TE Connectivity Ltd. — FY2021 Form 10-K
Reporting period: Fiscal year ended September 24, 2021 (52 weeks). This is an annual report, not a standalone fourth-quarter filing. TE Connectivity is a global supplier of connectivity and sensor products, reported in Transportation Solutions, Industrial Solutions, and Communications Solutions.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $14.923 billion | $12.172 billion |
| Organic sales growth | 18.2% | Not stated here |
| Gross margin | $4.887 billion; 32.7% | $3.735 billion; 30.7% |
| Operating income | $2.434 billion; 16.3% margin | $537 million; 4.4% margin |
| Income from continuing operations | $2.255 billion | Loss of $259 million |
| Net income (loss) | $2.261 billion | Loss of $241 million |
| Diluted earnings (loss) per share | $6.79 | Loss of $0.73 |
| Cash from continuing operations | $2.676 billion | $1.991 billion |
| Capital expenditures | $690 million | $560 million |
| Cash and cash equivalents at year-end | $1.203 billion | $945 million |
| Total debt at year-end | $4.092 billion | $4.146 billion |
Gross margin improved primarily on higher volume, with a lesser contribution from manufacturing productivity and favorable currency translation. Cash from operations rose $685 million, mainly with higher pretax income, partly offset by increased working capital and tax payments. Year-end current assets were $7.263 billion and current liabilities were $4.656 billion.
Segment performance and changes
- Transportation Solutions: Sales increased 31.1% to $8.974 billion; operating income was $1.526 billion versus a $93 million loss. Automotive represented 71% of segment sales; automotive sales improved with global production and content gains.
- Industrial Solutions: Sales increased 3.5% to $3.844 billion; operating income rose to $469 million from $412 million. Industrial equipment grew, while aerospace, defense, oil, and gas sales declined 17.4% organically and medical sales declined 3.6% organically.
- Communications Solutions: Sales increased 30.4% to $2.105 billion; operating income rose to $439 million from $218 million. Growth came from both data and devices and appliances.
Total sales growth included 18.2% organic growth, a 3.6% favorable currency translation effect, and $78 million from acquisitions net of divestitures. FY2020 comparability was affected by COVID-19 sales weakness and a $900 million goodwill impairment in the Sensors reporting unit; no goodwill impairment was recorded in FY2021.
Outlook, commentary, risks, and unusual items
- For fiscal Q1 2022, management expected sales of approximately $3.7 billion and diluted continuing-operations EPS of approximately $1.50. The outlook anticipated automotive production declines, partly offset by content growth, with growth expected in Industrial and Communications Solutions. Currency was expected to reduce sales by approximately $19 million year over year.
- Management did not expect COVID-19 to have a significant near-term effect on sales and operating results, but noted that future effects remained uncertain. Supply-chain disruption, material shortages and price increases, and volatile customer demand remained concerns.
- Restructuring and other charges were $233 million in FY2021, including $208 million of net restructuring charges. Savings from FY2021 actions were estimated at approximately $80 million annually by the end of FY2023. Management expected about $150 million of restructuring charges and $200 million of spending in FY2022.
- The effective tax rate was 5.2%, versus 149.4% in FY2020. FY2021 included a $353 million tax benefit related to valuation-allowance changes; the prior-year rate included significant tax charges, including Swiss tax reform and valuation-allowance effects.
- Raw material inflation and availability, pricing pressure, foreign currency exposure, and dependence on automotive demand are key risks. Approximately 43% of FY2021 sales were to automotive customers; about 60% of sales were invoiced in currencies other than the U.S. dollar, and the company elected not to hedge that revenue exposure.
- TE Connectivity disclosed ongoing U.S. trade-control investigations following voluntary disclosures of apparent violations. It had reserved for potential penalties but could not estimate the final outcome or amount. Environmental remediation costs were estimated at $18 million to $47 million, with $21 million accrued.
- FY2021 capital returns included $647 million of dividends paid and $904 million of share repurchases. The annual dividend approved was $2.00 per share, paid in quarterly installments. A $500 million note redemption was completed in November 2021 using operating cash.
Important facts for investors to verify
- Whether sales recovery and margins can be sustained as pandemic comparisons ease, particularly if automotive production remains constrained.
- How input-cost inflation, shortages, and customer price increases affect future gross margins and working capital.
- The assumptions underlying the Q1 2022 sales and EPS outlook and the related FX and end-market expectations.
- The final outcome and potential financial impact of the U.S. trade-control investigations, including whether reserves are adequate.
- Deferred tax asset realizability: the company reported a $2.729 billion valuation allowance and substantial tax-loss carryforwards; confirm the basis for future taxable-income expectations.
- Debt maturities, cash availability, and the potential tax cost of changing the permanent-reinvestment designation on certain cash balances.