscal 2018 or 2017.

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Funded Status

The table that follows contains the ABO and reconciliations of the changes in the PBO, the changes in plan assets and the funded status (in millions):

	Pension Benefits												Postretirement
	U.S. Plans						Non-U.S. Plans						Benefits
September 30,	2018			2017			2018			2017			2018			2017
Accumulated Benefit Obligation	$	358		$	372		$	82		$	81		$	—		$	—
Change in Projected Benefit Obligation
Projected benefit obligation at beginning of year	409			429			87			91			45			47
Service cost	13			14			2			2			—			1
Interest cost	13			12			2			2			1			1
Plan participant contributions	—			—			—			—			2			—
Actuarial (gain) loss	(3		)	(15		)	4			(8		)	3			—
Amendments made during the year	—			—			—			—			(6		)	—
Benefits and settlements paid	(37		)	(31		)	(4		)	(4		)	(4		)	(5		)
Currency translation adjustment	—			—			(2		)	4			(1		)	1
Projected benefit obligation at end of year	$	395		$	409		$	89		$	87		$	40		$	45
Change in Plan Assets
Fair value of plan assets at beginning of year	$	362		$	355		$	49		$	43		$	55		$	56
Actual return on plan assets	18			38			1			2			2			4
Employer and employee contributions	—			—			1			5			2			—
Benefits paid	(37		)	(31		)	(3		)	(4		)	(4		)	(5		)
Settlement payments	—			—			(1		)	—			—			—
Currency translation adjustment	—			—			(1		)	3			—			—
Fair value of plan assets at end of year	$	343		$	362		$	46		$	49		$	55		$	55
Funded status	$	(52	)	$	(47	)	$	(43	)	$	(38	)	$	15		$	10
Amounts recognized in the statement of financial position consist of:
Prepaid benefit cost	$	—		$	—		$	—		$	—		$	21		$	23
Accrued benefit liability	(52		)	(47		)	(43		)	(38		)	(6		)	(13		)
Net amount recognized	$	(52	)	$	(47	)	$	(43	)	$	(38	)	$	15		$	10
Weighted Average Assumptions (1)
Discount rate (2)	4.15		%	3.85		%	2.75		%	2.80		%	3.95		%	4.40		%
Rate of compensation increase	3.50		%	3.20		%	4.20		%	4.45		%	NA			NA

(1)Plan assets and obligations are determined based on a September 30 measurement date at September 30, 2018 and 2017.

(2)The Company considers the expected benefit payments on a plan-by-plan basis when setting assumed discount rates. As a result, the Company uses different discount rates for each plan depending on the plan jurisdiction, the demographics of participants and the expected timing of benefit payments. For the U.S. pension and postretirement plans, the Company uses a discount rate provided by an independent third party calculated based on an appropriate mix of high quality bonds. For the non-U.S. pension and postretirement plans, the Company consistently uses the relevant country specific benchmark indices for determining the various discount rates. The Company has elected to utilize a full yield curve approach in the estimation of service and interest components of net periodic benefit cost (credit) for pension and other postretirement for plans that utilize a yield curve approach. The full yield curve approach applies the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.

35

Accumulated Other Comprehensive Income

The amounts in AOCI on the combined statements of financial position, exclusive of tax impacts, that have not yet been recognized as components of net periodic benefit cost at September 30, 2018 and 2017 related to pension and postretirement benefits are not significant.

The amounts in AOCI expected to be recognized as components of net periodic benefit cost (credit) over the next fiscal related to pension and postretirement benefits are not significant.

Net Periodic Benefit Cost

The table that follows contains the components of net periodic benefit cost (in millions):

	Pension Benefits
	U.S. Plans									Non-U.S. Plans									Postretirement Benefits
Year ended September 30,	2018			2017			2016			2018			2017			2016			2018			2017			2016
Components of Net Periodic Benefit Cost (Credit):
Service cost	$	13		$	14		$	12		$	2		$	2		$	2		$	—		$	1		$	—
Interest cost	13			12			13			2			2			2			1			1			2
Expected return on plan assets	(26		)	(26		)	(26		)	(2		)	(2		)	(2		)	(3		)	(3		)	(3		)
Net actuarial (gain) loss	5			(27		)	42			5			(8		)	14			4			(1		)	(4		)
Settlement loss	—			—			—			—			—			2			—			—			—
Net periodic benefit cost (credit)	$	5		$	(27	)	$	41		$	7		$	(6	)	$	18		$	2		$	(2	)	$	(5	)
Expense Assumptions:
Discount rate	3.85		%	3.70		%	4.35		%	2.80		%	1.95		%	3.05		%	4.40		%	3.80		%	4.05		%
Expected return on plan assets	7.50		%	7.50		%	7.50		%	4.45		%	4.65		%	4.95		%	5.95		%	5.95		%	5.90		%
Rate of compensation increase	3.20		%	3.20		%	3.25		%	4.45		%	4.45		%	4.85		%	NA			NA			NA

13.    Significant Restructuring and Impairment Costs

To better align its resources with its growth strategies and reduce the cost structure of its global operations to address the softness in certain underlying markets, the Company commits to restructuring plans as necessary.

In fiscal 2018, the Company committed to a significant restructuring plan (“2018 Plan”) and recorded $11 million of restructuring and impairment costs in the combined statement of income. This is the total amount incurred to date and the total amount expected to be incurred for this restructuring plan. The costs consist primarily of workforce reductions and asset impairments. The restructuring actions are expected to be substantially complete in fiscal 2019.

The following table summarizes the changes in the Company’s 2018 Plan reserve, included within other current liabilities in the combined statement of financial position (in millions):

36

	Employee Severance and Termination Benefits			Long-Lived Asset Impairments			Total
Original reserve	$	5		$	6		$	11
Utilized—cash	(1		)	—			(1		)
Utilized—noncash	—			(6		)	(6		)
Balance at September 30, 2018	$	4		$	—		$	4

In fiscal 2017, the Company committed to a significant restructuring plan (“2017 Plan”) and recorded $20 million of restructuring and impairment costs in the combined statement of income. This is the total amount incurred to date and the total amount expected to be incurred for this restructuring plan. The costs consist primarily of workforce reductions and asset impairments. The restructuring actions are expected to be substantially complete in fiscal 2019.

The following table summarizes the changes in the Company’s 2017 Plan reserve, included within other current liabilities in the combined statement of financial position (in millions):

	Employee Severance and Termination Benefits			Long-Lived Asset Impairments			Total
Original reserve	$	13		$	7		$	20
Utilized—cash	(2		)	—			(2		)
Utilized—noncash	—			(7		)	(7		)
Balance at September 30, 2017	$	11		$	—		$	11
Utilized—cash	(8		)	—			(8		)
Balance at September 30, 2018	$	3		$	—		$	3

In fiscal 2016, the Company committed to a significant restructuring plan (“2016 Plan”) and recorded $66 million of restructuring and impairment costs in the combined statement of income. The costs consist primarily of asset impairments. The restructuring actions were completed in fiscal 2018.

The following table summarizes the changes in the Company’s 2016 Plan reserve, included within other current liabilities in the combined statement of financial position (in millions):

	Employee Severance and Termination Benefits			Long-Lived Asset Impairments			Total
Original reserve at September 30, 2016	$	2		$	64		$	66
Utilized—noncash	—			(64		)	(64		)
Balance at September 30, 2017	$	2		$	—		$	2
Utilized—cash	(2		)	—			(2		)
Balance at September 30, 2018	$	—		$	—		$	—

37

The Company’s fiscal 2018, 2017 and fiscal 2016 restructuring plans included workforce reductions of approximately 200 employees. Restructuring charges associated with employee severance and termination benefits are paid over the severance period granted to each employee or on a lump sum basis in accordance with individual severance agreements.

Company management closely monitors its overall cost structure and continually analyzes each of its businesses for opportunities to consolidate current operations, improve operating efficiencies and locate facilities in close proximity to customers. This ongoing analysis includes a review of its manufacturing, engineering and purchasing operations, as well as the overall global footprint for all its businesses.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property, plant and equipment and other intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment or Disposal of Long-Lived Assets.” ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.

In fiscal 2018, 2017 and 2016, the Company concluded it had triggering events requiring assessment of impairment for certain of its long-lived assets in conjunction with its annual financial planning process. As a result, the Company reviewed the long-lived assets for impairment and recorded $6 million, $7 million and $64 million of asset impairment charges within restructuring and impairment costs on the combined statement of income in fiscal 2018, 2017 and 2016, respectively. The impairments were measured, depending on the asset, under either an income approach utilizing forecasted discounted cash flows or a market approach utilizing an appraisal to determine fair values of the impaired assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, “Fair Value Measurement.”

At September 30, 2018, the Company concluded it did not have any other triggering events requiring assessment of impairment of its long-lived assets.

14.    Income Taxes

The income tax provision in the combined statements of income has been calculated as if Power Solutions filed separate income tax returns and was operating as a stand-alone business. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the actual tax balances of Power Solutions as part of consolidated JCI. The Company’s operations have historically been included in the Parent Company’s U.S. federal and state tax returns or non-U.S. jurisdiction tax returns.

The Parent Company’s global tax model has been developed based upon its entire portfolio of businesses. Accordingly, the Company’s tax results as presented are not necessarily indicative of future performance and do not necessarily reflect the results that would have generated as an independent company for the periods presented.

As portions of the Company’s operations are included in the Parent Company’s tax returns, payments to certain tax authorities are made by the Parent Company, and not by the Company. The Company does not maintain taxes payable to/from JCI and the Company’s subsidiaries are deemed to settle the annual current tax balances immediately with the legal tax-paying entities in the respective jurisdictions. For fiscal 2018, 2017 and 2016 these settlements were $478 million, $514 million and $650 million, respectively, and are reflected as changes in the parent company investment.

38

The more significant components of the Company’s income tax provision are as follows (in millions):

	Year Ended September 30,
	2018			2017			2016
Tax expense at federal statutory rate	$	304		$	445		$	373
U.S. state income taxes, net of federal benefit	9			22			5
Non-U.S. income tax expense at different rates	8			(132		)	(27		)
U.S. tax on non-U.S. income	(49		)	127			30
Valuation allowance adjustments	39			—			—
U.S. Tax Reform discrete items	161			—			—
Legal entity restructuring	129			—			—
Other	—			9			10
Income tax provision	$	601		$	471		$	391

The U.S. federal statutory tax rate (24.5% for fiscal 2018 and 35% for fiscal 2017 and 2016) is being used as a comparison due to the Company’s current legal entity structure.

Valuation Allowances

The Company reviews the realizability of its deferred tax asset valuation allowances on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary.

In the fiscal 2018, the Company performed an analysis related to the realizability of its worldwide deferred tax assets. As a result, and after considering feasible tax planning initiatives and other positive and negative evidence, the Company determined that it was more likely than not that certain deferred tax assets primarily within Germany and Mexico would not be realized. Therefore, the Company recorded $39 million of valuation allowances as income tax expense in the year ended September 30, 2018.

Uncertain Tax Positions

The Company is subject to income taxes in the U.S. and numerous non-U.S. jurisdictions. Judgment is required in determining its worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly under audit by tax authorities.

At September 30, 2018, the Company had gross tax effected unrecognized tax benefits of $211 million which, if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2018 was approximately $6 million (net of tax benefit).

At September 30, 2017, the Company had gross tax effected unrecognized tax benefits of $51 million which, if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2017 was approximately $5 million (net of tax benefit).

At September 30, 2016, the Company had gross tax effected unrecognized tax benefits of $49 million which, if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2016 was approximately $4 million (net of tax benefit).

39

Other Tax Matters

In the fourth quarter of fiscal 2018, the Company recorded a tax charge of $129 million due to legal entity restructuring.

In the fourth quarter of fiscal 2017, the Company recorded a tax charge of $45 million due to a change in the deferred tax liability related to the outside basis of a nonconsolidated subsidiary.

In the third quarter of fiscal 2017, the Company recorded a discrete tax charge of $75 million due to changes in entity tax status.

Impacts of Tax Legislation and Change in Statutory Tax Rates

On December 22, 2017, the “Tax Cuts and Jobs Act” (H.R. 1) was enacted and significantly revises U.S. corporate income tax by, among other things, lowering corporate income tax rates, imposing a one-time transition tax on deemed repatriated earnings of non-U.S. subsidiaries, and implementing a territorial tax system and various base erosion minimum tax provisions.

In connection with the Company’s analysis of the impact of the U.S. tax law changes, which is provisional and subject to change, the Company recorded a tax charge of $161 million during fiscal 2018. This provisional tax charge arises from a detriment of $50 million due to the remeasurement of U.S. deferred tax assets and liabilities as well as the one-time transition tax on deemed repatriated earnings, inclusive of all relevant taxes, of $111 million.

Based on the effective dates of certain aspects of the U.S. tax law changes, various applicable impacts of the enacted legislation could not be finalized as of September 30, 2018. While the Company made reasonable estimates of the impact of the transition tax, the final impact of the U.S. tax law changes may differ from these estimated impacts, due to, future treasury regulations, tax law technical corrections, notices, rulings, refined computations, and other items. The Company will finalize such provisional amounts within the time period prescribed by Staff Accounting Bulletin 118.

During fiscal 2018, 2017 and 2016, other tax legislation was adopted in various jurisdictions. These law changes did not have a material impact on the Company’s combined financial statements.

Income Tax Provision

Components of the provision for income taxes were as follows (in millions):

	Year Ended September 30,
	2018			2017			2016
Current
U.S. federal	$	123		$	137		$	297
U.S. state	9			17			23
Non-U.S.	487			337			353
	619			491			673
Deferred
U.S. federal	129			98			(143		)
U.S. state	2			11			(9		)
Non-U.S.	(149		)	(129		)	(130		)
	(18		)	(20		)	(282		)
Income tax provision	$	601		$	471		$	391

40

Combined U.S. income before income taxes and noncontrolling interests for fiscal 2018, 2017 and 2016 was $489 million, $478 million and $389 million, respectively. Combined non-U.S. income before income taxes and noncontrolling interests for fiscal 2018, 2017 and 2016 was $751 million, $794 million and $677 million, respectively.

The Company has not provided U.S. or non-U.S. income taxes on approximately $3.5 billion of outside basis differences of subsidiaries of the Company.  The reduction of the outside basis differences via the sale or liquidation of these subsidiaries and/or distributions could create taxable income. The Company’s intent is to reduce the outside basis differences only when it would be tax efficient. Given the numerous ways in which the basis differences may be reduced, it is not practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on the outside basis differences.

Deferred taxes were classified in the combined statement of financial position as follows (in millions):

	September 30,			September 30,
	2018			2017
Noncurrent income tax assets	$	335		$	591
Noncurrent income tax liabilities	(52		)	(62		)
Net deferred tax asset	$	283		$	529

Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities included (in millions):

	September 30,			September 30,
	2018			2017
Deferred tax assets:
Accrued expenses and reserves	$	74		$	198
Employee and retiree benefits	34			40
Net operating loss and other credit carryforwards	135			219
Intangible assets	185			181
Subsidiaries, joint ventures and partnerships	—			30
Other	21			11
	449			679
Valuation allowances	(101		)	(74		)
	348			605
Deferred tax liabilities:
Property, plant and equipment	51			76
Subsidiaries, joint ventures and partnerships	14			—
	65			76
Net deferred tax asset	$	283		$	529

On a separate company basis, the income tax provision considers net operating loss carryback and carryforward rules under applicable federal, state and foreign tax laws. The valuation allowance includes allowances for loss carryforward assets for which realization is uncertain because it is unlikely that the losses will be realized given the lack of sustained profitability and/or limited carryforward periods in certain countries.

41

Revision

The Company has revised previously reported results to correctly report income tax expense for a Mexican subsidiary. The Company assessed the materiality of this misstatement on prior periods’ financial statements in accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” codified in ASC 250, “Accounting Changes and Error Corrections,” and concluded that these misstatements were not material, individually or in the aggregate, to any previously issued financial statements. In accordance with ASC 250, the combined financial statements and notes to combined financial statements as of September 30, 2018, and the year then ended, which are presented herein, have been revised. The following tables show the impact of these revisions on all of the impacted line items from the Company’s combined financial statements illustrating the effect of these corrections (in millions):

	Combined Statements of Income
	Year Ended September 30, 2018
	As Reported	Adjustment		As Revised
Income tax provision	661	(60	)	601
Net income	579	60		639
Net income attributable to Power Solutions	532	60		592

	Combined Statements of Comprehensive Income (Loss)
	Year Ended September 30, 2018
	As Reported	Adjustment	As Revised
Net income	579	60	639
Total comprehensive income	400	60	460
Comprehensive income attributable to Power Solutions	362	60	422

	Combined Statements of Cash Flows
	Year Ended September 30, 2018
	As Reported		Adjustment		As Revised
Net income attributable to Power Solutions	532		60		592
Net income	579		60		639
Net cash provided by operating activities	685		60		745
Net transfers to parent	(327	)	(60	)	(387	)
Net cash used by financing activities	(329	)	(60	)	(389	)

15.    Product Warranties

The Company offers warranties to its customers depending upon the specific product and terms of the customer purchase agreement. A typical warranty program requires that the Company replace defective products within a specified time period from the date of sale. The Company records an estimate for future warranty-related costs based on actual historical return rates and other known factors. Based on analysis of return rates and other factors, the Company’s warranty provisions are adjusted as necessary. The Company monitors its warranty activity and adjusts its reserve estimates when it is probable that future warranty costs will be different than those estimates.

The Company’s product warranty liability is recorded in the combined statement of financial position in other current liabilities if the warranty is less than one year and in other noncurrent liabilities if the warranty extends longer than one year.

42

The changes in the carrying amount of the Company’s total product warranty liability for the fiscal years ended 2018 and 2017 was as follows (in millions):

	Year Ended September 30,
	2018			2017
Balance at beginning of period	$	86		$	63
Accruals for warranties issued during the period	180			192
Accruals related to pre-existing warranties (including changes in estimates)	(12		)	(7		)
Settlements made (in cash or in kind) during the period	(179		)	(162		)
Currency translation	(1		)	—
Balance at end of period	$	74		$	86

16.   Commitments and Contingencies

Environmental Matters

The Company accrues for potential environmental liabilities when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. As of September 30, 2018 and 2017, reserves for environmental liabilities totaled $7 million and $8 million, respectively. Such potential liabilities accrued by the Company do not take into consideration possible recoveries of future insurance proceeds. They do, however, take into account the likely share other parties will bear at remediation sites. It is difficult to estimate the Company’s ultimate level of liability at many remediation sites due to the large number of other parties that may be involved, the complexity of determining the relative liability among those parties, the uncertainty as to the nature and scope of the investigations and remediation to be conducted, the uncertainty in the application of law and risk assessment, the various choices and costs associated with diverse technologies that may be used in corrective actions at the sites, and the often quite lengthy periods over which eventual remediation may occur. Nevertheless, the Company does not currently believe that any claims, penalties or costs in connection with known environmental matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. In addition, the Company has identified asset retirement obligations for environmental matters that are expected to be addressed at the retirement, disposal, removal or abandonment of existing owned facilities. At September 30, 2018 and 2017, the Company recorded conditional asset retirement obligations of $13 million and $27 million, respectively.

Insurable Liabilities

The Company records liabilities for its workers’ compensation, product, general and auto liabilities. The determination of these liabilities and related expenses is dependent on claims experience. For most of these liabilities, claims incurred but not yet reported are estimated by utilizing actuarial valuations based upon historical claims experience. At September 30, 2018 and 2017, the insurable liabilities totaled $11 million and $14 million, respectively.

The Company is involved in various lawsuits, claims and proceedings incident to the operation of its businesses, including those pertaining to product liability, environmental, safety and health, intellectual property, employment, commercial and contractual matters, and various other casualty matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, it is management’s opinion that none of these will have a material adverse effect on the Company’s financial position, results of operations or cash flows. Costs related to such matters were not material to the periods presented.

43

17.   Related Party Transactions and Parent Company Investment

Related Party Transactions

In the ordinary course of business, the Company enters into transactions with related parties, such as equity affiliates. Such transactions consist of the sale or purchase of goods and other arrangements.

The net sales to and purchases from related parties included in the combined statements of income were $737 million and $140 million, respectively, for fiscal 2018, $778 million and $135 million, respectively, for fiscal 2017; and $698 million and $121 million, respectively, for fiscal 2016.

The following table sets forth the amount of accounts receivable due from and payable to related parties in the combined statements of financial position (in millions):

	September 30,
	2018		2017
Receivable from related parties	$	67	$	89
Payable to related parties	57		45

The Company has also provided financial support to certain of its VIE’s, see Note 1, “Basis of Presentation and Summary of Significant Accounting Policies,” of the notes to combined financial statements for additional information.

Corporate Allocations and Parent’s Net Investment

The combined statements of income include allocations for certain support functions that are provided on a centralized basis by the Parent Company and subsequently recorded at the business unit level, such as expenses related to employee benefits, finance, human resources, risk management, information technology, facilities, and legal, among others. These expenses have been allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on a proportional basis of combined sales, headcount or other measures of the Company or the Parent Company. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expenses from the Parent Company, are reasonable. Nevertheless, the combined financial statements may not include all actual expenses that would have been incurred by the Company and may not reflect the combined results of operations, financial position and cash flows had it been a stand-alone company during the years presented. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

In addition to the transactions discussed above, certain intercompany transactions between the Company and the Parent Company have not been recorded as related party transactions. These transactions are considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the combined statements of cash flows as a financing activity and in the combined statements of financial position as parent company investment.

44

EX-99.5

Exhibit 99.5

Power Solutions Business of Johnson Controls International plc

Combined Financial Statements

Quarter Ended December 31, 2018

Power Solutions Business of Johnson Controls International plc

Index to Combined Financial Statements (unaudited)

	Page
Combined Statements of Income	3
Combined Statements of Comprehensive Income (Loss)	4
Combined Statements of Financial Position	5
Combined Statements of Cash Flows	6
Combined Statements of Invested Equity	7
Notes to Combined Financial Statements	8

2

Power Solutions Business of Johnson Controls International plc

Combined Statements of Income

(in millions; unaudited)

	Three Months Ended December 31,
	2018			2017
Net sales	$	2,427		$	2,130
Cost of sales	1,941			1,661
Gross profit	486			469
Selling, general and administrative expenses	(170		)	(128		)
Restructuring and impairment costs	—			(4		)
Net financing charges	(10		)	(14		)
Equity income	13			13
Income before income taxes	319			336
Income tax provision	112			252
Net income	207			84
Income attributable to noncontrolling interests	15			13
Net income attributable to Power Solutions	$	192		$	71

The accompanying notes are an integral part of the combined financial statements.

3

Power Solutions Business of Johnson Controls International plc

Combined Statements of Comprehensive Income (Loss)

(in millions; unaudited)

	Three Months Ended December 31,
	2018			2017
Net income	$	207		$	84
Other comprehensive income (loss), net of tax:
Foreign currency translation	(40		)	23
Realized and unrealized losses on derivatives	(1		)	(1		)
Realized and unrealized losses on marketable securities	—			(4		)
Other comprehensive income (loss), net of tax	(41		)	18
Total comprehensive income	166			102
Comprehensive income attributable to noncontrolling interests	16			17
Comprehensive income attributable to Power Solutions	$	150		$	85

The accompanying notes are an integral part of the combined financial statements.

4

Power Solutions Business of Johnson Controls International plc

Combined Statements of Financial Position

(in millions; unaudited)

	December 31, 2018			September 30, 2018
Assets
Cash and cash equivalents	$	17		$	15
Accounts receivable - net	1,466			1,443
Inventories	1,370			1,405
Other current assets	249			185
Current assets	3,102			3,048
Property, plant and equipment - net	2,762			2,764
Goodwill	1,085			1,092
Other intangible assets - net	156			161
Investments in partially-owned affiliates	463			453
Noncurrent income tax assets	495			806
Other noncurrent assets	56			93
Total assets	$	8,119		$	8,417
Liabilities and Invested Equity
Short-term debt	$	7		$	9
Current portion of long-term debt	23			25
Accounts payable	1,048			1,237
Accrued compensation and benefits	123			152
Other current liabilities	476			405
Current liabilities	1,677			1,828
Long-term debt	30			31
Pension and postretirement benefits	103			103
Noncurrent income tax liabilities	307			253
Other noncurrent liabilities	44			50
Long-term liabilities	484			437
Commitments and contingencies (Note 16)
Parent company investment	6,109			6,285
Accumulated other comprehensive loss	(442		)	(408		)
Invested equity attributable to Power Solutions	5,667			5,877
Noncontrolling interest	291			275
Total invested equity	5,958			6,152
Total liabilities and invested equity	$	8,119		$	8,417

The accompanying notes are an integral part of the combined financial statements.

5

Power Solutions Business of Johnson Controls International plc

Combined Statements of Cash Flows

(in millions; unaudited)

	Three Months Ended December 31,
	2018			2017
Operating Activities
Net income attributable to Power Solutions	$	192		$	71
Income attributable to noncontrolling interests	15			13
Net income	207			84
Adjustments to reconcile net income to cash provided (used) by operating activities:
Depreciation and amortization	63			60
Pension and postretirement benefit expense (income)	1			—
Pension and postretirement contributions	(1		)	(1		)
Equity in earnings of partially-owned affiliates, net of dividends received	(9		)	(3		)
Deferred income taxes	67			29
Non-cash restructuring and impairment charges	—			2
Share-based compensation	3			3
Other	(2		)	(16		)
Changes in assets and liabilities:
Accounts receivable	(33		)	(20		)
Inventories	46			(50		)
Other assets	(62		)	202
Restructuring reserves	(1		)	(3		)
Accounts payable and accrued liabilities	(150		)	(364		)
Accrued income taxes	5			(3		)
Net cash provided (used) by operating activities	134			(80		)
Investing Activities
Capital expenditures	(87		)	(111		)
Changes in long-term investments	(14		)	(5		)
Loans to affiliates	37			—
Net cash used by investing activities	(64		)	(116		)
Financing Activities
Increase (decrease) in short-term debt - net	(2		)	12
Repayment of long-term debt	(7		)	(6		)
Employee equity-based compensation withholding taxes	(2		)	—
Net transfers from (to) parent	(57		)	189
Net cash provided (used) by financing activities	(68		)	195
Effect of exchange rate changes on cash and cash equivalents	—			—
Net increase in cash and cash equivalents	2			(1		)
Cash and cash equivalents at beginning of period	15			20
Cash and cash equivalents at end of period	$	17		$	19

The accompanying notes are an integral part of the combined financial statements.

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Power Solutions Business of Johnson Controls International plc

Combined Statements of Invested Equity

(in millions; unaudited)

	Parent Company Investment			Accumulated Other Comprehensive Loss			Invested Equity Attributable to Power Solutions			Noncontrolling Interest		Total Invested Equity
Balance as of September 30, 2017	$	6,071		$	(238	)	$	5,833		$	16	$	5,849
Comprehensive income:
Net income	71			—			71			—		71
Other comprehensive income, net of tax	—			14			14			—		14
Comprehensive income	71			14			85			—		85
Change in parent company investment	192			—			192			—		192
Balance as of December 31, 2017	$	6,334		$	(224	)	$	6,110		$	16	$	6,126
Balance as of September 30, 2018	$	6,285		$	(408	)	$	5,877		$	275	$	6,152
Comprehensive income (loss):
Net income	192			—			192			15		207
Other comprehensive income (loss), net of tax	—			(42		)	(42		)	1		(41		)
Comprehensive income (loss)	192			(42		)	150			16		166
Adoption of ASC 606	(33		)	—			(33		)	—		(33		)
Adoption of ASU 2016-01	(8		)	8			—			—		—
Adoption of ASU 2016-16	(273		)	—			(273		)	—		(273		)
Change in parent company investment	(54		)	—			(54		)	—		(54		)
Balance as of December 31, 2018	$	6,109		$	(442	)	$	5,667		$	291	$	5,958

The accompanying notes are an integral part of the combined financial statements.

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Power Solutions Business of Johnson Controls International plc

Notes to Combined Financial Statements (unaudited)

1.             Financial Statements

On March 12, 2018, Johnson Controls International plc (“JCI” or the “Parent Company”) announced it is exploring strategic alternatives for its Power Solutions business (the “Company” or “Power Solutions”). On November 13, 2018, JCI entered into a Stock and Asset Purchase Agreement (“Purchase Agreement”) with BCP Acquisitions LLC (“Purchaser”). The Purchaser is a newly-formed entity controlled by investment funds managed by Brookfield Capital Partners LLC. Pursuant to the Purchase Agreement, on the terms and subject to the conditions therein, JCI has agreed to sell, and Purchaser has agreed to acquire, Power Solutions for a purchase price of $13.2 billion. Net cash proceeds are expected to be $11.4 billion after tax and transaction-related expenses. The transaction is expected to close by June 30, 2019, subject to customary closing conditions and required regulatory approvals.

These combined financial statements reflect the combined historical results of the operations, financial position and cash flows of Power Solutions. The Parent Company is a corporation organized under the laws of Ireland.

In the opinion of the Company, the accompanying unaudited combined financial statements contain all adjustments (which  include normal recurring adjustments) necessary to state fairly the financial position, results of operations and cash flows for the periods presented. The combined statement of financial position at September 30, 2018 was derived from the audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements pursuant to applicable rules and regulations.

Basis of Presentation

These combined financial statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of JCI as if Power Solutions had been operating as a stand-alone company for all periods presented. These combined financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The assets and liabilities in the combined financial statements have been reflected on a historical cost basis, as included in the consolidated statements of financial position of JCI. The combined statements of income include allocations for certain support functions that are provided on a centralized basis by the Parent Company and subsequently recorded at the business unit level, such as expenses related to employee benefits, finance, human resources, risk management, information technology, facilities, and legal, among others. These expenses have been allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on a proportional basis of combined sales, headcount or other measures of the Company or the Parent Company. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expenses from the Parent Company, are reasonable and applied consistently for all periods presented. Nevertheless, the combined financial statements may not include all actual expenses that would have been incurred by Power Solutions and may not reflect the combined results of operations, financial position and cash flows had it been a stand-alone company during the years presented. Actual costs that would have been incurred if Power Solutions had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

Principles of Combination

The combined financial statements include certain assets and liabilities that have historically been held at the Parent Company level but are specifically identifiable or otherwise attributable to Power Solutions. All significant intercompany transactions and accounts within the Company’s combined businesses have been eliminated. All intercompany transactions between the Company and the Parent Company have been included in these combined statements of financial position as parent company investment. Expenses related to corporate allocations from the Parent Company to the Company are considered to be effectively settled for

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cash in the combined financial statements at the time the transaction is recorded. See Note 17, “Related Party Transactions and Parent Company Investment,” of the notes to combined financial statements for further details.

The results of companies acquired or disposed of during the year are included in the combined financial statements from the effective date of acquisition or up to the date of disposal. During the three months ended December 31, 2018 and 2017, the Company had no significant acquisitions or divestitures. Investments in partially-owned affiliates are accounted for by the equity method when the Company’s interest exceeds 20% and the Company does not have a controlling interest.

Under certain criteria as provided for in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation,” the Company may consolidate a partially-owned affiliate. To determine whether to consolidate a partially-owned affiliate, the Company first determines if the entity is a variable interest entity (“VIE”). An entity is considered to be a VIE if it has one of the following characteristics: 1) the entity is thinly capitalized; 2) residual equity holders do not control the entity; 3) equity holders are shielded from economic losses or do not participate fully in the entity’s residual economics; or 4) the entity was established with non-substantive voting rights. If the entity meets one of these characteristics, the Company then determines if it is the primary beneficiary of the VIE. The party with the power to direct activities of the VIE that most significantly impact the VIE’s economic performance and the potential to absorb benefits or losses that could be significant to the VIE is considered the primary beneficiary and consolidates the VIE. If the entity is not considered a VIE, then the Company applies the voting interest model to determine whether or not the Company shall consolidate the partially-owned affiliate.

Consolidated VIEs

In fiscal 2012, a pre-existing VIE accounted for under the equity method was reorganized into three separate investments as a result of the counterparty exercising its option to put its interest to the Company. The Company acquired additional interests in two of the reorganized group entities. The reorganized group entities are considered to be VIEs as the other owner party has been provided decision making rights but does not have equity at risk. The Company was considered the primary beneficiary of one of the entities due to the Company’s power pertaining to decisions over significant activities of the entity. As such, this VIE was consolidated within the Company’s combined statements of financial position as of September 30, 2017. During the three months ended December 31, 2017, certain joint venture agreements were amended and, as a result, the Company can no longer make key operating decisions considered to be most significant to the VIE. As such, the Company is no longer considered the primary beneficiary of this entity, and the Company deconsolidated the entity during the three months ended December 31, 2017. The impact of the entity on the Company’s combined statements of income for the three months ended December 31, 2018 and 2017 was not material.

The Company did not have a significant variable interest in any other consolidated VIEs for the presented reporting periods.

Nonconsolidated VIEs

As mentioned previously within the “Consolidated VIEs” section above, in fiscal 2012, a pre-existing VIE was reorganized into three separate investments as a result of the counterparty exercising its option to put its interest to the Company. The reorganized group entities are considered to be VIEs as the other owner party has been provided decision making rights but does not have equity at risk. The VIEs are named as co-obligors under a third party debt agreement in the amount of $153 million, maturing in fiscal 2020, under which a VIE could become subject to paying more than its allocated share of the third party debt in the event of bankruptcy of one or more of the other co-obligors. The other co-obligors, all related parties in which the Company is an equity investor, consist of the remaining group entities involved in the reorganization. As part of the overall reorganization transaction, the Company has also provided financial support to the group entities in the form of loans totaling $38 million as of September 30, 2018, which are subordinate to the third party debt agreement. The loans were repaid during the three months ended December 31, 2018. The Company is a significant customer of certain co-obligors, resulting in a remote possibility of loss. Additionally, the Company is subject to a floor guaranty expiring in fiscal 2022; in the event that the other owner party no longer owns any part of the group entities due to sale or transfer, the Company has guaranteed that the proceeds received from the sale or transfer will not be less than $25 million. The Company has partnered with the group entities to design and manufacture battery components. The Company is not considered to be the primary beneficiary of three of the entities as of September 30, 2018 and December 31, 2018, as the Company cannot make key operating decisions considered to be most significant to the VIEs. Therefore, the entities

9

are accounted for under the equity method of accounting as the Company’s interest exceeds 20% and the Company does not have a controlling interest. The Company’s maximum exposure to loss includes the partially-owned affiliate investment balance of $44 million and $43 million at December 31, 2018 and September 30, 2018, respectively, as well as the subordinated loan from the Company at September 30, 2018, third party debt agreement and floor guaranty mentioned above. Current liabilities due to the VIEs are not material and represent normal course of business trade payables for all presented periods.

The Company did not have a significant variable interest in any other nonconsolidated VIEs for the presented reporting periods.

Description of Business

The Company is a leading global supplier of lead-acid automotive batteries for virtually every type of passenger car, light truck and utility vehicle. The Company serves both automotive original equipment manufacturers and the general vehicle battery aftermarket. The Company also supplies advanced battery technologies to power start-stop, hybrid and electric vehicles.

Date of Management’s Review

Management has evaluated subsequent events through February 8, 2019, the date the financial statements were issued.

2.             New Accounting Standards

Recently Adopted Accounting Pronouncements

In March 2018, the FASB issued ASU No. 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,” to add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118 (“SAB 118”) to ASC 740 “Income Taxes.” SAB 118 was issued by the SEC in December 2017 to provide immediate guidance for accounting implications of U.S. Tax Reform under the “Tax Cuts and Jobs Act” in the period of enactment. SAB 118 provides for a provisional one year measurement period for entities to finalize their accounting for certain income tax effects related to the “Tax Cuts and Jobs Act.” The Company applied this guidance to its combined financial statements and related disclosures beginning in the first quarter of fiscal 2018. In the first quarter of fiscal 2019, the Company completed its analysis of all enactment-date income tax effects of the U.S. tax law change. Refer to Note 14, “Income Taxes,” of the notes to combined financial statements for further information.

In October 2016, the FASB issued ASU No. 2016-16, “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory.” The ASU requires the tax effects of all intra-entity sales of assets other than inventory to be recognized in the period in which the transaction occurs. The guidance was early adopted by the Company for the quarter ending December 31, 2018. The changes were applied by means of a cumulative-effect adjustment which resulted in a reduction to parent company investment and noncurrent income tax assets of $273 million.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU No. 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including marketable securities. Additionally in February 2018, the FASB issued ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which provides additional clarification on certain topics addressed in ASU No. 2016-01. ASU No. 2016-01 and ASU No. 2018-03 were early adopted by the Company for the quarter ending December 31, 2018. The changes were applied by means of a cumulative-effect adjustment which resulted in a decrease to parent company investment of $8 million. The new standard requires the mark-to-market of marketable securities investments previously recorded within accumulated other comprehensive income on the statement of financial position be recorded in the statement of income on a prospective basis beginning as of the adoption date. The adoption of this guidance did not have a material impact to the statement of income in the first quarter of fiscal 2019.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU No. 2014-09 and its related amendments (collectively, the “New Revenue Standard”) clarify the principles for recognizing revenue when an entity

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either enters into a contract with customers to transfer goods or services or enters into a contract for the transfer of non-financial assets. The Company early adopted the New Revenue Standard on October 1, 2018 using a modified retrospective approach. Under the New Revenue Standard, revenue recognition is impacted as certain customers return battery cores which are now included in the transaction price as noncash consideration. As of October 1, 2018, the Company applied the New Revenue Standard to contracts that were not completed as of this date and recognized a cumulative-effect adjustment of a reduction to parent company investment of $33 million, which relates primarily to deferred revenue recorded for certain battery core returns that represent a material right provided to customers. The prior period comparative information has not been restated and continues to be reported under the previous guidance.

The impact of adoption of the New Revenue Standard to the Company’s combined statement of income for the three months ended December 31, 2018 was an increase to net sales of approximately $318 million and an immaterial impact to gross profit and net income.

The impact of adoption of the New Revenue Standard to the Company’s combined statement of financial position as of December 31, 2018 is as follows (in millions):

	December 31, 2018
	As reported	Under previous accounting guidance	Impact from adopting the New Revenue Standard
Combined Statement of Financial Position
Assets
Other current assets	249	239	10
Noncurrent income tax assets	495	489	6
Liabilities and Invested Equity
Other current liabilities	476	437	39
Parent company investment	6,109	6,132	(23	)

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires recognition of operating leases as lease assets and liabilities on the balance sheet, and disclosure of key information about leasing arrangements. The original standard was effective retrospectively for the Company for the quarter ending December 31, 2020 with early adoption permitted; however in July 2018 the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” which provides an additional transition method that permits changes to be applied by means of a cumulative-effect adjustment recorded in parent company investment as of the beginning of the fiscal year of adoption. The FASB further amended Topic 842 by issuing ASU No. 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” which provides an optional transition practical expedient for existing or expired land easements that were not previously recorded as leases, ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU No. 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for Lessors.” The Company expects to early adopt the combined guidance as of the quarter ended December 31, 2019. The Company is currently assessing the impact adoption of this guidance will have on its combined financial statements. The Company has started the assessment process by evaluating the population of leases under the revised definition of what qualifies as a leased asset. The Company is the lessee under various agreements for facilities and equipment that are currently accounted for as operating leases. The new guidance will require the Company to record operating leases on the balance sheet with a right-of-use asset and corresponding liability for future payment obligations. The Company expects the new guidance will have an impact on its combined statements of financial position for the addition of right-of-use assets and lease liabilities, but the Company does not expect it to have a material impact on its combined statements of income and its combined statements of cash flows.

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Other recently issued accounting pronouncements are not expected to have a significant impact on the Company’s combined financial statements.

3.             Revenue

The Company services both automotive original equipment manufacturers and the battery aftermarket by providing advanced battery technology, coupled with systems engineering, marketing and service expertise. The Power Solutions business recognizes revenue at the point in time when control over the goods or services transfers to the customer.

The transaction price includes the total consideration expected to be received under the contract which may include both cash and noncash components. The calculation of the transaction price for contracts containing noncash consideration includes the fair value of the noncash consideration to be received as of the contract’s inception date. Certain agreements contain price arrangements that represent material rights to customers for battery core returns. Material rights are accounted for as separate performance obligations and recognized as a deferred revenue within other current liabilities in the combined statements of financial position. Material rights are recognized as revenue as the option is exercised or expires.

The Company considers the contractual consideration payable by the customer and assesses variable consideration that may affect the total transaction price, including discounts, rebates, refunds, credits or other similar  sources of variable consideration, when determining the transaction price of each contract. The Company includes variable consideration in the estimated transaction price when it is probable that significant reversal of revenue recognized would not occur when the uncertainty associated with variable consideration is subsequently resolved. These estimates are based on the amount of consideration that the Company expects to be entitled to.

Shipping and handling costs billed to customers are included in sales and the related costs are included in cost of sales when control transfers to the customer. The Company has elected to present amounts collected from customers for sales and other taxes net of the related amounts remitted.

Disaggregated Revenue

The following tables presents disaggregation of revenues by geography for the three months ended December 31, 2018 (in millions):

	Three Months Ended December 31,
	2018
Americas	$	1,488
Europe	613
Asia	326
Total Power Solutions revenue	$	2,427

Contract Balances

Contract assets relate to the Company’s right to consideration for performance obligations satisfied but not billed and consist primarily of unbilled receivables. Contract liabilities relate to customer payments received in advance of satisfaction of performance obligations under the contract and consist of deferred revenue. Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period.

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The following table presents the location and amount of contract balances in the the Company’s combined statements of financial position (in millions):

	Location of contract balances	December 31, 2018			October 1, 2018
Contract assets - current	Accounts receivable - net	$	41		$	35
Contract assets - current	Other current assets	5			2
Contract liabilities - current	Other current liabilities	(40		)	(64		)
Total		$	6		$	(27	)

For the three months ended December 31, 2018, the Company recognized revenue of $64 million that was included in the beginning contract liability balance.

Remaining Performance Obligations

A performance obligation is a distinct good, service, or a bundle of goods and services promised in a contract. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For product sales, each product sold to a customer typically represents a distinct performance obligation. The Company satisfies performance obligations at a point in time. The Company has applied the practical expedient to exclude the value of remaining performance obligations for contracts with an original expected duration of one year or less.

4.    Inventories

Inventories consisted of the following (in millions):

	December 31, 2018		September 30, 2018
Raw materials and supplies	$	425	$	384
Work-in-process	341		390
Finished goods	604		631
Inventories	$	1,370	$	1,405

5.    Goodwill and Other Intangible Assets

At December 31, 2018 and September 30, 2018, the carrying amount of goodwill was $1,085 million and $1,092 million, respectively. The changes in the carrying amount of goodwill during the three months ended December 31, 2018 was the result of foreign currency translation.

The Company’s other intangible assets, primarily from business acquisitions valued based on independent appraisals, consisted of (in millions):

	December 31, 2018							September 30, 2018
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Amortized intangible assets
Technology	$	17	$	(15	)	$	2	$	17	$	(15	)	$	2
Customer relationships	133		(66		)	67		137		(65		)	72
Miscellaneous	38		(14		)	24		38		(14		)	24
Total amortized intangible assets	188		(95		)	93		192		(94		)	98
Unamortized intangible assets	63		—			63		63		—			63
Total other intangible assets	$	251	$	(95	)	$	156	$	255	$	(94	)	$	161

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Amortization of other intangible assets for the three month periods ended December 31, 2018 and 2017 was $2 million. Excluding the impact of any future acquisitions, the Company anticipates amortization for fiscal 2020, 2021, 2022, 2023 and 2024 will be approximately $8 million, $7 million, $6 million, $6 million and $6 million per year, respectively.

6.    Net Financing Charges

The Company’s net financing charges line item in the combined statement of income for the three months ended December 31, 2018 and 2017 contained the following components (in millions):

	Three Months Ended December 31,
	2018			2017
Interest expense	$	2		$	9
Supply chain financing fees	9			6
Interest income	(1		)	—
Net foreign exchange results for financing activities	—			(1		)
Net financing charges	$	10		$	14

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7.    Derivative Instruments and Hedging Activities

The Parent Company selectively uses derivative instruments to reduce the Company’s market risk associated with changes in foreign currency and commodities. Under the Parent Company’s policy, the use of derivatives is restricted to those intended for hedging purposes; the use of any derivative instrument for speculative purposes is strictly prohibited. A description of each type of derivative utilized by the Parent Company to manage the Company’s risk is included in the following paragraphs.

Cash Flow Hedges

The Company has global operations and participates in the foreign exchange markets to minimize its risk of loss from fluctuations in foreign currency exchange rates. The Parent Company selectively hedges the Company’s anticipated transactions that are subject to foreign exchange rate risk primarily using foreign currency exchange hedge contracts. The Parent Company hedges 70% to 90% of the nominal amount of each of the Company’s known foreign exchange transactional exposures. As cash flow hedges under ASC 815, “Derivatives and Hedging,” the hedge gains or losses due to changes in fair value are initially recorded as a component of accumulated other comprehensive income (“AOCI”) and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates during the three months ended December 31, 2018 and 2017.

The Parent Company selectively hedges anticipated transactions that are subject to commodity price risk, primarily using commodity hedge contracts, to minimize overall price risk associated with the Company’s purchases of lead, tin and polypropylene in cases where commodity price risk cannot be naturally offset or hedged through supply base fixed price contracts. Commodity risks are systematically managed pursuant to policy guidelines. As cash flow hedges, the hedge gains or losses due to changes in fair value are initially recorded as a component of AOCI and are subsequently reclassified into earnings when the hedged transactions, typically sales, occur and affect earnings. The maturities of the commodity hedge contracts coincide with the expected purchase of the commodities. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in commodity prices during the three months ended December 31, 2018 and 2017.

The Company had the following outstanding contracts to hedge forecasted commodity purchases (in metric tons):

	Volume Outstanding as of
Commodity	December 31, 2018	September 30, 2018
Polypropylene	29,482	15,868
Lead	29,016	49,066
Tin	3,588	3,076

Derivatives Not Designated as Hedging Instruments

The Company also holds certain foreign currency forward contracts which do not qualify for hedge accounting treatment. The change in fair value of foreign currency exchange derivatives not designated as hedging instruments under ASC 815 are recorded in the combined statements of income.

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Fair Value of Derivative Instruments

The following table presents the location and fair values of derivative instruments and hedging activities included in the Company’s combined statements of financial position (in millions):

	Derivatives and Hedging Activities Designated as Hedging Instruments under ASC 815				Derivatives and Hedging Activities Not Designated as Hedging Instruments under ASC 815
	December 31,		September 30,		December 31,		September 30,
	2018		2018		2018		2018
Other current assets
Foreign currency exchange derivatives	$	3	$	2	$	53	$	30
Commodity derivatives	1		1		—		—
Total assets	$	4	$	3	$	53	$	30
Other current liabilities
Foreign currency exchange derivatives	$	3	$	—	$	8	$	8
Commodity derivatives	11		12		—		—
Total liabilities	$	14	$	12	$	8	$	8

Counterparty Credit Risk

The use of derivative financial instruments exposes the Company to counterparty credit risk.  The Parent Company has established policies and procedures to limit the potential for counterparty credit risk, including establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. As a matter of practice, the Parent Company deals with major banks worldwide having strong investment grade long-term credit ratings. To further reduce the risk of loss, the Parent Company generally enters into International Swaps and Derivatives Association master netting agreements with substantially all of its counterparties. The Parent Company’s derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by the Parent Company or the counterparties. The Parent Company’s exposure to credit risk associated with its derivative instruments is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. The Parent Company does not anticipate any non-performance by any of its counterparties, and the concentration of risk with financial institutions does not present significant credit risk to the Parent Company or the Company.

Derivatives Impact on the Statements of Income and Statements of Comprehensive Income

The following table presents the pre-tax gains (losses) recorded in other comprehensive income (loss) related to cash flow hedges for the three months ended December 31, 2018 and 2017 (in millions):

Derivatives in ASC 815 Cash Flow	Three Months Ended December 31,
Hedging Relationships	2018			2017
Foreign currency exchange derivatives	$	(2	)	$	6
Commodity derivatives	(3		)	—
Total	$	(5	)	$	6

The following tables present the location and amount of the pre-tax gains (losses) on cash flow hedges reclassified from AOCI into the Company’s combined statements of income for the three months ended December 31, 2018 and 2017 (in millions):

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	Location of Gain (Loss)
Derivatives in ASC 815 Cash Flow	Recognized in Income on	Three Months Ended December 31,
Hedging Relationships	Derivative	2018			2017
Foreign currency exchange derivatives	Cost of sales	$	1		$	—
Commodity derivatives	Cost of sales	(5		)	3
Total		$	(4	)	$	3

The following table presents the location and amount of pre-tax gains (losses) on derivatives not designated as hedging instruments recognized in the Company’s combined statements of income for the three months ended December 31, 2018 and 2017 (in millions):

	Location of Gain (Loss)
Derivatives Not Designated as Hedging	Recognized in Income on	Three Months Ended December 31,
Instruments under ASC 815	Derivative	2018			2017
Foreign currency exchange derivatives	Cost of sales	$	(3	)	$	—
Foreign currency exchange derivatives	Net financing charges	29			1
Foreign currency exchange derivatives	Income tax provision	—			2
Total		$	26		$	3

8.    Fair Value Measurements

ASC 820, “Fair Value Measurement,” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2: Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

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Recurring Fair Value Measurements

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value as of December 31, 2018 (in millions):

	Fair Value Measurements Using:
	Total as of December 31, 2018		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other current assets
Foreign currency exchange derivatives	$	56	$	—	$	56	$	—
Commodity derivatives	1		—		1		—
Other noncurrent assets
Investments in marketable common stock	2		2		—		—
Total assets	$	59	$	2	$	57	$	—
Other current liabilities
Foreign currency exchange derivatives	$	11	$	—	$	11	$	—
Commodity derivatives	11		—		11		—
Total liabilities	$	22	$	—	$	22	$	—

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value as of September 30, 2018 (in millions):

	Fair Value Measurements Using:
	Total as of September 30, 2018		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other current assets
Foreign currency exchange derivatives	$	32	$	—	$	32	$	—
Commodity derivatives	1		—		1		—
Other noncurrent assets
Investments in marketable common stock	2		2		—		—
Total assets	$	35	$	2	$	33	$	—
Other current liabilities
Foreign currency exchange derivatives	$	8	$	—	$	8	$	—
Commodity derivatives	12		—		12		—
Total liabilities	$	20	$	—	$	20	$	—

Valuation Methods

Foreign currency exchange derivatives: The foreign currency exchange derivatives are valued under a market approach using publicized spot and forward prices.

Commodity derivatives: The commodity derivatives are valued under a market approach using publicized prices, where available, or dealer quotes.

Investments in marketable common stock:  Investments in marketable common stock are valued using a market approach based on the quoted market prices. During the three months ended December 31, 2018, there were no unrealized gains (losses) in the combined statements of income on these investments that were still held as of December 31, 2018.

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The fair values of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. The fair value of long-term debt was $53 million and $57 million at December 31, 2018 and September 30, 2018, respectively, which was determined using a discounted cash flow approach based on observable market inputs for similar instruments classified as Level 2 inputs within the ASC 820 fair value hierarchy.

9.    Stock-Based Compensation

The Parent Company provides stock-based compensation to certain of the Company’s employees under various plans as described below.

During September 2016, the shareholders of the Parent Company approved the Johnson Controls International plc 2012 Share and Incentive Plan (the “Plan”). The types of awards authorized by the Plan comprise of stock options, stock appreciation rights, performance shares, performance units and other stock-based awards. The Compensation Committee of the Parent Company’s Board of Directors will determine the types of awards to be granted to individual participants and the terms and conditions of the awards. Awards are typically granted annually in the Company’s fiscal first quarter. A summary of the stock-based awards granted during the three month periods ended December 31, 2018 and 2017 is presented below:

	Three Months Ended December 31,
	2018			2017
	Number Granted	Weighted Average Grant Date Fair Value		Number Granted	Weighted Average Grant Date Fair Value
Stock options	244,310	$	5.56	190,408	$	7.05
Restricted stock/units	281,329	33.39		245,609	37.36
Performance shares	74,479	36.28		60,917	36.31

Stock Options

Stock options are granted with an exercise price equal to the market price of the Parent Company’s stock at the date of grant. Stock option awards typically vest between two and three years after the grant date and expire ten years from the grant date.

The fair value of each option is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table.  The expected life of options represents the period of time that options granted are expected to be outstanding, assessed separately for executives and non-executives. The risk-free interest rate for periods during the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the historical volatility of the Parent Company’s stock since October 2016 blended with the historical volatility of certain peer companies’ stock prior to October 2016 over the most recent period corresponding to the expected life as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of the Parent Company’s ordinary shares as of the grant date.  The Parent Company uses historical data to estimate option exercises and employee terminations within the valuation model.

	Three Months Ended December 31,
	2018		2017
Expected life of option (years)	6.4		6.5
Risk-free interest rate	2.77	%	2.28	%
Expected volatility of the Parent Company’s stock	21.80	%	23.70	%
Expected dividend yield on the Parent Company’s stock	3.29	%	2.78	%

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Restricted (Nonvested) Stock

The Plan provides for the award of restricted stock to certain employees. These awards are primarily share settled.  Restricted awards typically vest over a period of three years from the grant date. The Plan allows for different vesting terms on specific grants with approval by the Board of Directors.  The value of restricted awards is based on the closing market value of the Parent Company’s ordinary shares on the date of grant.

Performance Share Awards

The Plan permits the grant of performance-based share unit (“PSU”) awards.  The PSUs are generally contingent on the achievement of pre-determined performance goals over a three-year performance period as well as on the award holder’s continuous employment until the vesting date.  The PSUs are also indexed to the achievement of specified levels of total shareholder return versus a peer group over the performance period.  Each PSU that is earned will be settled with shares of the Parent Company’s ordinary shares following the completion of the performance period.

The fair value of each PSU is estimated on the date of grant using a Monte Carlo simulation that uses the assumptions noted in the following table.  The risk-free interest rate for periods during the contractual life of the PSU is based on the U.S. Treasury yield curve in effect at the time of grant.  The expected volatility is based on the historical volatility of the Parent Company’s stock after October 2016 blended with the historical volatility of certain peer companies’ stock prior to October 2016 over the most recent three-year period as of the grant date.

	Three Months Ended December 31,
	2018		2017
Risk-free interest rate	2.76	%	1.92	%
Expected volatility of the Parent Company’s stock	22.90	%	21.70	%

10.    Redeemable Noncontrolling Interests

The Company consolidates certain subsidiaries in which the noncontrolling interest party has within their control the right to require the Company to redeem all or a portion of its interest in the subsidiary. The redeemable noncontrolling interests are reported at their estimated redemption value. Any adjustment to the redemption value impacts parent company investment but does not impact net income. Redeemable noncontrolling interests which are redeemable only upon future events, the occurrence of which is not currently probable, are recorded at carrying value. As of September 30, 2018, the Company does not have any subsidiaries for which the noncontrolling interest party has within their control the right to require the Company to redeem any portion of its interests.

The following schedules present changes in the redeemable noncontrolling interests (in millions):

	Three Months Ended December 31,
	2017
Beginning balance, September 30	$	209
Net income	13
Foreign currency translation adjustments	7
Realized and unrealized losses on derivatives	(3		)
Ending balance, December 31	$	226

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11.    Accumulated Other Comprehensive Income

The following schedules present changes in AOCI attributable to the Company (in millions, net of tax):

	Three Months Ended December 31,
	2018			2017
Foreign currency translation adjustments
Balance at beginning of period	$	(391	)	$	(237	)
Aggregate adjustment for the period (net of tax effect of $0 and $0)	(40		)	16
Balance at end of period	(431		)	(221		)
Realized and unrealized gains (losses) on derivatives
Balance at beginning of period	(7		)	5
Current period changes in fair value (net of tax effect of $(1) and $2)	(4		)	4
Reclassification to income (net of tax effect of $2 and $(1)) *	2			(2		)
Balance at end of period	(9		)	7
Realized and unrealized losses on marketable securities
Balance at beginning of period	(8		)	(4		)
Adoption of ASU 2016-01 **	8			—
Current period changes in fair value (net of tax effect of $0)	—			(4		)
Balance at end of period	—			(8		)
Pension and postretirement plans
Balance at beginning of period	(2		)	(2		)
Other changes	—			—
Balance at end of period	(2		)	(2		)
Accumulated other comprehensive loss, end of period	$	(442	)	$	(224	)

*  Refer to Note 7, “Derivative Instruments,” of the notes to combined financial statements for disclosure of the line items on the combined statement of income affected by reclassifications from AOCI into income related to derivatives.

** As previously disclosed, during the quarter ended December 31, 2018, the Company adopted ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” As a result the Company reclassified $8 million of unrealized losses on marketable securities to parent company investment as of October 1, 2018.

12.    Retirement Plans

Participation in Parent Company Defined Benefit Pension Plans (Shared Plans)

Certain retired U.S. employees of Power Solutions receive defined benefit pension benefits through various Parent Company pension plans. Eligible active employees will also receive defined benefit pension benefits through various Parent Company pension plans in the United States upon retirement. These assets or liabilities are not reflected in the combined statements of financial position. Allocated income in connection with these plans were immaterial for the three months ended December 31, 2018 and 2017.

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Retirement Benefits

The components of the Company’s net periodic benefit costs, which are primarily related to its U.S. retirement plans, are shown in the table below in accordance with ASC 715, “Compensation — Retirement Benefits” (in millions):

	Three Months Ended December 31,
	2018			2017
Service cost	$	4		$	4
Interest cost	4			4
Expected return on plan assets	(7		)	(8		)
Net periodic benefit cost	$	1		$	—

13.    Significant Restructuring and Impairment Costs

To better align its resources with its growth strategies and reduce the cost structure of its global operations to address the softness in certain underlying markets, the Company commits to restructuring plans as necessary.

In fiscal 2018, the Company committed to a significant restructuring plan (“2018 Plan”) and recorded $11 million of restructuring and impairment costs in the combined statement of income. This is the total amount incurred to date and the total amount expected to be incurred for this restructuring plan. The costs consist primarily of workforce reductions and asset impairments. The restructuring actions are expected to be substantially complete in fiscal 2019.

The following table summarizes the changes in the Company’s 2018 Plan reserve, included within other current liabilities in the combined statement of financial position (in millions):

	Employee Severance and Termination Benefits			Long-Lived Asset Impairments			Total
Original reserve	$	5		$	6		$	11
Utilized—cash	(1		)	—			(1		)
Utilized—noncash	—			(6		)	(6		)
Balance at September 30, 2018	$	4		$	—		$	4
Utilized—cash	(1		)	—			(1		)
Balance at December 31, 2018	$	3		$	—		$	3

The Company’s fiscal 2018 restructuring plans included workforce reductions of approximately 100 employees. Restructuring charges associated with employee severance and termination benefits are paid over the severance period granted to each employee or on a lump sum basis in accordance with individual severance agreements.

Company management closely monitors its overall cost structure and continually analyzes each of its businesses for opportunities to consolidate current operations, improve operating efficiencies and locate facilities in close proximity to

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customers. This ongoing analysis includes a review of its manufacturing, engineering and purchasing operations, as well as the overall global footprint for all its businesses.

14.    Income Taxes

The income tax provision in the combined statements of income has been calculated as if Power Solutions filed separate income tax returns and was operating as a stand-alone business. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the actual tax balances of Power Solutions as part of consolidated JCI. The Company’s operations have historically been included in the Parent Company’s U.S. federal and state tax returns or non-U.S. jurisdiction tax returns.

The Parent Company’s global tax model has been developed based upon its entire portfolio of businesses. Accordingly, the Company’s tax results as presented are not necessarily indicative of future performance and do not necessarily reflect the results that would have generated as an independent company for the periods presented.

In calculating the provision for income taxes, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period. On a quarterly basis, the actual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter. The U.S. federal statutory tax rate is being used as a comparison due to the Company’s current legal entity structure. For the three months ended December 31, 2018, the Company’s effective tax rate was 35% and was higher than the U.S. federal statutory rate of 21% primarily due the change in the deferred tax liability related to the outside basis of certain subsidiaries, partially offset by the benefits of continuing global tax planning initiatives and non-U.S. tax rate differentials. For the three months ended December 31, 2017, the Company’s effective tax rate was 75% and was higher than the blended U.S. federal statutory rate of 24.5% primarily due to discrete net impacts of U.S. Tax Reform.

As portions of the Company’s operations are included in the Parent Company’s tax returns, payments to certain tax authorities are made by the Parent Company, and not by the Company. The Company does not maintain taxes payable to/from JCI and the Company’s subsidiaries are deemed to settle the annual current tax balances immediately with the legal tax-paying entities in the respective jurisdictions. For the three months ended December 31, 2018 and 2017 these settlements were $40 million and $226 million, respectively, and are reflected as changes in the parent company investment.

Valuation Allowances

The Company reviews the realizability of its deferred tax asset valuation allowances on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary.

Uncertain Tax Positions

At September 30, 2018, the Company had gross tax effected unrecognized tax benefits of $211 million which, if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2018 was approximately $6 million (net of tax benefit). The interest and penalties accrued during the three months ended December 31, 2018 and 2017 were immaterial. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

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Impacts of Tax Legislation and Change in Statutory Tax Rates

On December 22, 2017, the “Tax Cuts and Jobs Act” (H.R. 1) was enacted and significantly revises U.S. corporate income tax by, among other things, lowering corporate income tax rates, imposing a one-time transition tax on deemed repatriated earnings of non-U.S. subsidiaries, and implementing a territorial tax system and various base erosion minimum tax provisions.

In connection with the Company’s analysis of the impact of the U.S. tax law changes, the Company recorded a provisional net tax charge of $161 million during fiscal 2018 consistent with guidance prescribed by Staff Accounting Bulletin 118. This provisional net tax charge arises from expense of $50 million due to the remeasurement of U.S. deferred tax assets and liabilities as well as the one-time transition tax on deemed repatriated earnings, inclusive of all relevant taxes, of $111 million.  The Company’s estimated charge of the remeasurement of U.S. deferred tax assets and liabilities increased from $41 million as of December 31, 2017 to $50 million as of September 30, 2018 due to calculation refinement of the Company’s estimated impact. The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% or the blended fiscal 2018 rate of 24.5%. The Company’s tax charge for transition tax decreased from $117 million as of December 31, 2017 to $111 million as of September 30, 2018 due to further analysis of the Company’s post-1986 non-U.S. earnings and profits (“E&P”) previously deferred from U.S. federal taxation and refinement of the estimated impact of tax law changes. In the first quarter of fiscal 2019, the Company completed its analysis of all enactment-date income tax effects of the U.S. tax law change with no further adjustment to the provisional amounts recorded as of September 30, 2018.

During the three months ended December 31, 2018 and 2017, other tax legislation was adopted in various jurisdictions. These law changes did not have a material impact on the Company’s combined financial statements.

Other Tax Matters

In the first quarter of fiscal 2019, the Company recorded a discrete non-cash tax charge of $73 million related to a change in the deferred tax liability related to the outside basis of certain subsidiaries.

15.    Product Warranties

The Company offers warranties to its customers depending upon the specific product and terms of the customer purchase agreement. A typical warranty program requires that the Company replace defective products within a specified time period from the date of sale. The Company records an estimate for future warranty-related costs based on actual historical return rates and other known factors. Based on analysis of return rates and other factors, the Company’s warranty provisions are adjusted as necessary. The Company monitors its warranty activity and adjusts its reserve estimates when it is probable that future warranty costs will be different than those estimates.

The Company’s product warranty liability is recorded in the combined statement of financial position in other current liabilities if the warranty is less than one year and in other noncurrent liabilities if the warranty extends longer than one year.

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The changes in the carrying amount of the Company’s total product warranty liability for the three months ended December 31, 2018 and 2017 was as follows (in millions):

	Three Months Ended December 31,
	2018			2017
Balance at beginning of period	$	74		$	86
Accruals for warranties issued during the period	50			60
Accruals related to pre-existing warranties (including changes in estimates)	2			(2		)
Settlements made (in cash or in kind) during the period	(31		)	(51		)
Balance at end of period	$	95		$	93

16.   Commitments and Contingencies

Environmental Matters

The Company accrues for potential environmental liabilities when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. As of December 31, 2018 and September 30, 2018, reserves for environmental liabilities totaled $7 million. Such potential liabilities accrued by the Company do not take into consideration possible recoveries of future insurance proceeds. They do, however, take into account the likely share other parties will bear at remediation sites. It is difficult to estimate the Company’s ultimate level of liability at many remediation sites due to the large number of other parties that may be involved, the complexity of determining the relative liability among those parties, the uncertainty as to the nature and scope of the investigations and remediation to be conducted, the uncertainty in the application of law and risk assessment, the various choices and costs associated with diverse technologies that may be used in corrective actions at the sites, and the often quite lengthy periods over which eventual remediation may occur. Nevertheless, the Company does not currently believe that any claims, penalties or costs in connection with known environmental matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. In addition, the Company has identified asset retirement obligations for environmental matters that are expected to be addressed at the retirement, disposal, removal or abandonment of existing owned facilities. At December 31, 2018 and September 30, 2018, the Company recorded conditional asset retirement obligations of $11 million and $13 million, respectively.

Insurable Liabilities

The Company records liabilities for its workers’ compensation, product, general and auto liabilities. The determination of these liabilities and related expenses is dependent on claims experience. For most of these liabilities, claims incurred but not yet reported are estimated by utilizing actuarial valuations based upon historical claims experience. At December 31, 2018 and September 30, 2018, the insurable liabilities totaled $12 million and $11 million, respectively.

The Company is involved in various lawsuits, claims and proceedings incident to the operation of its businesses, including those pertaining to product liability, environmental, safety and health, intellectual property, employment, commercial and contractual matters, and various other casualty matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, it is management’s opinion that none of these will have a material adverse effect on the Company’s financial position, results of operations or cash flows. Costs related to such matters were not material to the periods presented.

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17.   Related Party Transactions and Parent Company Investment

Related Party Transactions

In the ordinary course of business, the Company enters into transactions with related parties, such as equity affiliates. Such transactions consist of the sale or purchase of goods and other arrangements.

The net sales to and purchases from related parties included in the combined statements of income were $185 million and $34 million, respectively, for the three months ended December 31, 2018; and $197 million and $32 million, respectively, for the three months ended December 31, 2017.

The following table sets forth the amount of accounts receivable due from and payable to related parties in the combined statements of financial position (in millions):

	December 31, 2018		September 30, 2018
Receivable from related parties	$	57	$	67
Payable to related parties	32		57

The Company has also provided financial support to certain of its VIE’s, see Note 1, “Financial Statements,” of the notes to combined financial statements for additional information.

Corporate Allocations and Parent’s Net Investment

The combined statements of income include allocations for certain support functions that are provided on a centralized basis by the Parent Company and subsequently recorded at the business unit level, such as expenses related to employee benefits, finance, human resources, risk management, information technology, facilities, and legal, among others. These expenses have been allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on a proportional basis of combined sales, headcount or other measures of the Company or the Parent Company. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expenses from the Parent Company, are reasonable. Nevertheless, the combined financial statements may not include all actual expenses that would have been incurred by the Company and may not reflect the combined results of operations, financial position and cash flows had it been a stand-alone company during the years presented. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

In addition to the transactions discussed above, certain intercompany transactions between the Company and the Parent Company have not been recorded as related party transactions. These transactions are considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the combined statements of cash flows as a financing activity and in the combined statements of financial position as parent company investment.

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