TE Connectivity(TEL) - 2021 Q2 - Quarterly Report

Part I. Financial Information Financial Statements The company's Q2 and YTD 2021 financial statements reflect significant recovery in sales and income, with strong cash flow and asset growth Quarterly Statement of Operations Highlights (in millions, except per share data) | Metric | Q2 2021 | Q2 2020 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $3,738 | $3,195 | +17.0% | | Gross Margin | $1,210 | $1,029 | +17.6% | | Operating Income (Loss) | $612 | $(415) | N/A | | Net Income (Loss) | $506 | $(456) | N/A | | Diluted EPS | $1.51 | $(1.37) | N/A | Six-Month Statement of Operations Highlights (in millions, except per share data) | Metric | YTD 2021 | YTD 2020 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $7,260 | $6,363 | +14.1% | | Gross Margin | $2,356 | $2,059 | +14.4% | | Operating Income | $1,060 | $56 | +1793% | | Net Income (Loss) | $887 | $(430) | N/A | | Diluted EPS | $2.66 | $(1.29) | N/A | - The significant improvement in operating and net income in Q2 and YTD 2021 compared to 2020 is largely due to the absence of the $900 million goodwill impairment charge recorded in Q2 2020[10] Condensed Consolidated Balance Sheets Balance Sheet Highlights (in millions) | Account | March 26, 2021 | Sept 25, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,748 | $945 | | Total current assets | $7,422 | $5,784 | | Goodwill | $5,342 | $5,224 | | Total assets | $20,967 | $19,242 | | Liabilities & Equity | | | | Total current liabilities | $5,039 | $3,690 | | Long-term debt | $3,602 | $3,452 | | Total liabilities | $11,184 | $9,747 | | Total shareholders' equity | $9,669 | $9,383 | Condensed Consolidated Statements of Cash Flows Six-Month Cash Flow Summary (in millions) | Cash Flow Category | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,220 | $892 | | Net cash used in investing activities | $(323) | $(667) | | Net cash used in financing activities | $(101) | $(345) | | Net increase (decrease) in cash | $803 | $(131) | - Key uses of cash in financing activities for the first six months of 2021 included $259 million for share repurchases and $318 million for dividend payments[21] Notes to Condensed Consolidated Financial Statements - During fiscal 2021, the company initiated a new restructuring program, recording net charges of $153 million in the first six months. Total restructuring charges for the period were $184 million[26][30] - In the first six months of fiscal 2021, the company acquired one business for a cash purchase price of $106 million, which was integrated into the Industrial Solutions segment[36] - In February 2021, the company's subsidiary TEGSA issued €550 million of 0.00% senior notes due in 2029 and repaid $250 million of 4.875% senior notes at maturity[46][47] Net Sales by Segment (in millions) | Segment | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Transportation Solutions | $2,287 | $1,857 | $4,511 | $3,725 | | Industrial Solutions | $952 | $962 | $1,825 | $1,889 | | Communications Solutions | $499 | $376 | $924 | $749 | | Total | $3,738 | $3,195 | $7,260 | $6,363 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q2/H1 2021 performance to segment sales growth, provides positive Q3 outlook, and highlights robust liquidity Overview and Outlook - The COVID-19 pandemic continued to negatively affect certain businesses in the first six months of fiscal 2021, particularly the commercial aerospace market, though stabilization is expected in the second half of the fiscal year[101][104] Q3 Fiscal 2021 Outlook | Metric | Expected Value | | :--- | :--- | | Net Sales | ~$3.7 billion | | Diluted EPS from continuing operations | ~$1.51 | Results of Operations Net Sales Growth Analysis (Q2 2021 vs Q2 2020) | Component | Growth Contribution | | :--- | :--- | | Organic Net Sales Growth | +11.0% | | Foreign Currency Translation | +4.7% | | Acquisitions/Divestitures | +1.3% | | Total Net Sales Growth | +17.0% | - Gross margin increased to 32.4% in Q2 2021 from 32.2% in Q2 2020, driven by higher volume, positive foreign currency translation, lower material costs, and improved manufacturing productivity, partially offset by price erosion[119] - For fiscal 2021, the company expects total restructuring charges to be approximately $200 million, with annualized cost savings of about $60 million from actions taken in the first half of the year[124] Segment Results - Transportation Solutions: Q2 net sales increased 23.2% YoY to $2.29 billion, driven by 15.3% organic growth, with strong performance in Automotive (+13.5% organic) and Commercial Transportation (+24.8% organic). Operating margin recovered to 17.4% from -32.6% in the prior-year quarter which included a large goodwill impairment[130][132][135] - Industrial Solutions: Q2 net sales decreased 1.0% YoY to $952 million, reflecting a 4.2% organic decline. Weakness in Aerospace, defense, oil, and gas (-20.8% organic) and Medical (-13.4% organic) offset strength in Industrial Equipment (+15.7% organic). Operating margin declined to 11.7% from 14.8%[140][142][143] - Communications Solutions: Q2 net sales grew 32.7% YoY to $499 million, driven by strong organic growth of 28.7%. Both Data and Devices (+24.0% organic) and Appliances (+35.3% organic) saw significant growth due to market strength and share gains. Operating margin expanded to 20.6% from 13.0%[146][147] Liquidity and Capital Resources - Net cash from operating activities increased to $1.22 billion in the first six months of fiscal 2021, up from $892 million in the prior-year period, due to higher pre-tax income and improved working capital[152] - The company repurchased 3 million common shares for $309 million and paid dividends of $318 million during the first six months of fiscal 2021. As of March 26, 2021, $686 million remained available under the share repurchase authorization[159][160] - The company maintains a $1.5 billion unsecured senior revolving credit facility, which was undrawn as of March 26, 2021. The company was in compliance with all debt covenants[157][158] Quantitative and Qualitative Disclosures About Market Risk The company reports no significant changes in market risk exposures during the first half of fiscal 2021, referring to its Annual Report for details - There have been no significant changes in the company's exposures to market risk during the first six months of fiscal 2021[188] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 26, 2021, with no material changes to internal controls - Based on an evaluation as of March 26, 2021, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[189] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[190] Part II. Other Information Legal Proceedings No material developments in legal proceedings have occurred since the filing of the last Annual Report on Form 10-K - No material developments in legal proceedings have occurred since the last Annual Report on Form 10-K[192] Risk Factors No material changes to risk factors except expanded disclosure on trade regulations, including an ongoing investigation into past U.S. trade control compliance - The company is investigating its past compliance with U.S. trade controls and has made voluntary disclosures of apparent violations to the U.S. Department of Commerce's BIS and the U.S. State Department's DDTC[195] - The company is cooperating with the agencies, but the timing and final outcome, including potential fines or penalties, cannot be reasonably estimated at this time[195] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased approximately 1.42 million common shares at an average price of $127.84 per share during the quarter Issuer Purchases of Equity Securities (Quarter Ended March 26, 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | Dec 26, 2020–Jan 22, 2021 | 308,559 | $126.17 | 308,500 | | Jan 23–Feb 26, 2021 | 570,123 | $127.53 | 567,400 | | Feb 27–Mar 26, 2021 | 549,137 | $129.09 | 548,700 | | Total | 1,427,819 | $127.84 | 1,424,600 | Exhibits This section lists exhibits filed with the Form 10-Q, including supplemental indentures, ESPP documents, and CEO/CFO certifications