2016 ANNUAL REPORT
The World Depends on Sensors and Controls
Sensata Technologies is a world leader and early innovator in mission-critical
sensors and controls. Our technology solves some of the world’s most
challenging problems by enabling greater energy efficiency, improving safety,
and creating a cleaner environment.
17,000+
unique products
with operations in 13
countries around the world
1.4+ billion
units shipped yearly
under 11 brand names we
own, manufacture, and sell
100 years
of sensing excellence
to improve safety, efficiency,
and the environment for
millions of people every day
OUR BRAND NAMES INCLUDE
SENSATA
AIRPAX
BEI KIMCO
BEI SENSORS
CRYDOM
KAVLICO
KLIXON
MAGNUM-DIMENSIONS
NEWALL
QINEX
SCHRADER
SEGMENTS
Performance Sensing
74%
Sensing Solutions
26%
$3.2 billion
total 2016 revenue
with a diverse mix by
geography, customer,
and end-market
REGIONS
Americas
43%
KEY MARKETS
68%
63%
2015
2016
Asia Pacific
25%
Europe
32%
37%
32%
Automotive
Industrial, HVOR,
and Other
2016 Performance
Sensata reported solid operational performance and finished the year strong,
delivering results that were in-line with or above original guidance provided in
February 2016.
REVENUE (U.S. MILLIONS)
ADJUSTED EARNINGS PER SHARE
$2,975
$3,202
+7.6%
$2.75
$2.89
+5.1%
2015
2016
2015
2016
+1.6% organic revenue
growth
+14.2% organic growth
in adjusted EPS
We delivered on our promise to
de-lever in 2016. We expect a further
improvement in our net leverage
ratio in 2017, assuming no additional
M&A or share repurchases.
FREE CASH FLOW (U.S. MILLIONS)
NET LEVERAGE RATIO
+9.9%
$391
$356
4.6x
4.5x
4.3x
4.0x
3.8x
~3.0x
2015
2016
Q4
15
Q1
16
Q2
16
Q3
16
Q4
16
Q4
17E
Letter to our Shareholders
2016 was a successful year for Sensata. Despite facing challenges from soft
markets and foreign exchange headwinds, we executed well and delivered
double-digit organic EPS growth and strong free cash flow, while strengthening
our balance sheet. These results demonstrate Sensata’s ability to respond
effectively to changing market conditions as well as the multiple levers we can
deploy to deliver on our commitments to shareholders.
OUR VISION
Since our inception, we have been a leader
in designing, customizing and manufacturing
innovative, mission-critical sensor and control
products that improve the safety, efficiency and
productivity of our customers’ products as well
as create a cleaner environment.
As the world steadily moves to smarter and
more connected products, there is increasing
secular demand for sensors. We are capitalizing
on this trend by making focused investments
in our core business, expanding our offerings
through strategically-aligned M&A, and
leveraging our global scale to generate higher
margins and efficiently serve the needs of
our customers.
In 2016, we made significant progress
executing our strategy, particularly around
extending our long-term growth opportunities
beyond the automotive industry. Our global
footprint and market leadership position
are enabling us to drive further adoption of
sensors in the industrial and the heavy vehicle
and off-road markets. Over the past year,
the proportion of revenues we derive from
markets outside of the automotive market has
increased from 32% to 37% today.
SENSATA PRESIDENT & CEO
MARTHA SULLIVAN
2016 FINANCIAL PERFORMANCE
For the full year 2016, we delivered 1.6%
organic revenue growth and adjusted earnings
per share of $2.89, both of which were above
the midpoint of our annual guidance range.
Excluding the effects of acquisitions and
foreign currency, we produced 14.2% organic
growth in adjusted earnings per share. This
strong operating performance reflects ongoing
productivity gains we are making in our
business as well as cost synergies captured
from recent acquisitions.
Our free cash flow grew by 9.9% and
represented 12% of our revenues, totaling
$391M in 2016. This strong free cash flow
enabled us to rapidly pay down a large portion
of our debt and strengthen our balance sheet.
During 2016, we reduced our net leverage ratio
from 4.6x to 3.8x. After completing two large
acquisitions, we are on track to deliver on our
promise to strengthen our balance sheet and
further lower our net leverage ratio.
SUCCESSFULLY INTEGRATING ACQUISITIONS
A key element of our strategy to create value
for shareholders is to acquire strategically-
aligned companies where we can extend
our product reach globally, expand into new
technologies/markets and create cost synergies
by combining sales channels, supply chains
and back-office functions. We typically acquire
businesses with lower margins than Sensata.
As a result, acquisitions initially reduce our
overall margins due to their lower profitability,
up-front integration investment, and higher
interest expense. As we apply Sensata’s global
operating model to integrate these acquired
businesses, margins expand over time as we
capture integration synergies, which creates
value and strong returns for our shareholders.
Since late 2014, we completed two large
acquisitions, Schrader and CST, which added
AWARDS GRANTED TO SENSATA
IN 2016
• Sensata’s Aguascalientes, Malaysia,
Matamoros and Mexicali sites
each earned Caterpillar’s Supplier
Quality Excellence Process Bronze
Certification for 2016
• PSA Peugeot Citroen’s (PSA) 2016
Supplier Award for high level of on-
time delivery, quality performance
and overall service
• Mitsuba Dalian named Sensata as
one of only two suppliers to earn the
customer’s 2015 Best Supplier for
Excellent Quality Award in April 2016
• Mexican Government awarded the
Environmental Excellence Award to
Sensata Technologies Aguascalientes
for the third time
• China’s Jiangsu Province govern-
ment awarded Sensata Changzhou
with the province’s “Exemplary
Intelligent-Production Workshop of
Pressure Sensors for Automotive
Applications” award
• Employer of the Year award by the
National Employment Agency of
Bulgaria
• Sensata celebrated 100 years of its
existence in recognition of which
our employees rang the closing bell
at the NYSE in May
LONG-TERM GROWTH OPPORTUNITIES
& HIGH-GROWTH EMERGING TECHNOLOGIES
Low Pressure Sensing
for High-Efficiency
Gas Engines
Tire Pressure Monitoring
for Large On-Road
Vehicles and Chinese
Light Vehicle Market
Aerospace Sensing
Applications
LiDAR Sensing for
Autonomous Driving
approximately $890M in revenue for Sensata
in 2016. During the year we achieved important
integration milestones, including productivity
improvements, which contributed to our strong
double-digit organic earnings growth. We are
working hard to sustain this performance, and
delivering on additional integration milestones
remains one of our highest priorities for the
coming year.
WINNING IN SENSING
Our strategy is to “Win in Sensing” and we
believe that we are well positioned to continue
to win business in mission-critical applications
with attractive long-term growth opportunities.
One of Sensata’s key competitive advantages is
our ability to develop deep relationships with
our customers and then use our world-class
engineering and technical expertise to develop
customized sensing solutions that address
their needs, including emerging trends such as
vehicle electrification and autonomous driving.
Our customers look to Sensata to help solve
some of their toughest problems and our
products must meet high-quality standards
while performing in harsh environments. Our
disciplined focus on high-performing sensors
and controls establishes us as an important
collaboration partner for our customers. As
demands in the market increase, we are poised
to grow and capture incremental business.
INVESTING FOR LONG-TERM GROWTH
We continue to invest for the future and are
excited by long-term growth opportunities in
several key markets. Automotive and industrial
markets offer many compelling opportunities
for us to expand our offerings and we are
making significant investments to ensure we
capture this growth in the years ahead.
For example, we made key investments in
technologies that led to new design wins and
“
As the world steadily moves toward greater energy efficiency
and a safer, cleaner environment, we are well-positioned to
capitalize on a world of smart, connected products. ”
further expanded our position in high-efficiency
gas engines. The acquisition of Schrader
strengthened our position in low pressure
sensing for gas emissions and diagnostics,
which has enabled us to gain share in new
applications such as gas particulate filters.
For example, as new emission applications
are being implemented, European and Asian
automotive manufacturers are developing
particulate filters for gas engines to help
comply with these regulations. During 2016 we
secured approximately $50M of new business
wins associated with a wide range of low
pressure applications and an additional $50M
of new wins for other sensors that go into
these applications. These new business wins
totaling about $100M will begin to materialize
into revenue over the next two to five years.
We are also capitalizing on the growing trend
of electrified vehicles and secured several key
business wins in 2016. We are building off our
strong presence in hybrid vehicles and we
believe that as electrification expands in the
auto industry there will be new opportunities
for sensor content growth.
In March 2016, we announced a strategic
partnership with Quanergy, a private
technology company focused on innovative
sensing solutions. We are working with
Quanergy to develop component-level
solid state LiDAR sensors for the ground
transportation market.
This collaboration will enable Sensata to
capitalize on the growth of the autonomous
driving (ADAS) market. Since the partnership
was formed, we have been developing solid
state scanning LiDAR sensors (optical phased
array, no moving parts) that will provide
long-range, high-resolution scanning for next
generation advanced safety and autonomous
driving systems. We believe these sensors
will offer high performance at a lower cost
than alternative solutions currently on the
market, and we expect to deliver samples
to automotive customers for testing and
evaluation later this year.
Finally, we have a compelling long-term
opportunity in wireless sensing. As the
world steadily moves toward greater energy
efficiency and a safer, cleaner environment,
we are well-positioned to capitalize on a world
of smart, connected products. We are already
working on growth opportunities for sensors
that expand the use of telematics and digital
platforms within industrial and heavy vehicle
and off-road markets. We believe we are just
at the beginning of this long-term market shift,
which has the potential to offer exciting new
opportunities for our technologies.
IMPROVED R&D EFFECTIVENESS
During the year, we further assessed how
effectively our engineering systems and
processes were helping us deliver on our
revenue growth potential. As a result of this
assessment, we are making significant changes
aimed at improving our R&D effectiveness,
which will help our engineering teams execute
new product development projects more
efficiently. For example, improved processes
and system functionality will enable our
engineers to track a greater number of key
“
I expect 2017 to be another year of strong operational execution for
Sensata, with a good balance of top-line growth, margin expansion,
and improvement in bottom-line profitability and free cash flow. ”
metrics to improve overall cycle time and
agility when responding to new opportunities.
Over time, we expect these changes to
increase the efficacy of our engineering teams
in capturing opportunities with the greatest
growth prospects for Sensata.
LOOKING AHEAD IN 2017
As we look ahead this year, we believe
that improving demand from our industrial
customers will help to offset a flat global
automotive production market. We are
forecasting organic revenue growth of 1 to 3
percent for full year 2017, which we expect will
be well-balanced between our two segments,
Performance Sensing and Sensing Solutions.
At the midpoint of our guidance range, we
expect to deliver 160 basis points of year-
over-year improvement in our adjusted EBIT
margins. This strong operational improvement
will be driven by both our cost reduction
initiatives as well as capturing M&A
cost synergies.
We are seeking to sustain double-digit organic
earnings per share growth in 2017. Our full
year 2017 guidance for adjusted EPS of $3.08
to $3.20 assumes 10 percent organic growth at
the midpoint of the range. Finally, we expect
to continue to deliver strong free cash flow
and improve our net leverage ratio. We are
forecasting free cash flow to be in the range of
$425M to $450M and for our net leverage ratio
to decline from 3.8x to about 3.0x by the end
of 2017.
I expect 2017 to be another year of strong
operational execution for Sensata, with a good
balance of top-line growth, margin expansion,
and improvement in bottom-line profitability
and free cash flow.
I want to thank our valued customers, my
Sensata colleagues whose passion inspires me
every day, our shareholders, the members of
our Board, and our customers and business
partners for their commitment and support
over the past year.
2016 was Sensata’s 100-year anniversary. For
the past century, we have been committed
to producing high quality products that
address the needs of our customers. Our
long-term success starts with a mission that
matters – improving safety, efficiency, and the
environment for millions of people every day
through our solutions. I am proud of our rich
history and the commitment of our 20,000
employees worldwide. As we move ahead,
we will continue to focus on what has driven
our long-term success: investing in attractive
markets where we have a competitive
advantage and creating value for all of our key
stakeholders.
I look forward to reporting on our progress in
the coming year.
Martha Sullivan
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-K
__________________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-34652
__________________________________________
SENSATA TECHNOLOGIES HOLDING N.V.
(Exact Name of Registrant as Specified in Its Charter)
__________________________________________
THE NETHERLANDS
(State or other jurisdiction of
incorporation or organization)
Jan Tinbergenstraat 80, 7559 SP Hengelo
The Netherlands
98-0641254
(I.R.S. Employer
Identification No.)
31-74-357-8000
(Address of Principal Executive Offices, including Zip Code)
(Registrant’s Telephone Number, Including Area Code)
__________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Ordinary Shares—nominal value €0.01 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
__________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by a check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the registrant’s ordinary shares held by non-affiliates at June 30, 2016 was approximately $5.9 billion based on the New
York Stock Exchange closing price for such shares on that date.
As of January 13, 2017, 170,879,763 ordinary shares were outstanding.
Part III of this Report incorporates information from certain portions of the registrant’s Definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on May 18, 2017. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120
days of the registrant's fiscal year ended December 31, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
12
21
22
23
23
24
27
29
56
62
131
131
134
134
134
134
134
134
PART IV
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
135
139
Cautionary Statements Concerning Forward-Looking Statements
In addition to historical facts, this Annual Report on Form 10-K, including any documents incorporated by
reference herein, includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements relate to analyses and other information that are based on forecasts of
future results and estimates of amounts not yet determinable. These forward-looking statements also relate to our future
prospects, developments, and business strategies. These forward-looking statements may be identified by terminology
such as “may,” “will,” “could,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “forecast,”
“continue,” “intend,” “plan,” and similar terms or phrases, or the negative of such terminology, including references to
assumptions. However, these terms are not the exclusive means of identifying such statements.
Forward-looking statements contained herein, or in other statements made by us, are made based on management’s
expectations and beliefs concerning future events impacting us, and are subject to uncertainties and other important
factors relating to our operations and business environment, all of which are difficult to predict, and many of which are
beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by
forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in, or suggested
by, such forward-looking statements are reasonable, we can give no assurances that any of the events anticipated by these
forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and
financial condition.
We believe that the following important factors, among others (including those described in Item 1A, “Risk
Factors,” included elsewhere in this Annual Report on Form 10-K), could affect our future performance and the liquidity
and value of our securities and cause our actual results to differ materially from those expressed or implied by forward-
looking statements made by us or on our behalf:
•
•
•
•
•
risks associated with changes to current policies by the U.S. government;
adverse conditions in the automotive industry have had, and may in the future have, adverse effects on our
businesses;
competitive pressures could require us to lower our prices or result in reduced demand for our products;
integration of acquired companies, including the acquisitions of August Cayman Company, Inc. ("Schrader")
and certain subsidiaries of Custom Sensors & Technologies Ltd. in the U.S., the U.K., and France, as well as
certain assets in China (collectively, "CST"), and any future acquisitions and joint ventures or dispositions,
may require significant resources and/or result in significant unanticipated losses, costs, or liabilities, and we
may not realize all of the anticipated operating synergies and cost savings from acquisitions;
risks associated with our non-U.S. operations, including compliance with export control regulations, foreign
currency risks, and the potential for changes in socio-economic conditions and/or monetary and fiscal
policies, including as a result of the impending exit of the U.K. from the European Union;
• we may incur material losses and costs as a result of intellectual property, product liability, warranty, and
recall claims that may be brought against us;
•
•
•
•
•
taxing authorities could challenge our historical and future tax positions or our allocation of taxable income
among our subsidiaries, or tax laws to which we are subject could change in a manner adverse to us;
labor disruptions or increased labor costs could adversely affect our business;
our level of indebtedness could adversely affect our financial condition and our ability to operate our
business, and we may not be able to generate sufficient cash flows to meet our debt service obligations or
comply with the covenants contained in the credit agreements;
risks associated with security breaches and other disruptions to our information technology infrastructure; and
the other risks set forth in Item 1A, “Risk Factors,” included elsewhere in this Annual Report on Form 10-K.
All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this
Annual Report on Form 10-K and are expressly qualified in their entirety by the cautionary statements contained in this
Annual Report on Form 10-K. We undertake no obligation to update or revise forward-looking statements that may be
made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.
We urge readers to review carefully the risk factors described in this Annual Report on Form 10-K and in the other
documents that we file with the U.S. Securities and Exchange Commission. You can read these documents at
www.sec.gov or on our website at www.sensata.com.
3
PART I
ITEM 1. BUSINESS
The Company
The reporting company is Sensata Technologies Holding N.V. (“Sensata Technologies Holding”) and its wholly-
owned subsidiaries, collectively referred to as the “Company,” “Sensata,” “we,” “our,” and “us.”
Sensata Technologies Holding is incorporated under the laws of the Netherlands and conducts its operations
through subsidiary companies that operate business and product development centers primarily in the United States (the
"U.S."), the Netherlands, Belgium, China, Germany, Japan, South Korea, and the United Kingdom (the "U.K."); and
manufacturing operations primarily in China, Malaysia, Mexico, Bulgaria, Poland, France, Germany, the U.K., and the
U.S. We organize our operations into two businesses, Performance Sensing and Sensing Solutions.
Overview
Sensata, a global industrial technology company, engages in the development, manufacture, and sale of sensors and
controls. We produce a wide range of sensors and controls for applications such as pressure sensors in automotive
systems, thermal circuit breakers in aircraft, and bimetal current and temperature control devices in electric motors. We
can trace our origins back to entities that have been engaged in the sensors and controls business since 1916.
Our sensors are customized devices that translate a physical phenomenon, such as pressure or position, into
electronic signals that microprocessors or computer-based control systems can act upon. Our controls are customized
devices embedded within systems to protect them from excessive heat or current. Underlying these sensors and controls
are core technology platforms—thermal and magnetic-hydraulic circuit protection, micro electromechanical systems,
ceramic capacitance, and monosilicon strain gage—that we leverage across multiple products and applications, enabling
us to optimize our research, development, and engineering investments and achieve economies of scale.
Our primary products include low-, medium-, and high-pressure sensors, speed and position sensors, bimetal
electromechanical controls, temperature sensors, power conversion and control products, thermal and magnetic-hydraulic
circuit breakers, pressure switches, and interconnection products. We develop customized, innovative solutions for
specific customer requirements or applications across a variety of end-markets, including automotive, heavy vehicle off-
road ("HVOR"), appliance, heating, ventilation, and air conditioning (“HVAC”), industrial, aerospace, data/telecom,
semiconductor, and mobile power, among others. We have long-standing relationships with a geographically diverse base
of leading global original equipment manufacturers (“OEMs”) and other multinational companies.
We develop products that address increasingly complex engineering requirements by investing substantially in
research, development, and application engineering. By locating our global engineering team in close proximity to key
customers in regional business centers, we are exposed to many development opportunities at an early stage and work
closely with our customers to deliver solutions that meet their needs. As a result of the long development lead times and
embedded nature of our products, we collaborate closely with our customers throughout the design and development
phase of their products. Systems development by our customers typically requires significant multi-year investment for
certification and qualification, which are often government or customer mandated. We believe the capital commitment
and time required for this process significantly increases the switching costs once a customer has designed and installed a
particular sensor or control into a system.
We are a global business, with significant operations around the world. As of December 31, 2016, 37%, 36%, and
27% of our fixed assets were located in the Americas, Asia, and Europe, respectively. We have a diverse revenue mix by
geography, customer, and end-market. We generated 43%, 25%, and 32% of our net revenue in the Americas, Asia, and
Europe, respectively, for the year ended December 31, 2016. Our largest customer accounted for approximately 9% of
our net revenue for the year ended December 31, 2016. Our net revenue for the year ended December 31, 2016 was
derived from the following end-markets: 25.2% from European automotive, 20.1% from North American automotive,
17.8% from Asia and rest of world automotive, 12.8% from HVOR, 9.0% from industrial, 5.9% from appliance and
HVAC, 4.7% from aerospace, and 4.5% from all other end-markets. Within many of our end-markets, we are a
significant supplier to multiple OEMs, reducing our exposure to fluctuations in market share within individual end-
markets.
4
Acquisition History
Over the past ten years, we completed the following significant acquisitions:
Date
Acquired Entity
July 27, 2007
Airpax Holdings, Inc. ("Airpax")
January 28, 2011
Automotive on Board ("MSP")
August 1, 2011
Sensor-NITE Group Companies ("HTS")
January 2, 2014 Wabash Worldwide Holding Corp. ("Wabash")
May 29, 2014
Magnum Energy Incorporated ("Magnum")
August 4, 2014
CoActive U.S. Holdings Inc. ("DeltaTech Controls")
August Cayman Company, Inc. ("Schrader")
October 14, 2014
December 1, 2015 Custom Sensors & Technologies ("CST") (1)
Segment
Performance
Sensing
Sensing
Solutions
Purchase Price
(in Millions)
X
X
X
X
X
X
X
X
X
$
$
$
$
$
$
$
$
277.3
152.5
324.0
59.6
60.6
177.8
1,004.7
1,000.8
(1) Includes the acquisition of all of the outstanding shares of certain subsidiaries of Custom Sensors & Technologies
Ltd. in the U.S., the U.K., and France, as well as certain assets in China.
Performance Sensing Business
Overview
Our Performance Sensing business is a leading supplier of automotive and HVOR sensors, including pressure
sensors, speed and position sensors, temperature sensors, operator controls, and pressure switches. Our Performance
Sensing business accounted for approximately 74% of our 2016 net revenue. Products manufactured by our Performance
Sensing business are used in a wide variety of applications, including automotive and HVOR air conditioning, braking,
exhaust, fuel oil, tire, and transmission applications. We believe that we are one of the largest suppliers of pressure and
high temperature sensors in the majority of the key applications in which we compete. Our customers consist primarily
of leading global automotive and HVOR OEMs and their Tier 1 suppliers. Our products are ultimately used by the
majority of global automotive OEMs, providing us with a balanced customer portfolio, which, we believe, helps to
protect us against shifts in market share between different OEMs.
Refer to Note 18, "Segment Reporting," of our audited consolidated financial statements included elsewhere in this
Annual Report on Form 10-K for details of the Performance Sensing segment operating income for the years ended
December 31, 2016, 2015, and 2014 and total assets as of December 31, 2016 and 2015.
Performance Sensing Business Markets
Sensors are customized devices that translate a physical phenomenon, such as pressure or position, into electronic
signals that microprocessors or computer-based control systems can act upon. The market is characterized by a broad
range of products and applications across a diverse set of end-markets. We believe large OEMs and other multinational
companies are increasingly demanding a global presence to supply sensors for their key global platforms.
Automotive and HVOR sensors are included in the Performance Sensing business results, while industrial and
aerospace sensors are included in the Sensing Solutions business results. Refer to the Sensing Solutions Business Markets
section for discussion of industrial and aerospace sensors.
Automotive and HVOR Sensors
Revenue growth from the global automotive and HVOR sensor end-markets, which include applications in
powertrain, tire, air conditioning, and chassis control, is driven, we believe, by three principal trends. First, global
automotive vehicle unit sales have demonstrated moderate but consistent annual growth since the global recession in
2008 and 2009 and are expected to continue to increase over the long-term due to population growth and increased usage
of cars in emerging markets. Second, the number of sensors used per vehicle has expanded, driven by a combination of
factors including government regulation of safety, emissions, and greater fuel efficiency, consumer demand for new
applications, and productivity for HVOR applications. For example, fuel economy standards such as the Corporate
Average Fuel Economy ("CAFE") requirements in the U.S. and emissions requirements such as "Euro VI" in Europe
5
lead to sensor-rich automobile powertrain strategies. Finally, revenue growth has been augmented by a continuing shift
away from legacy electromechanical products towards higher-value electronic solid-state sensors.
According to the LMC Automotive "Global Car & Truck Forecast" for the fourth quarter 2016, the production of
global light vehicles in 2016 was approximately 92.4 million units, an increase of 3.9% from 2015.
The automotive and HVOR sensor markets are characterized by high switching costs and barriers to entry,
benefiting incumbent market leaders. Sensors are critical components that enable a wide variety of applications, many of
which are essential to the proper functioning of the product in which they are incorporated. Sensor application-specific
products require close engineering collaboration between the sensor supplier and the OEM or the Tier 1 supplier. As a
result, OEMs and Tier 1 suppliers make significant investments in selecting, integrating, and testing sensors as part of
their product development. Switching to a different sensor results in considerable additional work, both in terms of
sensor customization and extensive platform/product retesting. This results in high switching costs for automotive and
HVOR manufacturers once a sensor is designed-in, and we believe is one of the reasons that sensors are rarely changed
during a platform life-cycle, which in the case of the automotive end-market typically lasts five to seven years. Given the
importance of reliability and the fact that the sensors have to be supported through the length of a product life, our
experience has been that OEMs and Tier 1 suppliers tend to work with suppliers that have a long track record of quality
and on-time delivery and the scale and resources to meet their needs as the car platform evolves and grows. In addition,
the automotive segment is one of the largest markets for sensors, giving participants with a presence in this end-market
significant scale advantages over those participating only in smaller, more niche industrial and medical markets.
According to an October 2016 report prepared by Strategy Analytics, Inc., the global automotive sensor market
was $21.2 billion in 2016, compared to $20.1 billion in 2015. We believe the increase in the number of sensors per
vehicle and the level of global vehicle sales are the primary drivers of the increase in the global automotive sensor
market. We believe that the increasing installation in vehicles of safety, emissions, efficiency, and comfort-related
features that depend on sensors for proper functioning, such as electronic stability control, TPMS, advanced driver
assistance, and advanced combustion and exhaust after-treatment, will continue to drive increased sensor usage and
content growth.
Performance Sensing Products
We offer the following significant products in the Performance Sensing business:
Key Applications/Solutions
Key End-Markets
Product Categories
Pressure sensors
Speed and position sensors
Air conditioning systems
Transmission
Engine oil
Suspension
Fuel rail
Braking
Tire pressure monitoring
Exhaust after treatment
Transmission
Braking
Engine
Temperature sensors
Exhaust after-treatment
Pressure switches
Air conditioning systems
Power steering
Transmission
6
Automotive
HVOR
Motorcycle
Automotive
HVOR
Automotive
HVOR
Automotive
HVOR
The table below sets forth the amount of net revenue we generated from each of these product categories in each of
the last three fiscal years:
Product Category
(Amounts in thousands)
Pressure sensors
Speed and position sensors
Temperature sensors
Pressure switches
Other
Total
Sensing Solutions Business
Overview
For the year ended December 31,
2016
$ 1,724,677
305,287
185,289
56,005
114,122
$ 2,385,380
2015
$ 1,631,678
328,102
191,369
55,607
139,470
$ 2,346,226
2014
$ 1,164,494
275,628
152,662
65,129
97,944
$ 1,755,857
We are a leading provider of bimetal electromechanical controls, thermal and magnetic-hydraulic circuit breakers,
power conversion and control products, industrial and aerospace sensors, and interconnection products. Our Sensing
Solutions business accounted for approximately 26% of our 2016 net revenue. We market and manufacture a broad
portfolio of application-specific products, including motor and compressor protectors, circuit breakers, pressure sensors
and switches, temperature sensors and switches/thermostats, linear and rotary position sensors, semiconductor burn-in
test sockets, solid state relays, and power inverters. Our control products are sold into industrial, aerospace, military,
commercial, medical device, and residential end-markets. We derive most of our Sensing Solutions business
revenue from products that prevent damage from excess heat or current in a variety of applications within these end-
markets, such as internal and external motor and compressor protectors, circuit protection, motor starters, thermostats,
switches, semiconductor testing, and light industrial systems. Our industrial and aerospace sensors, including pressure
sensors, temperature sensors, and linear and rotary position sensors, provide real time information about the state of a
specific system or subsystem, so control adjustments can be made to optimize system performance. We believe that we
are one of the largest suppliers of controls in the majority of the key applications in which we compete.
Our Sensing Solutions business benefits from strong agency relationships. For example, a number of electrical
standards for motor control products, including portions of the Underwriters’ Laboratories ("UL") Standards for Safety,
have been written based on the performance and specifications of our control products. We also have U.S. and Canadian
Component Recognitions from UL, a U.S.-based organization that issues safety standards for many electrical products in
the U.S., for many of our control products, so that customers can use Klixon® and Airpax® products throughout North
America. Where our component parts are detailed in our customers' certifications from UL, changes to their certifications
may be necessary in order for them to incorporate competitors' motor protection offerings. Similarly, our aerospace
products undergo exhaustive qualification procedures to customer or military performance standards; requiring a
significant investment in a re-qualification effort to incorporate competitors’ offerings.
We continue to focus our efforts on expanding our presence in all global geographies, both emerging and mature.
Our customers include established multinationals, as well as local producers in emerging markets such as China, India,
Eastern Europe, and Turkey. China continues to remain a priority for us because of its export focus and domestic
consumption of products that utilize our devices. We continue to focus on managing our costs and increasing our
productivity in these lower-cost manufacturing regions.
Refer to Note 18, "Segment Reporting," of our audited consolidated financial statements included elsewhere in this
Annual Report on Form 10-K for details of the Sensing Solutions segment operating income for the years ended
December 31, 2016, 2015, and 2014 and total assets as of December 31, 2016 and 2015.
7
Sensing Solutions Business Markets
Sensing Solutions products include controls, which are customized devices that protect equipment and electrical
architecture from excessive heat or current, and sensors, which measure specific fluid based system parameters,
including pressure and temperature. Our products help our customers' systems run safely and in an energy efficient and
environmentally friendly manner. Our product lines encompass bimetal electromechanical controls, thermal and
magnetic-hydraulic circuit breakers, power conversion and control products, interconnection products, and industrial and
aerospace sensors, each of which serves a highly diversified base of customers, end-markets, applications, and
geographies.
Bimetal Electromechanical Controls
Bimetal electromechanical controls include motor protectors, motor starters, thermostats, and switches, each of
which helps prevent damage from excessive heat or current. Our bimetal electromechanical controls business serves a
diverse group of end-markets, including commercial and residential HVAC systems, lighting, refrigeration, industrial
motors, household appliances, and commercial and military aircraft. The demand for many of these products tends to
follow the general economic environment and is affected by the increasing significance of new electronically-driven
applications.
Thermal and Magnetic-Hydraulic Circuit Breakers
Our circuit breaker portfolio includes thermal circuit breakers and customized magnetic-hydraulic circuit breakers,
which help prevent damage from thermal or electrical overload. We provide thermal circuit breakers to the commercial
and military aircraft markets as well as the industrial and agricultural markets. Our magnetic-hydraulic circuit breaker
business serves a broad spectrum of OEMs and other multinational companies in the telecommunication, industrial,
recreational vehicle, HVAC, refrigeration, marine, medical, information processing, electronic power supply, power
generation, over-the-road trucking, construction, agricultural, and alternative energy markets. Demand for these products
tends to follow the general economic environment.
Power Conversion and Control
Power conversion and control products include power inverters, charge controllers, and solid state relays.
Our power inverter products enable conversion of electric power from direct current ("DC") power to alternating
current ("AC") power, or AC power to DC power. Power inverters are used mainly in applications where DC power, such
as that stored in a battery, must be converted for use in an electrical device that runs on AC power, or in applications
where AC power is converted to DC power to charge batteries or power DC loads. Typically, converting AC power to
DC power also utilizes a charge controller.
Specific applications for power inverters and charge controllers include powering applications in utility/service
trucks or recreational vehicles and providing power conversion and charge control for off-grid and grid-tie battery back-
up systems. Demand for these products is driven by economic development, the need to meet new energy efficiency
standards, electrification of auxiliary loads on work trucks, emerging opportunities for residential energy storage and off-
grid power systems, and a growing interest in clean energy to replace generators, which increases demand for both
mobile and stationary power.
With the acquisition of CST in December 2015, this product category was expanded to include solid state relays.
Solid state relays are used where it is necessary to control a circuit by a low-power signal, or where several circuits must
also be controlled by one signal. Solid state relays have certain advantages over mechanical relays, including long
operation life, silent operation, low power, and low electrical interference. Applications for solid state relays primarily
include those in the industrial and commercial equipment end-markets.
Interconnection
Our interconnection products consist of semiconductor burn-in test sockets used by semiconductor manufacturers
to verify packaged semiconductor reliability. Demand in the semiconductor market is driven by consumer and business
computational, entertainment, transportation, and communication needs. These needs are driven by the desire to have
smaller, lighter, faster, more functional, and energy conscious devices that make users more productive and
interconnected to society.
8
Industrial and Aerospace Sensors
Industrial sensors employ similar technology to automotive and HVOR sensors discussed in the Performance
Sensing Business section above, but often require different customization in terms of packaging, calibration, and
electrical output. Applications in which these sensors have historically been widely used include: multiple HVAC and
refrigeration systems, where refrigerant, water, or air is the sensed fluid media used to optimize performance of the
heating and cooling application; discrete industrial equipment applications that have a fluid-based subsystem (e.g., air
compressors and hydraulic machinery such as molding and metal machining); applications such as pumps and storage
tanks, where measurement of pressure and temperature is required for optimum performance; and commercial and
military aircraft applications.
With the acquisition of CST in December 2015, this product category was expanded to include linear and rotary
position sensors. Linear and rotary position sensors translate linear or angular mechanical position to an electrical signal,
and are typically used in systems where high reliability is desired, such as commercial and military aircraft controls. The
primary applications for our linear and rotary position sensors are in harsh environments in the aerospace and energy and
infrastructure end-markets.
We believe that sensor usage in industrial and commercial applications is driven by many of the same factors as in
the automotive sensor market: regulation of safety, emissions, and greater energy efficiency, and consumer demand for
new features. For example, many HVAC/Refrigeration ("HVAC/R") and industrial systems are converting to more
energy efficient variable speed control, which inherently requires more sensor feedback than traditional fixed speed
control systems. Global trends towards environmentally friendly refrigerants also require more sensors to deliver the
desired system performance.
Sensing Solutions Products
We offer the following significant products in the Sensing Solutions business:
Product Categories
Key Applications/Solutions
Key End-Markets
Bimetal electromechanical controls
Internal motor and
compressor protectors
External motor and compressor
protectors
Motor starters
Thermostats
Switches
Thermal and magnetic-hydraulic
circuit breakers
Circuit protection
HVAC/R
Small/large appliances
Lighting
Industrial motors
Auxiliary DC motors
Commercial aircraft
Military
Marine/industrial
Commercial aircraft
Data communications
Telecommunications
Computer servers
Marine/industrial
HVAC/R
Military
Interconnection
Semiconductor testing
Semiconductor manufacturing
Power conversion and control
DC/AC inverters
Charge controllers
Solid state relays
Industrial and aerospace sensors
System fluid measurement
Motion control systems
Utility Work Vehicles
Recreational vehicles
Solar power
Industrial equipment
Commercial equipment
HVAC/R
Industrial equipment
Aerospace and defense
9
The table below sets forth the amount of revenue we generated from each of these product categories in each of the
last three fiscal years:
Product Category
(Amounts in thousands)
Bimetal electromechanical controls
Industrial and aerospace sensors
Power conversion and control
Thermal and magnetic-hydraulic circuit breakers
Interconnection
Other
Total
Technology and Intellectual Property
For the year ended December 31,
2016
2015
2014
$
321,202
$
318,721
$
359,610
193,843
120,357
109,719
57,518
14,269
69,102
58,180
110,980
61,738
10,014
56,779
35,160
117,816
69,332
15,249
$
816,908
$
628,735
$
653,946
We rely primarily on patents and trade secret laws, confidentiality procedures, and licensing arrangements to
protect our intellectual property rights. While we consider our patents to be valuable assets, we do not believe that our
overall competitive position is dependent on patent protection or that our overall operations are dependent upon any
single patent or group of related patents. Many of our patents protect specific functionality in our products, and others
consist of processes or techniques that result in reduced manufacturing costs. Our patents generally relate to
improvements on earlier filed Sensata, acquired, or competitor patents. As of December 31, 2016, we had approximately
298 U.S. and 314 non-U.S. patents and approximately 46 U.S. and 275 non-U.S. pending patent applications that were
filed within the last five years. We do not know whether any of our pending patent applications will result in the issuance
of patents or whether the examination process will require us to narrow our claims. Our patents have expiration dates
ranging from 2017 to 2036. We incurred Research and Development expense of $126.7 million, $123.7 million, and
$82.2 million for the years ended December 31, 2016, 2015, and 2014, respectively.
We utilize licensing arrangements with respect to certain technology that we use in our sensor products and, to a
lesser extent, our control products. In 2006, we entered into a perpetual, royalty-free cross-license agreement with our
former owner, Texas Instruments Incorporated ("TI"), which permits each party to use specified technology owned by
the other party in its business. No license may be terminated under the agreement, even in the event of a material breach.
We purchase sense element assemblies, which are components used primarily in our monosilicon strain gage
pressure sensors, from Measurement Specialties, Inc. and its affiliates ("MEAS") and also manufacture them internally
as a second source. In March 2013 we entered into an intellectual property licensing arrangement (the "License
Agreement") with MEAS, which provides for an indefinite duration license, and which is subject to royalties through
2019 and thereafter is royalty-free. Pursuant to the terms of the License Agreement, we are authorized to produce our
entire need for these sense elements within the passenger vehicle and heavy duty truck fields of use. The License
Agreement can be terminated by either party in the event of an uncured material breach. The sense element assemblies
subject to the License Agreement accounted for $397.7 million in net revenue for the year ended December 31, 2016, of
which $150.6 million was related to products that were manufactured by MEAS, and $247.1 million was related to
products that were manufactured by us.
Seasonality
Because of the diverse nature of the markets in which we compete, our revenue is only moderately impacted by
seasonality. However, our Sensing Solutions business has some seasonal elements, specifically in its air conditioning and
refrigeration products, which tend to peak in the first two quarters of the year as end-market inventory is built up for
spring and summer sales.
Sales and Marketing
The sales and marketing function within our business is organized into regions—the Americas, Asia, and Europe—
but also organizes globally across all geographies according to market segments, so as to facilitate knowledge sharing
and coordinate activities involving our larger customers through global account managers.
10
Customers
Our customer base in the Performance Sensing business includes a wide range of OEMs and Tier 1 suppliers in the
automotive and HVOR end-markets. Our customers in the Sensing Solutions business include a wide range of industrial
and commercial manufacturers and suppliers across multiple end-markets, primarily OEMs in the climate control,
appliance, semiconductor, medical, energy and infrastructure, data/telecom, and aerospace industries, as well as Tier 1
motor and compressor suppliers. In geographic and product markets where we lack an established base of customers, we
rely on third-party distributors to sell our sensor and control products. We have had relationships with our top ten
customers for an average of 27 years. Our largest customer accounted for approximately 9% of our net revenue for the
year ended December 31, 2016.
Selected Geographic Information
Refer to Note 18, "Segment Reporting," of our audited consolidated financial statements included elsewhere in this
Annual Report on Form 10-K for details of our net revenue by selected geographic areas for the years ended
December 31, 2016, 2015, and 2014 and long-lived assets by selected geographic area as of December 31, 2016 and
2015.
Competition
Within each of the principal product categories in our Performance Sensing business, we compete with a variety of
independent suppliers and with the in-house operations of Tier 1 systems suppliers. We believe that the key competitive
factors in this market are product quality and reliability, the ability to produce customized solutions on a global basis,
technical expertise and development capability, breadth and scale of product offerings, product service and
responsiveness, and price.
Within each of the principal product categories in our Sensing Solutions business, we compete with divisions of
large multinational industrial corporations and fragmented companies, which compete primarily in specific end-markets
or applications. We believe that the key competitive factors in these markets are product quality and reliability, although
manufacturers in certain markets also compete based on price. Physical proximity to the facilities of the OEM/Tier 1
manufacturer customer has, in our experience, also increasingly become a basis for competition. We have additionally
found that certain of the product categories have specific competitive factors. For example, in the thermal circuit breaker,
thermostat, and switch markets, strength of technology, quality, and the ability to provide custom solutions are
particularly important. In the hydraulic-magnetic circuit breaker markets, as another example, we have encountered
heightened competition on price and a greater emphasis on agency approvals, including approvals by UL and military
agencies, and similar organizations outside of the U.S., such as Verband der Elektrotechnik, Elektronik und
Informationstechnik, and TÜV Rheinland in Europe, China Compulsory Certification in China, and Canadian Standards
Association in Canada.
Employees
As of December 31, 2016, we had approximately 20,300 employees, of whom approximately 10% were located in
the U.S. As of December 31, 2016, approximately 650 of our employees were covered by collective bargaining
agreements. In addition, in various countries, local law requires our participation in works councils. We also utilize
contract workers in multiple locations in order to cost-effectively manage variations in manufacturing volume. As of
December 31, 2016, we had approximately 1,670 contract workers on a worldwide basis. We believe that our relations
with our employees are good.
Environmental Matters and Governmental Regulation
Our operations and facilities are subject to U.S. and non-U.S. laws and regulations governing the protection of the
environment and our employees, including those governing air emissions, water discharges, the management and
disposal of hazardous substances and wastes, and the cleanup of contaminated sites. We are, however, not aware of any
threatened or pending material environmental investigations, lawsuits, or claims involving us or our operations, other
than as set forth in Note 14, "Commitments and Contingencies," of our audited consolidated financial statements
included elsewhere in this Annual Report on Form 10-K. As of December 31, 2016, compliance with federal, state, and
local provisions that have been enacted or adopted regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not had a material effect on our capital expenditures,
11
earnings, or competitive position. We have not budgeted any material capital expenditures for environmental control
facilities during 2017.
Our products are governed by material content restrictions and reporting requirements, examples of which include
the European Union regulations, such as REACH (Registration, Evaluation, Authorization, and Restriction of
Chemicals), RoHS (Restriction of Hazardous Substances), and ELV (End of Life Vehicles), etc., U.S. regulations, such as
the conflict minerals requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and similar
regulations in other countries. Numerous customers, across all end-markets, are requiring us to provide declarations of
compliance or, in some cases, full material content disclosure as a requirement of doing business with them.
We are subject to compliance with laws and regulations controlling the export of goods and services. Certain of our
products are subject to International Traffic in Arms Regulation (“ITAR”). The export of any such ITAR-controlled
products requires an individual validated license from the U.S. State Department’s Directorate of Defense Trade
Controls. The State Department makes licensing decisions based on type of product, destination of end use, end user,
national security, and foreign policy. The length of time involved in the licensing process varies but currently averages
approximately six to eight weeks. The license processing time could result in delays in the shipping of products. These
laws and regulations are subject to change, and any such change may require us to change technology or incur
expenditures to comply with such laws and regulations.
Available Information
We make available free of charge on our Internet website (www.sensata.com) our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (the "SEC"). Our
website and the information contained or incorporated therein are not intended to be incorporated into this Annual Report
on Form 10-K.
The public may read and copy any materials filed by us with the SEC at the SEC's Public Reference Room at 100 F
Street, NE., Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-202-551-8300. The SEC maintains an Internet site that contains reports, proxy,
and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
The contents on, or accessible through, this website are not incorporated into this filing. Further, our references to the
URLs for the SEC's website and our website are intended to be inactive textual references only.
ITEM 1A.
RISK FACTORS
Adverse conditions in the automotive industry have had, and may in the future have, adverse effects on our
business.
Much of our business depends on, and is directly affected by, the global automobile industry. Sales to customers in
the automotive industry accounted for approximately 63% of our total 2016 net revenue. Adverse developments like
those we have seen in past years in the automotive industry, including but not limited to declines in demand, customer
bankruptcies, and increased demands on us for pricing decreases, could have adverse effects on our results of operations
and could impact our liquidity position and our ability to meet restrictive debt covenants. In addition, these same
conditions could adversely impact certain of our vendors’ financial solvency, resulting in potential liabilities or additional
costs to us to ensure uninterrupted supply to our customers.
Continued pricing and other pressures from our customers may adversely affect our business.
Many of our customers, including automotive manufacturers and other industrial and commercial original
equipment manufacturers ("OEMs"), have policies that require annual price reductions. If we are not able to offset
continued price reductions through improved operating efficiencies and reduced expenditures, those price reductions
may have a material adverse effect on our results of operations and cash flows. In addition, our customers occasionally
require engineering, design, or production changes. In some circumstances, we may be unable to cover the costs of these
changes with price increases. Additionally, as our customers grow larger, they may increasingly require us to provide
them with our products on an exclusive basis, which could cause an increase in the number of products we must carry
and, consequently, increase our inventory levels and working capital requirements. Certain of our customers, particularly
domestic automotive manufacturers, are increasingly requiring their suppliers to agree to their standard purchasing terms
12
without deviation as a condition to engage in future business transactions. As a result, we may find it difficult to enter
into agreements with such customers on terms that are commercially reasonable to us.
We operate in markets that are highly competitive, and competitive pressures could require us to lower our prices
or result in reduced demand for our products.
We operate in markets that are highly competitive, and we compete on the basis of product performance, quality,
service, and/or price across the industries and markets we serve. A significant element of our competitive strategy is to
manufacture high-quality products at low cost, particularly in markets where low-cost country-based suppliers, primarily
in China with respect to the Sensing Solutions business, have entered the markets, or increased their sales in these
markets, by delivering products at low cost to local OEMs. In addition, certain of our competitors in the automotive
sensor market are controlled by major OEMs or suppliers, limiting our access to certain customers. Many of our
customers also rely on us as their sole source of supply for many of the products that we have historically sold to them.
These customers may choose to develop relationships with additional suppliers or elect to produce some or all of these
products internally, in each case in order to reduce risk of delivery interruptions or as a means of extracting price
reductions. Certain of our customers currently have, or may develop in the future, the capability to internally produce the
products that we sell to them and may compete with us with respect to those and other products and with respect to other
customers. Competitive pressures such as these, and others, could affect prices or customer demand for our products,
negatively impacting our profit margins and/or resulting in a loss of market share.
We are subject to risks associated with our non-U.S. operations, which could adversely impact the reported
results of operations from our international businesses, or subject us to potential penalties and/or sanctions in the
event of non-compliance with the Foreign Corrupt Practices Act (the "FCPA") or similar worldwide anti-bribery
laws.
Our subsidiaries located outside of the United States (the "U.S.") generated approximately 64% of our 2016 net
revenue, and we expect sales from non-U.S. markets to continue to represent a significant portion of our total sales.
International sales and operations are subject to changes in local government regulations and policies, including those
related to tariffs and trade barriers, investments, taxation, exchange controls, and repatriation of earnings.
A portion of our revenue, expenses, receivables, and payables are denominated in currencies other than U.S.
dollars ("USD"), in particular the Euro. We are, therefore, subject to foreign currency risks and foreign exchange
exposure. Changes in the relative values of currencies occur from time to time and could affect our operating results. For
financial reporting purposes, the functional currency that we use is USD because of the significant influence of USD on
our operations. In certain instances, we enter into transactions that are denominated in a currency other than USD. At the
date that such transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction
is measured and recorded in USD using the exchange rate in effect at that date. At each balance sheet date, recorded
monetary balances denominated in a currency other than USD are adjusted to USD using the exchange rate at the
balance sheet date, with gains or losses recorded in Other, net. During times of a weakening U.S. dollar, our reported
international sales and earnings may increase because the non-U.S. currency will translate into more USD. Conversely,
during times of a strengthening USD, our reported international sales and earnings may decrease because the local
currency will translate into fewer USD.
There are other risks that are inherent in our non-U.S. operations, including the potential for changes in socio-
economic conditions and/or monetary and fiscal policies, intellectual property protection difficulties and disputes, the
settlement of legal disputes through certain foreign legal systems, the collection of receivables, exposure to possible
expropriation or other government actions, unsettled political conditions, and possible terrorist attacks. These and other
factors may have a material adverse effect on our non-U.S. operations and, therefore, on our business and results of
operations.
In addition, we could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws,
which generally prohibit companies and their intermediaries from making improper payments to non-U.S. government
officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these laws. Many of
the countries in which we operate have experienced governmental corruption to some degree and, in certain
circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our
compliance program, we cannot assure you that our internal control policies and procedures always will protect us from
reckless or negligent acts committed by our employees or agents. Violations of these laws, or allegations of such
violations, may have a negative effect on our results of operations, financial condition, and reputation.
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Integration of acquired companies, and any future acquisitions, joint ventures, and/or dispositions, may require
significant resources and/or result in significant unanticipated losses, costs, or liabilities, and we may not realize
all of the anticipated operating synergies and cost savings from acquisitions.
We have grown, and in the future we intend to continue to grow, by making acquisitions or entering into joint
ventures or similar arrangements. There can be no assurance that our acquisitions will perform as expected in the future.
Any future acquisitions will depend on our ability to identify suitable acquisition candidates, to negotiate acceptable
terms for their acquisition, and to finance those acquisitions. We will also face competition for suitable acquisition
candidates, which may increase our costs. In addition, acquisitions or investments require significant managerial
attention, which may be diverted from our other operations. Furthermore, acquisitions of businesses or facilities entail a
number of additional risks, including:
•
•
•
•
problems with effective integration of operations;
the inability to maintain key pre-acquisition customer, supplier, and employee relationships;
increased operating costs; and
exposure to unanticipated liabilities.
Subject to the terms of our indebtedness, we may finance future acquisitions with cash from operations, additional
indebtedness, and/or by issuing additional equity securities. In addition, we could face financial risks associated with
incurring additional indebtedness such as reducing our liquidity, limiting our access to financing markets, and increasing
the amount of service on our debt. The availability of debt to finance future acquisitions may be restricted, and our
ability to make future acquisitions may be limited.
We may also seek to restructure our business in the future by disposing of certain of our assets or by consolidating
operations. There can be no assurance that any restructuring of our business will not adversely affect our financial
position, leverage, or results of operations. In addition, any significant restructuring of our business will require
significant managerial attention, which may be diverted from our other operations.
There can be no assurance that any anticipated synergies or cost savings generated through acquisitions will be
achieved or that they will be achieved in our estimated time frame. We may not be able to successfully integrate and
streamline overlapping functions from future acquisitions, and integration may be more costly to accomplish than we
expect. In addition, we could encounter difficulties in managing our combined company due to its increased size and
scope.
We may be unable to successfully integrate the operations of August Cayman Company, Inc. (“Schrader”) and
the acquired assets and subsidiaries of Custom Sensors & Technologies Ltd. ("CST") into our operations and we
may not realize the anticipated efficiencies and synergies of the acquisitions of Schrader and CST (the
"Acquisitions"). If the Acquisitions do not achieve their intended results, our business, financial condition, and
results of operations could be materially and adversely affected.
The integrations of Schrader and CST into our operations are significant undertakings and will continue to require
significant attention from our management team. The Acquisitions involve the integration of companies that previously
operated independently, and the unique business cultures of these companies may prove to be incompatible. It is possible
that the integration processes could take longer than anticipated and could result in the loss of valuable employees, the
disruption of each company’s ongoing businesses, processes, and systems, or inconsistencies in standards, controls,
procedures, practices, policies, and compensation arrangements, any of which could adversely affect our ability to
achieve the anticipated benefits of the Acquisitions. Our results of operations and financial condition could also be
adversely affected by any issues attributable to the operations of Schrader or CST that arose or are based on events or
actions that occurred prior to the closing of the Acquisitions. We may have difficulty addressing possible differences in
corporate cultures and management philosophies. The integration process is subject to a number of uncertainties, and
although we currently anticipate significant long-term synergies, no assurance can be given that these anticipated
synergies will be realized or, if realized, the timing of their realization. Our actual synergies and the expenses required to
realize these synergies could differ materially from our current expectations, and we cannot assure you that these
synergies will not have other adverse effects on our business. Failure to achieve the anticipated benefits of the
Acquisitions could result in increased costs or decreased revenue and could materially adversely affect our business,
financial condition, and results of operations.
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The assumption of known or unknown liabilities in the Acquisitions may harm our financial condition and results
of operations.
As a result of the Acquisitions, we have assumed all of the liabilities of Schrader and CST, including known and
unknown contingent liabilities. If there are significant unknown obligations of Schrader or CST, or if we incur significant
losses arising from known contingent liabilities assumed by us in connection with the Acquisitions, our business could
be materially and adversely affected. We may obtain additional information about Schrader's or CST’s business that
adversely affects the combined company, such as unknown liabilities, or issues that could affect our ability to comply
with applicable laws. As a result, we cannot assure you that the Acquisitions will be successful or that they will not, in
fact, harm our business. Among other things, if the liabilities of Schrader or CST are greater than expected, or if there are
material obligations of which we are not aware, our business could be materially and adversely affected. If we become
responsible for substantial unindemnified or uninsured liabilities, these liabilities may have a material adverse effect on
our financial condition and results of operations.
We may be subject to claims that our products or processes infringe on the intellectual property rights of others,
which may cause us to pay unexpected litigation costs or damages, modify our products or processes, or prevent
us from selling our products.
Third parties may claim that our processes and products infringe on their intellectual property rights. Whether or
not these claims have merit, we may be subject to costly and time consuming legal proceedings, and this could divert our
management’s attention from operating our business. If these claims are successfully asserted against us, we could be
required to pay substantial damages, make future royalty payments, and/or could be prevented from selling some or all of
our products. We may also be obligated to indemnify our business partners or customers in any such litigation.
Furthermore, we may need to obtain licenses from these third parties or substantially re-engineer or rename our products
in order to avoid infringement. In addition, we might not be able to obtain the necessary licenses on acceptable terms, or
at all, or be able to re-engineer or rename our products successfully. If we are prevented from selling some or all of our
products, our sales could be materially adversely affected. Refer to Note 14, "Commitments and Contingencies," of our
audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further discussion
of material intellectual property claims against us.
We may incur material losses and costs as a result of product liability, warranty, and recall claims that may be
brought against us.
We have been, and may continue to be, exposed to product liability and warranty claims in the event that our
products actually or allegedly fail to perform as expected, or the use of our products results, or is alleged to result, in
death, bodily injury, and/or property damage. Accordingly, we could experience material warranty or product liability
losses in the future and incur significant costs to defend these claims. In addition, if any of our products are, or are
alleged to be, defective, we may be required to participate in a recall of the underlying end product, particularly if the
defect or the alleged defect relates to product safety. Depending on the terms under which we supply products, an OEM
may hold us responsible for some or all of the repair or replacement costs of these products under warranty when the
product supplied did not perform as represented. In addition, a product recall could generate substantial negative
publicity about our business and interfere with our manufacturing plans and product delivery obligations as we seek to
repair affected products. Our costs associated with product liability, warranty, and recall claims could be material. Refer
to Note 14, "Commitments and Contingencies," of our audited consolidated financial statements included elsewhere in
this Annual Report on Form 10-K for further discussion of our product liability, warranty, and recall claims.
Changes in existing environmental and/or safety laws, regulations, and programs could reduce demand for
environmental and/or safety-related products, which could cause our revenue to decline.
A significant amount of our business is generated either directly or indirectly as a result of existing laws,
regulations, and programs related to environmental protection, fuel economy, energy efficiency, and safety regulation.
Accordingly, a relaxation or repeal of these laws and regulations, or changes in governmental policies regarding the
funding, implementation, or enforcement of these programs, could result in a decline in demand for environmental and/
or safety products, which may have a material adverse effect on our revenue.
Our level of indebtedness could adversely affect our financial condition and our ability to operate our business.
As of December 31, 2016, we had $3,324.9 million of gross outstanding indebtedness, including $937.8 million of
indebtedness under the term loan (the "Term Loan") provided by the sixth amendment to the credit agreement dated as of
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May 12, 2011 (as amended, the "Credit Agreement"), $500.0 million aggregate principal amount of 4.875% senior notes
due 2023 issued under an indenture dated as of April 17, 2013 (the "4.875% Senior Notes"), $400.0 million aggregate
principal amount of 5.625% senior notes due 2024 issued under an indenture dated as of October 14, 2014 (the "5.625%
Senior Notes"), $700.0 million aggregate principal amount of 5.0% senior notes due 2025 issued under an indenture
dated as of March 26, 2015 (the "5.0% Senior Notes"), $750.0 million aggregate principal amount of 6.25% senior notes
due 2026 issued under an indenture dated as of November 27, 2015 (together with the 4.875% Senior Notes, the 5.625%
Senior Notes, and the 5.0% Senior Notes, the "Senior Notes"), and $37.1 million of capital lease and other financing
obligations. We may incur additional indebtedness in the future. Our substantial indebtedness could have important
consequences. For example, it could:
• make it more difficult for us to satisfy our debt obligations;
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restrict us from making strategic acquisitions;
limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities,
thereby placing us at a competitive disadvantage if our competitors are not as highly-leveraged;
increase our vulnerability to general adverse economic and industry conditions; or
require us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness
if we do not maintain specified financial ratios or are not able to refinance our indebtedness as it comes due,
thereby reducing the availability of our cash flows for other purposes.
In addition, the senior secured credit facilities provided for under the Credit Agreement (the "Senior Secured Credit
Facilities"), under which the Term Loan and the Revolving Credit Facility were issued, permit us to incur additional
indebtedness in the future. As of December 31, 2016, we had $414.4 million available to us under the Revolving Credit
Facility. If we increase our indebtedness by borrowing under the Revolving Credit Facility or incur other new
indebtedness, the risks described above would increase. Refer to Note 8, "Debt," of our audited consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for further discussion of our outstanding
indebtedness.
Our business may not generate sufficient cash flows from operations, or future borrowings under the Senior
Secured Credit Facilities or from other sources, may not be available to us in an amount sufficient to enable us to
service and/or repay our indebtedness when it becomes due, or to fund our other liquidity needs, including capital
expenditures.
We cannot guarantee that we will be able to obtain enough capital to service our debt and fund our planned capital
expenditures and business plan. If we complete additional acquisitions, our debt service requirements could also
increase. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional
equity investments, or reducing or delaying capital expenditures, strategic acquisitions, investments, and alliances, any of
which could have a material adverse effect on our operations. Additionally, we may not be able to effect such actions, if
necessary, on commercially reasonable terms, or at all.
Our failure to comply with the covenants contained in our credit arrangements, including non-compliance
attributable to events beyond our control, could result in an event of default, which could materially and
adversely affect our operating results and our financial condition.
The Revolving Credit Facility requires us to maintain a senior secured net leverage ratio not to exceed 5.0:1.0 at
the conclusion of certain periods when outstanding loans and letters of credit that are not cash collateralized for the full
face amount thereof exceed 10% of the commitments under the Revolving Credit Facility. In addition, Sensata
Technologies B.V. and its Restricted Subsidiaries (as defined in the Credit Agreement) are required to satisfy this
covenant, on a pro forma basis, in connection with any new borrowings (including any letter of credit issuances) under
the Revolving Credit Facility as of the time of such borrowings. Additionally, the Revolving Credit Facility and the
indentures governing the Senior Notes require us to comply with various operational and other covenants.
If we experienced an event of default under any of our debt instruments that was not cured or waived, the holders
of the defaulted debt could cause all amounts outstanding with respect to the debt to become due and payable
immediately, which, in turn, would result in cross defaults under our other debt instruments. Our assets and cash flows
may not be sufficient to fully repay borrowings if accelerated upon an event of default.
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If, when required, we are unable to repay, refinance, or restructure our indebtedness under, or amend the covenants
contained in, the Credit Agreement, or if a default otherwise occurs, the lenders under the Senior Secured Credit
Facilities could: elect to terminate their commitments thereunder; cease making further loans; declare all borrowings
outstanding, together with accrued interest and other fees, to be immediately due and payable; institute foreclosure
proceedings against those assets that secure the borrowings under the Senior Secured Credit Facilities; and prevent us
from making payments on the Senior Notes. Any such actions could force us into bankruptcy or liquidation, and we
might not be able to repay our obligations in such an event.
Labor disruptions or increased labor costs could adversely affect our business.
As of December 31, 2016, we had approximately 20,300 employees, of whom approximately 10% were located in
the U.S. As of December 31, 2016, approximately 650 of our employees were covered by collective bargaining
agreements. In addition, in various countries, local law requires our participation in works councils.
A material labor disruption or work stoppage at one or more of our manufacturing facilities could have a material
adverse effect on our business. In addition, work stoppages occur relatively frequently in the industries in which many of
our customers operate, such as the automotive industry. If one or more of our larger customers were to experience a
material work stoppage for any reason, that customer may halt or limit the purchase of our products. This could cause us
to shut down production facilities relating to those products, which could have a material adverse effect on our business,
results of operations, and financial condition.
The loss, or significant non-performance, of one or more of our suppliers of manufactured components or raw
materials may interrupt our supplies and materially harm our business.
Our ability to meet our customers’ needs depends on our ability to maintain an uninterrupted supply of raw
materials and finished products from our third-party suppliers and manufacturers. We purchase raw materials and
components from a wide range of suppliers. For certain raw materials or components, however, we are dependent on sole
source suppliers. We generally obtain these raw materials and components through individual purchase orders executed
on an as needed basis, rather than pursuant to long-term supply agreements.
Our business, financial condition, and/or results of operations could be adversely affected if any of our principal
third-party suppliers or manufacturers experience production problems, lack of capacity, transportation disruptions, or
otherwise determine to cease producing such raw materials or components. The magnitude of this risk depends upon the
timing of the changes, the materials or products that the third-party manufacturers provide, and the volume of the
production. We may not be able to make arrangements to transition supply and qualify replacement suppliers in a cost-
effective or timely manner, or at all.
Our dependence on third parties for raw materials and components subjects us to the risk of supplier non-
performance and customer dissatisfaction with the quality of our products. Quality failures by our third-party
manufacturers or changes in their financial or business condition that affect their production could disrupt our ability to
supply quality products to our customers and thereby materially harm our business. Supplier non-performance may
consist of delivery delays or failures caused by production issues or delivery of non-conforming products. The risk of
non-performance may also result from the insolvency or bankruptcy of one or more of our suppliers.
Our efforts to protect against and to minimize these risks may not always be effective. We may occasionally seek
to engage new suppliers with which we have little or no experience. The use of new suppliers can pose technical, quality,
and other risks.
Increasing costs for, or limitations on the supply of or access to, manufactured components and raw materials
may adversely affect our business and results of operations.
We use a broad range of manufactured components, subassemblies, and raw materials in the manufacture of our
products, including those containing silver, gold, platinum, palladium, copper, aluminum, nickel, zinc, resins, and certain
rare earth metals, which may experience significant volatility in their price and availability. We have entered into hedge
arrangements in an attempt to minimize commodity pricing volatility and may continue to do so from time to time in the
future. Such hedges might not be economically successful. In addition, these hedges do not qualify as accounting hedges
in accordance with U.S. generally accepted accounting principles. Accordingly, the change in fair value of these hedges
is recognized in earnings immediately, which could cause volatility in our results of operations from quarter to quarter.
Refer to Note 16, "Derivative instruments and Hedging Activities," of our audited consolidated financial statements, and
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Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," each included elsewhere in this Annual Report
on Form 10-K for further discussion of accounting for hedges of commodity prices, and an analysis of the sensitivity on
pretax earnings of a change in the forward price on these hedges, respectively.
The availability and price of raw materials and manufactured components may be subject to change due to, among
other things, new laws or regulations, global economic or political events including strikes, terrorist actions, war,
suppliers' allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates, and
prevailing price levels. It is generally difficult to pass increased prices for manufactured components and raw materials
through to our customers in the form of price increases. Therefore, a significant increase in the price or a decrease in the
availability of these items could materially increase our operating costs and materially and adversely affect our business
and results of operations.
We may not realize all of the revenue or achieve anticipated gross margins from products subject to existing
purchase orders or for which we are currently engaged in development.
Our ability to generate revenue from products pending customer awards is subject to a number of important risks
and uncertainties, many of which are beyond our control, including the number of products our customers will actually
produce, as well as the timing of such production. Many of our customer contracts provide for supplying a certain share
of the customer’s requirements for a particular application or platform, rather than for manufacturing a specific quantity
of products. In some cases, we have no remedy if a customer chooses to purchase less than we expect. In cases where
customers do make minimum volume commitments to us, our remedy for their failure to meet those minimum volumes
is limited to increased pricing on those products that the customer does purchase from us or renegotiating other contract
terms. There is no assurance that such price increases or new terms will offset a shortfall in expected revenue. In
addition, some of our customers may have the right to discontinue a program or replace us with another supplier under
certain circumstances. As a result, products for which we are currently incurring development expenses may not be
manufactured by customers at all, or may be manufactured in smaller amounts than currently anticipated. Therefore, our
anticipated future revenue from products relating to existing customer awards or product development relationships may
not result in firm orders from customers for the originally contracted amount. We also incur capital expenditures and
other costs, and price our products, based on estimated production volumes. If actual production volumes were
significantly lower than estimated, our anticipated revenue and gross margin from those new products would be
adversely affected. We cannot predict the ultimate demand for our customers’ products, nor can we predict the extent to
which we would be able to pass through unanticipated per-unit cost increases to our customers.
Export of our products is subject to various export control regulations and may require a license from either the
U.S. Department of State, the U.S. Department of Commerce, or the U.S. Department of the Treasury. Any failure
to comply with such regulations could result in governmental enforcement actions, fines, penalties, or other
remedies, which could have a material adverse effect on our business, results of operations, or financial condition.
We must comply with the U.S. Export Administration Regulations, International Traffic in Arms Regulation
("ITAR"), and the sanctions, regulations, and embargoes administered by the Office of Foreign Assets Control
(“OFAC”). Certain of our products that have military applications are on the munitions list of ITAR and require an
individual validated license in order to be exported to certain jurisdictions. These restrictions also apply to technical data
for design, development, production, use, repair, and maintenance of such ITAR-controlled products. The export of
ITAR-controlled products or technical data requires an individual validated license from the U.S. State Department’s
Directorate of Defense Trade Controls. Any delays in obtaining, or our inability to obtain, such licenses could result in a
material reduction in revenue.
We export products that are subject to other export regulations, and any changes in these export regulations may
further restrict the export of our products, and we may cease to be able to procure export licenses for our products under
existing regulations. This area remains fluid in terms of regulatory developments. Should we need an export license
under existing regulations, the length of time required by the licensing process can vary, potentially delaying the
shipment of products and the recognition of the corresponding revenue. We have no control over the time it takes to
process an export license. Any restriction on the export of a significant product line or a significant amount of our
products could cause a significant reduction in revenue.
We have discovered in the past, and may discover in the future, deficiencies in our OFAC and ITAR compliance
programs. Although we continue to enhance these compliance programs, we cannot assure you that any such
enhancements will ensure that we are in compliance with applicable laws and regulations at all times, or that applicable
authorities will not raise compliance concerns or perform audits to confirm our compliance with applicable laws and
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regulations. Any failure by us to comply with applicable laws and regulations could result in governmental enforcement
actions, fines or penalties, criminal and/or civil proceedings, or other remedies, any of which could have a material
adverse effect on our business, results of operations, or financial condition.
We may be adversely affected by environmental, safety, and governmental regulations or concerns.
We are subject to the requirements of environmental and occupational safety and health laws and regulations in the
U.S. and other countries, as well as product performance standards established by quasi-governmental and industrial
standards organizations. We cannot assure you that we have been, and will continue to be, in compliance with all of these
requirements on account of circumstances or events that have occurred or exist but that we are unaware of, or that we
will not incur material costs or liabilities in connection with these requirements in excess of amounts we have accrued. In
addition, these requirements are complex, change frequently, and have tended to become more stringent over time. These
requirements may change in the future in a manner that could have a material adverse effect on our business, results of
operations, and financial condition. In addition, certain provisions of the Dodd-Frank Wall Street Reform and Consumer
Protection Act require us to report on "conflict minerals" used in our products and the due diligence plan we put in place
to track whether such minerals originate from the Democratic Republic of Congo and adjoining countries. Adherence to
these requirements could affect the sourcing and availability of minerals used in certain of our products. We have made,
and may be required in the future to make, capital and other expenditures to comply with environmental requirements. In
addition, certain of our subsidiaries are subject to pending litigation raising various environmental and human health and
safety claims. We cannot assure you that our costs to defend and/or settle these claims will not be material.
Taxing authorities could challenge our historical and future tax positions or our allocation of taxable income
among our subsidiaries, or tax laws to which we are subject could change in a manner adverse to us.
Sensata Technologies Holding N.V. is a Dutch public limited liability company that operates through various
subsidiaries in a number of countries throughout the world. Consequently, we are subject to tax laws, treaties, and
regulations in the countries in which we operate, and these laws and treaties are subject to interpretation. We have taken,
and will continue to take, tax positions based on our interpretation of such tax laws. There can be no assurance that a
taxing authority will not have a different interpretation of applicable law and assess us with additional taxes. Should we
be assessed with additional taxes, this may result in a material adverse effect on our results of operations and financial
condition.
We conduct operations through manufacturing and distribution subsidiaries in numerous tax jurisdictions around
the world. Our transfer pricing arrangements are not generally binding on applicable tax authorities. Our transfer pricing
methodology is based on economic studies. The prices charged for products, services, and financing among our
companies, or the royalty rates and other amounts paid for intellectual property rights, could be challenged by the various
tax authorities, resulting in additional tax liabilities, interest, and penalties.
Tax laws are subject to change in the various countries in which we operate. Such future changes could be
unfavorable and result in an increased tax burden to us. Refer to Note 9, "Income Taxes," of our audited consolidated
financial statements included elsewhere in this Annual Report on Form 10-K for further discussion related to income
taxes.
We have recorded a significant amount of goodwill and other identifiable intangible assets, and we may be
required to recognize goodwill or intangible asset impairments, which would reduce our earnings.
We have recorded a significant amount of goodwill and other identifiable intangible assets. Goodwill and other
intangible assets, net totaled approximately $4.1 billion as of December 31, 2016, or 65% of our total assets. Goodwill,
which represents the future economic benefits arising from other assets acquired in a business combination that are not
individually identified and separately recognized, was approximately $3.0 billion as of December 31, 2016, or 48% of
our total assets. Goodwill and other identifiable intangible assets were recognized at fair value as of the corresponding
acquisition date. Impairment of goodwill and other identifiable intangible assets may result from, among other things,
deterioration in our performance, adverse market conditions, adverse changes in laws or regulations, unexpected
significant or planned changes in the use of assets, and a variety of other factors. The amount of any quantified
impairment must be expensed immediately as a charge that is included in operating income, which may impact our
ability to raise capital. Although no impairment charges have been recorded during the past three fiscal years, should
certain assumptions used in the development of the fair value of our reporting units change, we may be required to
recognize goodwill or other intangible asset impairments. Refer to Note 5, "Goodwill and Other Intangible Assets," of
our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more details
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on our goodwill and other identifiable intangible assets. Refer to Critical Accounting Policies and Estimates, included in
Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere
in this Annual Report on Form 10-K for further discussion of the assumptions used in the development of the fair value
of our reporting units.
We are a Dutch public limited liability company, and it may be difficult for shareholders to obtain or enforce
judgments against us in the U.S.
Sensata Technologies Holding, N.V. is incorporated under the laws of the Netherlands, and a substantial portion of
our assets are located outside of the U.S. As a result, although we have appointed an agent for service of process in the
U.S., it may be difficult or impossible for U.S. investors to effect service of process upon us within the U.S. or to realize
any judgment against us in the U.S., including for civil liabilities under U.S. securities laws. Therefore, any judgment
obtained against us in any U.S. federal or state court may have to be enforced in the courts of the Netherlands, or such
other foreign jurisdiction, as applicable. Because there is no treaty or other applicable convention between the U.S. and
the Netherlands with respect to the recognition and enforcement of legal judgments regarding civil or commercial
matters, a judgment rendered by any U.S. federal or state court will not be enforced by the courts of the Netherlands
unless the underlying claim is relitigated before a Dutch court. Under current practice, however, a Dutch court will
generally grant the same judgment without a review of the merits of the underlying claim (i) if that judgment resulted
from legal proceedings compatible with Dutch notions of due process, (ii) if that judgment does not contravene public
policy of the Netherlands, and (iii) if the jurisdiction of the U.S. federal or state court has been based on internationally
accepted principles of private international law.
To date, we are aware of only limited published case law in which Dutch courts have considered whether such a
judgment rendered by a U.S. federal or state court would be enforceable in the Netherlands. In all of these cases, Dutch
lower courts applied the aforementioned criteria with respect to the U.S. judgment. If all three criteria were satisfied, the
Dutch courts granted the same judgment without a review of the merits of the underlying claim.
Investors should not assume, however, that the courts of the Netherlands, or such other foreign jurisdiction, would
enforce judgments of U.S. courts obtained against us predicated upon the civil liability provisions of the U.S. securities
laws, or that such courts would enforce, in original actions, liabilities against us predicated solely upon such laws.
Our shareholders’ rights and responsibilities are governed by Dutch law and differ in some respects from the
rights and responsibilities of shareholders under U.S. law, and shareholder rights under Dutch law may not be as
clearly established as shareholder rights are established under the laws of some U.S. jurisdictions.
Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated
in the Netherlands. The rights of our shareholders and the responsibilities of members of our Board of Directors under
Dutch law may not be as clearly established as under the laws of some U.S. jurisdictions. In the performance of its
duties, our Board of Directors is required by Dutch law to consider the interests of our company and our business,
including our shareholders, our employees, and other stakeholders, in all cases with reasonableness and fairness. It is
possible that some of these parties will have interests that are different from, or in addition to, the interests of our
shareholders. It is anticipated that all of our shareholder meetings will take place in the Netherlands.
In addition, the rights of holders of ordinary shares, and many of the rights of shareholders as they relate to, for
example, the exercise of shareholder rights, are governed by Dutch law and our articles of association and differ from the
rights of shareholders under U.S. law. For example, Dutch law does not grant appraisal rights to a company’s
shareholders who wish to challenge the consideration to be paid upon a merger or consolidation of the company.
The provisions of Dutch corporate law and our articles of association have the effect of concentrating control over
certain corporate decisions and transactions in the hands of our Board of Directors. As a result, holders of our shares may
have more difficulty in protecting their interests in the face of actions by members of our Board of Directors than if we
were incorporated in the U.S.
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Security breaches and other disruptions to our information technology infrastructure could interfere with our
operations, compromise confidential information, and expose us to liability which could materially adversely
impact our business and reputation.
Security breaches and other disruptions to our information technology infrastructure could interfere with our
operations; compromise information belonging to us, our employees, customers, and suppliers; and expose us to liability
which could adversely impact our business and reputation. In the ordinary course of business, we rely on information
technology networks and systems, some of which are managed by third parties, to process, transmit, and store electronic
information, and to manage or support a variety of business processes and activities. Additionally, we collect and store
certain data, including proprietary business information and customer and employee data, and may have access to
confidential or personal information that is subject to privacy and security laws, regulations, and customer-imposed
controls. Despite our cybersecurity measures (including employee and third-party training, monitoring of networks and
systems, and maintenance of backup and protective systems) which are continuously reviewed and upgraded, our
information technology networks and infrastructure may still be vulnerable to damage, disruptions, or shutdowns due to
attack by hackers, breaches, employee error or malfeasance, power outages, computer viruses, telecommunication or
utility failures, systems failures, natural disasters, or other catastrophic events. Any such events could result in legal
claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to our reputation,
which could materially adversely affect our business. While we have experienced, and expect to continue to experience,
these types of threats to our information technology networks and infrastructure, to date none of these threats has had a
material impact on our business or operations.
The vote by the United Kingdom to leave the European Union could adversely affect us.
The United Kingdom ("U.K.") held a referendum on June 23, 2016 on its membership in the European Union (the
"E.U."), in which a majority of voters in the U.K. voted to exit the E.U. (commonly referred to as "Brexit"). The
referendum was advisory, and the terms of any withdrawal are subject to a negotiation period that could last at least two
years after the government of the U.K. formally initiates a withdrawal process. These negotiations will determine the
future terms of the U.K.’s relationship with the E.U., including the terms of trade between the U.K. and the E.U. In
addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K.
determines which E.U. laws to replace or replicate. The referendum has also given rise to calls for the governments of
other E.U. member states to consider withdrawal from the E.U.
The effects of Brexit will depend on any agreements the U.K. makes to retain access to E.U. markets either during
a transitional period or more permanently. Brexit could adversely affect European or worldwide economic or market
conditions and contribute to instability in global financial markets. We have substantial sales and operations in the E.U.,
and manufacturing operations in the U.K. Any of these effects of Brexit, and others we cannot anticipate, could adversely
affect our business, business opportunities, results of operations, and financial condition.
Changes to current policies by the U.S. government could adversely affect our business.
We anticipate possible changes to current policies by the U.S. government that could affect our business,
including potentially through (i) increased import tariffs and other influences on U.S. trade relations with other countries
(e.g., Mexico and China) and/or (ii) changes to U.S. tax laws. The imposition of tariffs or other trade barriers could
increase our costs in certain markets, and may cause our customers to find alternative sourcing. In addition, other
countries may change their own policies on business and foreign investment in companies in their respective countries.
Tax changes would have different impacts depending on the specific policies enacted. Additionally, it is possible that
U.S. policy changes and uncertainty about policy could increase market volatility and currency exchange rate
fluctuations. Market volatility and currency exchange rate fluctuations could impact our results of operations and
financial condition related to transactions denominated in a foreign currency.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
21
ITEM 2.
PROPERTIES
As of December 31, 2016, we occupied 19 principal manufacturing facilities and business centers totaling
approximately 3,675 thousand square feet, with the majority devoted to research, development, engineering,
manufacturing, and assembly. We lease approximately 433 thousand square feet for our United States headquarters in
Attleboro, Massachusetts. Of our principal facilities, approximately 1,547 thousand square feet are owned and
approximately 2,128 thousand square feet are occupied under leases. A significant portion of our owned properties and
equipment is subject to a lien under the Senior Secured Credit Facilities. Refer to Note 8, "Debt," of our audited
consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on
the Senior Secured Credit Facilities. We consider our manufacturing facilities sufficient to meet our current operational
requirements. The table below lists the location of our principal executive and operating facilities:
Country
Bulgaria
Bulgaria
Bulgaria
China
China
China
France
Germany
Malaysia
Mexico
Mexico
Netherlands
Poland
United Kingdom
United Kingdom
United Kingdom
United States
United States
Location
Botevgrad
Plovdiv
Sofia
Baoying
Baoying
Changzhou
Pontarlier
Berlin
Subang Jaya
Aguascalientes
Tijuana (1)
Hengelo(2)
Bydgoszcz
Antrim
Carrickfergus
Swindon
Attleboro, MA
Altavista, VA
Operating Segment
Performance
Sensing
X
Sensing
Solutions
Owned or
Leased
Owned
Approximate Square
Footage (in thousands)
137
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Owned
Leased
Owned
Leased
Leased
Owned
Leased
Owned
Owned
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Owned
Leased
X
X
X
X
X
X
X
X
125
108
360
385
488
178
33
123
411
287
94
54
97
63
34
433
150
115
United States
(1) This location includes two principal manufacturing facilities.
(2)
Thousand Oaks, CA
X
In December 2016, we sold our principal headquarters in Almelo, the Netherlands, and moved into a new facility in
Hengelo, the Netherlands.
Leases covering our currently occupied principal leased facilities expire at varying dates within the next 20 years.
We do not anticipate difficulty in retaining occupancy through lease renewals, month-to-month occupancy, or by
replacing the leased facilities with equivalent facilities. An increase in demand for our products may require us to expand
our production capacity, which could require us to identify and acquire or lease additional manufacturing facilities. We
believe that suitable additional or substitute facilities will be available as required; however, if we are unable to acquire,
integrate, and move into production the facilities, equipment, and personnel necessary to meet such increase in demand,
our customer relationships, results of operations, and/or financial condition may suffer materially.
22
ITEM 3. LEGAL PROCEEDINGS
We are regularly involved in a number of claims and litigation matters in the ordinary course of business. Most of
our litigation matters are third-party claims related to patent infringement allegations or for property damage allegedly
caused by our products, but some involve allegations of personal injury or wrongful death. From time to time, we are
also involved in disagreements with vendors and customers. Information on certain legal proceedings in which we are
involved is included in Note 14, "Commitments and Contingencies," of our audited consolidated financial statements
included elsewhere in this Annual Report on Form 10-K. We believe that the ultimate resolution of the current litigation
matters that are pending against us will not have a material effect on our financial condition or results of operations.
The Internal Revenue Code requires that companies disclose in their Annual Report on Form 10-K whether they
have been required to pay penalties to the Internal Revenue Service (“IRS”) for certain transactions that have been
identified by the IRS as abusive or that have a significant tax avoidance purpose. We have not been required to pay any
such penalties.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
23
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our ordinary shares trade on the New York Stock Exchange (“NYSE”) under the symbol “ST.” The following table
sets forth the high and low intraday sales prices per share of our ordinary shares, as reported by the NYSE, for the
periods indicated:
2015
Quarter ended March 31, 2015
Quarter ended June 30, 2015
Quarter ended September 30, 2015
Quarter ended December 31, 2015
2016
Quarter ended March 31, 2016
Quarter ended June 30, 2016
Quarter ended September 30, 2016
Quarter ended December 31, 2016
Performance Graph
Price Range
High
Low
$
$
$
$
$
$
$
$
58.16
59.04
53.51
49.73
45.60
39.89
40.69
41.43
$
$
$
$
$
$
$
$
48.75
52.39
41.98
42.48
29.92
32.07
33.81
35.10
The following graph compares the total shareholder return of our ordinary shares since December 31, 2011, to the
total shareholder return since that date on the Standard & Poor’s ("S&P") 500 Stock Index and the S&P 500 Industrial
Index. The graph assumes that the value of the investment in our ordinary shares and each index was $100.00 on
December 31, 2011.
24
Total Shareholder Return of $100.00 Investment from December 31, 2011
Sensata
S&P 500
S&P 500 Industrial
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
$
$
$
100.00
100.00
100.00
$
$
$
123.59
116.00
115.35
$
$
$
147.53
153.57
162.27
$
$
$
199.43
174.60
178.21
$
$
$
175.27
177.01
173.70
$
$
$
148.21
198.18
206.46
The information in the graph and table above is not “soliciting material,” is not deemed “filed” with the United
States ("U.S.") Securities and Exchange Commission, and is not to be incorporated by reference in any of our filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before
or after the date of this Annual Report on Form 10-K, except to the extent that we specifically incorporate such
information by reference. The total shareholder return shown on the graph represents past performance and should not be
considered an indication of future price performance.
Stockholders
As of January 13, 2017, there was one holder of record of our ordinary shares, Cede & Co. (which acts as nominee
shareholder for the Depository Trust Company), and approximately 31,600 beneficial owners, including beneficial
owners whose shares are held in "street name" by banks, brokers, and other financial institutions.
Dividends
We have never declared or paid any dividends on our ordinary shares, and we currently do not plan to declare any
such dividends in the foreseeable future. Because we are a holding company, our ability to pay cash dividends on our
ordinary shares may be limited by restrictions on our ability to obtain sufficient funds through dividends from our
subsidiaries, including restrictions under the terms of the agreements governing our indebtedness. In that regard, our
indirect, wholly-owned subsidiary, Sensata Technologies B.V. ("STBV"), is limited in its ability to pay dividends or
otherwise make distributions to its immediate parent company and, ultimately, to us. Refer to Note 8, "Debt," of our
audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional
information on our dividend restrictions.
In addition, under Dutch law, STBV, Sensata Technologies Intermediate Holding B.V., and certain of our other
subsidiaries that are Dutch private limited liability companies may only pay dividends or make other distributions to the
extent that the shareholders' equity of such subsidiary exceeds the reserves required to be maintained by law or under its
articles of association.
Under Dutch law, we may only pay dividends out of profits as shown in our adopted annual accounts prepared in
accordance with International Financial Reporting Standards. Should we wish to do so, we would only be able to declare
and pay dividends to the extent our equity exceeds the sum of the paid and called up portion of our ordinary share capital
and the reserves that must be maintained in accordance with the provisions of Dutch law and our articles of association.
Subject to these limitations, the payment of cash dividends in the future, if any, will depend upon such factors as
earnings levels, capital requirements, contractual restrictions, our overall financial condition, and any other factors
deemed relevant by our shareholders and Board of Directors.
U.S. holders of our ordinary shares are generally not subject to any Dutch taxes on income or capital gains derived
from ownership or disposal of such ordinary shares. However, we are generally required to withhold Dutch income tax
(at a rate of 15%) on actual or deemed dividend distributions. There is no reciprocal tax treaty between the U.S. and the
Netherlands regarding withholding.
25
Issuer Purchases of Equity Securities
Period
October 1 through October 31, 2016
November 1 through November 30, 2016
December 1 through December 31, 2016
Total
__________________
Total
Number
of Shares
Purchased
Weighted-
Average
Price
Paid per
Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plan
or Programs
Approximate
Dollar Value of
Shares that
May Yet
Be Purchased
Under the Plan
or Programs
(in millions)
293 (1) $
$
—
1,720 (1) $
$
2,013
38.78
—
40.04
39.86
— $
— $
— $
— $
250.0
250.0
250.0
250.0
(1) Pursuant to the “withhold to cover” method for collecting and paying withholding taxes for our employees upon the
vesting of restricted securities, we withheld from certain employees the ordinary shares noted in the table above to
cover such statutory minimum tax withholdings. These transactions took place outside of a publicly-announced
repurchase plan. The weighted-average price per ordinary share listed in the above table is the weighted-average of
the fair market prices at which we calculated the number of ordinary shares withheld to cover tax withholdings for
the employees.
26
ITEM 6.
SELECTED FINANCIAL DATA
We have derived the selected consolidated statement of operations and other financial data for the years ended
December 31, 2016, 2015, and 2014, and the selected consolidated balance sheet data as of December 31, 2016 and
2015, from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We
have derived the selected consolidated statement of operations and other financial data for the years ended December 31,
2013 and 2012, and the selected consolidated balance sheet data as of December 31, 2014, 2013, and 2012, from audited
consolidated financial statements not included in this Annual Report on Form 10-K.
You should read the following information in conjunction with Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and our audited consolidated financial statements and accompanying
notes thereto included elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily
indicative of the results to be expected in any future period.
(Amounts in thousands, except per share data)
Statement of Operations Data(a):
Net revenue
Operating costs and expenses:
Cost of revenue
Research and development
Selling, general and administrative
Amortization of intangible assets
Restructuring and special charges
Sensata Technologies Holding N.V. (consolidated)
For the year ended December 31,
2016
2015
2014
2013
2012
$ 3,202,288
$2,974,961
$ 2,409,803
$1,980,732
$ 1,913,910
2,084,261
1,977,799
1,567,334
1,256,249
1,257,547
126,665
293,587
201,498
4,113
123,666
271,361
186,632
21,919
82,178
220,105
146,704
21,893
57,950
163,145
134,387
5,520
52,072
141,894
144,777
40,152
Total operating costs and expenses
2,710,124
2,581,377
2,038,214
1,617,251
1,636,442
Profit from operations
Interest expense, net
Other, net(b)
Income before income taxes
Provision for/(benefit from) income taxes (c)
Net income
Basic net income per share
Diluted net income per share
Weighted-average ordinary shares
outstanding—basic
Weighted-average ordinary shares
outstanding—diluted
Other Financial Data(a):
Net cash provided by/(used in):
Operating activities
Investing activities
Financing activities
Capital expenditures
492,164
(165,818)
(4,901)
321,445
59,011
$ 262,434
393,584
(137,626)
(50,329)
205,629
(142,067)
$ 347,696
371,589
(106,104)
(12,059)
253,426
(30,323)
$ 283,749
363,481
(93,915)
(35,629)
233,937
45,812
$ 188,125
277,468
(99,222)
(5,581)
172,665
(4,816)
$ 177,481
$
$
1.54
1.53
$
$
2.05
2.03
$
$
1.67
1.65
$
$
1.07
1.05
$
$
1.00
0.98
170,709
169,977
170,113
176,091
177,473
171,460
171,513
172,217
179,024
181,623
$ 521,525
(174,778)
(337,582)
(130,217)
$ 533,131
(1,166,369)
764,172
(177,196)
$ 382,568
(1,430,065)
940,930
(144,211)
$ 395,838
(87,650)
(403,831)
(82,784)
$ 397,313
(62,501)
(13,400)
(54,786)
27
Balance Sheet Data (as of December 31)(a):
Cash and cash equivalents
Working capital(d)
Total assets(e)
Total debt, including capital lease and other
financing obligations, net of discount and
deferred financing costs (e)
Total shareholders’ equity
__________________
2016
2015
2014
2013
2012
$ 351,428
$ 342,263
$ 211,329
$ 317,896
$ 413,539
758,189
412,748
441,258
537,139
616,317
6,240,976
6,298,910
5,087,507
3,479,692
3,626,272
3,273,594
3,600,991
2,812,734
1,704,834
1,802,536
1,942,007
1,668,576
1,302,892
1,141,588
1,222,294
(a) Amounts shown reflect the acquisitions of Wabash Worldwide Holding Corp., Magnum Energy Incorporated,
CoActive US Holdings, Inc. ("DeltaTech Controls"), and August Cayman Company, Inc. ("Schrader") in 2014 and
certain assets and subsidiaries of Custom Sensors & Technologies Ltd. ("CST") in 2015. Refer to Note 6,
"Acquisitions," of our audited consolidated financial statements included elsewhere in this Annual Report on Form
10-K for further details on our acquisitions.
(b) Other, net for the years ended December 31, 2016, 2015, 2014, 2013, and 2012 primarily includes: (losses)
recognized on debt financing transactions of $0.0 million, $(25.5) million, $(1.9) million, $(9.0) million, and $(2.2)
million, respectively; gains/(losses) on commodity forward contracts of $7.4 million, $(18.5) million, $(9.0) million,
$(23.2) million, and $(0.4) million, respectively; and (losses) related to foreign currency exchange rates (including
gains and losses related to currency remeasurement of net monetary assets and gains and losses on forward currency
forward contracts) of $(12.5) million, $(6.0) million, ($1.4) million, $(2.4) million, and $(3.1) million, respectively.
Refer to Note 2, "Significant Accounting Policies," of our audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K for further details of amounts included in Other, net.
(c) For the year ended December 31, 2015, the benefit from income taxes includes a net benefit of approximately
$180.0 million, primarily related to the release of a portion of our United States ("U.S.") valuation allowance in
connection with the acquisition of CST. For the year ended December 31, 2014, the benefit from income taxes
includes a net benefit of approximately $71.1 million related to the release of a portion of our U.S. valuation
allowance in connection with certain 2014 acquisitions. Refer to Note 9, "Income Taxes," of our audited
consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional
information. For the year ended December 31, 2012, the benefit from income taxes includes a net benefit of
approximately $66.0 million related to the release of the Netherlands' deferred tax asset valuation allowance.
(d) We define working capital as current assets less current liabilities. Working capital amounts for prior years have not
been recast to include assets designated as held for sale in any year.
(e) In the first quarter of 2016, we adopted ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30) ("ASU
2015-03"), which simplifies the presentation of debt issuance costs, by requiring that debt issuance costs related to a
recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that
debt liability, consistent with debt discounts. As required by ASU 2015-03, we applied its provisions retrospectively.
Accordingly, total assets and long term debt as of December 31, 2015, 2014, 2013, and 2012, have been recast to
reflect $38.3 million, $29.1 million, $19.1 million, and $22.1 million, respectively, of deferred financing costs as a
reduction of long-term debt.
28
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis is intended to help the reader understand our business, financial condition,
results of operations, liquidity, and capital resources. You should read the following discussion in conjunction with Item
1, "Business," Item 6, “Selected Financial Data,” and our audited consolidated financial statements and the
accompanying notes thereto included elsewhere in this Annual Report on Form 10-K.
The statements in this discussion regarding industry outlook, our expectations regarding our future performance,
liquidity and capital resources, and other non-historical statements are forward-looking statements. These forward-
looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and
uncertainties described in Item 1A, “Risk Factors,” included elsewhere in this Annual Report on Form 10-K. Our actual
results may differ materially from those contained in or implied by any forward-looking statements.
Overview
Sensata Technologies Holding N.V. ("Sensata Technologies Holding") and its wholly-owned subsidiaries,
collectively referred to as the "Company," "Sensata," "we," "our," and "us," is a global industrial technology company
engaged in the development, manufacture, and sale of sensors and controls. We can trace our origins back to entities that
have been engaged in the sensors and controls business since 1916.
We conduct our operations through subsidiary companies that operate business and product development centers
primarily in the United States (the "U.S."), the Netherlands, Belgium, China, Germany, Japan, South Korea, and the
United Kingdom (the "U.K."); and manufacturing operations primarily in China, Malaysia, Mexico, Bulgaria, Poland,
France, Germany, the U.K., and the U.S. We organize our operations into two businesses, Performance Sensing and
Sensing Solutions.
We generated 43%, 25%, and 32% of our net revenue in the Americas, Asia, and Europe, respectively, for the year
ended December 31, 2016. Our largest customer accounted for approximately 9% of our net revenue for the year ended
December 31, 2016. Our net revenue for the year ended December 31, 2016 was derived from the following end-
markets: 25.2% from European automotive, 20.1% from North American automotive, 17.8% from Asia and rest of world
automotive, 12.8% from heavy vehicle off-road ("HVOR"), 9.0% from industrial, 5.9% from appliance and heating,
ventilation, and air-conditioning ("HVAC"), 4.7% from aerospace, and 4.5% from all other end-markets. Within many of
our end-markets, we are a significant supplier to multiple original equipment manufacturers, reducing our exposure to
fluctuations in market share within individual end-markets.
We produce a wide range of sensors and controls for applications such as pressure sensors in automotive systems,
thermal circuit breakers in aircraft, and bimetal current and temperature control devices in electric motors. We compete
in growing global market segments driven by demand for products that are safe, energy efficient, and environmentally
friendly. We have a long-standing position in emerging markets, including a presence in China for more than 20 years.
Refer to Item 1, "Business," included elsewhere in this Annual Report on Form 10-K for more detailed discussion
of factors affecting our business, including those specific to our Performance Sensing and Sensing Solutions segments
and information about our acquisition history.
Selected Segment Information
We manage our Performance Sensing and Sensing Solutions businesses separately and report their results of
operations as two segments. Set forth below is selected information for each of these segments for each of the periods
presented. Amounts in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts
may not add due to the effect of rounding.
29
The following table presents net revenue by segment and as a percentage of total net revenue for the identified
periods:
(Amounts in millions)
Net revenue
Performance Sensing
Sensing Solutions
Total
For the year ended December 31,
2016
2015
2014
Amount
Percent of
Net Revenue
Amount
Percent of
Net Revenue
Amount
Percent of
Net Revenue
$ 2,385.4
74.5% $ 2,346.2
78.9% $ 1,755.9
816.9
25.5
628.7
21.1
653.9
72.9%
27.1
$ 3,202.3
100.0% $ 2,975.0
100.0% $ 2,409.8
100.0%
The following table presents segment operating income and segment operating income as a percentage of segment
net revenue for the identified periods:
(Amounts in millions)
Segment operating income
Performance Sensing
Sensing Solutions
Total
For the year ended December 31,
2016
2015
2014
Percent of
Segment
Net Revenue
Amount
Percent of
Segment
Net Revenue
Amount
Percent of
Segment
Net Revenue
Amount
$
$
615.5
261.9
877.4
25.8% $
32.1%
$
598.5
199.7
798.3
25.5% $
31.8%
$
475.9
202.1
678.1
27.1%
30.9%
For a reconciliation of total segment operating income to profit from operations, refer to Note 18, "Segment
Reporting," of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Factors Affecting Our Operating Results
The following discussion sets forth certain components of the consolidated statements of operations, as well as
factors that impact those components. Refer to Note 2, "Significant Accounting Policies," of our audited consolidated
financial statements included elsewhere in this Annual Report on Form 10-K, and Critical Accounting Policies and
Estimates included elsewhere in this Management's Discussion and Analysis for further discussion of the accounting
policies and estimates made related to these components.
Net revenue
We generate revenue from the sale of sensor and control products across all major geographic areas. We believe
regulatory requirements for higher fuel efficiency, lower emissions, and safer vehicles, as well as customer demand for
operator productivity and convenience, drive the need for advancements in engine management, safety features, and
operator controls. These advancements lead to sensor growth rates that exceed underlying end-market demand in many
of our key markets and will continue to offer us significant growth opportunities. The technology-driven, highly-
customized, and integrated nature of our products require customers to invest heavily in certification and qualification to
ensure proper functioning of the system in which our products are embedded. We believe the capital commitment and
time required for this process significantly increases the switching costs for customers once a particular sensor or control
has been designed and installed in a system. As a result, our sensors and controls are rarely substituted during a product
lifecycle, which in the case of the automotive end-market typically lasts five to seven years. We focus on new
applications that will help us secure new business and drive long-term growth. New applications for sensors typically
provide an opportunity to define a leading application technology in collaboration with our customers.
Because we derive a significant portion of our revenue from sales to customers in the automotive industry (63% in
2016), demand for our products is driven in large part by conditions in this industry. However, outside of the automotive
industry, we sell our products to end-users in a wide range of industries, end-markets, and geographies. As a result, the
drivers of demand for these products vary considerably and are influenced by the conditions in these industries, end-
30
markets, or geographic regions. Our overall net revenue is generally impacted by the following factors:
•
•
•
•
•
•
•
•
•
fluctuations in overall economic activity within the geographic markets in which we operate;
underlying growth in one or more of our core end-markets, either worldwide or in particular geographies in
which we operate;
the number of sensors and/or controls used within existing applications, or the development of new
applications requiring sensors and/or controls, due to regulations or other factors;
the “mix” of products sold, including the proportion of new or upgraded products and their pricing relative to
existing products;
changes in product sales prices (including quantity discounts, rebates, and cash discounts for prompt
payment);
changes in the level of competition faced by our products, including the launch of new products by
competitors;
our ability to successfully develop and launch new products and applications;
fluctuations in exchange rates; and
acquisitions.
While the factors described above impact net revenue in each of our operating segments, the impact of these
factors on our operating segments can differ. For example, adverse changes in the automotive industry will impact the
Performance Sensing segment more significantly than the Sensing Solutions segment. For more information about
revenue risks relating to our business, refer to Item 1A, “Risk Factors,” included elsewhere in this Annual Report on
Form 10-K.
Cost of revenue
Our strategy of leveraging core technology platforms and focusing on high-volume applications enables us to
provide our customers with highly-customized products at a relatively low cost, as compared to the costs of the systems
in which our products are embedded. We have achieved our current cost position through a continuous process of
migration to low-cost manufacturing locations, transformation of our supply chain to low-cost sourcing, product design
improvements, and ongoing productivity-enhancing initiatives.
We manufacture the majority of our products, and subcontract only a limited number of products to third parties.
As such, our cost of revenue consists principally of the following:
• Production Materials Costs. We purchase much of the materials used in production on a global lowest-cost
basis, but we are still impacted by global and local market conditions. A portion of our production materials
contains resins and metals, such as copper, nickel, zinc, aluminum, gold, silver, platinum, and palladium, and
the cost of these materials may vary with underlying commodities pricing. However, we enter into forward
contracts to economically hedge a portion of our exposure to the potential change in prices associated with
certain of these commodities. The terms of these contracts fix the price at a future date for various notional
amounts associated with these commodities. Gains and losses recognized on these non-designated derivatives
are included in Other, net.
• Employee Costs. Employee costs include the wage and benefit charges for employees involved in our
manufacturing operations. These costs generally fluctuate on an aggregate basis in direct correlation with
changes in production volumes. As a percentage of revenue, these costs may decline as a result of economies
of scale associated with higher production volumes, and conversely, may increase with lower production
volumes. These costs will also fluctuate based on local market conditions. We rely on contract workers for
direct labor in certain geographies. As of December 31, 2016, we had approximately 1,670 contract workers
on a worldwide basis.
•
Sustaining Engineering Activity costs. These costs relate to modifications of existing products for use by new
and existing customers in familiar applications.
31
• Other. Our remaining cost of revenue primarily consists of:
•
•
•
gains and losses on certain foreign currency forward contracts that are designated as cash flow hedges;
depreciation of fixed assets;
freight costs;
• warehousing expenses;
• maintenance and repair expenses;
•
•
operating supplies; and
other general manufacturing expenses, such as expenses for energy consumption and operating lease
expense.
The main factors that influence our cost of revenue as a percent of net revenue include:
•
•
•
•
•
•
•
•
•
changes in the price of raw materials, including certain metals;
the implementation of cost improvement measures aimed at increasing productivity, including reduction of
fixed production costs, refinements in inventory management, design driven changes, and the coordination of
procurement within each subsidiary and at the business level;
production volumes - production costs are capitalized in inventory based on normal production volumes, as
revenue increases, the fixed portion of these costs does not;
transfer of production to our lower cost production facilities;
product lifecycles, as we typically incur higher cost of revenue associated with excess manufacturing capacity
during the initial stages of product launches and during phase-out of discontinued products;
the increase in the carrying value of inventory that is adjusted to fair value as a result of the application of
purchase accounting associated with acquisitions;
depreciation expense, including amounts arising from the adjustment of PP&E to fair value associated with
acquisitions;
fluctuations in foreign currency exchange rates; and
acquisitions, as acquired businesses may generate higher or lower gross margins than us.
Research and development ("R&D")
We develop products that address increasingly complex engineering requirements. We believe that continued
focused investment in R&D activities is critical to our future growth and maintaining our leadership position. Our R&D
efforts are directly related to timely development of new and enhanced products that are central to our core business
strategy. We develop our technologies to meet an evolving set of customer requirements and new product introductions.
R&D expense consists of costs related to direct product design, development, and process engineering. The level
of R&D expense is related to the number of products in development, the stage of the development process, the
complexity of the underlying technology, the potential scale of the product upon successful commercialization, and the
level of our exploratory research. We conduct such activities in areas that we believe will increase our longer term net
revenue growth. Our development expense is typically associated with engineering core technology platforms to specific
applications and engineering major upgrades that improve the functionality or reduce the cost of existing products.
Costs related to modifications of existing products for use by new and existing customers in familiar applications
are recorded in cost of revenue and not included in R&D expense.
Selling, general and administrative ("SG&A")
SG&A expense consists of all expenditures incurred in connection with the sale and marketing of our products, as
well as administrative overhead costs, including:
•
salary and benefit costs for sales personnel and administrative staff, including cash and share-based incentive
compensation expense. Expenses relating to our sales personnel can fluctuate due to prolonged trends in sales
32
volume. Expenses relating to administrative personnel generally do not increase or decrease directly with
changes in sales volume;
expenses related to the use and maintenance of administrative offices, including depreciation expense;
other administrative expenses, including expenses relating to information systems, human resources, and
legal and accounting services;
other selling expenses, such as expenses incurred in connection with travel and communications; and
transaction costs associated with acquisitions.
•
•
•
•
Changes in SG&A expense as a percent of net revenue have historically been impacted by a number of factors,
including:
•
•
•
•
•
•
•
•
changes in sales volume, as higher volumes enable us to spread the fixed portion of our administrative
expense over higher revenue;
changes in the mix of products we sell, as some products may require more customer support and sales effort
than others;
changes in our customer base, as new customers may require different levels of sales and marketing attention;
new product launches in existing and new markets, as these launches typically involve a more intense sales
activity before they are integrated into customer applications;
customer credit issues requiring increases to the allowance for doubtful accounts;
pricing changes;
volume and timing of acquisitions; and
fluctuations in exchange rates.
The sales and marketing function within our business is organized into regions—the Americas, Asia, and Europe—
but also organizes globally across all geographies according to market segments.
Depreciation expense
Depreciation expense includes depreciation of PP&E, amortization of leasehold improvements, and amortization
of assets held under capital leases. Depreciation expense is included in either cost of revenue or SG&A expense
depending on the use of the asset as a manufacturing or administrative asset.
Depreciation expense will change depending on the age of existing PP&E and the level of capital expenditures.
Depreciation expense is computed using the straight-line method. Refer to Note 2, "Significant Accounting Policies," of
our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional
details on methods for calculating depreciation expense.
Amortization of definite-lived intangible assets
We have recognized a significant amount of identifiable definite-lived intangible assets, which are recorded at fair
value on the date of the related acquisition. Definite-lived, acquisition-related intangible assets are amortized on an
economic-benefit basis according to the useful lives of the assets or on a straight-line basis if a pattern of economic
benefits cannot be reliably determined. The amount of amortization expense related to definite-lived intangible assets
depends on the amount of intangible assets acquired and where previously acquired intangible assets are in their
estimated life-cycle. Capitalized software and capitalized software licenses are presented on the consolidated balance
sheets as intangible assets. Capitalized software licenses are amortized on a straight-line basis over the lesser of the term
of the license or the estimated useful life of the software. Capitalized software is amortized on a straight-line basis over
its estimated useful life.
Impairment of goodwill and other identifiable intangible assets
Goodwill and other indefinite-lived intangible assets are reviewed for impairment on an annual basis, unless events
or circumstances occur that trigger the need for an earlier impairment review. No impairment charges were recorded
during any period presented.
33
Impairment of goodwill and other identifiable intangible assets may result from a change in revenue and earnings
forecasts. Our revenue and earnings forecasts may be impacted by many factors, including deterioration in our
performance, adverse market conditions, adverse changes in laws or regulations, significant unexpected or planned
changes in the use of assets, and our ability to project customer spending. Changes in the level of spending in the
industry and/or by our customers could result in a change to our forecasts, which could result in a future impairment of
goodwill and/or intangible assets.
Should certain other assumptions used in the development of the fair value of our reporting units change, we may
be required to recognize impairments of goodwill or other intangible assets. See Critical Accounting Policies and
Estimates included elsewhere in this Management’s Discussion and Analysis for more discussion of the key assumptions
that are used in the determination of the fair value of our reporting units and factors that could result in future
impairment charges.
Restructuring and special charges
Restructuring and special charges consist of severance, outplacement, other separation benefits, certain pension
settlement and curtailment losses, and facility exit and other costs. Restructuring charges may be incurred as part of an
announced restructuring plan, or may be individual charges recorded related to acquired businesses or the termination of
a limited number of employees that do not represent the initiation of a larger restructuring plan. Refer to Note 17,
“Restructuring and Special Charges,” of our audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K for discussion of our restructuring and special charges.
Interest expense
We are a highly leveraged company, and interest expense is a significant portion of our results of operations. As of
December 31, 2016 and 2015 we had gross outstanding indebtedness of $3,324.9 million and $3,659.5 million,
respectively.
Our indebtedness at December 31, 2016 included $937.8 million of indebtedness under the term loan (the "Term
Loan") provided by the sixth amendment to the credit agreement dated as of May 12, 2011 (as amended, the "Credit
Agreement"), $500.0 million aggregate principal amount of 4.875% senior notes due 2023 (the "4.875% Senior Notes"),
$400.0 million aggregate principal amount of 5.625% senior notes due 2024 (the "5.625% Senior Notes"), $700.0
million aggregate principal amount of 5.0% senior notes due 2025 (the "5.0% Senior Notes"), $750.0 million aggregate
principal amount of 6.25% senior notes due 2026 (the "6.25% Senior Notes," and together with the 4.875% Senior
Notes, the 5.625% Senior Notes, and the 5.0% Senior Notes, the "Senior Notes"), and $37.1 million of capital lease and
other financing obligations.
We have entered into various debt transactions and amendments to the Credit Agreement, which had varying levels
of impact on interest expense. Refer to Debt Transactions included elsewhere in this Management's Discussion and
Analysis, and Note 8, "Debt," of our audited consolidated financial statements included elsewhere in this Annual Report
on Form 10-K for more information regarding our debt transactions.
The Term Loan and Revolving Credit Facility accrue interest at variable interest rates. Refer to Item 7A,
“Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk,” included elsewhere in this Annual
Report on Form 10-K for more information regarding our exposure to potential changes in variable interest rates.
Our large amount of indebtedness may limit our flexibility in planning for, or reacting to, changes in our business
and future business opportunities, since a substantial portion of our cash flows from operations will be dedicated to the
servicing of our debt, and this may place us at a competitive disadvantage to competitors that are less leveraged. Our
leverage may make us more vulnerable to a downturn in our business, industry, or the economy in general. Refer to
Item 1A, “Risk Factors,” included elsewhere in this Annual Report on Form 10-K.
Other, net
Other, net primarily includes gains and losses associated with the remeasurement of non-U.S. dollar denominated
net monetary assets and liabilities into U.S. dollars, changes in the fair value of non-designated derivative financial
instruments, and debt financing transactions.
We derive a significant portion of our revenue from markets outside of the U.S. For financial reporting purposes,
the functional currency of all our subsidiaries is the U.S. dollar ("USD"). In certain instances, we enter into transactions
34
that are denominated in a currency other than USD. At the date the transaction is recognized, each asset, liability,
revenue, expense, gain, or loss arising from the transaction is measured and recorded in USD using the exchange rate in
effect at that date. At each balance sheet date, recorded monetary balances denominated in a currency other than USD are
adjusted to USD using the current exchange rate, with gains or losses recognized within Other, net.
In order to mitigate the potential exposure to variability in cash flows and earnings related to changes in foreign
currency exchange rates, we enter into foreign currency exchange rate forward contracts that may or may not be
designated as cash flow hedges. The change in fair value of foreign currency forward contracts that are not designated
for hedge accounting purposes are recognized in Other, net, and are driven by changes in the forward prices for the
foreign exchange rates that we hedge. We cannot predict the future trends in foreign exchange rates, and there can be no
assurance that gains or losses experienced in past periods will not recur in future periods.
We enter into forward contracts with third parties to offset a portion of our exposure to the potential change in
prices associated with certain commodities, including silver, gold, platinum, palladium, copper, aluminum, and nickel,
used in the manufacturing of our products. The terms of these forward contracts fix the price at a future date for various
notional amounts associated with these commodities. These derivatives are not designated as accounting hedges.
Changes in the fair value of these forward contracts are recognized within Other, net, and are driven by changes in the
forward prices for the commodities that we hedge. We cannot predict the future trends in commodity prices, and there
can be no assurance that commodity losses experienced in past periods will not recur in future periods.
We periodically enter into debt financing transactions. In accounting for these transactions, costs may be
capitalized or they may be recorded in the consolidated statements of operations as Other, net or Interest expense, net,
depending on the type of transaction and the nature of the costs.
Refer to Note 2, "Significant Accounting Policies," of our audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K for further discussion of the amounts recorded in Other, net. Refer to
Note 8, "Debt," of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K
for further discussion of the amounts recorded in Other, net related to losses on debt financing transactions. Refer to Item
7A, "Quantitative and Qualitative Disclosures About Market Risk," included elsewhere in this Annual Report on Form
10-K for further discussion of the sensitivity of amounts recorded in Other, net related to our non-designated commodity
and foreign exchange forward contracts.
Provision for income taxes
We are subject to income tax in the various jurisdictions in which we operate. We have a low effective cash tax rate
due to the amortization of intangible assets and other tax benefits derived from our operating and capital structure,
including tax incentives in both the U.K. and China, and favorable tax status in Mexico. In addition, the Dutch
participation exemption permits the payment of intercompany dividends without incurring taxable income in the
Netherlands.
While the extent of our future tax liability is uncertain, the impact of purchase accounting for past and future
acquisitions, changes to debt and equity capitalization of our subsidiaries, and the realignment of the functions performed
and risks assumed by our various subsidiaries are among the factors that will determine the future book and taxable
income of each respective subsidiary and Sensata as a whole.
Our effective tax rate will generally not equal the U.S. statutory rate of 35% due to various factors, the most
significant of which are described below. As these factors fluctuate from year to year, our effective tax rate will change.
The factors include, but are not limited to, the following:
•
•
•
•
changes in tax law;
establishing or releasing the valuation allowance related to our gross deferred tax assets;
because we operate in locations outside the U.S., including China, the Netherlands, South Korea, Malaysia,
and Bulgaria, that have statutory tax rates lower than the U.S. statutory rate, we generally see an effective rate
benefit, which changes from year to year based upon the mix of earnings;
as income tax audits related to our subsidiaries are closed, either as a result of negotiated settlements or final
assessments, we may recognize a tax expense or benefit;
35
•
•
•
due to lapses of the applicable statute of limitations related to unrecognized tax benefits, we may recognize a
tax benefit, including a benefit from the reversal of interest and penalties;
in certain jurisdictions, we record withholding and other taxes on intercompany payments, including
dividends; and
losses incurred in certain jurisdictions, predominantly the U.S., are not currently benefited, as it is not more
likely than not that the associated deferred tax asset will be realized in the foreseeable future.
Results of Operations
Our discussion and analysis of results of operations and financial condition are based upon our audited
consolidated financial statements. These financial statements have been prepared in accordance with U.S. generally
accepted accounting principles ("GAAP"). The preparation of these financial statements requires us to make estimates
and judgments that affect the amounts reported in the financial statements. We base our estimates on historical
experiences and assumptions believed to be reasonable under the circumstances and re-evaluate them on an ongoing
basis. These estimates form the basis for our judgments that affect the amounts reported in the financial statements.
Actual results could differ from our estimates under different assumptions or conditions. Our significant accounting
policies and estimates are more fully described in Note 2, "Significant Accounting Policies," of our audited consolidated
financial statements included elsewhere in this Annual Report on Form 10-K, and Critical Accounting Policies and
Estimates included elsewhere in this Management's Discussion and Analysis.
The table below presents our historical results of operations in millions of dollars and as a percentage of net
revenue. We have derived these results of operations for the years ended December 31, 2016, 2015, and 2014 from our
audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Amounts and
percentages in the table and discussion below have been calculated based on unrounded numbers. Accordingly, certain
amounts may not add due to the effect of rounding.
(Dollars in millions)
Net revenue
Performance Sensing
Sensing Solutions
Net revenue
Operating costs and expenses:
Cost of revenue
Research and development
Selling, general and administrative
Amortization of intangible assets
Restructuring and special charges
Total operating costs and expenses
Profit from operations
Interest expense, net
Other, net
Income before taxes
Provision for/(benefit from) income taxes
Net income
Net revenue - Overall
For the year ended December 31,
2016
2015
2014
Amount
Percent of
Net Revenue
Amount
Percent of
Net Revenue
Amount
Percent of
Net Revenue
$ 2,385.4
74.5% $ 2,346.2
78.9% $ 1,755.9
816.9
3,202.3
25.5
628.7
21.1
653.9
100.0% 2,975.0
100.0% 2,409.8
100.0%
72.9%
27.1
2,084.3
65.1
1,977.8
66.5
1,567.3
65.0
126.7
293.6
201.5
4.1
2,710.1
492.2
(165.8)
(4.9)
321.4
59.0
4.0
9.2
6.3
0.1
84.6
15.4
(5.2)
(0.2)
10.0
1.8
$
262.4
8.2% $
123.7
271.4
186.6
21.9
4.2
9.1
6.3
0.7
82.2
220.1
146.7
21.9
2,581.4
86.8
2,038.2
393.6
(137.6)
(50.3)
205.6
(142.1)
347.7
13.2
(4.6)
(1.7)
6.9
(4.8)
11.7% $
371.6
(106.1)
(12.1)
253.4
(30.3)
283.7
3.4
9.1
6.1
0.9
84.6
15.4
(4.4)
(0.5)
10.5
(1.3)
11.8%
Net revenue for fiscal year 2016 increased $227.3 million, or 7.6%, to $3,202.3 million from $2,975.0 million for
fiscal year 2015. The increase in net revenue was composed of a 1.7% increase in Performance Sensing and a 29.9%
increase in Sensing Solutions. Excluding 7.9% growth due to the net impact of an acquisition and exited businesses
36
(described in more detail below) and a 1.9% decline due to changes in foreign currency exchange rates, particularly the
Euro to U.S. dollar, organic revenue growth was 1.6% when compared to fiscal year 2015. Organic revenue growth is a
non-GAAP financial measure. Refer to the section entitled Non-GAAP Financial Measures for further information on
our use of this measure.
Net revenue for fiscal year 2015 increased $565.2 million, or 23.5%, to $2,975.0 million from $2,409.8 million for
fiscal year 2014. The increase in net revenue was composed of a 33.6% increase in Performance Sensing and a 3.9%
decrease in Sensing Solutions.
Net revenue - Performance Sensing
Performance Sensing net revenue for fiscal year 2016 increased $39.2 million, or 1.7%, to $2,385.4 million from
$2,346.2 million for fiscal year 2015. Excluding 1.9% growth due to the net impact of an acquisition and exited
businesses (described in more detail below) and a 2.1% decline due to changes in foreign currency exchange rates,
particularly the Euro to U.S. dollar, organic revenue growth was 1.9% when compared to fiscal year 2015. Organic
revenue growth is a non-GAAP financial measure. Refer to the section entitled Non-GAAP Financial Measures for
further information on our use of this measure.
We acquired CST (as defined in Note 6, "Acquisitions," of our audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K), a portion of which is being integrated into the Performance Sensing
segment, in the fourth quarter of 2015. The increase in revenue related to this acquisition was partially offset by the
decrease in revenue related to the exit from unprofitable businesses during the last twelve months.
Performance Sensing organic revenue growth was primarily driven by content and market growth, particularly in
our automotive end-markets in China and North America. This growth was partially offset by a decline in our HVOR
business as a result of weakness in the North American Class 8 truck and global construction markets, which was
partially offset by content growth in this business. In addition, price reductions of 1.8%, primarily related to automotive
customers, further reduced organic revenue growth. These price reductions are consistent with expectations for future
pricing pressures.
In general, regulatory requirements for higher fuel efficiency, lower emissions, and safer vehicles, such as the
Corporate Average Fuel Economy ("CAFE") requirements in the U.S., "Euro VI" requirements in Europe, and "China 4"
requirements in Asia, as well as consumer demand for operator productivity and convenience, drive the need for
advancements in engine management, safety features, and operator controls that in turn lead to greater demand for our
sensors.
Performance Sensing net revenue for fiscal year 2015 increased $590.4 million, or 33.6%, to $2,346.2 million from
$1,755.9 million for fiscal year 2014. Excluding 33.8% growth due to acquisitions (primarily DeltaTech and Schrader in
the third and fourth quarters of 2014, respectively) and a 3.6% decline due to changes in foreign currency exchange rates,
particularly the Euro to U.S. dollar, organic revenue growth was 3.4% when compared to fiscal year 2014. The growth in
organic revenue was primarily driven by growth in content, partially offset by a 2.3% reduction due to pricing, which is
consistent with past trends and expectations for future pricing pressures, and weakening heavy vehicle, agricultural,
construction, and Chinese light vehicle markets.
Net revenue - Sensing Solutions
Sensing Solutions net revenue for fiscal year 2016 increased $188.2 million, or 29.9%, to $816.9 million from
$628.7 million for fiscal year 2015. Excluding 30.5% growth due to the impact of the acquisition of CST in the fourth
quarter of 2015 and a 1.2% decline due to changes in foreign currency exchange rates, organic revenue growth
was 0.6% when compared to fiscal year 2015. Organic revenue growth is a non-GAAP financial measure. Refer to the
section entitled Non-GAAP Financial Measures for further information on our use of this measure. After experiencing an
organic revenue decline in the first half of 2016, Sensing Solutions organic revenue grew in the second half of the year
primarily due to a stabilizing market in China and broadly stronger demand for our electromechanical control and
pressure sensor products.
Sensing Solutions net revenue for fiscal year 2015 decreased $25.2 million, or 3.9%, to $628.7 million from
$653.9 million for fiscal year 2014. Excluding 4.2% growth due to the impact of the acquisition of Magnum in the
second quarter of 2014 and CST in the fourth quarter of 2015 and a 1.2% decline due to changes in foreign currency
exchange rates, organic revenue decline was 6.9% when compared to fiscal year 2015. Significant drivers of the decline
37
in organic revenue were broadly weaker markets in China and the industrial and appliance and heating, ventilation, and
air-conditioning end-markets, including continued inventory destocking, resulting in lower volumes. Organic revenue
during the year ended December 31, 2015 was also impacted by weakness in the semiconductor and communications
markets.
Cost of revenue
Cost of revenue for fiscal years 2016, 2015, and 2014 was $2,084.3 million (65.1% of net revenue), $1,977.8
million (66.5% of net revenue), and $1,567.3 million (65.0% of net revenue), respectively.
Cost of revenue decreased as a percentage of net revenue in fiscal year 2016 primarily due to lower material and
logistics costs and improved operating efficiencies, partially offset by the negative effect of changes in foreign currency
exchange rates and amounts accrued in 2016 related to the Automotive customer claim (as described in Note 14,
"Commitments and Contingencies" of our audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K). In addition, there were certain charges recorded in cost of revenue in fiscal year 2015 that did not
recur in fiscal year 2016, including a $6.0 million charge related to the settlement in the third quarter of 2015 of litigation
brought by Bridgestone, a $5.0 million charge related to the write-down of certain assets associated with the
announcement in the second quarter of 2015 of the shutdown of our Schrader Brazil manufacturing facility, and a $4.0
million charge taken in the second quarter of 2015 related to a warranty claim by a U.S. automaker.
Refer to Note 14, "Commitments and Contingencies," of the audited consolidated financial statements included in
our Annual Report on Form 10-K for the year ended December 31, 2015 for discussion of the settlement of the
Bridgestone litigation and the charge taken related to the U.S. automaker warranty claim. Refer to Note 17,
"Restructuring and Special Charges," of the audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K for discussion of the charge related to the announcement of the shutdown of the Schrader Brazil
manufacturing facility.
We anticipate that cost of revenue as a percentage of net revenue will further decline as we continue to create new
product designs, and drive operational efficiencies and improvements in productivity, including lowering material costs,
and as we integrate recently acquired businesses. We expect that these improvements will be partially offset in fiscal year
2017 by the negative effect of changes in foreign currency exchange rates. We generally complete integration activities
within 18 to 24 months after the related acquisition. However, the integrations of certain acquisitions, for example
Schrader and CST, are anticipated to take three to four years due to their size and scope.
Cost of revenue as a percentage of net revenue increased in 2015 primarily due to the dilutive effect of
acquisitions, and certain charges recorded in cost of revenue in 2015, as discussed above, partially offset by lower
material costs and productivity gains.
Research and development expense
R&D expense for fiscal years 2016, 2015, and 2014 was $126.7 million, $123.7 million, and $82.2 million,
respectively.
R&D expense has increased over the last two years due to continued investment to support new platform and
technology developments, both in our recently acquired and existing businesses, in order to drive future revenue growth.
Selling, general and administrative expense
SG&A expense for fiscal years 2016, 2015, and 2014 was $293.6 million, $271.4 million, and $220.1 million,
respectively.
SG&A expense increased in 2016 primarily due to the acquisition of CST, which added $35.6 million in SG&A
expense (excluding integration costs), and increased compensation costs, partially offset by lower acquisition related
transaction costs, the impact of the write-off in 2015 of a $5.0 million tax indemnification asset related to a pre-
acquisition tax liability that was favorably resolved, and the positive effect of changes in foreign currency exchange
rates.
SG&A expense increased in 2015 due primarily to $57.1 million in SG&A expense of acquired businesses,
integration costs, the write-off of the tax indemnification asset discussed above, and increased compensation costs,
partially offset by the impact of favorable foreign currency exchange rates, particularly the Euro to U.S. dollar, and lower
38
acquisition-related transaction costs. Acquisition related transaction costs included in SG&A expense were $9.4 million
in 2015.
Amortization of intangible assets
Amortization expense associated with definite-lived intangible assets for fiscal years 2016, 2015, and 2014 was
$201.5 million, $186.6 million, and $146.7 million, respectively.
Amortization expense has increased each year primarily due to amortization of intangible assets recognized as a
result of acquisitions, partially offset by a difference in the pattern of economic benefits over which intangible assets
were amortized (i.e. as intangible assets age, there is generally less economic benefit associated with them, and
accordingly less amortization expense as compared to previous years). We expect Amortization expense to decrease to
approximately $159.8 million in fiscal year 2017, as certain intangible assets, primarily those recognized as a result of
the 2006 carve-out and acquisition of our business from Texas Instruments and the 2011 acquisition of the Sensor-NITE
Group companies, become fully amortized.
Refer to Note 5, "Goodwill and Other Intangible Assets," and Note 6, "Acquisitions," of our audited consolidated
financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding
intangible assets and the related amortization.
Restructuring and special charges
Restructuring and special charges for fiscal years 2016, 2015, and 2014 were $4.1 million, $21.9 million, and
$21.9 million, respectively.
Restructuring and special charges for fiscal year 2016 primarily included facility exit costs related to the relocation
of manufacturing lines from our facility in the Dominican Republic to a manufacturing facility in Mexico, and severance
charges recorded in connection with acquired businesses and the termination of a limited number of employees in
various locations throughout the world. We completed the cessation of manufacturing in our Dominican Republic facility
in the third quarter of 2016.
Restructuring and special charges for fiscal year 2015 included $7.6 million of severance charges incurred in order
to integrate acquired businesses with ours, $4.0 million of severance charges incurred in the second quarter of 2015
related to the announced closing of our Schrader Brazil manufacturing facility, and the remainder primarily associated
with the termination of a limited number of employees in various locations throughout the world.
Restructuring and special charges for fiscal year 2014 consisted primarily of $16.2 million of severance charges
recorded in connection with acquired businesses, with the remainder relating to charges incurred in connection with the
termination of a limited number of employees in various locations throughout the world in order to align our structure
with our strategy.
The amounts included in restructuring and special charges are discussed in detail in Note 17, "Restructuring and
Special Charges," of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-
K.
Interest expense, net
Interest expense, net for fiscal years 2016, 2015, and 2014 was $165.8 million, $137.6 million, and $106.1 million,
respectively.
Interest expense, net increased in 2016 primarily as a result of the issuance of new debt related to the acquisition of
CST in the fourth quarter of 2015, partially offset by lower interest rates due to the refinancing of certain debt
instruments in 2015. In addition, 2015 included approximately $8.8 million in fees associated with bridge financing
obtained for the acquisition of CST that was not ultimately utilized.
Interest expense, net increased in 2015 primarily as a result of the issuance of new debt related to the acquisitions
of Schrader and CST in the fourth quarters of 2014 and 2015, respectively, and approximately $8.8 million in fees
associated with bridge financing obtained for the acquisition of CST that was not ultimately utilized, partially offset by
the impact of lower interest rates due to the refinancing of certain debt instruments in 2015.
39
Refer to Note 8, "Debt," of our audited consolidated financial statements included elsewhere in this Annual Report
on Form 10-K for more details on our financing transactions. Refer to Item 7A, "Quantitative and Qualitative
Disclosures About Market Risk," included elsewhere in this Annual Report on Form 10-K for an analysis of the
sensitivity of our interest expense to changes in interest rates.
Other, net
Other, net for fiscal years 2016, 2015, and 2014 consisted of net losses of $4.9 million, $50.3 million, and $12.1
million, respectively.
The favorable change in Other, net in 2016 compared to 2015 relates primarily to commodity forward contracts
and losses on debt financing transactions incurred during 2015 that did not recur in 2016.
The increase in net losses recognized during fiscal year 2015 as compared to 2014 relate primarily to increased
losses associated with our debt financing transactions and increased losses on commodity forward contracts.
Refer to Note 2, "Significant Accounting Policies," of our audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K for more details on the gains and losses included within Other, net. Refer
to Note 8, "Debt," and Note 16, "Derivative Instruments and Hedging Activities," of our audited consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for more details on the losses related to our debt
financing transactions and commodity forward contracts, respectively. Refer to Item 7A, "Quantitative and Qualitative
Disclosures About Market Risk," included elsewhere in this Annual Report on Form 10-K for an analysis of the
sensitivity of Other, net on changes in foreign currency exchange rates and commodity prices.
Provision for/(benefit from) income taxes
Provision for/(benefit from) income taxes for fiscal years 2016, 2015, and 2014 was $59.0 million, $(142.1)
million, and $(30.3) million, respectively. The Provision for/(benefit from) income taxes each year consists of current tax
expense, which relates primarily to our profitable operations in non-U.S. tax jurisdictions and withholding taxes on
interest and royalty income, and deferred tax expense, which relates to adjustments in book-to-tax basis differences,
primarily related to the step-up in fair value of fixed and intangible assets and goodwill, utilization of net operating
losses, and adjustments to our U.S. valuation allowance in connection with acquisitions made by our U.S. subsidiaries.
Our income tax expense for fiscal years 2016, 2015, and 2014 was less than the amounts computed at the U.S.
statutory rate of 35% by $53.5 million, $214.0 million, and $119.0 million, respectively. The most significant reconciling
items are noted below.
Foreign tax rate differential. We operate in locations outside the U.S., including China, the U.K., the Netherlands,
South Korea, Malaysia, and Bulgaria, that have statutory tax rates lower than the U.S. statutory rate, resulting in an
effective rate benefit. This benefit can change from year to year based upon the jurisdictional mix of earnings.
Certain of our subsidiaries are currently eligible, or have been eligible, for tax exemptions or holidays in their
respective jurisdictions. From 2013 through 2016, a subsidiary in Changzhou, China was eligible for a reduced tax rate
of 15%. The impact of the tax holidays and exemptions on our effective rate is included in the foreign tax rate differential
line in the reconciliation of the statutory rate to effective rate. Our operations in the U.K. qualify for a favorable tax
regime applicable to intellectual property revenues.
Release of valuation allowances. During the years ended December 31, 2016, 2015 and 2014, we released a
portion of our valuation allowance and recognized a benefit from income taxes of $1.9 million, $180.0 million, and
$71.1 million, respectively. These benefits arose primarily in connection with the 2015 acquisition of CST, and the 2014
acquisitions of Wabash, DeltaTech, and Schrader. For each of these acquisitions, deferred tax liabilities were established
and related primarily to the step-up of intangible assets for book purposes.
Losses not tax benefited. Losses incurred in certain jurisdictions, predominantly the U.S., are not currently
benefited, as it is not more likely than not that the associated deferred tax asset will be realized in the foreseeable future.
For the years ended December 31, 2016, 2015, and 2014, this resulted in a deferred tax expense of $32.5 million, $56.8
million, and $40.2 million, respectively.
Withholding taxes not creditable. Withholding taxes may apply to intercompany interest, royalty, management
fees, and certain payments to third parties. Such taxes are expensed if they cannot be credited against the recipient’s tax
40
liability in its country of residence. Additional consideration also has been given to the withholding taxes associated with
the remittance of presently unremitted earnings and the recipient's ability to obtain a tax credit for such taxes. Earnings
are not considered to be indefinitely reinvested in the jurisdictions in which they were earned.
Refer to Note 9, “Income Taxes,” of our audited consolidated financial statements included elsewhere in this
Annual Report on Form 10-K for more details on the tax rate reconciliation. We do not believe that there are any known
trends related to the reconciling items noted above that are reasonably likely to result in our liquidity increasing or
decreasing in any material way.
The valuation allowance as of December 31, 2016 and 2015 was $299.7 million and $296.9 million, respectively.
It is more likely than not that the related net operating losses will not be utilized in the foreseeable future. However, any
future release of all or a portion of this valuation allowance resulting from a change in this assessment will impact our
future (benefit from)/provision for income taxes.
Non-GAAP Financial Measures
This section provides additional information regarding certain non-GAAP financial measures, including adjusted
net income and organic revenue growth (or decline), which are used by our management, Board of Directors, and
investors, as further discussed below. Adjusted net income and organic revenue growth (or decline) should be considered
as supplemental in nature and are not intended to be considered in isolation or as a substitute for net income or net
revenue growth prepared in accordance with U.S. GAAP. In addition, our measures of adjusted net income and organic
revenue growth (or decline) may not be the same as, or comparable to, similar non-GAAP financial measures presented
by other companies.
Organic revenue growth (or decline)
We believe organic revenue growth (or decline) provides investors with helpful information with respect to our
operating performance, and we use organic revenue growth (or decline) to evaluate our ongoing operations and for
internal planning and forecasting purposes. We believe organic revenue growth (or decline) provides useful information
in evaluating the results of our business because it excludes items that we believe are not indicative of ongoing
performance or that we believe impact comparability with the prior year.
Organic revenue growth (or decline) is defined as the reported percentage change in net revenue calculated in
accordance with U.S. GAAP, excluding the impact of acquisitions, net of exited businesses that occurred within the
previous 12 months, and the effect of changes in foreign currency exchange rates.
Adjusted net income
Management uses adjusted net income as a measure of operating performance, for planning purposes (including
the preparation of our annual operating budget), to allocate resources to enhance the financial performance of our
business, to evaluate the effectiveness of our business strategies, and in communications with our Board of Directors and
investors concerning our financial performance. We believe investors and securities analysts also use adjusted net
income in their evaluation of our performance and the performance of other similar companies. Adjusted net income is
not a measure of liquidity. The use of adjusted net income has limitations, and this performance measure should not be
considered in isolation from, or as an alternative to, U.S. GAAP measures such as net income.
We define adjusted net income as follows: net income before certain restructuring and special charges, financing
and other transaction costs, deferred loss/(gain) on other hedges, depreciation and amortization expense related to the
step-up in fair value of fixed and intangible assets and inventory, deferred income tax and other tax (benefit)/expense,
amortization of deferred financing costs, and other costs as outlined in the reconciliation below.
Our definition of adjusted net income excludes the deferred provision for/(benefit from) income taxes and other tax
expense/(benefit). Our deferred provision for/(benefit from) income taxes includes adjustments for book-to-tax basis
differences primarily related to the step-up in fair value of fixed and intangible assets and goodwill, utilization of net
operating losses, and adjustments to our U.S. valuation allowance in connection with certain acquisitions. Other tax
expense/(benefit) includes certain adjustments to unrecognized tax positions. As we treat deferred income tax and other
tax expense/(benefit) as an adjustment to compute adjusted net income, the deferred income tax effect associated with
the reconciling items presented below would not change adjusted net income for any period presented. Refer to note (g)
to the table below for the theoretical current income tax expense/(benefit) associated with the reconciling items
indicated, which relate to jurisdictions where such items would provide tax expense/(benefit).
41
Many of these adjustments to net income relate to a series of strategic initiatives developed by our management
aimed at better positioning us for future revenue growth and an improved cost structure. These initiatives have been
modified from time to time to reflect changes in overall market conditions and the competitive environment facing our
business. These initiatives include, among other items, acquisitions, divestitures, restructurings of certain operations, and
various financing transactions. We describe these adjustments in more detail below.
The following unaudited table provides a reconciliation of adjusted net income to net income, the most directly
comparable financial measure presented in accordance with U.S. GAAP:
(Amounts in thousands)
Net income
For the year ended December 31,
2016
2015
2014
$
262,434
$
347,696
$
283,749
Restructuring and special charges(a)(g)
Financing and other transaction costs(b)
Deferred (gain)/loss on other hedges(c)
Depreciation and amortization expense related to the step-up in
fair value of fixed and intangible assets and inventory(d)(g)
Deferred income tax and other tax expense/(benefit)(e)
Amortization of deferred financing costs(f)
Total adjustments(g)
14,982
1,508
(19,347)
210,847
17,086
7,334
232,410
42,332
43,850
11,864
193,370
(173,550)
6,456
124,322
Adjusted net income
$
494,844
$
472,018
$
9,552
18,594
(915)
155,785
(61,588)
5,118
126,546
410,295
(a) The following unaudited table provides a detail of the components of restructuring and special charges, the total of
which is included as an adjustment to arrive at adjusted net income for fiscal years 2016, 2015, and 2014 as shown
in the above table:
(Amounts in thousands)
Severance costs(i)
Facility related costs(ii)
Special charges and other(iii)
Total restructuring and special charges
__________________
For the year ended December 31,
2016
2015
2014
$
$
21
$
15,560
$
10,945
4,016
11,353
15,419
14,982
$
42,332
$
6,475
—
3,077
9,552
i. Consists primarily of severance charges incurred and accounted for as part of ongoing benefit
arrangements, excluding those costs recorded in connection with the integration of acquired businesses.
Fiscal year 2015 also includes $4.0 million in severance charges associated with our decision to close our
Schrader Brazil manufacturing facility and exit that business (refer also to Note 17, "Restructuring and
Special Charges" of our audited consolidated financial statements included elsewhere in this Annual Report
on Form 10-K).
ii. Consists primarily of costs associated with line moves and the closing or relocation of various facilities
throughout the world. In fiscal year 2016, these costs include $3.7 million of costs associated with the
relocation of manufacturing lines from our facility in the Dominican Republic to a manufacturing facility in
Mexico, $1.1 million in in non-severance related costs associated with the closing of our Schrader Brazil
manufacturing facility, and $3.8 million of costs associated with other exited product lines. In fiscal year
2015, these costs include non-severance related costs associated with our decision to close our Schrader
Brazil manufacturing facility, including a $5.0 million charge to write-down certain assets (refer to Note 17,
"Restructuring and Special Charges," of our audited consolidated financial statements included elsewhere
in this Annual Report on Form 10-K for additional information).
42
iii. Consists of other expenses that do not fall within one of the other specific categories, including, in fiscal
year 2015, losses associated with the settlement of certain preacquisition loss contingencies, including the
U.S. automaker warranty claim ($4.0 million) and the Bridgestone intellectual property litigation ($6.0
million). Refer to Note 14, "Commitments and Contingencies," of our audited consolidated financial
statements included in the Annual Report on Form 10-K for the year ended December 31, 2015 for
additional information.
(b) Includes losses related to debt financing transactions, costs incurred in connection with secondary offering
transactions, and costs associated with acquisition activity. Costs associated with debt financing transactions are
generally recorded in either Other, net or Interest expense, net, and costs associated with secondary transactions and
acquisition activity are generally recorded in SG&A expense. Refer to Note 8, "Debt," and Note 6, "Acquisitions,"
of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for
additional information.
(c) Reflects primarily unrealized and deferred losses/(gains), net on commodity and other hedges.
(d) Represents depreciation and amortization expense related to the step-up in fair value of fixed and intangible assets
and inventory related to acquisitions.
(e) Represents deferred income tax and other tax expense/(benefit), including provisions for, and interest expense and
penalties related to, certain unrecognized tax benefits (or benefits from their release). Our deferred income tax
includes adjustments for book-to-tax basis differences primarily related to the step-up in fair value of fixed and
intangible assets and goodwill, utilization of net operating losses and adjustments to our U.S. valuation allowance in
connection with certain acquisitions. Other tax expense/(benefit) includes certain adjustments to unrecognized tax
positions. Fiscal years 2016, 2015, and 2014 include $1.9 million, $180.0 million, and $71.1 million, respectively, of
deferred income tax benefits related to the release of portions of our U.S. valuation allowance in connection with our
2015 acquisition of CST and our 2014 acquisitions of Wabash, DeltaTech, and Schrader. For each of these
acquisitions, deferred tax liabilities were established related primarily to the step-up of intangible assets for book
purposes.
(f) Represents amortization expense related to deferred financing costs and original issue discounts.
(g) The theoretical current income tax (benefit)/expense associated with the reconciling items presented above is shown
below for each period presented. The theoretical current income tax (benefit)/expense was calculated by multiplying
the reconciling items, which relate to jurisdictions where such items would provide current tax (benefit)/expense, by
the applicable tax rates.
(Amounts in thousands)
Restructuring and special charges
Depreciation and amortization expense related to the step-up in fair
value of fixed and intangible assets and inventory
For the year ended December 31,
2016
2015
2014
(1,001) $
(2,119) $
(1,405)
(149) $
(595) $
(1,291)
$
$
Liquidity and Capital Resources
We held cash and cash equivalents of $351.4 million and $342.3 million at December 31, 2016 and 2015,
respectively, of which $37.8 million and $124.6 million, respectively, was held in the Netherlands, $5.7 million and
$33.4 million, respectively, was held by U.S. subsidiaries, and $307.9 million and $184.3 million, respectively, was held
by other foreign subsidiaries. The amount of cash and cash equivalents held in the Netherlands and in our U.S. and other
foreign subsidiaries fluctuates throughout the year due to a variety of factors, including the timing of cash receipts and
disbursements in the normal course of business, and the timing of debt issuances and payments, repurchases of ordinary
shares, and other financing transactions.
43
Cash Flows
The table below summarizes our primary sources and uses of cash for the years ended December 31, 2016, 2015,
and 2014. We have derived these summarized statements of cash flows from our audited consolidated financial
statements included elsewhere in this Annual Report on Form 10-K. Amounts in the table below have been calculated
based on unrounded numbers. Accordingly, certain amounts may not add due to the effect of rounding.
(Amounts in millions)
Net cash provided by/(used in):
Operating activities:
For the year ended December 31,
2016
2015
2014
Net income adjusted for non-cash items
$
615.5
$
508.7
$
466.3
Changes in operating assets and liabilities, net of effects of
acquisitions
Operating activities
Investing activities
Financing activities
Net change
Operating Activities
(93.9)
521.5
(174.8)
(337.6)
9.2
$
24.4
533.1
(1,166.4)
764.2
130.9
$
(83.8)
382.6
(1,430.1)
940.9
(106.6)
$
Net cash provided by operating activities during the years ended December 31, 2016, 2015, and 2014 was $521.5
million, $533.1 million, and $382.6 million, respectively.
The decrease in net cash provided by operating activities in 2016 compared to 2015 is primarily due to a build up
of inventory to support anticipated line moves and timing of supplier payments and customer receipts, partially offset by
higher net income (after adjusting for non-cash items).
The increase in net cash provided by operating activities in 2015 compared to 2014 is primarily due to the
cumulative effect of the following: (1) the positive cash flow impact in 2015 of improved inventory and supply chain
management, (2) the negative cash flow impact in 2014 of a buildup in inventory (partially offset by the related increase
in amounts due to suppliers), (3) timing of customer receipts, and (4) growth in net income adjusted for non-cash items,
primarily resulting from higher sales and the resulting profit. In 2014, we built inventory to continue to ensure on-time
delivery to our customers and in preparation for the implementation of our upgraded enterprise resource planning
("ERP") system.
Investing Activities
Net cash used in investing activities during the years ended December 31, 2016, 2015, and 2014 was $174.8
million, $1,166.4 million, and $1,430.1 million, respectively, which included $130.2 million, $177.2 million, and $144.2
million, respectively, in capital expenditures. Capital expenditures primarily relate to investments associated with
increasing our manufacturing capacity, and in 2014 included costs to upgrade our existing ERP system. In 2017, we
anticipate capital expenditures of approximately $130.0 million to $150.0 million, which we expect to be funded with
cash flows from operations.
In addition, in 2016, net cash used in investing activities included an investment of $50.0 million in preferred stock
of Quanergy Systems, Inc. Refer to Note 15, "Fair Value Measures," for further discussion of this investment.
In 2015, we used $996.9 million, net of cash received, to acquire CST, and in 2014 we used $995.3 million, net of
cash received, to acquire Schrader. In addition, in 2014 we used $298.4 million, net of cash received, for the acquisitions
of Wabash, Magnum, and DeltaTech. Refer to Note 6, "Acquisitions," of our audited consolidated financial statements
included elsewhere in this Annual Report on Form 10-K for further details of cash used for acquisitions.
Financing Activities
Net cash (used in)/provided by financing activities during the years ended December 31, 2016, 2015, and 2014 was
$(337.6) million, $764.2 million, and $940.9 million, respectively.
44
Net cash used in financing activities in 2016 consisted primarily of $336.3 million in payments on debt,
including $280.0 million in payments on the Revolving Credit Facility and $44.9 million in payments on the Term Loan.
Net cash provided by financing activities during 2015 consisted primarily of $2,795.1 million of proceeds from the
issuance of debt, partially offset by $2,000.3 million in payments on debt. These issuances and payments include
amounts related to certain debt instruments that were refinanced in 2015, including $700.0 million aggregate principal
amount of 6.5% senior notes due 2019 (the "6.5% Senior Notes") that were tendered and redeemed in March and April
2015 using the proceeds from the issuance and sale of the 5.0% Senior Notes, and $990.1 million of previously existing
term loans that were prepaid in May 2015 with the proceeds from the entry into the Term Loan.
In addition, proceeds from the issuance of debt include $750.0 million of proceeds from the issuance and sale of
the 6.25% Senior Notes in November 2015, and $355.0 million in total aggregate borrowings on the Revolving Credit
Facility in 2015. Cash payments on debt also include $205.0 million in total aggregate payments on the Revolving Credit
Facility in 2015, and $75.0 million of payments on our then-existing term loan prior to its refinancing. Refer to Note 8,
"Debt," of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for
further discussion of our normal debt servicing requirements.
Net cash provided by financing activities during 2014 consisted primarily of $1,190.5 million of proceeds from the
issuance of debt, partially offset by $181.8 million used to repurchase ordinary shares (which includes $169.7 million
paid to our former principal shareholder, Sensata Investment Company S.C.A. (“SCA”)), and $76.4 million in payments
on debt.
The proceeds from the issuance of debt in 2014 relates primarily to $400.0 million in proceeds from the issuance
and sale of the 5.625% Senior Notes, $595.5 million in proceeds from the entry into an incremental term loan facility
(subsequently refinanced in 2015) at an original issuance price of 99.25%, and the aggregate amount drawn on the
Revolving Credit Facility in 2014. Refer to the Indebtedness and Liquidity section below, and Note 8, "Debt," of our
audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further discussion
of these transactions. The payments to repurchase ordinary shares in 2014 are primarily associated with our $250.0
million share repurchase program, discussed further in the Capital Resources section below. The cash payments on debt
in 2014 primarily include the total aggregate amount paid on the Revolving Credit Facility in 2014.
Indebtedness and Liquidity
Our liquidity requirements are significant due to the highly leveraged nature of our company. The following table
details our gross outstanding indebtedness as of December 31, 2016, and the associated interest expense for fiscal year
2016:
Description
(Amounts in thousands)
Term Loan
4.875% Senior Notes
5.625% Senior Notes
5.0% Senior Notes
6.25% Senior Notes
Capital lease and other financing obligations
Total
Other interest expense, net
Total interest expense, net
Debt Instruments
Balance at
December 31,
2016
Interest expense,
net for fiscal
year 2016
$
937,794
$
500,000
400,000
700,000
750,000
37,111
$
3,324,905
29,788
24,375
22,500
35,000
46,875
3,087
161,625
4,193
$
165,818
Summarized information regarding our debt instruments is described below. Refer to Note 8, “Debt,” of our audited
consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details of the terms
of the Senior Notes, the Senior Secured Credit Facilities (as defined below), and the amendments to the Credit
Agreement.
45
Senior Secured Credit Facilities
In May 2011, we completed a series of transactions designed to refinance our then existing indebtedness. These
transactions included the execution of the Credit Agreement which provided for senior secured credit facilities (the
"Senior Secured Credit Facilities") consisting of a $1,100.0 million term loan facility and the Revolving Credit Facility.
The Senior Secured Credit Facilities also allowed for future additional borrowings under certain circumstances.
Term Loan
In May 2015, we entered into an amendment (the "Sixth Amendment") of the Credit Agreement. Pursuant to the
Sixth Amendment, all term loans outstanding on that date were prepaid in full, and the Term Loan was entered into in an
aggregate principal amount of $990.1 million, equal to the sum of the outstanding balances of the term loans that were
prepaid. The Term Loan was offered at 99.75% of par. The maturity date of the Term Loan is October 14, 2021. The
principal amount of the Term Loan amortizes in equal quarterly installments in an aggregate annual amount equal to
1.0% of the original principal amount, with the balance due at maturity. The Term Loan accrues interest at a variable rate,
based on a LIBOR index rate, subject to a floor of 0.75% plus a spread of 2.25%. At December 31, 2016, the Term Loan
accrued interest at a rate of 3.02%.
4.875% Senior Notes
In April 2013, we completed the issuance and sale of the 4.875% Senior Notes. We used the proceeds from the
issuance and sale of these notes, together with cash on hand, to, among other things, repay $700.0 million of our then-
existing term loan. The 4.875% Senior Notes were offered at par, and mature on October 15, 2023. Interest on the
4.875% Senior Notes is payable semi-annually on April 15 and October 15 of each year.
5.625% Senior Notes
In October 2014, we completed the issuance and sale of the 5.625% Senior Notes, which were offered at par, and
mature on November 1, 2024. Interest on the 5.625% Senior Notes is payable semi-annually on May 1 and November 1
of each year.
5.0% Senior Notes
In March 2015, we completed the issuance and sale of the 5.0% Senior Notes, in order to refinance the 6.5% Senior
Notes. The 5.0% Senior Notes were offered at par, and mature on October 1, 2025. Interest on the 5.0% Senior Notes is
payable semi-annually on April 1 and October 1 of each year.
6.25% Senior Notes
On November 27, 2015, we completed the issuance and sale of the 6.25% Senior Notes, which were offered at par,
and mature on February 15, 2026. Interest on the 6.25% Senior Notes is payable semi-annually on February 15 and
August 15 of each year, with the first payment made on February 15, 2016.
Revolving Credit Facility
The original amount available for borrowing under the Revolving Credit Facility per the terms of the Credit
Agreement was $250.0 million. On March 26, 2015, we entered into an amendment (the "Fifth Amendment") to the
Credit Agreement, which increased the amount available for borrowing under the Revolving Credit Facility to $350.0
million. On September 29, 2015, we entered into an amendment (the "Seventh Amendment") to the Credit Agreement,
which increased the amount available for borrowing under the Revolving Credit Facility to $420.0 million.
As of December 31, 2016, there was $414.4 million of availability under the Revolving Credit Facility (net of $5.6
million of letters of credit). Outstanding letters of credit are issued primarily for the benefit of certain operating activities.
As of December 31, 2016, no amounts had been drawn against these outstanding letters of credit, which are scheduled to
expire on various dates in 2017.
Capital Resources
Our sources of liquidity include cash on hand, cash flows from operations, and available capacity under the
Revolving Credit Facility. In addition, the Senior Secured Credit Facilities provide for incremental facilities (the
46
“Accordion”), under which additional term loans may be issued or the capacity of the Revolving Credit Facility may be
increased. As of December 31, 2016, $230.0 million remained available for issuance under the Accordion.
We believe, based on our current level of operations as reflected in our results of operations for the year ended
December 31, 2016, and taking into consideration the restrictions and covenants discussed below, that these sources of
liquidity will be sufficient to fund our operations, capital expenditures, ordinary share repurchases, and debt service for
at least the next twelve months.
However, we cannot make assurances that our business will generate sufficient cash flows from operations or that
future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other
liquidity needs. Further, our highly leveraged nature may limit our ability to procure additional financing in the future.
The Credit Agreement stipulates certain events and conditions that may require us to use excess cash flow, as
defined by the terms of the Credit Agreement, generated by operating, investing, or financing activities, to prepay some
or all of the outstanding borrowings under the Senior Secured Credit Facilities. The Credit Agreement also requires
mandatory prepayments of the outstanding borrowings under the Senior Secured Credit Facilities upon certain asset
disposition and casualty events, in each case subject to certain reinvestment rights, and the incurrence of certain
indebtedness (excluding any permitted indebtedness). These provisions were not triggered during the year ended
December 31, 2016.
Our ability to raise additional financing, and our borrowing costs, may be impacted by short-term and long-term
debt ratings assigned by independent rating agencies, which are based, in significant part, on our performance as
measured by certain credit metrics such as interest coverage and leverage ratios. As of January 27, 2017, Moody’s
Investors Service’s corporate credit rating for STBV was Ba2 with a negative outlook and Standard & Poor’s corporate
credit rating for STBV was BB with a positive outlook. Any future downgrades to STBV's credit ratings may increase
our borrowing costs, but will not reduce availability under the Credit Agreement.
We have a $250.0 million share repurchase program in place. Under this program, we may repurchase ordinary
shares from time to time, at such times and in amounts to be determined by our management, based on market
conditions, legal requirements, and other corporate considerations, on the open market or in privately negotiated
transactions. We expect that any future repurchases of ordinary shares will be funded by cash from operations. The share
repurchase program may be modified or terminated by our Board of Directors at any time. We did not repurchase any
ordinary shares under this program in 2016 or 2015. During 2014, we repurchased 4.3 million ordinary shares for an
aggregate purchase price of $181.8 million. On February 1, 2016, our Board of Directors amended the terms of this
program in order to reset the amount available for share repurchases to $250.0 million. At December 31, 2016, $250.0
million remained available for share repurchase under this program.
The Credit Agreement and the indentures under which the Senior Notes were issued (the "Senior Notes
Indentures") contain restrictions and covenants that limit the ability of STBV and certain of its subsidiaries to, among
other things, incur subsequent indebtedness, sell assets, make capital expenditures, pay dividends, and make other
restricted payments. These restrictions and covenants, which are subject to important exceptions and qualifications set
forth in the Credit Agreement and Senior Notes Indentures, and which are described in more detail below and in Note 8,
"Debt," of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, were
taken into consideration in establishing our share repurchase program, and are evaluated periodically with respect to
future potential funding. We do not believe that these restrictions and covenants will prevent us from funding share
repurchases under our share repurchase program with available cash and cash flows from operations, should we decide to
do so.
STBV is limited in its ability to pay dividends or otherwise make distributions to its immediate parent company
and, ultimately, to us, under the Credit Agreement and the Senior Notes Indentures. Specifically, the Credit Agreement
prohibits STBV from paying dividends or making any distributions to its parent companies except for limited purposes,
including, but not limited to: (i) customary and reasonable operating expenses, legal and accounting fees and expenses,
and overhead of such parent companies incurred in the ordinary course of business in the aggregate not to exceed $10.0
million in any fiscal year, plus reasonable and customary indemnification claims made by our directors or officers
attributable to the ownership of STBV and its Restricted Subsidiaries (currently all of the subsidiaries of STBV); (ii)
franchise taxes, certain advisory fees, and customary compensation of officers and employees of such parent companies
to the extent such compensation is attributable to the ownership or operations of STBV and its Restricted Subsidiaries;
(iii) repurchase, retirement, or other acquisition of equity interest of the parent from certain present, future, and former
employees, directors, managers, consultants of the parent companies, STBV, or its subsidiaries in an aggregate amount
47
not to exceed $15.0 million in any fiscal year, plus the amount of cash proceeds from certain equity issuances to such
persons, the amount of equity interests subject to a certain deferred compensation plan, and the amount of certain key-
man life insurance proceeds; (iv) so long as no default or event of default exists and the senior secured net leverage ratio
is less than 2.0:1.0 calculated on a pro forma basis, dividends and other distributions in an aggregate amount not to
exceed $100.0 million, plus certain amounts, including the retained portion of excess cash flow; (v) dividends and other
distributions in an aggregate amount not to exceed $40.0 million in any calendar year (subject to increase upon the
achievement of certain ratios); and (vi) so long as no default or event of default exists, dividends and other distributions
in an aggregate amount not to exceed $150.0 million.
As of December 31, 2016, we were in compliance with all the covenants and default provisions under the Credit
Agreement. For more information on our indebtedness and related covenants and default provisions, refer to Note 8,
"Debt," of our audited consolidated financial statements, and Item 1A, “Risk Factors,” each included elsewhere in this
Annual Report on Form 10-K.
Contractual Obligations and Commercial Commitments
The table below reflects our contractual obligations as of December 31, 2016. Amounts we pay in future periods
may vary from those reflected in the table. Amounts in the table below have been calculated based on unrounded
numbers. Accordingly, certain amounts may not add due to the effect of rounding.
(Amounts in millions)
Debt obligations principal(1)
Debt obligations interest(2)
Capital lease obligations principal(3)
Capital lease obligations interest(3)
Other financing obligations principal(4)
Other financing obligations interest(4)
Operating lease obligations(5)
Non-cancelable purchase obligations(6)
Total(7)(8)
Payments Due by Period
Total
Less than
1 Year
1-3 Years
3-5 Years
More than
5 Years
$
3,287.8
$
9.9
$
19.8
$
908.1
$
2,350.0
1,246.7
157.4
313.8
308.2
30.7
14.1
6.4
1.1
69.8
15.6
2.6
2.5
2.2
0.3
13.1
9.5
5.8
4.4
4.0
0.7
17.5
5.9
6.5
3.5
0.2
0.1
8.7
0.1
467.3
15.8
3.7
—
—
30.5
0.1
$
4,672.2
$
197.5
$
371.9
$
1,235.4
$
2,867.4
__________________
(1) Represents the contractually required principal payments under the Senior Notes and the Term Loan as of
December 31, 2016 in accordance with the required payment schedule.
(2) Represents the contractually required interest payments on our debt obligations in existence as of December 31,
2016 in accordance with the required payment schedule. Cash flows associated with the next interest payment to be
made on our variable rate debt subsequent to December 31, 2016 were calculated using the interest rates in effect as
of the latest interest rate reset date prior to December 31, 2016, plus the applicable spread.
(3) Represents the contractually required payments under our capital lease obligations in existence as of December 31,
2016 in accordance with the required payment schedule. No assumptions were made with respect to renewing the
lease term at its expiration date.
(4) Represents the contractually required payments under our financing obligations in existence as of December 31,
2016 in accordance with the required payment schedule. No assumptions were made with respect to renewing the
financing arrangements at their expiration dates.
(5) Represents the contractually required payments under our operating lease obligations in existence as of
December 31, 2016 in accordance with the required payment schedule. No assumptions were made with respect to
renewing the lease obligations at the expiration date of their initial terms.
(6) Represents the contractually required payments under our various purchase obligations in existence as of
December 31, 2016. No assumptions were made with respect to renewing the purchase obligations at the expiration
date of their initial terms, and no amounts were assumed to be prepaid.
(7) Contractual obligations denominated in a foreign currency were calculated utilizing the U.S. dollar to local currency
exchange rates in effect as of December 31, 2016.
48
(8) This table does not include the contractual obligations associated with our defined benefit and other post-retirement
benefit plans. As of December 31, 2016, we had recognized a net benefit liability of $37.6 million, representing the
net unfunded benefit obligations of the defined benefit and retiree healthcare plans. Refer to Note 10, "Pension and
Other Post-Retirement Benefits," of our audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K for additional information on pension and other post-retirement benefits, including expected
benefit payments for the next 10 years. This table also does not include $12.0 million of unrecognized tax benefits as
of December 31, 2016, as we are unable to make reasonably reliable estimates of when cash settlement, if any, will
occur with a tax authority, as the timing of the examination and the ultimate resolution of the examination is
uncertain. Refer to Note 9, "Income Taxes," of our audited consolidated financial statements included elsewhere in
this Annual Report on Form 10-K for additional information on income taxes.
Legal Proceedings
We account for litigation and claims losses in accordance with Accounting Standards Codification ("ASC") Topic
450, Contingencies (“ASC 450”). Under ASC 450, loss contingency provisions are recorded for probable and estimable
losses at our best estimate of a loss or, when a best estimate cannot be made, at our estimate of the minimum loss. These
estimates are often developed prior to knowing the amount of the ultimate loss, require the application of considerable
judgment, and are refined each accounting period as additional information becomes known. Accordingly, we are often
initially unable to develop a best estimate of loss and therefore the minimum amount, which could be an immaterial
amount, is recorded. As information becomes known, either the minimum loss amount is increased, or a best estimate
can be made, generally resulting in additional loss provisions. A best estimate amount may be changed to a lower amount
when events result in an expectation of a more favorable outcome than previously expected. There can be no assurances
that our recorded provisions will be sufficient to cover the extent of our costs and potential liability. Refer to Note 14,
"Commitments and Contingencies," of our audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K for discussion of material outstanding legal proceedings.
Inflation
We do not believe that inflation has had a material effect on our financial condition or results of operations in
recent years.
Seasonality
Because of the diverse nature of the markets in which we operate, our revenue is only moderately impacted by
seasonality. However, our Sensing Solutions business has some seasonal elements, specifically in its air conditioning and
refrigeration products, which tend to peak in the first two quarters of the year as end-market inventory is built up for
spring and summer sales.
Critical Accounting Policies and Estimates
To prepare our financial statements in conformity with generally accepted accounting principles, we must make
complex and subjective judgments in the selection and application of accounting policies. The accounting policies and
estimates that we believe are most critical to the portrayal of our financial position and results of operations are listed
below. We believe these policies require our most difficult, subjective, and complex judgments in estimating the effect of
inherent uncertainties. This section should be read in conjunction with Note 2, "Significant Accounting Policies," of our
audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, which includes other
significant accounting policies.
Revenue Recognition
We recognize revenue in accordance with ASC Topic 605, Revenue Recognition ("ASC 605"). Revenue and related
cost of revenue from product sales are recognized when the significant risks and rewards of ownership have been
transferred, title to the product and risk of loss transfers to our customers, and collection of sales proceeds is reasonably
assured. Based on these criteria, revenue is generally recognized when the product is shipped from our warehouse or, in
limited instances, when it is received by the customer, depending on the specific terms of the arrangement. Product sales
are recorded net of trade discounts (including volume and early payment incentives), sales returns, value-added tax, and
similar taxes. Sales to customers generally include a right of return for defective or non-conforming product. Sales
returns have not historically been significant in relation to our net revenue and have been within our estimates.
49
Goodwill, Intangible Assets, and Long-Lived Assets
Businesses acquired are recorded at their fair value on the date of acquisition, with the excess of the purchase price
over the fair value of identifiable assets acquired and liabilities assumed recognized as goodwill. Assets acquired may
include either definite-lived or indefinite-lived intangible assets, or both. As of December 31, 2016, goodwill and other
intangible assets, net totaled $3,005.5 million and $1,075.4 million, respectively, or approximately 48% and 17%,
respectively, of our total assets.
Identification of reporting units
We have five reporting units: Performance Sensing, Electrical Protection, Power Management, Industrial Sensing,
and Interconnection. These reporting units have been identified based on the definitions and guidance provided in ASC
Topic 350, Intangibles—Goodwill and Other (“ASC 350”). Identification of reporting units includes an analysis of the
components that comprise each of our operating segments, which considers, among other things, the manner in which we
operate our business and the availability of discrete financial information. Components of an operating segment are
aggregated to form one reporting unit if the components have similar economic characteristics. We periodically review
these reporting units to ensure that they continue to reflect the manner in which the business is operated.
Assignment of assets, liabilities, and goodwill to reporting units
In the event we reorganize our business, we reassign the assets (including goodwill) and liabilities among the
affected reporting units using a reasonable and supportable methodology. As businesses are acquired, we assign assets
acquired (including goodwill) and liabilities assumed to an existing reporting unit or create a new reporting unit, as of the
date of acquisition. Some assets and liabilities relate to the operations of multiple reporting units. We allocate these
assets and liabilities to the reporting units based on methods that we believe are reasonable and supportable. We apply
that allocation method on a consistent basis from year to year. We view some assets and liabilities, such as cash and cash
equivalents, property, plant and equipment associated with our corporate offices, and debt, as being corporate in nature.
Accordingly, we do not assign these assets and liabilities to our reporting units.
Evaluation of goodwill for impairment
In accordance with the requirements of ASC 350, goodwill and intangible assets determined to have an indefinite
useful life are not amortized. Instead, these assets are evaluated for impairment on an annual basis and whenever events
or business conditions change that could indicate that the asset is impaired. Our judgments regarding the existence of
impairment indicators are based on several factors, including the performance of the end-markets served by our
customers, as well as the actual financial performance of our reporting units and their respective financial forecasts over
the long-term. We evaluate goodwill and indefinite-lived intangible assets for impairment in the fourth quarter of each
fiscal year, unless events occur which trigger the need for an earlier impairment review.
We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair
value of a reporting unit is less than its net book value. If we elect not to use this option, or we determine that it is more
likely than not that the fair value of a reporting unit is less than its net book value, we then perform the two-step goodwill
impairment test.
In the first step of the two-step goodwill impairment test, we compare the estimated fair values of our reporting
units to their respective net book values, including goodwill, to determine whether there is an indicator of potential
impairment. If the net book value of a reporting unit exceeds its estimated fair value, we conduct a second step in which
we calculate the implied fair value of goodwill. If the carrying value of the reporting unit’s goodwill exceeds its
calculated implied fair value, an impairment loss is recognized in an amount equal to that excess. The implied fair value
of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is,
the fair value of the reporting unit is allocated to all of its identifiable assets and liabilities (including any unrecognized
intangible assets) as if the reporting unit had been acquired in a business combination at the date of assessment and the
fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The excess of the fair value of
the reporting unit over the sum of the fair values of each of its identifiable assets and liabilities is the implied fair value
of goodwill.
2016 assessment of goodwill. We evaluated our goodwill for impairment as of October 1, 2016. In connection with
this evaluation, we used the qualitative method of assessing goodwill, and determined that it was not more likely than not
that the fair values of each of our Performance Sensing, Electrical Protection, Power Management, Industrial Sensing,
50
and Interconnection reporting units were less than their net book values. In making this determination, we considered
several factors, including the following:
•
•
•
•
•
•
the amount by which the fair value of the Performance Sensing, Electrical Protection, Power Management,
and Interconnection reporting units exceeded their carrying values (301%, 273%, 206%, and 328%,
respectively) as of October 1, 2013, and the amount by which the Industrial Sensing reporting unit exceeded
its carrying value (340%) as of December 1, 2014, indicating that there would need to be substantial negative
developments in the markets in which these reporting units operate in order for there to be a potential
impairment;
the carrying values of these reporting units as of October 1, 2016 compared to the previously calculated fair
values as of October 1, 2013 (or December 1, 2014 in the case of Industrial Sensing);
public information from competitors and other industry information to determine if there were any significant
adverse trends in our competitors' businesses, such as significant declines in market capitalization or
significant goodwill impairment charges that could be an indication that the goodwill of our reporting units
was potentially impaired;
demand in the debt markets for our senior notes, the strength of which indicates a view by investors of our
strength as a company;
changes in the value of major U.S. stock indices that could suggest declines in overall market stability that
could impact the valuation of our reporting units;
changes in our market capitalization and overall enterprise valuation to determine if there were any
significant decreases that could be an indication that the valuation of our reporting units had significantly
decreased; and
• whether there had been any significant increases to the weighted-average cost of capital ("WACC") rates for
each reporting unit, which could materially lower our prior valuation conclusions under a discounted cash
flow approach.
Changes to the factors considered above could affect the estimated fair value of one or more of our reporting units
and could result in a goodwill impairment charge in a future period. We may be unaware of one or more significant
factors that, if we had been aware of, would cause our conclusion that it is not more likely than not that the fair values of
our reporting units are less than their carrying values to change, which could result in a goodwill impairment charge in a
future period.
We did not prepare updated goodwill impairment analyses as of December 31, 2016 for any reporting unit, as we
did not become aware of any indicators after October 1, 2016 that would have required such analysis.
Assessment of fair value in prior years. In 2013 (and in 2014 for Industrial Sensing), we estimated the fair value of
our reporting units using the discounted cash flow method. For this method, we prepared detailed annual projections of
future cash flows for each reporting unit for the following five fiscal years (the “Discrete Projection Period”). We
estimated the value of the cash flows beyond the fifth fiscal year (the “Terminal Year”), by applying a multiple to the
projected Terminal Year net earnings before interest, taxes, depreciation, and amortization ("EBITDA"). The cash flows
from the Discrete Projection Period and the Terminal Year were discounted at an estimated WACC appropriate for each
reporting unit. The estimated WACC was derived, in part, from comparable companies appropriate to each reporting
unit. We believe that our procedures for estimating discounted future cash flows, including the Terminal Year valuation,
were reasonable and consistent with accepted valuation practices.
We also estimated the fair value of our reporting units using the guideline company method. Under this method, we
performed an analysis to identify a group of publicly-traded companies that were comparable to each reporting unit. We
calculated an implied EBITDA multiple (e.g., invested capital/EBITDA) for each of the guideline companies and
selected either the high, low, or average multiple, depending on various facts and circumstances surrounding the
reporting unit, and applied it to that reporting unit's trailing twelve month EBITDA. Although we estimated the fair value
of our reporting units using the guideline method, we did so for corroborative purposes and placed primary weight on the
discounted cash flow method.
Types of events that could result in a goodwill impairment. As noted above, the assumptions used in the
quantitative calculation of fair value of our reporting units in prior years, including the long-range forecasts, the selection
51
of the discount rates, and the estimation of the multiples or long-term growth rates used in valuing the Terminal Year
involve significant judgments. Changes to these assumptions could affect the estimated fair value of our reporting units
calculated in prior years and could result in a goodwill impairment charge in a future period. We believe that certain
factors, such as a future recession, any material adverse conditions in the automotive industry and other industries in
which we operate, and other factors identified in Item 1A, "Risk Factors," included elsewhere in this Annual Report on
Form 10-K could require us to revise our long-term projections and could reduce the multiples applied to the Terminal
Year value. Such revisions could result in a goodwill impairment charge in the future.
Evaluation of other intangible assets for impairment
2016 assessment of indefinite-lived intangible assets. Similar to goodwill, we perform an annual impairment
review of our indefinite-lived intangible assets in the fourth quarter of each fiscal year, unless events occur that trigger
the need for an earlier impairment review. We have the option to first assess qualitative factors in determining whether it
is more likely than not that an indefinite-lived intangible asset is impaired. If we elect not to use this option, or we
determine that it is more likely than not that the asset is impaired, we perform a quantitative impairment review that
requires us to estimate the fair value of the indefinite–lived intangible asset and compare that amount to its carrying
value. We estimate the fair value by using the relief–from–royalty method which requires us to make assumptions about
future conditions impacting the value of the indefinite–lived intangible assets, including projected growth rates, cost of
capital, effective tax rates, and royalty rates. Impairment, if any, is based on the excess of the carrying value over the fair
value of these assets.
We evaluated our indefinite-lived intangible assets for impairment as of October 1, 2016 (using the quantitative
method) and determined that the estimated fair values of these assets exceeded their carrying values at that date. Should
certain assumptions used in the development of the fair value of our indefinite-lived intangible assets change, we may be
required to recognize impairments of these intangible assets.
Impairment of definite-lived intangible assets. Reviews are regularly performed to determine whether facts or
circumstances exist that indicate that the carrying values of our definite-lived intangible assets to be held and used are
impaired. If we determine these facts or circumstances exist, we estimate the recoverability of these assets by comparing
the projected undiscounted net cash flows associated with these assets to their respective carrying values. If the sum of
the projected undiscounted net cash flows falls below the carrying value of the assets, the impairment charge is based on
the excess of the carrying value over the fair value of those assets. We determine fair value by using the appropriate
income approach valuation methodology depending on the nature of the intangible asset.
Evaluation of long-lived assets for impairment
We periodically re-evaluate carrying values and estimated useful lives of long-lived assets whenever events or
changes in circumstances indicate that the carrying value of the related assets may not be recoverable. We use estimates
of undiscounted cash flows from long-lived assets to determine whether the carrying value of such assets is recoverable
over the assets’ remaining useful lives. These estimates include assumptions about our future performance and the
performance of the markets we serve. If an asset is determined to be impaired, the impairment is the amount by which
the carrying value of the asset exceeds its fair value. These evaluations are performed at a level where discrete cash flows
may be attributed to either an individual asset or a group of assets.
Income Taxes
As part of the process of preparing our financial statements, we are required to estimate our provision for income
taxes in each of the jurisdictions in which we operate. This involves estimating our actual current tax exposure, including
assessing the risks associated with tax audits, together with assessing temporary differences resulting from the different
treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We
assess the likelihood that our deferred tax assets will be recovered from future taxable income and record a valuation
allowance to reduce the deferred tax assets to an amount that, in our judgment, is more likely than not to be recovered.
Management judgment is required in determining our provision for income taxes, our deferred tax assets and
liabilities, and any valuation allowance recorded against our deferred tax assets. The valuation allowance is based on our
estimates of future taxable income and the period over which we expect the deferred tax assets to be recovered. Our
assessment of future taxable income is based on historical experience and current and anticipated market and economic
conditions and trends. In the event that actual results differ from these estimates, or we adjust our estimates in the future,
52
we may need to adjust our valuation allowance, which could materially impact our consolidated financial position and
results of operations.
Pension and Other Post-Retirement Benefit Plans
We sponsor various pension and other post-retirement benefit plans covering our current and former employees in
several countries. The estimates of the obligations and related expense of these plans recorded in the financial statements
are based on certain assumptions. The most significant assumptions relate to discount rate, expected return on plan
assets, and rate of increase in healthcare costs. Other assumptions used include employee demographic factors such as
compensation rate increases, retirement patterns, employee turnover rates, and mortality rates. We review these
assumptions annually. Our review of demographic assumptions includes analyzing historical patterns and/or referencing
industry standard tables, combined with our expectations around future compensation and staffing strategies. The
difference between these assumptions and our actual experience results in the recognition of an actuarial gain or loss.
Actuarial gains or losses are recorded directly to other comprehensive (loss)/income. If the total net actuarial gain or loss
included in accumulated other comprehensive loss exceeds a threshold of 10% of the greater of the projected benefit
obligation or the market related value of plan assets, it is subject to amortization and recorded as a component of net
periodic pension cost over the average remaining service lives of the employees participating in the pension or post-
retirement benefit plan.
The discount rate reflects the current rate at which the pension and other post-retirement liabilities could be
effectively settled, considering the timing of expected payments for plan participants. It is used to discount the estimated
future obligations of the plans to the present value of the liability reflected in the financial statements. In estimating this
rate in countries that have a market of high-quality fixed-income investments, we considered rates of return on these
investments included in various bond indices, adjusted to eliminate the effect of call provisions and differences in the
timing and amounts of cash outflows related to the bonds. In other countries where a market of high-quality fixed-
income investments do not exist, we estimate the discount rate using government bond yields or long-term inflation
rates.
The expected return on plan assets reflects the average rate of earnings expected on the funds invested or to be
invested to provide for the benefits included in the projected benefit obligation. To determine the expected return on plan
assets, we consider the historical returns earned by similarly invested assets, the rates of return expected on plan assets in
the future, and our investment strategy and asset mix with respect to the plans’ funds.
The rate of increase of healthcare costs directly impacts the estimate of our future obligations in connection with
our post-retirement medical benefits. Our estimate of healthcare cost trends is based on historical increases in healthcare
costs under similarly designed plans, the level of increase in healthcare costs expected in the future, and the design
features of the underlying plan.
We have adopted use of the Retirement Plan ("RP") 2014 mortality tables with the updated Mortality Projection
("MP") 2016 mortality improvement scale as issued by the Society of Actuaries in 2016 for our U.S. defined benefit
plans. The updated MP 2016 mortality improvement scale reflects improvements in longevity as compared to the MP
2015 mortality improvement scale the Society of Actuaries issued in 2015, primarily because it includes actual Social
Security mortality data for 2012, 2013, and 2014. The MP projection scale is used to factor in projected mortality
improvements over time, based on age and date of birth (i.e., two-dimension generational).
Future changes to assumptions, or differences between actual and expected outcomes, can significantly affect our
future net periodic pension cost, projected benefit obligations, and accumulated other comprehensive loss.
Share-Based Payment Plans
ASC Topic 718, Compensation—Stock Compensation (“ASC 718”), requires that a company measure at fair value
any new or modified share-based compensation arrangements with employees, such as stock options and restricted
securities, and recognize as compensation expense that fair value over the requisite service period.
We estimate the fair value of options on the date of grant using the Black-Scholes-Merton option-pricing model.
Key assumptions used in estimating the grant-date fair value of these options are as follows: the fair value of the ordinary
shares, expected term, expected volatility, risk-free interest rate, and expected dividend yield. Material changes to any of
these assumptions may have a significant effect on our valuation of options, and ultimately the share-based
53
compensation expense recorded in the consolidated statements of operations. Significant factors used in determining
these assumptions are detailed below.
We use the closing price of our ordinary shares on the New York Stock Exchange (the "NYSE") on the date of the
grant as the fair value of ordinary shares in the Black-Scholes-Merton option-pricing model.
The expected term, which is a key factor in measuring the fair value and related compensation cost of share-based
payments, has been determined by comparing the terms of our options granted against those of publicly-traded
companies within our industry.
We consider our own historical volatility, as well as the historical and implied volatilities of publicly-traded
companies within our industry, in estimating expected volatility for options. Implied volatility provides a forward-
looking indication and may offer insight into expected industry volatility.
The risk-free interest rate is based on the yield for a U.S. Treasury security having a maturity similar to the
expected term of the related option grant.
The dividend yield of 0% is based on our history of having never declared or paid any dividends on our ordinary
shares, and our current intention of not declaring any such dividends in the foreseeable future. See Item 5, "Market for
Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities," included
elsewhere in this Annual Report on Form 10-K for further discussion of limitations on our ability to pay dividends.
Restricted securities are valued using the closing price of our ordinary shares on the NYSE on the date of the grant.
Certain of our restricted securities include performance conditions that require us to estimate the probable outcome of the
performance condition. This assessment is based on management's judgment using internally developed forecasts and is
assessed at each reporting period. Compensation cost is recorded if it is probable that the performance condition will be
achieved.
Under the fair value recognition provisions of ASC 718, we recognize share-based compensation net of estimated
forfeitures and, therefore, only recognize compensation cost for those shares expected to vest over the requisite service
period. The forfeiture rate is based on our estimate of forfeitures by plan participants after consideration of historical
forfeiture rates. Compensation expense recognized for each award ultimately reflects the number of units that actually
vest.
Off-Balance Sheet Arrangements
From time to time, we execute contracts that require us to indemnify the other parties to the contracts. These
indemnification obligations generally arise in two contexts. First, in connection with certain transactions, such as the sale
of a business or the issuance of debt or equity securities, the agreement typically contains standard provisions requiring
us to indemnify the purchaser against breaches by us of representations and warranties contained in the agreement. These
indemnities are generally subject to time and liability limitations. Second, we enter into agreements in the ordinary
course of business, such as customer contracts, that might contain indemnification provisions relating to product quality,
intellectual property infringement, governmental regulations and employment related matters, and other typical
indemnities. In certain cases, indemnification obligations arise by law. We believe that our indemnification obligations
are consistent with other companies in the markets in which we compete. Performance under any of these
indemnification obligations would generally be triggered by a breach of the terms of the contract or by a third-party
claim. Historically, we have experienced only immaterial and irregular losses associated with these indemnifications.
Consequently, any future liabilities brought about by these indemnifications cannot reasonably be estimated or accrued.
Refer to Note 14, "Commitments and Contingencies," of our audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K for further discussion of specific indemnifications.
54
Recent Accounting Pronouncements
Recently issued accounting standards to be adopted in a future period:
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09”), which modifies how all entities recognize revenue, and consolidates into one ASC Topic (ASC Topic 606,
Revenue from Contracts with Customers) the current guidance found in ASC Topic 605, and various other revenue
accounting standards for specialized transactions and industries. ASU 2014-09 outlines a comprehensive five-step
revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. ASU 2014-09 may be applied using either a full retrospective approach,
under which all years included in the financial statements will be presented under the revised guidance, or a modified
retrospective approach, under which financial statements will be prepared under the revised guidance for the year of
adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment to the
opening balance of retained earnings at the effective date for contracts that still require performance by the entity.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of
Effective Date, which defers the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual
reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods.
We have developed an implementation plan to adopt this new guidance. As part of this plan, we are currently assessing
the impact of the new guidance on our results of operations. Based on our procedures performed to date, nothing has
come to our attention that would indicate that the adoption of ASU 2014-09 will have a material impact on our financial
statements, however, we will continue to evaluate this assessment in 2017. We intend to adopt ASU 2014-09 on January
1, 2018. We have not yet selected a transition method, but expect to do so in 2017 upon completion of further analysis.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which establishes
new accounting and disclosure requirements for leases. ASU 2016-02 requires lessees to classify most leases as either
finance or operating leases and to initially recognize a lease liability and right-of-use asset. Entities may elect to account
for certain short-term leases (with a term of 12 months or less) using a method similar to the current operating lease
model. The statements of operations will include, for finance leases, separate recognition of interest on the lease liability
and amortization of the right-of-use asset and for operating leases, a single lease cost, calculated so that the cost of the
lease is allocated over the lease term on a straight-line basis. ASU 2016-02 is effective for annual reporting periods
beginning after December 15, 2018, including interim periods within those annual reporting periods, with early adoption
permitted. ASU 2016-02 must be applied using a modified retrospective approach, which requires recognition and
measurement of leases at the beginning of the earliest period presented, with certain practical expedients available. We
are currently evaluating when to adopt ASU 2016-02 and the impact that this adoption will have on our consolidated
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 2016-09") as part of its simplification initiative.
ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions. The provisions of ASU
2016-09 that will impact us are as follows: (1) an accounting policy election may be made to account for forfeitures as
they occur, rather than based on an estimate of future forfeitures, and (2) companies will be allowed to withhold shares,
upon either the exercise of options or vesting of restricted securities, with an aggregate fair value in excess of the
minimum statutory withholding requirement and still qualify for the exception to liability classification. ASU 2016-09 is
effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual
reporting periods. Amendments related to the provisions that are applicable to Sensata must be applied using a modified
retrospective approach by means of a cumulative-effect adjustment to equity as of the beginning of the period in which
ASU 2016-09 is adopted. We do not expect the adoption of ASU 2016-09 to have a material impact on our financial
position or results of operations.
55
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain
operations through fixed and variable rate debt instruments and transact in a variety of foreign currencies. We are also
exposed to changes in the prices of certain commodities (primarily metals) that we use in production. Changes in these
rates and commodity prices may have an impact on future cash flows and earnings. We generally manage these risks
through the use of derivative financial instruments. We do not enter into derivative financial instruments for trading or
speculative purposes.
By using derivative instruments, we are subject to credit and market risk. The fair market value of these derivative
instruments is based upon valuation models whose inputs are derived using market observable inputs, including foreign
currency exchange and commodity spot and forward rates, and reflects the asset or liability position as of the end of each
reporting period. When the fair value of a derivative contract is positive, the counterparty is liable to us, thus creating a
receivable risk for us. We are exposed to counterparty credit risk in the event of non-performance by counterparties to
our derivative agreements. We minimize counterparty credit (or repayment) risk by entering into transactions with major
financial institutions of investment grade credit rating.
Interest Rate Risk
Given the leveraged nature of our company, we have exposure to changes in interest rates. From time to time, we
may execute a variety of interest rate derivative instruments to manage interest rate risk. For example, in the past, we
have entered into interest rate collars and interest rate caps to reduce exposure to variability in cash flows relating to
interest payments on our outstanding debt. These derivatives are accounted for in accordance with Accounting Standards
Codification Topic 815, Derivatives and Hedging (“ASC 815”).
The significant components of our debt as of December 31, 2016 and 2015 are shown in the following tables
(definitions and descriptions of all components of our debt can be found in Note 8, "Debt," of our audited consolidated
financial statements included elsewhere in this Annual Report on Form 10-K):
(Dollars in millions)
Term Loan (3)
4.875% Senior Notes
5.625% Senior Notes
5.0% Senior Notes
6.25% Senior Notes
Total(2)(4)
_________________
Maturity date
October 14, 2021
October 15, 2023
November 1, 2024
October 1, 2025
February 15, 2026
Interest rate as
of December
31, 2016
Outstanding
balance as of
December 31,
2016 (1)
Fair value as
of December
31, 2016
3.02% $
937.8
$
4.875%
5.625%
5.00%
6.25%
500.0
400.0
700.0
750.0
942.5
514.4
417.8
686.0
786.1
$
3,287.8
$
3,346.7
(1) Outstanding balance is presented excluding discount and deferred financing costs.
(2) Total outstanding balance excludes capital leases and other financing obligations of $37.1 million.
(3) This component of our debt accrues interest at a variable rate.
(4) Total has been calculated based on the unrounded amount, and may not equal the sum of the rounded values in this
table.
56
(Dollars in millions)
Term Loan(3)
4.875% Senior Notes
5.625% Senior Notes
5.0% Senior Notes
6.25% Senior Notes
Revolving Credit facility (3)
Total(2)
_________________
Interest Rate
as of
December 31,
2015
Outstanding
balance as of
December 31,
2015 (1)
Fair value as
of December
31, 2015
3.00% $
982.7
$
4.875%
5.625%
5.00%
6.25%
2.17%
500.0
400.0
700.0
750.0
280.0
963.0
484.7
409.3
675.9
781.4
266.9
$
3,612.7
$
3,581.2
(1) Outstanding balance is presented excluding discount and deferred financing costs.
(2) Total outstanding balance excludes capital leases and other financing obligations of $46.8 million.
(3) This component of our debt accrues interest at a variable rate.
Sensitivity Analysis
As of December 31, 2016, we had total variable rate debt with an outstanding balance of $937.8 million issued
under the Term Loan. Considering the impact of our interest rate floor, an increase of 100 basis points in the applicable
interest rate would result in additional annual interest expense of $9.3 million in 2017. The next 100 basis point increase
in the applicable interest rate would result in incremental annual interest expense of $9.3 million in 2017.
As of December 31, 2015, we had total variable rate debt with an outstanding balance of $1,262.7 million issued
under the Original Term Loan, the Incremental Term Loan, and the Revolving Credit Facility. Considering the impact of
our interest rate floor, an increase of 100 basis points in the applicable interest rate would have resulted in additional
annual interest expense of $11.3 million. The next 100 basis point increase in the applicable interest rate would have
resulted in incremental annual interest expense of $12.6 million.
Foreign Currency Risks
We are exposed to market risk from changes in foreign currency exchange rates, which could affect operating
results as well as our financial position and cash flows. We monitor our exposures to these market risks and may employ
derivative financial instruments, such as swaps, collars, forwards, options, or other instruments, to limit the volatility to
earnings and cash flows generated by these exposures. We employ derivative contracts that may or may not be
designated for hedge accounting treatment under ASC 815, which can result in volatility to earnings depending upon
fluctuations in the underlying markets. Derivative financial instruments are executed solely as risk management tools and
not for trading or speculative purposes.
Our significant foreign currency exposures include the Euro, Japanese yen, Mexican peso, Chinese renminbi,
Korean won, Malaysian ringgit, British pound sterling, Polish zloty, and Bulgarian lev. However, the primary foreign
currency exposure relates to the U.S. dollar to Euro exchange rate.
Consistent with our risk management objective and strategy to reduce exposure to variability in cash flows and
variability in earnings, we entered into foreign currency exchange rate derivatives during the year ended December 31,
2016 that qualify as cash flow hedges intended to offset the effect of exchange rate fluctuations on forecasted sales and
certain manufacturing costs. The effective portion of changes in the fair value of derivatives designated and qualifying as
cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in
the period in which the hedged forecasted transaction affects earnings. During 2016, we also entered into foreign
currency forward contracts that were not designated for hedge accounting purposes. In accordance with ASC 815, we
recognized the change in the fair value of these non-designated derivatives in the consolidated statements of operations.
57
The following foreign currency forward contracts were outstanding as of December 31, 2016:
Effective Date
Maturity Date
Index
Notional
(in millions)
97.7 EUR
444.9 EUR
545.0 CNY
720.0 JPY
3,321.6 KRW
50,239.2 KRW
5.7 MYR
81.8 MYR
204.0 MXN
2,072.7 MXN
21.5 GBP
56.2 GBP
Various from
February 2015 to
December 2016
Various from
March 2015 to
December 2016
December 22,
2016
December 22,
2016
Various from
February 2015 to
August 2016
Various from
March 2015 to
December 2016
Various from
February 2015 to
April 2016
Various from
March 2015 to
November 2016
Various from
February 2015 to
December 2016
Various from
March 2015 to
December 2016
Various from
February 2015 to
December 2016
Various from
March 2015 to
December 2016
January 31, 2017
Various from
February 2017 to
December 2018
January 26, 2017
January 31, 2017
Euro to U.S. Dollar
Exchange Rate
Euro to U.S. Dollar
Exchange Rate
U.S. Dollar to Chinese
Renminbi Exchange
Rate
U.S. Dollar to Japanese
Yen Exchange Rate
Weighted-
Average Strike
Rate
Cash Flow Hedge
Designation
1.07 USD
Non-designated
1.13 USD
Designated
7.01 CNY
Non-designated
117.20 JPY
Non-designated
January 31, 2017
U.S. Dollar to Korean
Won Exchange Rate
1,158.87 KRW
Non-designated
Various from
February 2017 to
November 2018
January 31, 2017
Various from
February 2017 to
October 2018
U.S. Dollar to Korean
Won Exchange Rate
U.S. Dollar to
Malaysian Ringgit
Exchange Rate
U.S. Dollar to
Malaysian Ringgit
Exchange Rate
1,157.71 KRW
Designated
4.02 MYR
Non-designated
4.17 MYR
Designated
January 31, 2017
U.S. Dollar to Mexican
Peso Exchange Rate
18.62 MXN
Non-designated
Various from
February 2017 to
December 2018
January 31, 2017
Various from
February 2017 to
December 2018
U.S. Dollar to Mexican
Peso Exchange Rate
British Pound Sterling
to U.S. Dollar
Exchange Rate
British Pound Sterling
to U.S. Dollar
Exchange Rate
19.00 MXN
Designated
1.27 USD
Non-designated
1.40 USD
Designated
58
The following foreign currency forward contracts were outstanding as of December 31, 2015:
Effective Date
Maturity Date
Index
Notional
(in millions)
535.3 EUR
92.0 EUR
89.0 CNY
48,640.0 KRW
33,700.0 KRW
98.5 MYR
34.7 MYR
2,095.4 MXN
197.9 MXN
57.1 GBP
9.2 GBP
Various from
September 2014 to
December 2015
Various from
September 2014 to
December 2015
December 17,
2015
Various from
September 2014 to
December 2015
Various from
September 2014 to
December 2015
Various from
September 2014 to
December 2015
Various from
September 2014 to
December 2015
Various from
September 2014 to
December 2015
Various from
September 2014 to
December 2015
Various from
October 2014 to
December 2015
Various from
October 2014 to
December 2015
Various from
February 2016 to
December 2017
January 29, 2016
January 29, 2016
Various from
February 2016 to
December 2017
Euro to U.S. Dollar
Exchange Rate
Euro to U.S. Dollar
Exchange Rate
U.S. Dollar to Chinese
Renminbi Exchange
Rate
U.S. Dollar to Korean
Won Exchange Rate
Weighted-
Average Strike
Rate
Cash Flow Hedge
Designation
1.15 USD
Designated
1.11 USD
Non-designated
6.57 CNY
Non-designated
1,132.34 KRW
Designated
January 29, 2016
U.S. Dollar to Korean
Won Exchange Rate
1,180.22 KRW
Non-designated
Various from
February 2016 to
December 2017
January 29, 2016
Various from
February 2016 to
December 2017
U.S. Dollar to
Malaysian Ringgit
Exchange Rate
U.S. Dollar to
Malaysian Ringgit
Exchange Rate
3.89 MYR
Designated
4.19 MYR
Non-designated
U.S. Dollar to Mexican
Peso Exchange Rate
16.45 MXN
Designated
January 29, 2016
U.S. Dollar to Mexican
Peso Exchange Rate
15.90 MXN
Non-designated
Various from
February 2016 to
December 2017
January 29, 2016
British Pound Sterling
to U.S. Dollar
Exchange Rate
British Pound Sterling
to U.S. Dollar
Exchange Rate
1.53 USD
Designated
1.51 USD
Non-designated
59
Sensitivity Analysis
The tables below present our foreign currency forward contracts as of December 31, 2016 and 2015 and the
estimated impact to future pre-tax earnings as a result of a 10% strengthening/weakening in the foreign currency
exchange rate:
(Amounts in millions)
Euro
Chinese Renminbi
British Pound Sterling
Japanese Yen
Korean Won
Malaysian Ringgit
Mexican Peso
(Amounts in millions)
Euro
Chinese Renminbi
British Pound Sterling
Korean Won
Malaysian Ringgit
Mexican Peso
Increase/(decrease) to future pre-tax earnings
due to:
10% strengthening
of the value of the
foreign currency
relative to the U.S.
dollar
10% weakening of the
value of the
foreign currency
relative to the U.S.
dollar
Net asset (liability)
balance as of December
31, 2016
$
$
$
$
$
$
$
30.3
$
$
0.1
(10.1) $
$
0.0
$
1.9
(1.8) $
(14.8) $
(57.6) $
(7.8) $
$
9.6
0.6
$
(4.4) $
$
1.9
10.6
$
57.6
7.8
(9.6)
(0.6)
4.4
(1.9)
(10.6)
Increase/(decrease) to future pre-tax earnings
due to:
10% strengthening
of the value of the
foreign currency
relative to the U.S.
dollar
10% weakening of the
value of the
foreign currency
relative to the U.S.
dollar
Net asset (liability)
balance as of December
31, 2015
$
$
$
$
$
$
$
22.9
(0.1) $
(3.0) $
$
1.7
(3.1) $
(10.5) $
(65.0) $
(1.3) $
6.3
$
(7.3) $
$
3.1
13.0
$
65.0
1.3
(6.3)
7.3
(3.1)
(13.0)
The tables below present our Euro-denominated net monetary assets as of December 31, 2016 and 2015 and the
estimated impact to future pre-tax earnings as a result of revaluing these assets and liabilities associated with a 10%
strengthening/weakening in the Euro to U.S. dollar currency exchange rate:
(Amounts in millions)
Net asset balance as of
December 31, 2016
Increase/(decrease) to future pre-tax earnings due
to:
Euro-denominated financial instruments
Net monetary assets
Euro
€
78.6
$ Equivalent
82.1
$
10% weakening of the
value of the
Euro relative to the U.S.
dollar
10% strengthening
of the value of the
Euro relative to the
U.S. dollar
$
(8.2) $
8.2
(Amounts in millions)
Net asset balance as of
December 31, 2015
Increase/(decrease) to future pre-tax earnings due
to:
Euro-denominated financial instruments
Net monetary assets
Euro
€
64.4
$ Equivalent
70.3
$
10% weakening of the
value of the
Euro relative to the U.S.
dollar
10% strengthening
of the value of the
Euro relative to the
U.S. dollar
$
(7.0) $
7.0
60
Commodity Risk
We enter into forward contracts with third parties to offset a portion of our exposure to the potential change in
prices associated with certain commodities, including silver, gold, platinum, palladium, copper, aluminum, and nickel,
used in the manufacturing of our products. The terms of these forward contracts fix the price at a future date for various
notional amounts associated with these commodities. These derivatives are not designated as accounting hedges. In
accordance with ASC 815, we recognize the change in fair value of these derivatives in the consolidated statements of
operations.
Sensitivity Analysis
The tables below present our commodity forward contracts as of December 31, 2016 and 2015 and the estimated
impact to pre-tax earnings associated with a 10% increase/(decrease) in the related forward price for each commodity:
(Amounts in millions, except price per unit and notional amounts)
Net asset/
(liability)
balance as
of
December
31, 2016
Commodity
Notional
Weighted
Average
Contract
Price Per
Unit
Average
Forward
Price Per
Unit as of
December 31,
2016
Silver
$(0.8)
1,069,914 troy oz.
$17.09
$16.32
Gold
$(0.9)
14,113 troy oz.
$1,233.30
$1,167.90
Nickel
$(0.1)
339,402 pounds
$4.98
Aluminum
Copper
$0.1
$1.4
5,807,659 pounds
$0.76
7,707,228 pounds
$2.32
$4.58
$0.77
$2.51
Platinum
$(0.9)
8,719 troy oz.
$1,017.41
$911.87
Palladium
$0.1
1,923 troy oz.
$641.43
$685.73
(Amounts in millions, except price per unit and notional amounts)
Net asset/
(liability)
balance as
of
December
31, 2015
Commodity
Notional
Weighted
Average
Contract
Price Per
Unit
Average
Forward
Price Per
Unit as of
December 31,
2015
Silver
$(4.0)
1,554,959 troy oz.
$16.63
$13.98
Gold
$(1.5)
13,940 troy oz.
$1,177.94
$1,065.60
Nickel
$(1.1)
520,710 pounds
$6.18
Aluminum
$(0.7)
4,686,080 pounds
$0.85
Copper
$(4.2)
7,258,279 pounds
$2.72
$4.03
$0.69
$2.13
Platinum
$(1.8)
6,730 troy oz.
$1,154.61
$881.53
Palladium
$(0.2)
2,139 troy oz.
$647.71
$553.56
Zinc
$(0.2)
554,992 pounds
$1.04
$0.73
Increase/(decrease)
to pre-tax earnings due to
10% increase
in the forward
price
10% decrease
in the forward
price
$1.7
$1.6
$0.2
$0.4
$1.9
$0.8
$0.1
$(1.7)
$(1.6)
$(0.2)
$(0.4)
$(1.9)
$(0.8)
$(0.1)
Increase/(decrease)
to pre-tax earnings due to
10% increase
in the forward
price
10% decrease
in the forward
price
$2.2
$1.5
$0.2
$0.3
$1.5
$0.6
$0.1
$0.0
$(2.2)
$(1.5)
$(0.2)
$(0.3)
$(1.5)
$(0.6)
$(0.1)
$(0.0)
Expiration
Various dates during
2017 and 2018
Various dates during
2017 and 2018
Various dates during
2017 and 2018
Various dates during
2017 and 2018
Various dates during
2017 and 2018
Various dates during
2017 and 2018
Various dates during
2017 and 2018
Expiration
Various dates during
2016 and 2017
Various dates during
2016 and 2017
Various dates during
2016 and 2017
Various dates during
2016 and 2017
Various dates during
2016 and 2017
Various dates during
2016 and 2017
Various dates during
2016 and 2017
Various dates during
2016
61
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1.
Financial Statements
The following audited consolidated financial statements of Sensata Technologies Holding N.V. are included in this
Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders’ Equity
Notes to Consolidated Financial Statements
63
64
65
66
67
68
69
2.
Financial Statement Schedules
The following schedules are included elsewhere in this Annual Report on Form 10-K:
Schedule I — Condensed Financial Information of the Registrant
Schedule II — Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted since the required information is not present, or not
present in amounts sufficient to require submission of the schedule, or because the information required is included in
the audited consolidated financial statements or the notes thereto.
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Sensata Technologies Holding N.V.
We have audited the accompanying consolidated balance sheets of Sensata Technologies Holding N.V. as of
December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, cash flows
and changes in shareholders’ equity for each of the three years in the period ended December 31, 2016. Our audits also
included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Sensata Technologies Holding N.V. at December 31, 2016 and 2015, and the consolidated results of
its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with
U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Sensata Technologies Holding N.V.'s internal control over financial reporting as of December 31, 2016,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our report dated February 2, 2017 expressed an
unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 2, 2017
63
SENSATA TECHNOLOGIES HOLDING N.V.
Consolidated Balance Sheets
(In thousands, except per share amounts)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $11,811 and $9,535 as of December 31, 2016
and 2015, respectively
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Other intangible assets, net
Deferred income tax assets
Other assets
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt, capital lease and other financing obligations
Accounts payable
Income taxes payable
Accrued expenses and other current liabilities
Total current liabilities
Deferred income tax liabilities
Pension and other post-retirement benefit obligations
Capital lease and other financing obligations, less current portion
Long-term debt, net of discount and deferred financing costs, less current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 14)
Shareholders’ equity:
Ordinary shares, €0.01 nominal value per share, 400,000 shares authorized; 178,437 shares
issued
Treasury shares, at cost, 7,557 and 8,038 shares as of December 31, 2016 and 2015,
respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2016
December 31,
2015
$
351,428
$
342,263
$
$
500,211
389,844
100,002
1,341,485
725,754
3,005,464
1,075,431
20,695
72,147
467,567
358,701
109,392
1,277,923
694,155
3,019,743
1,262,572
26,417
18,100
6,240,976
$
6,298,910
14,643
$
299,198
23,889
245,566
583,296
392,628
34,878
32,369
3,226,582
29,216
4,298,969
300,439
290,779
21,968
251,989
865,175
390,490
34,314
36,219
3,264,333
39,803
4,630,334
2,289
2,289
(306,505)
(324,994)
1,643,449
1,626,024
636,841
(34,067)
391,247
(25,990)
1,942,007
1,668,576
$
6,240,976
$
6,298,910
The accompanying notes are an integral part of these financial statements.
64
SENSATA TECHNOLOGIES HOLDING N.V.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Net revenue
Operating costs and expenses:
Cost of revenue
Research and development
Selling, general and administrative
Amortization of intangible assets
Restructuring and special charges
Total operating costs and expenses
Profit from operations
Interest expense, net
Other, net
Income before taxes
Provision for/(benefit from) income taxes
Net income
Basic net income per share
Diluted net income per share
For the year ended December 31,
2016
2015
2014
$
3,202,288
$
2,974,961
$
2,409,803
2,084,261
1,977,799
1,567,334
126,665
293,587
201,498
4,113
123,666
271,361
186,632
21,919
82,178
220,105
146,704
21,893
2,710,124
2,581,377
2,038,214
492,164
(165,818)
(4,901)
321,445
59,011
262,434
1.54
1.53
$
$
$
393,584
(137,626)
(50,329)
205,629
(142,067)
347,696
2.05
2.03
$
$
$
371,589
(106,104)
(12,059)
253,426
(30,323)
283,749
1.67
1.65
$
$
$
The accompanying notes are an integral part of these financial statements.
65
SENSATA TECHNOLOGIES HOLDING N.V.
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive (loss)/income, net of tax:
Deferred (loss)/gain on derivative instruments, net of
reclassifications
Defined benefit and retiree healthcare plans
Other comprehensive (loss)/income
Comprehensive income
For the year ended December 31,
2016
2015
2014
$
262,434
$
347,696
$
283,749
(3,829)
(4,248)
(8,077)
254,357
$
(13,726)
(516)
(14,242)
333,454
$
25,190
(3,831)
21,359
$
305,108
The accompanying notes are an integral part of these financial statements.
66
SENSATA TECHNOLOGIES HOLDING N.V.
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Amortization of deferred financing costs and original issue discounts
Currency remeasurement gain on debt
Share-based compensation
Loss on debt financing
Amortization of inventory step-up to fair value
Amortization of intangible assets
Deferred income taxes
Gains from insurance proceeds
Unrealized loss on hedges and other non-cash items
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Income taxes payable
Other
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of CST, net of cash received
Acquisition of Schrader, net of cash received
Other acquisitions, net of cash received
Additions to property, plant and equipment and capitalized software
Investment in equity securities
Insurance proceeds
Proceeds from sale of assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options and issuance of ordinary shares
Proceeds from issuance of debt
Payments on debt
Repurchase of ordinary shares from SCA
Payments to repurchase ordinary shares
Payments of debt issuance cost
Net cash (used in)/provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow items:
Cash paid for interest
Cash paid for income taxes
For the year ended December 31,
2016
2015
2014
$
262,434
$
347,696
$
283,749
106,903
7,334
(324)
17,425
—
2,319
201,498
8,344
—
9,522
(33,013)
(37,500)
6,956
(21,432)
(1,938)
(7,003)
521,525
4,688
—
—
(130,217)
(50,000)
—
751
96,051
6,456
(1,924)
15,326
34,335
1,820
186,632
(179,009)
—
1,334
18,618
40,526
(9,857)
(38,034)
14,452
(1,291)
533,131
(996,871)
(958)
3,881
(177,196)
—
—
4,775
65,804
5,118
(771)
12,985
3,750
5,576
146,704
(59,156)
(2,417)
5,003
(26,287)
(77,473)
2,915
19,189
849
(2,970)
382,568
—
(995,315)
(298,423)
(144,211)
—
2,417
5,467
(174,778)
(1,166,369)
(1,430,065)
3,944
—
(336,256)
—
(4,752)
(518)
(337,582)
9,165
342,263
351,428
155,925
43,152
$
$
$
19,411
2,795,120
(2,000,257)
—
(50)
(50,052)
764,172
130,934
211,329
342,263
125,370
41,301
$
$
$
24,909
1,190,500
(76,375)
(169,680)
(12,094)
(16,330)
940,930
(106,567)
317,896
211,329
87,774
41,126
$
$
$
The accompanying notes are an integral part of these financial statements.
67
SENSATA TECHNOLOGIES HOLDING N.V.
Consolidated Statements of Changes in Shareholders’ Equity
(In thousands)
Balance as of December 31, 2013
178,437
$ 2,289
(6,462)
$
(236,346)
$
1,596,544
$
(187,792)
$
(33,107)
$
1,141,588
Ordinary Shares
Treasury Shares
Number
Amount
Number
Amount
Additional
Paid-In
Capital
Retained
Earnings/
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
Issuance of ordinary shares for employee
stock plans
Repurchase of ordinary shares
Stock options exercised
Vesting of restricted securities
Share-based compensation
Net income
Other comprehensive income
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9
(4,305)
1,589
49
—
—
—
264
(181,774)
50,995
1,589
—
—
—
128
—
657
—
13,061
—
—
—
—
(27,135)
(1,589)
—
283,749
—
—
—
—
—
—
—
21,359
392
(181,774)
24,517
—
13,061
283,749
21,359
Balance as of December 31, 2014
178,437
$ 2,289
(9,120)
$
(365,272)
$
1,610,390
$
67,233
$
(11,748)
$
1,302,892
Issuance of ordinary shares for employee
stock plans
Surrender of shares for tax withholding
Stock options exercised
Vesting of restricted securities
Share-based compensation
Net income
Other comprehensive loss
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5
(54)
1,016
115
—
—
—
195
(2,507)
38,199
4,391
—
—
—
72
—
236
—
15,326
—
—
—
—
(19,291)
(4,391)
—
347,696
—
—
—
—
—
—
267
(2,507)
19,144
—
15,326
347,696
—
(14,242)
(14,242)
Balance as of December 31, 2015
178,437
$ 2,289
(8,038)
$
(324,994)
$
1,626,024
$
391,247
$
(25,990)
$
1,668,576
Surrender of shares for tax withholding
Stock options exercised
Vesting of restricted securities
Share-based compensation
Net income
Other comprehensive loss
—
—
—
—
—
—
—
—
—
—
—
—
(62)
358
185
—
—
—
(2,295)
13,698
7,086
—
—
—
—
—
—
17,425
—
—
—
(9,754)
(7,086)
—
262,434
—
—
—
—
—
—
(8,077)
(2,295)
3,944
—
17,425
262,434
(8,077)
Balance as of December 31, 2016
178,437
$ 2,289
(7,557)
$
(306,505)
$
1,643,449
$
636,841
$
(34,067)
$
1,942,007
The accompanying notes are an integral part of these financial statements.
68
SENSATA TECHNOLOGIES HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts, or unless otherwise noted)
1. Business Description and Basis of Presentation
Description of Business
The accompanying consolidated financial statements reflect the financial position, results of operations,
comprehensive income, cash flows, and changes in shareholders' equity of Sensata Technologies Holding N.V. ("Sensata
Technologies Holding") and its wholly-owned subsidiaries, collectively referred to as the “Company,” “Sensata,” “we,”
“our,” or “us.”
Sensata Technologies Holding is incorporated under the laws of the Netherlands and conducts its operations
through subsidiary companies that operate business and product development centers primarily in the United States (the
"U.S."), the Netherlands, Belgium, China, Germany, Japan, South Korea, and the United Kingdom (the "U.K."); and
manufacturing operations primarily in China, Malaysia, Mexico, Bulgaria, Poland, France, Germany, the U.K., and the
U.S. We organize our operations into two businesses, Performance Sensing and Sensing Solutions.
Our Performance Sensing business is a manufacturer of pressure, temperature, speed, and position sensors, and
electromechanical products used in subsystems of automobiles (e.g., engine, air conditioning, and ride stabilization) and
heavy vehicle off-road ("HVOR"). These products help improve performance, for example by making an automobile's
heating and air conditioning systems work more efficiently, thereby improving gas mileage. These products are also used
in systems that address safety and environmental concerns, for example, by improving the stability control of the vehicle
and reducing vehicle emissions.
Our Sensing Solutions business is a manufacturer of a variety of control products used in industrial, aerospace,
military, commercial, medical device, and residential markets, and sensor products used in aerospace and industrial
applications such as heating, ventilation, and air conditioning ("HVAC") systems and military and commercial aircraft.
These products include motor and compressor protectors, circuit breakers, semiconductor burn-in test sockets, electronic
HVAC sensors and controls, solid state relays, linear and rotary position sensors, precision switches, and thermostats.
These products help prevent damage from overheating and fires in a wide variety of applications, including commercial
HVAC systems, refrigerators, aircraft, lighting, and other industrial applications, and help optimize performance by using
sensors which provide feedback to control systems. The Sensing Solutions business also manufactures direct current
("DC") to alternating current ("AC") power inverters, which enable the operation of electronic equipment when grid
power is not available.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (“U.S. GAAP”). The accompanying consolidated financial statements present separately
our financial position, results of operations, comprehensive income, cash flows, and changes in shareholders’ equity.
All intercompany balances and transactions have been eliminated.
All U.S. dollar and share amounts presented, except per share amounts, are stated in thousands, unless otherwise
indicated.
Certain reclassifications have been made to prior periods to conform to current period presentation.
2. Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to exercise our
judgment in the process of applying our accounting policies. It also requires that we make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingencies at the date of the financial
statements and the reported amounts of revenue and expense during the reporting periods.
69
Estimates are used when accounting for certain items such as allowances for doubtful accounts and sales returns,
depreciation and amortization, inventory obsolescence, asset impairments (including goodwill and other intangible
assets), contingencies, the value of share-based compensation, the determination of accrued expenses, certain asset
valuations including deferred tax asset valuations, the useful lives of property and equipment, post-retirement
obligations, and the accounting for business combinations. The accounting estimates used in the preparation of the
consolidated financial statements will change as new events occur, as more experience is acquired, as additional
information is obtained, and/or as the operating environment changes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash comprises cash on hand. Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash, are subject to an insignificant risk of change in value, and have original maturities
of three months or less.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification ("ASC") Topic 605, Revenue
Recognition ("ASC 605"). Revenue and related cost of revenue from product sales are recognized when the significant
risks and rewards of ownership have been transferred, title to the product and risk of loss transfers to our customers, and
collection of sales proceeds is reasonably assured. Based on these criteria, revenue is generally recognized when the
product is shipped from our warehouse or, in limited instances, when it is received by the customer, depending on the
specific terms of the arrangement. Product sales are recorded net of trade discounts (including volume and early payment
incentives), sales returns, value-added tax, and similar taxes. Amounts billed to our customers for shipping and handling
are recorded in revenue. Shipping and handling costs are included in cost of revenue. Sales to customers generally
include a right of return for defective or non-conforming product. Sales returns have not historically been significant in
relation to our revenue and have been within our estimates.
Many of our products are designed and engineered to meet customer specifications. These activities, and the
testing of our products to determine compliance with those specifications, occur prior to any revenue being recognized.
Products are then manufactured and sold to customers. Customer arrangements do not involve post-installation or post-
sale testing and acceptance.
Share-Based Compensation
ASC Topic 718, Compensation—Stock Compensation (“ASC 718”), requires that a company measure at fair value
any new or modified share-based compensation arrangements with employees, such as stock options and restricted stock
units, and recognize as compensation expense that fair value over the requisite service period.
We estimate the fair value of options on the date of grant using the Black-Scholes-Merton option-pricing model.
Key assumptions used in estimating the grant-date fair value of these options are as follows: the fair value of the ordinary
shares, expected term, expected volatility, risk-free interest rate, and expected dividend yield. Significant factors used in
determining these assumptions are detailed below.
The expected term, which is a key factor in measuring the fair value and related compensation cost of share-based
payments, has been determined by comparing the terms of our options granted against those of publicly-traded
companies within our industry.
We consider our own historical volatility, as well as the historical and implied volatilities of publicly-traded
companies within our industry, in estimating expected volatility for options. Implied volatility provides a forward-
looking indication and may offer insight into expected industry volatility.
The risk-free interest rate is based on the yield for a U.S. Treasury security having a maturity similar to the
expected term of the related option grant.
The dividend yield of 0% is based on our history of having never declared or paid any dividends on our ordinary
shares, and our current intention of not declaring any such dividends in the foreseeable future. See Item 5, "Market for
Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities," included
elsewhere in this Annual Report on Form 10-K for further discussion of limitations on our ability to pay dividends.
70
Restricted securities are valued using the closing price of our ordinary shares on the New York Stock Exchange on
the date of the grant. Certain of our restricted securities include performance conditions that require us to estimate the
probable outcome of the performance condition. This assessment is based on management's judgment using internally
developed forecasts and is assessed at each reporting period. Compensation cost is recorded if it is probable that the
performance condition will be achieved.
Under the fair value recognition provisions of ASC 718, we recognize share-based compensation net of estimated
forfeitures and, therefore, only recognize compensation cost for those awards expected to vest over the requisite service
period. Compensation expense recognized for each award ultimately reflects the number of units that actually vest.
Share-based compensation expense is generally recognized as a component of Selling, general and administrative
(“SG&A”) expense, which is consistent with where the related employee costs are recorded. Refer to further discussion
of share-based payments in Note 11, "Share-Based Payment Plans."
Financial Instruments
Derivative financial instruments: We maintain derivative financial instruments with major financial institutions of
investment grade credit rating and monitor the amount of credit exposure to any one issuer. We believe there are no
significant concentrations of risk associated with our derivative financial instruments.
We account for our derivative financial instruments in accordance with ASC Topic 820, Fair Value Measurements
and Disclosures (“ASC 820”) and with ASC Topic 815, Derivatives and Hedging (“ASC 815”). In accordance with ASC
815, we record all derivatives on the balance sheet at fair value. The accounting for the change in the fair value of
derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative as a hedging
instrument for accounting purposes, and whether the hedging relationship has satisfied the criteria necessary to apply
hedge accounting. In addition, ASC 815 provides that, for derivative instruments that qualify for hedge accounting,
changes in the fair value are either (a) offset against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or (b) recognized in equity until the hedged item is recognized in earnings, depending on
whether the derivative is being used to hedge changes in fair value or cash flows. The ineffective portion of a derivative’s
change in fair value is immediately recognized in earnings. We do not use derivative financial instruments for trading or
speculation purposes.
We are exposed to fluctuations in various foreign currencies against our functional currency, the U.S. dollar. We
enter into forward contracts for certain foreign currencies, including the Euro, Japanese yen, Mexican peso, Chinese
renminbi, Korean won, Malaysian ringgit, and British pound sterling. The fair value of foreign currency forward
contracts is determined using widely accepted valuation techniques, including discounted cash flow analysis on the
expected cash flows of each instrument. These analyses utilize observable market-based inputs, including foreign
exchange rates, and reflect the contractual terms of these instruments, including the period to maturity. Certain of these
contracts have not been designated as accounting hedges, and in accordance with ASC 815, we recognize the changes in
the fair value of these contracts in the consolidated statements of operations. The specific contractual terms utilized as
inputs in determining fair value, and a discussion of the nature of the risks being mitigated by these instruments, are
detailed in Note 16, “Derivative Instruments and Hedging Activities,” under the caption Hedges of Foreign Currency
Risk.
We enter into forward contracts for certain commodities, including silver, gold, nickel, aluminum, copper,
platinum, and palladium used in the manufacturing of our products. The terms of these forward contracts fix the price at
a future date for various notional amounts associated with these commodities. The fair value of our commodity forward
contracts is determined using widely accepted valuation techniques, including discounted cash flow analysis on the
expected cash flows of each instrument. These analyses utilize observable market-based inputs, including commodity
forward curves, and reflect the contractual terms of these instruments, including the period to maturity. These contracts
have not been designated as accounting hedges. In accordance with ASC 815, we recognize changes in the fair value of
these contracts in the consolidated statements of operations. The specific contractual terms utilized as inputs in
determining fair value, and a discussion of the nature of the risks being mitigated by these instruments, are detailed in
Note 16, “Derivative Instruments and Hedging Activities,” under the caption Hedges of Commodity Risk.
We incorporate credit valuation adjustments to appropriately reflect both our own non-performance risk and the
respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of our
derivative contracts for the effect of non-performance risk, we have considered the impact of netting and any applicable
credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
71
We report cash flows arising from our derivative financial instruments consistent with the classification of cash
flows from the underlying hedged items.
Refer to further discussion on derivative instruments in Note 16, "Derivative Instruments and Hedging Activities."
Trade accounts receivable: Trade accounts receivable are recorded at invoiced amounts and do not bear interest.
Trade accounts receivable are reduced by an allowance for losses on receivables, as described elsewhere in this Note.
Concentrations of risk with respect to trade accounts receivable are generally limited due to the large number of
customers in various industries and their dispersion across several geographic areas. Although we do not foresee that
credit risk associated with these receivables will deviate from historical experience, repayment is dependent upon the
financial stability of these individual customers. Our largest customer accounted for approximately 9% of our Net
revenue for the year ended December 31, 2016.
Goodwill and Other Intangible Assets
Businesses acquired are recorded at their fair value on the date of acquisition, with the excess of the purchase price
over the fair value of identifiable assets acquired and liabilities assumed recognized as goodwill. In accordance with the
requirements of ASC Topic 350, Intangibles—Goodwill and Other ("ASC 350"), goodwill and intangible assets
determined to have an indefinite useful life are not amortized. Instead these assets are evaluated for impairment on an
annual basis, and whenever events or business conditions change that could indicate that the asset is impaired. We
evaluate goodwill and indefinite-lived intangible assets for impairment in the fourth quarter of each fiscal year, unless
events occur which trigger the need for an earlier impairment review.
Goodwill: We have five reporting units: Performance Sensing, Electrical Protection, Power Management,
Industrial Sensing, and Interconnection. These reporting units have been identified based on the definitions and guidance
provided in ASC 350. We periodically review these reporting units to ensure that they continue to reflect the manner in
which the business is operated. As businesses are acquired, we assign them to an existing reporting unit or create a new
reporting unit. Goodwill is assigned to reporting units as of the date of the related acquisition. We view some assets and
liabilities, such as cash and cash equivalents, property, plant and equipment associated with our corporate offices, and
debt, as being corporate in nature. Accordingly, we do not assign these assets and liabilities to our reporting units.
We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair
value of a reporting unit is less than its net book value. If we elect not to use this option, or if we determine that it is
more likely than not that the fair value of a reporting unit is less than its net book value, then we perform the two-step
goodwill impairment test.
In the first step of the two-step goodwill impairment test, we compare the estimated fair values of our reporting
units to their respective net book values, including goodwill, to determine whether there is an indicator of potential
impairment. If the net book value of a reporting unit exceeds its estimated fair value, we conduct a second step in which
we calculate the implied fair value of goodwill. If the carrying value of the reporting unit’s goodwill exceeds its
calculated implied fair value, an impairment loss is recognized in an amount equal to that excess. The implied fair value
of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is,
the fair value of the reporting unit is allocated to all of its identifiable assets and liabilities (including any unrecognized
intangible assets) as if the reporting unit had been acquired in a business combination at the date of assessment, and the
fair value of the reporting unit was the purchase price. The excess of the fair value of the reporting unit over the sum of
the fair values of each of its identifiable assets and liabilities is the implied fair value of goodwill. The calculation of the
fair value of our reporting units is considered a level 3 fair value measurement.
We used the qualitative method to assess goodwill for impairment as of October 1, 2016.
Indefinite-lived intangible assets: We perform an annual impairment review of our indefinite-lived intangible
assets in the fourth quarter of each fiscal year, unless events occur that trigger the need for an earlier impairment review.
We have the option to first assess qualitative factors in determining whether it is more likely than not that an indefinite-
lived intangible asset is impaired. If we elect not to use this option, or we determine that it is more likely than not that the
asset is impaired, we perform a quantitative impairment review that requires us to estimate the fair value of the
indefinite–lived intangible asset and compare that amount to its carrying value. We estimate the fair value by using the
relief–from–royalty method which requires us to make assumptions about future conditions impacting the value of the
indefinite–lived intangible assets, including projected growth rates, cost of capital, effective tax rates, and royalty rates.
Impairment, if any, is based on the excess of the carrying value over the fair value of these assets.
72
Definite-lived intangible assets: Definite-lived intangible assets are amortized over the estimated useful life of the
asset, using a method of amortization that reflects the pattern in which the economic benefits of the intangible asset are
consumed. If that pattern cannot be reliably determined, then we amortize the intangible asset using the straight-line
method. Capitalized software is amortized on a straight-line basis over its estimated useful life. Capitalized software
licenses are amortized on a straight-line basis over the lesser of the term of the license, or the estimated useful life of the
software.
Reviews are regularly performed to determine whether facts or circumstances exist that indicate that the carrying
values of our definite-lived intangible assets to be held and used are impaired. If we determine these facts or
circumstances exist, we estimate the recoverability of these assets by comparing the projected undiscounted net cash
flows associated with these assets to their respective carrying values. If the sum of the projected undiscounted net cash
flows falls below the carrying value of the assets, the impairment charge is based on the excess of the carrying value over
the fair value of those assets. We determine fair value by using the appropriate income approach valuation methodology,
depending on the nature of the intangible asset.
Refer to Note 5, "Goodwill and Other Intangible Assets," for further details of our goodwill and other intangible
assets.
Debt Instruments
A premium or discount on a debt instrument is recorded on the balance sheet as an adjustment to the carrying
amount of the debt liability. In general, amounts paid to creditors are considered a reduction in the proceeds received
from the issuance of the debt and are accounted for as a component of the premium or discount on the issuance, not as an
issuance cost.
In April 2015, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update
("ASU") No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30) ("ASU 2015-03"). ASU 2015-03 requires that
debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. As a result of this new guidance, beginning in 2016, direct and incremental costs
associated with the issuance of debt instruments such as legal fees, printing costs, and underwriters' fees, among others,
paid to parties other than creditors, are reported and presented as a reduction of debt on the consolidated balance sheets.
Debt issuance costs and premiums or discounts are amortized over the term of the respective financing
arrangement using the effective interest method. Amortization of these amounts is included as a component of Interest
expense, net in the consolidated statements of operations.
In accounting for debt refinancing transactions, we apply the provisions of ASC Subtopic 470-50, Modifications
and Extinguishments (“ASC 470-50”). Our evaluation of the accounting under ASC 470-50 is done on a creditor by
creditor basis in order to determine if the terms of the debt are substantially different and, as a result, whether to apply
modification or extinguishment accounting. In the event that an individual holder of existing debt did not invest in new
debt, we apply extinguishment accounting. Borrowings associated with individual holders of new debt that are not
holders of existing debt are accounted for as new issuances.
Refer to Note 8, "Debt," for further details of our debt instruments and transactions.
Income Taxes
We provide for income taxes utilizing the asset and liability method. Under this method, deferred income taxes are
recorded to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each balance sheet date, based on enacted tax laws and statutory tax rates applicable
to the periods in which the differences are expected to reverse or settle. If it is determined that it is more likely than not
that future tax benefits associated with a deferred tax asset will not be realized, a valuation allowance is provided. The
effect on deferred tax assets and liabilities of a change in statutory tax rates is recognized in the consolidated statements
of operations as an adjustment to income tax expense in the period that includes the enactment date.
In accordance with ASC Topic 740, Income Taxes ("ASC 740"), penalties and interest related to unrecognized tax
benefits may be classified as either income taxes or another expense line item in the consolidated statements of
operations. We classify interest and penalties related to unrecognized tax benefits within the Provision for/(benefit from)
income taxes line of the consolidated statements of operations.
Refer to Note 9, "Income Taxes," for further details on our income taxes.
73
Pension and Other Post-Retirement Benefit Plans
We sponsor various pension and other post-retirement benefit plans covering our current and former employees in
several countries. The estimates of the obligations and related expense of these plans recorded in the financial statements
are based on certain assumptions. The most significant assumptions relate to discount rate, expected return on plan
assets, and rate of increase in healthcare costs. Other assumptions used include employee demographic factors such as
compensation rate increases, retirement patterns, employee turnover rates, and mortality rates. We review these
assumptions annually.
Our review of demographic assumptions includes analyzing historical patterns and/or referencing industry standard
tables, combined with our expectations around future compensation and staffing strategies. The difference between these
assumptions and our actual experience results in the recognition of an actuarial gain or loss. Actuarial gains and losses
are recorded directly to Other comprehensive (loss)/income. If the total net actuarial gain or loss included in
Accumulated other comprehensive loss exceeds a threshold of 10% of the greater of the projected benefit obligation or
the market related value of plan assets, it is subject to amortization and recorded as a component of net periodic pension
cost over the average remaining service lives of the employees participating in the pension or post-retirement benefit
plan.
The discount rate reflects the current rate at which the pension and other post-retirement liabilities could be
effectively settled, considering the timing of expected payments for plan participants. It is used to discount the estimated
future obligations of the plans to the present value of the liability reflected in the financial statements. In estimating this
rate in countries that have a market of high-quality, fixed-income investments, we consider rates of return on these
investments included in various bond indices, adjusted to eliminate the effect of call provisions and differences in the
timing and amounts of cash outflows related to the bonds. In other countries where a market of high-quality, fixed-
income investments does not exist, we estimate the discount rate using government bond yields or long-term inflation
rates.
To determine the expected return on plan assets, we consider the historical returns earned by similarly invested
assets, the rates of return expected on plan assets in the future, and our investment strategy and asset mix with respect to
the plans’ funds.
The rate of increase of healthcare costs directly impacts the estimate of our future obligations in connection with
our post-retirement medical benefits. Our estimate of healthcare cost trends is based on historical increases in healthcare
costs under similarly designed plans, the level of increase in healthcare costs expected in the future, and the design
features of the underlying plan.
We have adopted use of the Retirement Plan ("RP") 2014 mortality tables with the updated Mortality Projection
("MP") 2016 mortality improvement scale as issued by the Society of Actuaries in 2016 for our U.S. defined benefit
plans. The updated MP 2016 mortality improvement scale reflects improvements in longevity as compared to the MP
2015 mortality improvement scale the Society of Actuaries issued in 2015, primarily because it includes actual Social
Security mortality data for 2012, 2013 and 2014. The MP projection scale is used to factor in projected mortality
improvements over time, based on age and date of birth (i.e., two-dimension generational).
Refer to Note 10, "Pension and Other Post-Retirement Benefits," for further information on our pension and other
post-retirement benefit plans.
Allowance for Losses on Receivables
The allowance for losses on receivables is used to provide for potential impairment of receivables. The allowance
represents an estimate of probable but unconfirmed losses in the receivable portfolio. We estimate the allowance on the
basis of specifically identified receivables that are evaluated individually for impairment and a statistical analysis of the
remaining receivables determined by reference to past default experience. Customers are generally not required to
provide collateral for purchases. The allowance for losses on receivables also includes an allowance for sales returns.
Management judgments are used to determine when to charge off uncollectible trade accounts receivable. We base
these judgments on the age of the receivable, credit quality of the customer, current economic conditions, and other
factors that may affect a customer’s ability and intent to pay.
Losses on receivables have not historically been significant.
74
Inventories
Inventories are stated at the lower of cost or estimated net realizable value. Cost for raw materials, work-in-
process, and finished goods is determined based on a first-in, first-out ("FIFO") basis and includes material, labor, and
applicable manufacturing overhead. We conduct quarterly inventory reviews for salability and obsolescence, and
inventory considered unlikely to be sold is adjusted to net realizable value. Refer to Note 4, "Inventories," for details of
our inventory balances.
Property, Plant and Equipment ("PP&E") and Other Capitalized Costs
PP&E is stated at cost, and in the case of plant and equipment, is depreciated on a straight-line basis over its
estimated economic useful life. The depreciable lives of plant and equipment are as follows:
Buildings and improvements
Machinery and equipment
2 – 40 years
2 – 15 years
Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease term
or the estimated economic useful lives of the improvements.
Assets held under capital leases are recorded at the lower of the present value of the minimum lease payments or
the fair value of the leased asset at the inception of the lease. Amortization expense associated with capital leases, which
is included within depreciation expense, is computed using the straight-line method over the shorter of the estimated
useful lives of the assets or the period of the related lease, unless ownership is transferred by the end of the lease or there
is a bargain purchase option, in which case the asset is amortized, normally on a straight-line basis, over the useful life
that would be assigned if the asset were owned.
Expenditures for maintenance and repairs are charged to expense as incurred, whereas major improvements that
increase asset values and extend useful lives are capitalized.
Refer to Note 3, "Property, Plant and Equipment," for details of our PP&E balances.
Foreign Currency
For financial reporting purposes, the functional currency of all of our subsidiaries is the U.S. dollar because of the
significant influence of the U.S. dollar on our operations. In certain instances, we enter into transactions that are
denominated in a currency other than the U.S. dollar. At the date the transaction is recognized, each asset, liability,
revenue, expense, gain, or loss arising from the transaction is measured and recorded in U.S. dollars using the exchange
rate in effect at that date. At each balance sheet date, recorded monetary balances denominated in a currency other than
the U.S. dollar are adjusted to the U.S. dollar using the current exchange rate, with gains or losses recorded in Other, net
in the consolidated statements of operations.
Other, net
Other, net for the years ended December 31, 2016, 2015, and 2014 consisted of the following:
Currency remeasurement loss on net monetary assets
Loss on debt financing
Gain/(loss) on commodity forward contracts
(Loss)/gain on foreign currency forward contracts
Other
Total Other, net
For the year ended December 31,
2016
2015
2014
$
$
(10,621) $
—
7,399
(1,850)
171
(4,901) $
(9,613) $
(25,538)
(18,468)
3,606
(316)
(50,329) $
(6,912)
(1,875)
(9,017)
5,469
276
(12,059)
75
Recently issued accounting standards adopted in the current period:
In April 2015, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update
("ASU") No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30) ("ASU 2015-03"). ASU 2015-03 requires that
debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. ASU 2015-03 was effective for annual reporting periods beginning after December 15,
2015, including interim periods within those annual reporting periods. We adopted ASU 2015-03 on January 1, 2016, and
as a result, as of December 31, 2016 and 2015, $33.7 million and $38.3 million, respectively, of deferred financing costs
were classified as a reduction of long-term debt on our consolidated balance sheets. The adoption of ASU 2015-03 did
not have any impact on our statements of operations. Refer to Note 8, "Debt," for a reconciliation of the various
components of long-term debt to the consolidated balance sheets.
Recently issued accounting standards to be adopted in a future period:
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09”), which modifies how all entities recognize revenue, and consolidates into one ASC Topic (ASC Topic 606,
Revenue from Contracts with Customers) the current guidance found in ASC Topic 605 and various other revenue
accounting standards for specialized transactions and industries. ASU 2014-09 outlines a comprehensive five-step
revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. ASU 2014-09 may be applied using either a full retrospective approach,
under which all years included in the financial statements will be presented under the revised guidance, or a modified
retrospective approach, under which financial statements will be prepared under the revised guidance for the year of
adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment to the
opening balance of retained earnings at the effective date for contracts that still require performance by the entity.
In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606):
Deferral of Effective Date, which defers the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective
for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting
periods. We have developed an implementation plan to adopt this new guidance. As part of this plan, we are currently
assessing the impact of the new guidance on our results of operations. Based on our procedures performed to date,
nothing has come to our attention that would indicate that the adoption of ASU 2014-09 will have a material impact on
our financial statements, however, we will continue to evaluate this assessment in 2017. We intend to adopt ASU
2014-09 on January 1, 2018. We have not yet selected a transition method, but expect to do so in 2017 upon completion
of further analysis.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which establishes
new accounting and disclosure requirements for leases. ASU 2016-02 requires lessees to classify most leases as either
finance or operating leases and to initially recognize a lease liability and right-of-use asset. Entities may elect to account
for certain short-term leases (with a term of 12 months or less) using a method similar to the current operating lease
model. The statements of operations will include, for finance leases, separate recognition of interest on the lease liability
and amortization of the right-of-use asset and for operating leases, a single lease cost, calculated so that the cost of the
lease is allocated over the lease term on a straight-line basis. ASU 2016-02 is effective for annual reporting periods
beginning after December 15, 2018, including interim periods within those annual reporting periods, with early adoption
permitted. ASU 2016-02 must be applied using a modified retrospective approach, which requires recognition and
measurement of leases at the beginning of the earliest period presented, with certain practical expedients available. We
are currently evaluating when to adopt ASU 2016-02 and the impact that this adoption will have on our consolidated
financial statements.
76
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09") as part of its simplification initiative.
ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions. The provisions of ASU
2016-09 that will impact us are as follows: (1) an accounting policy election may be made to account for forfeitures as
they occur, rather than based on an estimate of future forfeitures, and (2) companies will be allowed to withhold shares,
upon either the exercise of options or vesting of restricted securities, with an aggregate fair value in excess of the
minimum statutory withholding requirement and still qualify for the exception to liability classification. ASU 2016-09 is
effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual
reporting periods. Amendments related to the provisions that are applicable to Sensata must be applied using a modified
retrospective approach by means of a cumulative-effect adjustment to equity as of the beginning of the period in which
ASU 2016-09 is adopted. We do not expect the adoption of ASU 2016-09 to have a material impact on our financial
position or results of operations.
3. Property, Plant and Equipment
PP&E as of December 31, 2016 and 2015 consisted of the following:
Land
Buildings and improvements
Machinery and equipment
PP&E, gross
Accumulated depreciation
PP&E, net
December 31,
2016
December 31,
2015
$
23,316
$
236,547
1,025,900
1,285,763
(560,009)
725,754
$
$
21,715
227,665
919,287
1,168,667
(474,512)
694,155
Depreciation expense for PP&E, including amortization of assets under capital leases, totaled $106.9 million,
$96.1 million, and $65.8 million for the years ended December 31, 2016, 2015, and 2014, respectively.
PP&E as of December 31, 2016 and 2015 included the following assets under capital leases:
PP&E recognized under capital leases
Accumulated amortization
Net PP&E recognized under capital leases
4. Inventories
December 31,
2016
December 31,
2015
$
$
44,637
(18,410)
26,227
$
$
44,259
(16,308)
27,951
The components of inventories as of December 31, 2016 and 2015 were as follows:
Finished goods
Work-in-process
Raw materials
Total
December 31,
2016
December 31,
2015
$
$
169,304
$
154,827
74,810
145,730
389,844
$
62,084
141,790
358,701
As of December 31, 2016 and 2015, inventories totaling $10.3 million and $10.1 million, respectively, had been
consigned to customers.
77
5. Goodwill and Other Intangible Assets
The following table outlines the changes in goodwill, by segment:
Performance Sensing
Sensing Solutions
Total
Gross
Goodwill
Accumulated
Impairment
Net
Goodwill
Gross
Goodwill
Accumulated
Impairment
Net
Goodwill
Gross
Goodwill
Accumulated
Impairment
Net
Goodwill
$ 1,994,623
$
— $ 1,994,623
$
448,638
$
(18,466) $
430,172
$ 2,443,261
$
(18,466) $ 2,424,795
147,433
—
147,433
439,944
—
439,944
587,377
—
587,377
2,441
5,130
—
—
2,441
5,130
—
—
—
—
—
—
2,441
5,130
—
—
2,441
5,130
2,149,627
—
2,149,627
888,582
(18,466)
870,116
3,038,209
(18,466)
3,019,743
(1,492)
—
(1,492)
(12,787)
—
(12,787)
(14,279)
—
(14,279)
$ 2,148,135
$
— $ 2,148,135
$
875,795
$
(18,466) $
857,329
$ 3,023,930
$
(18,466) $ 3,005,464
Balance as of
December 31,
2014
CST
Acquisition
DeltaTech -
purchase
accounting
adjustment
Schrader -
purchase
accounting
adjustment
Balance as of
December 31,
2015
CST - purchase
accounting
adjustment
Balance as of
December 31,
2016
Goodwill attributed to acquisitions reflects our allocation of purchase price to the estimated fair value of certain
assets acquired and liabilities assumed. The purchase accounting adjustments above generally reflect revisions in fair
value estimates of liabilities assumed and tangible and intangible assets acquired, as well as an adjustment to arrive at the
final allocation of goodwill to our segments based on a methodology utilizing anticipated future earnings of the
components of the business.
We have evaluated our goodwill for impairment as of October 1, 2016 using the qualitative method, and have
determined that it was more likely than not that the fair values of our reporting units exceeded their carrying values on
that date. We have evaluated our indefinite-lived intangible assets (other than goodwill) for impairment as of October 1,
2016 using the quantitative method, and have determined that the fair values of these indefinite-lived intangible assets
exceeded their carrying values on that date. Should certain assumptions change that were used in the qualitative analysis
of goodwill, or in the development of the fair value of our indefinite-lived intangible assets, we may be required to
recognize goodwill or intangible asset impairments.
The following table outlines the components of definite-lived intangible assets, excluding goodwill, as of
December 31, 2016 and 2015:
December 31, 2016
December 31, 2015
Weighted-
Average
Life (Years)
Gross
Carrying
Amount
Accumulated
Amortization
Accumulated
Impairment
Net
Carrying
Value
Gross
Carrying
Amount
Accumulated
Amortization
Accumulated
Impairment
Net
Carrying
Value
Completed
technologies
Customer
relationships
Non-compete
agreements
Tradenames
Capitalized
software (1)
Total
14
$ 729,168
$
(358,500) $
(2,430) $ 368,238
$ 726,598
$
(293,564) $
(2,430) $ 430,604
11
8
22
7
12
1,771,198
(1,196,961)
(12,144)
562,093
1,765,704
(1,070,460)
(12,144)
683,100
23,400
50,754
(23,400)
(8,672)
54,284
(19,736)
—
—
—
—
42,082
23,400
50,754
(23,400)
(5,901)
34,548
55,151
(19,606)
—
—
—
—
44,853
35,545
$ 2,628,804
$ (1,607,269) $
(14,574) $ 1,006,961
$ 2,621,607
$ (1,412,931) $
(14,574) $ 1,194,102
(1) During the year ended December 31, 2016, we wrote-off approximately $7.2 million of fully-amortized capitalized
software that was not in use.
78
The following table outlines Amortization of intangible assets for the years ended December 31, 2016, 2015, and
2014:
Acquisition-related definite-lived intangible assets
Capitalized software
Total Amortization of intangible assets
December 31,
2016
December 31,
2015
December 31,
2014
$
$
194,208
7,290
201,498
$
$
179,785
6,847
186,632
$
$
143,604
3,100
146,704
The table below presents estimated Amortization of intangible assets for the following future periods:
2017
2018
2019
2020
2021
$ 159,824
$ 136,154
$ 127,006
$ 110,541
$
94,727
In addition to the above, we own the Klixon® and Airpax® tradenames, which are indefinite-lived intangible assets,
as they have each been in continuous use for over 65 years, and we have no plans to discontinue using them. We have
recorded $59.1 million and $9.4 million, respectively, on the consolidated balance sheets related to these tradenames.
6. Acquisitions
The following discussion relates to our acquisitions during the years ended December 31, 2015 and 2014. Refer to
Note 5, "Goodwill and Other Intangible Assets," for further discussion of our consolidated Goodwill and Other
intangible assets, net balances.
CST
On December 1, 2015, we completed the acquisition of all of the outstanding shares of certain subsidiaries of
Custom Sensors & Technologies Ltd. in the U.S., the U.K., and France, as well as certain assets in China (collectively,
"CST"), for an aggregate purchase price of $1,000.8 million. The acquisition included the Kavlico, BEI, Crydom, and
Newall product lines and brands, and encompassed sales, engineering, and manufacturing sites in the U.S., the U.K.,
Germany, France, and Mexico. We acquired CST to further extend our sensing content beyond automotive markets and
build scale in pressure sensing. Portions of CST are being integrated into each of our segments.
Kavlico is a provider of linear and rotary position sensors to aerospace original equipment manufacturers and Tier
1 suppliers, and pressure sensors primarily to the general industrial and HVOR markets. BEI provides harsh environment
position sensors, optical and magnetic encoders, and motion control sensors to the industrial, aerospace, agricultural, and
medical device markets. Crydom manufactures solid state relays for power control applications in industrial markets.
Newall provides encoders and digital readouts to machinery and machine tool markets.
79
The following table summarizes the allocation of the purchase price to the estimated fair values of the assets
acquired and liabilities assumed:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Property, plant and equipment
Other intangible assets
Goodwill
Other assets
Accounts payable
Accrued expenses and other current liabilities
Deferred income tax liabilities
Pension and other post-retirement benefit obligations
Other long term liabilities
Fair value of net assets acquired, excluding cash and cash equivalents
Cash and cash equivalents
Fair value of net assets acquired
$
41,100
40,679
11,227
42,109
541,010
573,096
39
(19,088)
(29,184)
(204,623)
(3,767)
(415)
992,183
8,612
$
1,000,795
The allocation of the purchase price related to this acquisition was finalized in the fourth quarter of 2016 and was
based on management’s judgments after evaluating several factors, including valuation assessments of tangible and
intangible assets, and estimates of the fair values of liabilities assumed. The goodwill of $573.1 million represents future
economic benefits expected to arise from synergies from combining operations and the extension of existing customer
relationships. None of the goodwill recorded is expected to be deductible for tax purposes.
In connection with the allocation of purchase price to the assets acquired and liabilities assumed, we identified
certain definite-lived intangible assets. The following table presents the acquired intangible assets, their estimated fair
values, and weighted-average lives:
Acquired definite-lived intangible assets:
Completed technologies
Customer relationships
Tradenames
Computer software
Total
Acquisition
Date Fair Value
Weighted-
Average Life
(years)
$
187,460
311,110
41,900
540
$
541,010
16
15
25
2
16
The definite-lived intangible assets were valued using the income approach. We used the relief-from-royalty and
the multi-period excess earnings methods to value completed technologies. The customer relationships were valued
using the multi-period excess earnings and distributor methods. Tradenames were valued using the relief-from-royalty
method. These valuation methods incorporate assumptions including expected discounted future cash flows resulting
from either the future estimated after-tax royalty payments avoided as a result of owning the completed technologies, or
the future earnings related to existing customer relationships. The fair value of these assets is considered to be a Level 3
fair value measurement.
80
Schrader
On October 14, 2014, we completed the acquisition of all of the outstanding shares of August Cayman Company,
Inc., an exempted company incorporated with limited liability under the laws of the Cayman Islands ("Schrader"), for an
aggregate purchase price of $1,004.7 million. Schrader is a global manufacturer of sensing and valve solutions primarily
for automotive manufacturers, including tire pressure monitoring sensors ("TPMS"), and is being integrated into our
Performance Sensing segment. We acquired Schrader to add TPMS and additional low pressure sensing capabilities to
our current product portfolio. The allocation of the purchase price related to this acquisition was finalized in the fourth
quarter of 2015.
DeltaTech Controls
On August 4, 2014, we completed the acquisition of all of the outstanding shares of CoActive US Holdings, Inc.,
the direct or indirect parent of companies comprising the DeltaTech Controls business ("DeltaTech"), from CoActive
Holdings, LLC for an aggregate purchase price of $177.8 million. DeltaTech is a manufacturer of customized electronic
operator controls based on magnetic position sensing technology for the construction, agriculture, and material handling
industries, and has been integrated into our Performance Sensing segment. We acquired DeltaTech to expand our
magnetic speed and position sensing business with new and existing customers in the HVOR market. The allocation of
the purchase price related to this acquisition was finalized in the third quarter of 2015.
Magnum Energy
On May 29, 2014, we completed the acquisition of all of the outstanding shares of Magnum Energy Incorporated
("Magnum Energy" or "Magnum") for an aggregate purchase price of $60.6 million. Magnum is a supplier of pure sine,
low-frequency inverters and inverter/chargers based in Everett, Washington. Magnum products are used in recreational
vehicles and the solar/off-grid applications market. Magnum has been integrated into our Sensing Solutions segment. We
acquired Magnum to complement our existing inverter business. The majority of the purchase price was allocated to
intangible assets, including goodwill. The allocation of the purchase price related to this acquisition was finalized in the
second quarter of 2015.
Wabash Technologies
On January 2, 2014, we completed the acquisition of all the outstanding shares of Wabash Worldwide Holding
Corp. ("Wabash Technologies" or "Wabash") from an affiliate of Sun Capital Partners, Inc. for an aggregate purchase
price of $59.6 million. Wabash develops, manufactures, and sells a broad range of custom-designed sensors and has
operations in the U.S., Mexico, and the U.K. We acquired Wabash in order to complement our existing magnetic speed
and position sensor product portfolio and to provide new capabilities in throttle position and transmission range sensing,
while enabling additional entry points into the HVOR end-market. Wabash has been integrated into our Performance
Sensing segment.
Pro Forma Results
CST
The following unaudited table presents the pro forma Net revenue and Net income for the following periods of the
combined entity had we acquired CST on January 1, 2014. Results for the year ended December 31, 2014 include only
the actual results of Schrader from the acquisition date of October 14, 2014 through December 31, 2014.
Pro forma net revenue
Pro forma net income
(Unaudited)
For the year ended
December 31,
2015
December 31,
2014
$
$
3,261,515
345,229
$
$
2,747,403
255,819
Pro forma net income for the year ended December 31, 2014 includes nonrecurring charges of $4.1 million related
to the amortization of the step-up adjustment to record inventory at fair value and $9.3 million and $10.0 million of
transaction costs and financing costs, respectively, incurred as a result of the acquisition.
81
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of December 31, 2016 and 2015 consisted of the following:
Accrued compensation and benefits
Accrued interest
Foreign currency and commodity forward contracts
Accrued restructuring and severance
Current portion of pension and post-retirement benefit obligations
Other accrued expenses and current liabilities
Total
8. Debt
December 31,
2016
December 31,
2015
$
83,008
$
36,805
26,151
14,566
2,750
82,286
81,185
26,104
27,674
14,089
3,461
99,476
$
245,566
$
251,989
Our long-term debt and capital lease and other financing obligations as of December 31, 2016 and 2015 consisted
of the following:
Term Loan
4.875% Senior Notes
5.625% Senior Notes
5.0% Senior Notes
6.25% Senior Notes
Revolving Credit Facility
Less: discount
Less: deferred financing costs
Less: current portion
Long-term debt, net of discount and deferred financing costs, less current portion
Capital lease and other financing obligations
Less: current portion
Capital lease and other financing obligations, less current portion
Debt Transactions
December 31,
2016
937,794
$
December 31,
2015
982,695
$
500,000
400,000
700,000
750,000
—
(17,655)
(33,656)
(9,901)
3,226,582
37,111
(4,742)
32,369
$
$
$
500,000
400,000
700,000
750,000
280,000
(20,116)
(38,345)
(289,901)
3,264,333
46,757
(10,538)
36,219
$
$
$
In May 2011, we completed a series of transactions designed to refinance our then existing indebtedness. These
transactions included the issuance and sale of $700.0 million aggregate principal amount of 6.5% senior notes due 2019
(the "6.5% Senior Notes") and the execution of a credit agreement (the "Credit Agreement") providing for senior secured
credit facilities (the "Senior Secured Credit Facilities"), consisting of a term loan facility (the "Original Term Loan"),
which was offered at an original principal amount of $1,100.0 million and an original issue price of 99.5%, and a $250.0
million revolving credit facility (as amended, the "Revolving Credit Facility"). Refer to the section entitled Senior
Secured Credit Facilities below for additional details on the Revolving Credit Facility.
In April 2013, we completed the issuance and sale of $500.0 million aggregate principal amount of 4.875% senior
notes due 2023 (the "4.875% Senior Notes"). We used the proceeds from the issuance and sale of these notes, together
with cash on hand, to (1) repay $700.0 million of the Original Term Loan, (2) pay all accrued interest on such
indebtedness, and (3) pay all fees and expenses in connection with the issuance and sale of the 4.875% Senior Notes.
In October 2014, we completed a series of financing transactions (the "2014 Financing Transactions") in order to
fund the acquisition of Schrader. The 2014 Financing Transactions included the issuance and sale of $400.0 million in
aggregate principal amount of 5.625% senior notes due 2024 (the "5.625% Senior Notes") and the entry into a third
82
amendment (the "Third Amendment") to the Credit Agreement that provided for a $600.0 million additional term loan
(the "Incremental Term Loan"), which was offered at an original issue price of 99.25%. The net proceeds from the 2014
Financing Transactions, together with cash on hand, were used to (1) fund the acquisition of Schrader, (2) permanently
repay all outstanding indebtedness under Schrader's existing credit facilities, and (3) pay all related fees and expenses in
connection with the 2014 Financing Transactions and the acquisition of Schrader.
On March 26, 2015, we completed a series of financing transactions (the "2015 Financing Transactions"), including
the settlement of $620.9 million of the 6.5% Senior Notes that was validly tendered in connection with a cash tender
offer that commenced on March 19, 2015, the issuance and sale of $700.0 million aggregate principal amount of 5.0%
senior notes due 2025 (the "5.0% Senior Notes"), and the entry into an amendment (the "Fifth Amendment") to the
Credit Agreement. The Fifth Amendment (1) increased the amount available for borrowing under the Revolving Credit
Facility by $100.0 million to $350.0 million in the aggregate, (2) extended the maturity date of the Revolving Credit
Facility to March 26, 2020, and (3) revised certain fees related to the Revolving Credit Facility.
On April 29, 2015, we redeemed the remaining $79.1 million principal amount of 6.5% Senior Notes (the
"Redemption").
On May 11, 2015, we entered into an amendment (the "Sixth Amendment") of the Credit Agreement. Pursuant to
the Sixth Amendment, the Original Term Loan and the Incremental Term Loan (together, the "Refinanced Term Loans")
were prepaid in full, and a new term loan (the "Term Loan") was entered into in an aggregate principal amount equal to
the sum of the outstanding balances of the Refinanced Term Loans. Refer to the section entitled Senior Secured Credit
Facilities below for additional details on the Term Loan.
On September 29, 2015, we entered into an amendment (the “Seventh Amendment") of the Credit Agreement. The
Seventh Amendment increased the amount available for borrowing on the Revolving Credit Facility by $70.0 million to
$420.0 million.
On November 27, 2015, we completed the issuance and sale of $750.0 million aggregate principal amount of
6.25% senior notes due 2026 (the “6.25% Senior Notes”). We used the proceeds from the issuance and sale of these
notes, together with $250.0 million in borrowings on the Revolving Credit Facility and cash on hand, to fund the
acquisition of CST and pay related expenses. Refer to Note 6, “Acquisitions,” for further discussion of the acquisition of
CST.
Senior Secured Credit Facilities
All obligations under the Senior Secured Credit Facilities are unconditionally guaranteed by certain of our
subsidiaries in the U.S., the Netherlands, Mexico, Japan, Belgium, Bulgaria, Malaysia, Bermuda, Luxembourg, France,
Ireland, and the U.K. (collectively, the "Guarantors"). The collateral for such borrowings under the Senior Secured Credit
Facilities consists of substantially all present and future property and assets of STBV, Sensata Technologies Finance
Company, LLC, and the Guarantors.
The Credit Agreement stipulates certain events and conditions that may require us to use excess cash flow, as
defined by the terms of the Credit Agreement, generated by operating, investing, or financing activities, to prepay some
or all of the outstanding borrowings under the Senior Secured Credit Facilities. The Credit Agreement also requires
mandatory prepayments of the outstanding borrowings under the Senior Secured Credit Facilities upon certain asset
dispositions and casualty events, in each case subject to certain reinvestment rights, and the incurrence of certain
indebtedness (excluding any permitted indebtedness). These provisions were not triggered during the year ended
December 31, 2016.
We have amended the Credit Agreement on seven occasions since its initial execution. The terms presented herein
reflect the changes as a result of these various amendments. Refer to the Debt Transactions section above for additional
details of the terms of material amendments.
Term Loan
The Term Loan, which was entered into in May 2015 in order to prepay the Refinanced Term Loans, was offered at
99.75% of par. The principal amount of the Term Loan amortizes in equal quarterly installments in an aggregate annual
amount equal to 1.0% of the original principal amount, with the balance due at maturity. At our option, under the terms
of the Sixth Amendment, the Term Loan may be maintained from time to time as a Base Rate loan or a Eurodollar Rate
83
loan (each as defined in the Sixth Amendment), each with a different determination of interest rates. Pursuant to the
terms of the Sixth Amendment, the applicable margins for the Term Loan are 1.25% and 2.25% for Base Rate loans and
Eurodollar Rate loans, respectively, subject to floors of 1.75% and 0.75% for Base Rate loans and Eurodollar Rate loans,
respectively. As of December 31, 2016, we maintained the Term Loan as a Eurodollar Rate loan, which accrued interest
at a rate of 3.02%.
Revolving Credit Facility
At our option, the Revolving Credit Facility may be maintained from time to time as a Base Rate loan or a
Eurodollar Rate loan (each as defined in the Credit Agreement), each with a different determination of interest rates.
Interest rates and fees on the Revolving Credit Facility are as follows (each depending on the achievement of certain
senior secured net leverage ratios) (i) the index rate spread for Eurodollar Rate loans is 1.75% or 1.50%; (ii) the index
rate spread for Base Rate loans is 0.75% or 0.50%; and (iii) the letter of credit fees are 1.625% or 1.375%.
The original amount available for borrowing under the Revolving Credit Facility per the terms of the Credit
Agreement was $250.0 million. On March 26, 2015, we executed the Fifth Amendment, which increased the amount
available for borrowing under the Revolving Credit Facility to $350.0 million. On September 29, 2015, we executed the
Seventh Amendment, which increased the amount available for borrowing under the Revolving Credit Facility to $420.0
million. We are required to pay to our revolving credit lenders, on a quarterly basis, a commitment fee on the unused
portion of the Revolving Credit Facility. The commitment fee is subject to a pricing grid based on our leverage ratio. The
spreads on the commitment fee currently range from 0.25% to 0.375%.
As of December 31, 2016, there was $414.4 million of availability under the Revolving Credit Facility (net of $5.6
million in letters of credit). Outstanding letters of credit are issued primarily for the benefit of certain operating activities.
As of December 31, 2016, no amounts had been drawn against these outstanding letters of credit, which are scheduled to
expire on various dates in 2017.
Revolving loans may be borrowed, repaid, and re-borrowed to fund our working capital needs and for other general
corporate purposes. No amounts under the Term Loan, once repaid, may be re-borrowed.
Senior Notes
At December 31, 2016, we had various tranches of senior notes outstanding, including the 4.875% Senior Notes,
the 5.625% Senior Notes, the 5.0% Senior Notes, and the 6.25% Senior Notes (collectively, the “Senior Notes”).
At any time, we may redeem the Senior Notes (with the exception of the 6.25% Senior Notes, the redemption terms
of which are discussed in more detail below), in whole or in part, at a redemption price equal to 100% of the principal
amount of the Senior Notes redeemed, plus accrued and unpaid interest, if any, to the date of redemption, plus the
Applicable Premium (also known as the "make-whole premium") set forth in the indentures under which the Senior
Notes were issued (the “Senior Notes Indentures”). Upon the occurrence of certain change in control events, we will be
required to make an offer to purchase the Senior Notes then outstanding at a purchase price equal to 101% of their
principal amount, plus accrued and unpaid interest, if any, to the date of repurchase. In addition, if certain changes in the
law of any relevant taxing jurisdiction become effective that would impose withholding taxes or other deductions on the
payments of the Senior Notes or the guarantees, we may redeem the Senior Notes in whole, but not in part, at any time,
at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, and additional amounts,
if any, to the date of redemption.
The Senior Notes Indentures provide for events of default (subject in certain cases to customary grace and cure
periods) that include, among others, nonpayment of principal or interest when due, breach of covenants or other
agreements in the Senior Notes Indentures, defaults in payment of certain other indebtedness, certain events of
bankruptcy or insolvency, failure to pay certain judgments, and when the guarantees of significant subsidiaries cease to
be in full force and effect. Generally, if an event of default occurs, the trustee or the holders of at least 25% in principal
amount of the then outstanding Senior Notes may declare the principal of, and accrued but unpaid interest on, all of the
Senior Notes to be due and payable immediately. All provisions regarding remedies in an event of default are subject to
the Senior Notes Indentures.
4.875% Senior Notes
The 4.875% Senior Notes were issued under an indenture dated April 17, 2013 (the "4.875% Senior Notes
Indenture") among STBV, as issuer, The Bank of New York Mellon, as trustee, and the Guarantors. The 4.875% Senior
84
Notes were offered at par. Interest on the 4.875% Senior Notes is payable semi-annually on April 15 and October 15 of
each year.
Our obligations under the 4.875% Senior Notes are guaranteed by all of STBV’s existing and future wholly-owned
subsidiaries that guarantee our obligations under the Senior Secured Credit Facilities. The 4.875% Senior Notes and the
related guarantees are the senior unsecured obligations of STBV and the Guarantors, respectively. The 4.875% Senior
Notes and the guarantees rank equally in right of payment to all existing and future senior unsecured indebtedness of
STBV or the Guarantors.
5.625% Senior Notes
The 5.625% Senior Notes were issued under an indenture dated October 14, 2014 (the "5.625% Senior Notes
Indenture") among STBV, as issuer, The Bank of New York Mellon, as trustee, and the Guarantors. The 5.625% Senior
Notes were offered at par. Interest on the 5.625% Senior Notes is payable semi-annually on May 1 and November 1 of
each year, with the first payment made on May 1, 2015.
Our obligations under the 5.625% Senior Notes are guaranteed by all of STBV’s existing and future wholly-owned
subsidiaries that guarantee our obligations under the Senior Secured Credit Facilities. The 5.625% Senior Notes and the
related guarantees are the senior unsecured obligations of STBV and the Guarantors, respectively. The 5.625% Senior
Notes and the guarantees rank equally in right of payment to all existing and future senior unsecured indebtedness of
STBV or the Guarantors.
5.0% Senior Notes
The 5.0% Senior Notes were issued under an indenture dated March 26, 2015 (the "5.0% Senior Notes Indenture")
among STBV, as issuer, The Bank of New York Mellon, as trustee, and the Guarantors. The 5.0% Senior Notes were
offered at par. Interest on the 5.0% Senior Notes is payable semi-annually on April 1 and October 1 of each year, with the
first payment made on October 1, 2015.
Our obligations under the 5.0% Senior Notes are guaranteed by all of STBV’s existing and future wholly-owned
subsidiaries that guarantee our obligations under the Senior Secured Credit Facilities. The 5.0% Senior Notes and the
related guarantees are the senior unsecured obligations of STBV and the Guarantors, respectively. The 5.0% Senior
Notes and the guarantees rank equally in right of payment to all existing and future senior unsecured indebtedness of
STBV or the Guarantors.
6.25% Senior Notes
The 6.25% Senior Notes were issued by Sensata Technologies UK Financing Co. plc ("STUK") under an indenture
dated November 27, 2015 (the "6.25% Senior Notes Indenture") among STUK, as issuer, The Bank of New York Mellon,
as trustee, and the Guarantors. The 6.25% Senior Notes were offered at par. Interest on the 6.25% Senior Notes is
payable semi-annually on February 15 and August 15 of each year, with the first payment made on February 15, 2016.
We may redeem the 6.25% Senior Notes, in whole or in part, at any time prior to February 15, 2021, at a
redemption price equal to 100% of the principal amount of the 6.25% Senior Notes redeemed, plus accrued and unpaid
interest, if any, to the date of redemption, plus the Applicable Premium (also known as the “make-whole” premium) set
forth in the 6.25% Senior Notes Indenture. Thereafter, we may redeem the 6.25% Senior Notes, in whole or in part, at the
following prices (plus accrued and unpaid interest, if any, to the date of redemption):
Period beginning February 15,
2021
2022
2023
2024 and thereafter
Price
103.125%
102.083%
101.042%
100.000%
In addition, at any time prior to November 15, 2018, we may redeem up to 40% of the aggregate principal amount
of the 6.25% Senior Notes with the net cash proceeds from certain equity offerings at the redemption price of 106.25%
plus accrued and unpaid interest, if any, to the date of redemption, provided that at least 60% of the aggregate principal
amount of the 6.25% Senior Notes remains outstanding immediately after each such redemption.
85
Our obligations under the 6.25% Senior Notes are guaranteed by STBV and certain of STBV’s existing and future
wholly-owned subsidiaries (other than STUK) that guarantee our obligations under the Senior Secured Credit Facilities.
The 6.25% Senior Notes and the related guarantees are the senior unsecured obligations of STUK and the Guarantors,
respectively. The 6.25% Senior Notes and the guarantees rank equally in right of payment to all existing and future
senior unsecured indebtedness of STUK, STBV, or the Guarantors.
Restrictions
As of December 31, 2016, for purposes of the Senior Notes and the Term Loan, all of the subsidiaries of STBV
were "Restricted Subsidiaries." Under certain circumstances, STBV will be permitted to designate subsidiaries as
"Unrestricted Subsidiaries." As per the terms of the Senior Notes Indentures and the Credit Agreement, Restricted
Subsidiaries are subject to restrictive covenants. Unrestricted Subsidiaries will not be subject to the restrictive covenants
of the Credit Agreement and will not guarantee any of the Senior Notes.
Under the Revolving Credit Facility, STBV and its Restricted Subsidiaries are required to maintain a senior secured
net leverage ratio not to exceed 5.0:1.0 at the conclusion of certain periods when outstanding loans and letters of credit
that are not cash collateralized for the full face amount thereof exceed 10% of the commitments under the Revolving
Credit Facility. In addition, STBV and its Restricted Subsidiaries are required to satisfy this covenant, on a pro forma
basis, in connection with any new borrowings (including any letter of credit issuances) under the Revolving Credit
Facility as of the time of such borrowings.
The Credit Agreement also contains non-financial covenants that limit our ability to incur subsequent indebtedness,
incur liens, prepay subordinated debt, make loans and investments (including acquisitions), merge, consolidate, dissolve
or liquidate, sell assets, enter into affiliate transactions, change our business, change our accounting policies, make
capital expenditures, amend the terms of our subordinated debt and our organizational documents, pay dividends and
make other restricted payments, and enter into certain burdensome contractual obligations. These covenants are subject
to important exceptions and qualifications set forth in the Credit Agreement.
The Senior Notes Indentures contain restrictive covenants that limit the ability of STBV and its Restricted
Subsidiaries to, among other things: incur additional debt or issue preferred stock; create liens; create restrictions on
STBV's subsidiaries' ability to make payments to STBV; pay dividends and make other distributions in respect of
STBV's and its Restricted Subsidiaries' capital stock; redeem or repurchase STBV's capital stock, our capital stock, or
the capital stock of any other direct or indirect parent company of STBV or prepay subordinated indebtedness; make
certain investments or certain other restricted payments; guarantee indebtedness; designate unrestricted subsidiaries; sell
certain kinds of assets; enter into certain types of transactions with affiliates; and effect mergers or consolidations. These
covenants are subject to important exceptions and qualifications set forth in the Senior Notes Indentures. Certain of these
covenants will be suspended if the Senior Notes are assigned an investment grade rating by Standard & Poor's Rating
Services or Moody's Investors Service, Inc. and no default has occurred and is continuing at such time. The suspended
covenants will be reinstated if the Senior Notes are no longer rated investment grade by either rating agency and an event
of default has occurred and is continuing at such time. As of December 31, 2016, the Senior Notes were not rated
investment grade by either rating agency.
The Guarantors under the Credit Agreement and the Senior Notes Indentures are generally not restricted in their
ability to pay dividends or otherwise distribute funds to STBV, except for restrictions imposed under applicable
corporate law.
STBV, however, is limited in its ability to pay dividends or otherwise make distributions to its immediate parent
company and, ultimately, to us, under the Credit Agreement and the Senior Notes Indentures. Specifically, the Credit
Agreement prohibits STBV from paying dividends or making any distributions to its parent companies except for limited
purposes, including, but not limited to: (i) customary and reasonable operating expenses, legal and accounting fees and
expenses, and overhead of such parent companies incurred in the ordinary course of business in the aggregate not to
exceed $10.0 million in any fiscal year, plus reasonable and customary indemnification claims made by our directors or
officers attributable to the ownership of STBV and its Restricted Subsidiaries; (ii) franchise taxes, certain advisory fees,
and customary compensation of officers and employees of such parent companies to the extent such compensation is
attributable to the ownership or operations of STBV and its Restricted Subsidiaries; (iii) repurchase, retirement, or other
acquisition of equity interest of the parent from certain present, future, and former employees, directors, managers,
consultants of the parent companies, STBV, or its subsidiaries in an aggregate amount not to exceed $15.0 million in any
fiscal year, plus the amount of cash proceeds from certain equity issuances to such persons, the amount of equity
interests subject to a certain deferred compensation plan, and the amount of certain key-man life insurance proceeds; (iv)
86
so long as no default or event of default exists and the senior secured net leverage ratio is less than 2.0:1.0 calculated on
a pro forma basis, dividends and other distributions in an aggregate amount not to exceed $100.0 million, plus certain
amounts, including the retained portion of excess cash flow; (v) dividends and other distributions in an aggregate amount
not to exceed $40.0 million in any calendar year (subject to increase upon the achievement of certain ratios); and (vi) so
long as no default or event of default exists, dividends and other distributions in an aggregate amount not to exceed
$150.0 million.
The Senior Notes Indentures generally provide that STBV can pay dividends and make other distributions to its
parent companies upon the achievement of certain conditions and in an amount as determined in accordance with the
Senior Notes Indentures.
The net assets of STBV subject to these restrictions totaled $1,857.5 million at December 31, 2016.
Accounting for Debt Financing Transactions
Refer to Note 2, "Significant Accounting Policies," under the heading Debt Instruments for discussion of our
accounting policies regarding debt financing transactions.
During the year ended December 31, 2016, we did not enter into any debt financing transactions. During the years
ended December 31, 2015 and 2014, we recorded losses of $25.5 million, and $1.9 million, respectively, in Other, net
related to our debt financing transactions.
In 2015, the 2015 Financing Transactions, the Redemption, and the entry into the Sixth Amendment and the
Seventh Amendment were accounted for in accordance with ASC 470-50. As a result, during the year ended December
31, 2015, we recorded transaction costs of approximately $19.2 million in Other, net. The remaining losses recorded to
Other, net primarily relate to the write-off of unamortized deferred financing costs and original issue discount. The
issuance and sale of the 6.25% Senior Notes was accounted for as a new issuance and as a result, $12.5 million was
capitalized as debt issuance costs. In addition, $8.8 million was recorded in Interest expense, net, which relates to fees
associated with bridge financing that was not utilized.
In 2014, in connection with the 2014 Financing Transactions, which were accounted for in accordance with ASC
470-50, we incurred $17.7 million of financing costs, of which $13.9 million was recorded as deferred financing costs,
$1.9 million was recorded in Other, net, and $1.9 million was recorded in Interest expense.
Leases
We operate in leased facilities with initial terms ranging up to 20 years. The lease agreements frequently include
options to renew for additional periods or to purchase the leased assets and generally require that we pay taxes,
insurance, and maintenance costs. Depending on the specific terms of the leases, our obligations are in two forms: capital
leases and operating leases. Rent expense for the years ended December 31, 2016, 2015, and 2014 was $18.1 million,
$14.1 million, and $7.5 million, respectively.
In 2011, we entered into a capital lease for a facility in Baoying, China. As of December 31, 2016 and 2015, the
capital lease obligation outstanding for this facility was $5.7 million and $6.4 million, respectively.
In 2005, we entered into a capital lease, which matures in 2025, for a facility in Attleboro, Massachusetts. As of
December 31, 2016 and 2015, the capital lease obligation outstanding for this facility was $22.1 million and $23.5
million, respectively.
Other Financing Obligations
In 2013, we entered into an agreement with one of our suppliers, Measurement Specialties, Inc., under which we
acquired the rights to certain intellectual property in exchange for quarterly royalty payments through the fourth quarter
of 2019. As of December 31, 2016 and 2015, we had recognized a liability related to this agreement of $5.2 million and
$6.4 million, respectively.
In 2008, we entered into a series of agreements to sell and leaseback the land, building, and certain equipment
associated with our manufacturing facility in Subang Jaya, Malaysia, which was accounted for as a financing transaction.
As of December 31, 2015, we had recognized a liability related to this agreement of $6.8 million. In the first quarter of
2016, we reacquired this facility, and as a result, there is no associated liability recorded as of December 31, 2016.
87
Debt Maturities
The final maturity of the Revolving Credit Facility is March 26, 2020. Loans made pursuant to the Revolving
Credit Facility must be repaid in full on or prior to such date and are pre-payable at our option at par. All letters of credit
issued thereunder will terminate at the final maturity of the Revolving Credit Facility unless cash collateralized prior to
such time. The final maturity of the Term Loan is October 14, 2021. The Term Loan must be repaid in full on or prior to
this date. The 4.875% Senior Notes, the 5.625% Senior Notes, the 5.0% Senior Notes, and the 6.25% Senior Notes
mature on October 15, 2023, November 1, 2024, October 1, 2025, and February 15, 2026, respectively.
The following table presents the remaining mandatory principal repayments of long-term debt, excluding capital
lease payments, other financing obligations, and discretionary repurchases of debt, in each of the years ended
December 31, 2017 through 2021 and thereafter.
For the year ended December 31,
2017
2018
2019
2020
2021
Thereafter
Total long-term debt principal payments
Aggregate
Maturities
$
$
9,901
9,901
9,901
9,901
898,190
2,350,000
3,287,794
Compliance with Financial and Non-Financial Covenants
As of, and for the year ended, December 31, 2016, we were in compliance with all of the covenants and default
provisions associated with our indebtedness.
9. Income Taxes
Effective April 27, 2006 (inception), and concurrent with the completion of the acquisition of the Sensors &
Controls business ("S&C") of Texas Instruments Incorporated ("TI") (the "2006 Acquisition"), we commenced filing tax
returns in the Netherlands as a stand-alone entity. Several of our Dutch resident subsidiaries are taxable entities in the
Netherlands and file tax returns under Dutch fiscal unity (i.e., consolidation). Prior to April 30, 2008, we filed one
consolidated tax return in the U.S. On April 30, 2008, our U.S. subsidiaries executed a separation and distribution
agreement that divided our U.S. businesses, resulting in two separate U.S. consolidated federal income tax returns. On
January 1, 2016, our U.S. subsidiaries resumed filing one consolidated tax return. Our remaining subsidiaries will file
income tax returns in the countries in which they are incorporated and/or operate, including the Netherlands, Japan,
China, Germany, Belgium, Bulgaria, South Korea, Malaysia, the U.K., France, and Mexico. The 2006 Acquisition
purchase accounting and the related debt and equity capitalization of the various subsidiaries of the consolidated
company, and the realignment of the functions performed and risks assumed by the various subsidiaries, are of
significant consequence to the determination of future book and taxable income of the respective subsidiaries and
Sensata as a whole.
Income before taxes for the years ended December 31, 2016, 2015, and 2014 was categorized by jurisdiction as
follows:
For the year ended December 31,
2016
2015
2014
U.S.
Non-U.S.
Total
$
$
$
(43,842) $
(60,707) $
(92,632) $
365,287
266,336
346,058
$
$
$
321,445
205,629
253,426
88
Provision for/(benefit from) income taxes for the years ended December 31, 2016, 2015, and 2014 was categorized
by jurisdiction as follows:
For the year ended December 31,
2016
Current
Deferred
Total
2015:
Current
Deferred
Total
2014:
Current
Deferred
Total
U.S. Federal
Non-U.S.
U.S. State
Total
$
$
$
$
$
$
464
10,036
10,500
$
$
(8,187) $
(168,855)
(177,042) $
— $
(51,564)
(51,564) $
49,977
2,010
51,987
45,326
(361)
44,965
28,438
(6,280)
22,158
$
$
$
$
$
$
$
226
(3,702)
(3,476) $
50,667
8,344
59,011
(197) $
(9,793)
(9,990) $
36,942
(179,009)
(142,067)
$
395
(1,312)
(917) $
28,833
(59,156)
(30,323)
Effective tax rate reconciliation
The principal reconciling items from income tax computed at the U.S. statutory tax rate for the years ended
December 31, 2016, 2015, and 2014 were as follows:
Tax computed at statutory rate of 35%
Foreign tax rate differential
Losses not tax benefited
Reserve for tax exposure
Patent box deduction
Withholding taxes not creditable
Unrealized foreign exchange losses/(gains), net
Change in tax law or rates
Release of valuation allowances, net
Other
Foreign tax rate differential
For the year ended December 31,
2016
2015
2014
$
$
112,506
(86,339)
32,490
11,227
(10,961)
6,014
3,829
2,542
(1,925)
(10,372)
59,011
$
$
$
71,970
(66,367)
56,778
(2,949)
(3,714)
4,346
(12,120)
(10,290)
(180,001)
280
(142,067) $
88,700
(70,090)
40,200
308
(785)
4,940
(15,195)
(12,017)
(71,111)
4,727
(30,323)
We operate in locations outside the U.S., including China, the U.K., the Netherlands, South Korea, Malaysia,
Bermuda, and Bulgaria, that have statutory tax rates lower than the U.S. statutory rate, resulting in an effective rate
benefit. This benefit can change from year to year based upon the jurisdictional mix of earnings.
Certain of our subsidiaries are currently eligible, or have been eligible, for tax exemptions or holidays in their
respective jurisdictions. From 2013 through 2016, a subsidiary in Changzhou, China was eligible for a reduced tax rate
of 15%. The impact of the tax holidays and exemptions on our effective rate is included in the foreign tax rate differential
line in the reconciliation of the statutory rate to effective rate.
Release of valuation allowances
During the years ended December 31, 2016, 2015 and 2014, we released a portion of our valuation allowance and
recognized a deferred tax benefit of $1.9 million, $180.0 million and $71.1 million, respectively. These benefits arose
89
primarily in connection with our 2015 acquisition of CST and our 2014 acquisitions of Wabash, DeltaTech, and Schrader.
For each of these acquisitions, deferred tax liabilities were established related primarily to the step-up of intangible assets
for book purposes.
Losses not tax benefited
Losses incurred in certain jurisdictions, predominantly the U.S., are not currently benefited, as it is not more likely
than not that the associated deferred tax asset will be realized in foreseeable future. For the years ended December 31,
2016, 2015, and 2014, this resulted in a deferred tax expense of $32.5 million, $56.8 million, and $40.2 million,
respectively.
Withholding taxes not creditable
Withholding taxes may apply to intercompany interest, royalty, management fees, and certain payments to third
parties. Such taxes are expensed if they cannot be credited against the recipient’s tax liability in its country of residence.
Additional consideration also has been given to the withholding taxes associated with the remittance of presently
unremitted earnings and the recipient's ability to obtain a tax credit for such taxes. Earnings are not considered to be
indefinitely reinvested in the jurisdictions in which they were earned.
In certain jurisdictions we record withholding and other taxes on intercompany payments including dividends.
During the years ended December 31, 2016, 2015, and 2014, this amount totaled $6.0 million, $4.3 million, and $4.9
million.
Deferred income tax assets and liabilities
The primary components of deferred income tax assets and liabilities as of December 31, 2016 and 2015 were as
follows:
Deferred tax assets:
Inventories and related reserves
Accrued expenses
Property, plant and equipment
Intangible assets
Net operating loss, interest expense, and other carryforwards
Pension liability and other
Share-based compensation
Other
Total deferred tax assets
Valuation allowance
Net deferred tax asset
Deferred tax liabilities:
Property, plant and equipment
Intangible assets and goodwill
Unrealized exchange gain
Tax on undistributed earnings of subsidiaries
Other
Total deferred tax liabilities
Net deferred tax liability
90
December 31,
2016
December 31,
2015
$
17,616
$
32,703
11,297
32,282
446,946
10,545
15,341
3,398
570,128
(299,746)
270,382
(25,195)
(556,089)
(11,547)
(48,493)
(991)
(642,315)
(371,933) $
$
12,013
76,834
20,008
88,524
435,980
8,279
11,315
2,694
655,647
(296,922)
358,725
(25,810)
(636,366)
(11,753)
(44,078)
(4,791)
(722,798)
(364,073)
Valuation allowance and net operating loss carryforwards
Since our inception, we have incurred tax losses in the U.S., resulting in allowable tax net operating loss
carryforwards. In measuring the related deferred tax assets, we considered all available evidence, both positive and
negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for all or some
portion of the deferred tax assets. Judgment is required in considering the relative impact of negative and positive
evidence. The weight given to the potential effect of negative and positive evidence is commensurate with the extent to
which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary, and
the more difficult it is to support a conclusion that a valuation allowance is not needed. Additionally, we utilize the “more
likely than not” criteria established in ASC 740 to determine whether the future benefit from the deferred tax assets
should be recognized. As a result, we have established a full valuation allowance on the deferred tax assets in
jurisdictions that have incurred net operating losses and in which it is more likely than not that such losses will not be
utilized in the foreseeable future.
For tax purposes, certain goodwill and indefinite-lived intangible assets are generally amortizable over 6 to 20
years. For book purposes, goodwill and indefinite-lived intangible assets are not amortized, but are tested for impairment
annually. The tax amortization of goodwill and indefinite-lived intangible assets will result in a taxable temporary
difference, which will not reverse unless the related book goodwill or intangible asset is impaired or written off. This
liability may not be used to support deductible temporary differences, such as net operating loss carryforwards, which
may expire within a definite period.
The total valuation allowance for the years ended December 31, 2016 and 2015 increased/(decreased) $2.8 million
and $(97.9) million, respectively. Subsequently reported tax benefits relating to the valuation allowance for deferred tax
assets as of December 31, 2016 will be allocated to income tax benefit recognized in the consolidated statements of
operations.
As of December 31, 2016, we have U.S. federal net operating loss carryforwards of $520.0 million and interest
expense carryforwards of $571.2 million. Our U.S. federal net operating loss and interest carryforwards include $262.2
million related to excess tax deductions from share-based payments. U.S. federal net operating loss carryforwards will
expire from 2026 to 2036, state net operating loss carryforwards will expire from 2017 to 2036, and the interest
carryovers have an unlimited life. It is more likely than not that these net operating losses will not be utilized in the
foreseeable future. We also have non-U.S. net operating loss carryforwards of $206.4 million, which will begin to expire
in 2018.
We believe a change of ownership within the meaning of Section 382 of the Internal Revenue Code occurred in the
fourth quarter of 2012. As a result, our U.S. federal net operating loss utilization will be limited to an amount equal to the
market capitalization of our U.S. subsidiaries at the time of the ownership change multiplied by the federal long-term tax
exempt rate. A change of ownership under Section 382 of the Internal Revenue Code is defined as a cumulative change
of fifty percentage points or more in the ownership positions of certain stockholders owning five percent or more of our
common stock over a three year rolling period. We do not believe the resulting limitation will prohibit the utilization of
our U.S. federal net operating loss.
91
Unrecognized tax benefits
A reconciliation of the amount of unrecognized tax benefits is as follows:
Balance at December 31, 2013
Increases related to prior year tax positions
Increases related to current year tax positions
Decreases related to lapse of applicable statute of limitations
Decreases related to settlements with tax authorities
Balance at December 31, 2014
Increases related to prior year tax positions
Increases related to current year tax positions
Decreases related to settlements with tax authorities
Balance at December 31, 2015
Increases related to prior year tax positions
Increases related to current year tax positions
Decreases related to lapse of applicable statute of limitations
Decreases related to settlements with tax authorities
Balance at December 31, 2016
$
$
22,244
7,540
4,204
(3,025)
(8,189)
22,774
5,467
18,382
(8,566)
38,057
6,390
8,462
(256)
(6,755)
45,898
During the year ended December 31, 2015, we established a reserve of $16.0 million in connection with a capital
restructuring transaction executed during the year.
We record interest and penalties related to unrecognized tax benefits in the consolidated statements of operations
and the consolidated balance sheets. The table that follows presents the expense/(income) related to such interest and
penalties recognized in the consolidated statements of income during the years ended December 31, 2016, 2015, and
2014, and the amount of interest and penalties recorded on the consolidated balance sheets as of December 31, 2016 and
2015:
(in millions)
Interest
Penalties
Statements of Operations
Balance Sheets
For the year ended December 31,
As of December 31,
2016
2015
2014
2016
2015
$
$
0.1
0.1
$
$
0.1
$
(0.3) $
(1.2) $
$
0.5
1.0
1.1
$
$
1.1
1.5
The liability for unrecognized tax benefits generally relates to the allocation of taxable income to the various
jurisdictions where we are subject to tax. At December 31, 2016, we anticipate that the liability for unrecognized tax
benefits could decrease by up to $8.0 million within the next twelve months due to the expiration of certain statutes of
limitation or the settlement of examinations or issues with tax authorities. The amount of unrecognized tax benefits as of
December 31, 2016 and 2015 that will impact our effective tax rate are $12.0 million and $13.5 million, respectively.
Our major tax jurisdictions include the Netherlands, the U.S., Japan, Germany, Mexico, China, South Korea,
Belgium, Bulgaria, France, Malaysia, and the U.K. These jurisdictions generally remain open to examination by the
relevant tax authority for the tax years 2006 through 2016.
Indemnifications
We have various indemnification provisions in place with Texas Instruments Incorporated ("TI"), Honeywell,
William Blair, Tomkins Limited, and Custom Sensors & Technologies Ltd. These provisions provide for the
reimbursement by TI, Honeywell, William Blair, Tomkins Limited, and Custom Sensors & Technologies Ltd of future
tax liabilities paid by us that relate to the pre-acquisition periods of the acquired businesses including S&C, First
Technology Automotive, Airpax, Schrader, and CST, respectively.
92
10. Pension and Other Post-Retirement Benefits
We provide various pension and other post-retirement plans for current and former employees, including defined
benefit, defined contribution, and retiree healthcare benefit plans.
U.S. Benefit Plans
The principal retirement plans in the U.S. include a qualified defined benefit pension plan and a defined
contribution plan. In addition, we provide post-retirement medical coverage and non-qualified benefits to certain
employees.
Defined Benefit Pension Plans
The benefits under the qualified defined benefit pension plan are determined using a formula based upon years of
service and the highest five consecutive years of compensation.
TI closed the qualified defined benefit pension plan to participants hired after November 1997. In addition,
participants eligible to retire under the TI plan as of April 26, 2006 were given the option of continuing to participate in
the qualified defined benefit pension plan or retiring under the qualified defined benefit pension plan and thereafter
participating in an enhanced defined contribution plan.
We intend to contribute amounts to the qualified defined benefit pension plan in order to meet the minimum
funding requirements of federal laws and regulations, plus such additional amounts as we deem appropriate. We do not
expect to contribute to the qualified defined benefit pension plan during 2017.
We also sponsor a non-qualified defined benefit pension plan, which is closed to new participants and is unfunded.
Effective January 31, 2012, we froze the defined benefit pension plans and eliminated future benefit accruals.
Defined Contribution Plans
Prior to August 1, 2012, we offered two defined contribution plans. Both defined contribution plans offered an
employer matching savings option that allowed employees to make pre-tax contributions to various investment choices.
Employees who elected not to remain in the qualified defined benefit pension plan, and new employees hired after
November 1997, could participate in an enhanced defined contribution plan, where employer matching contributions
were provided for up to 4% of the employee’s annual eligible earnings. In addition, this plan provided for an additional
fixed employer contribution of 2% of the employee’s annual eligible earnings for employees who elected not to remain
in the qualified defined benefit pension plan and employees hired between November 1997 and December 31, 2003.
Effective in 2012, we discontinued the additional fixed employer contribution of 2%.
Employees who remained in the qualified defined benefit pension plan were permitted to participate in a defined
contribution plan, where 50% employer matching contributions were provided for up to 2% of the employee’s annual
eligible earnings. Effective in 2012, we increased the employer matching contribution to 100% for up to 4% of the
employee's annual eligible earnings.
In 2012, we merged the two defined contribution plans into one plan. The combined plan provides for an employer
matching contribution of up to 4% of the employee's annual eligible earnings. Our matching of employees’ contributions
under our defined contribution plan is discretionary and is based on our assessment of our financial performance.
The aggregate expense related to the defined contribution plans for U.S. employees was $5.8 million, $4.7 million,
and $3.2 million for the years ended December 31, 2016, 2015, and 2014, respectively.
Retiree Healthcare Benefit Plan
We offer access to group medical coverage during retirement to some of our U.S. employees. We make
contributions toward the cost of those retiree medical benefits for certain retirees. The contribution rates are based upon
varying factors, the most important of which are an employee’s date of hire, date of retirement, years of service, and
eligibility for Medicare benefits. The balance of the cost is borne by the participants in the plan. For the year ended
December 31, 2016, we did not, and do not expect to, receive any amount of Medicare Part D Federal subsidy. Our
projected benefit obligation as of December 31, 2016 and 2015 did not include an assumption for a Federal subsidy.
93
In the fourth quarter of 2013, we amended the retiree healthcare benefit plan to eliminate supplemental medical
coverage offered to Medicare eligible retirees, effective January 1, 2014. As a result of the amendment, we recognized a
gain of $7.2 million that was recorded in Other comprehensive (loss)/income in the fourth quarter of 2013, which is
being amortized as a component of net periodic benefit cost over a period of approximately 5 years from the date of
recognition, which represents the remaining average service period to the full eligibility dates of the active plan
participants.
Non-U.S. Benefit Plans
Retirement coverage for non-U.S. employees is provided through separate defined benefit and defined contribution
plans. Retirement benefits are generally based on an employee’s years of service and compensation. Funding
requirements are determined on an individual country and plan basis and are subject to local country practices and
market circumstances. We expect to contribute approximately $1.7 million to non-U.S. defined benefit plans during
2017.
Impact on Financial Statements
The following table outlines the net periodic benefit cost of the defined benefit and retiree healthcare benefit plans
for the years ended December 31, 2016, 2015, and 2014:
Service cost
Interest cost
Expected return on
plan assets
Amortization of net
loss
Amortization of
prior service credit
(Gain)/loss on
curtailment
Net periodic benefit
cost/(credit)
Loss on settlement
1,293
2016
2015
2014
For the year ended December 31,
U.S. Plans
Non-U.S.
Plans
U.S. Plans
Non-U.S.
Plans
U.S. Plans
Non-U.S.
Plans
Defined
Benefit
Retiree
Healthcare
Defined
Benefit
Defined
Benefit
Retiree
Healthcare
Defined
Benefit
Defined
Benefit
Retiree
Healthcare
Defined
Benefit
$ — $
83
$ 2,716
$ — $
1,461
364
1,179
1,564
102
272
$ 2,811
$ — $
1,075
1,792
107
329
$ 2,480
1,185
(2,684)
—
(952)
(2,666)
—
(892)
(2,450)
—
(865)
707
143
488
—
(1,335)
(20)
34
(486)
—
—
—
473
—
391
—
361
19
262
482
179
(1,335)
—
(37)
479
— 1,901
—
—
—
(1,335)
—
—
—
51
—
$
777
$
(745) $ 2,959
$ (238) $
(600) $ 5,356
$ (396) $
(417) $ 3,030
94
The following table outlines the rollforward of the benefit obligation and plan assets for the defined benefit and
retiree healthcare benefit plans for the years ended December 31, 2016 and 2015:
For the year ended December 31,
2016
2015
U.S. Plans
Defined
Benefit
Retiree
Healthcare
Non-U.S.
Plans
Defined
Benefit
U.S. Plans
Defined
Benefit
Retiree
Healthcare
Non-U.S.
Plans
Defined
Benefit
$
57,626
$
11,108
$
56,102
$
58,467
$
9,973
$
59,677
—
1,461
—
—
4,946
—
—
(6,354)
—
—
57,679
55,867
2,262
267
—
—
(6,354)
$
$
83
364
—
—
(984)
—
—
(557)
282
—
10,296
$
2,716
1,179
139
(73)
5,127
(1,422)
(2,169)
(1,764)
253
(1,032)
59,056
— $
33,961
—
557
—
—
(557)
2,469
3,552
139
(1,422)
(1,764)
—
—
426
$
$
$
52,042
$
(5,637) $ (10,296) $ (21,695) $
37,361
— $
—
1,564
—
—
107
—
—
(2,512)
—
—
57,626
58,157
(19)
241
—
—
(2,512)
102
272
—
—
(949)
—
—
(466)
2,176
2,811
1,075
134
24
(3,683)
(1,656)
1,901
(1,595)
1,056
$
$
—
11,108
$
(3,642)
56,102
— $
—
466
—
—
(466)
35,652
(916)
3,294
134
(1,656)
(1,595)
—
—
(952)
55,867
33,961
(1,759) $ (11,108) $ (22,141)
— $
$
57,679
NA $
53,995
$
57,626
NA $
50,832
$
$
$
$
$
Change in Benefit Obligation
Beginning balance
Service cost
Interest cost
Plan participants’ contributions
Plan amendment
Actuarial loss/(gain)
Settlements
Curtailments
Benefits paid
Acquisitions (1)
Foreign currency exchange rate
changes
Ending balance
Change in Plan Assets
Beginning balance
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Settlements
Benefits paid
Foreign currency exchange rate
changes
Ending balance
Funded status at end of year
Accumulated benefit obligation at
end of year
(1) Relates to unfunded defined benefit plans assumed as part of the acquisition of CST in 2015.
The following table outlines the funded status amounts recognized in the consolidated balance sheets as of
December 31, 2016 and 2015:
December 31, 2016
December 31, 2015
U.S. Plans
Defined
Benefit
Retiree
Healthcare
Non-U.S.
Plans
Defined
Benefit
U.S. Plans
Defined
Benefit
Retiree
Healthcare
Non-U.S.
Plans
Defined
Benefit
Noncurrent assets
Current liabilities
Noncurrent liabilities
$
$
— $
— $
— $
(651)
(1,226)
(9,070)
(873)
(20,822)
(4,986)
(5,637) $ (10,296) $ (21,695) $
$
— $
1,064
1,703
(1,751)
(1,162)
(548)
(2,914)
(21,454)
(9,946)
(1,759) $ (11,108) $ (22,141)
95
Balances recognized within Accumulated other comprehensive loss that have not been recognized as components
of net periodic benefit costs, net of tax, as of December 31, 2016, 2015, and 2014 are as follows:
2016
2015
2014
U.S. Plans
Non-
U.S. Plans
U.S. Plans
Non-
U.S. Plans
U.S. Plans
Non-
U.S. Plans
Defined
Benefit
Retiree
Healthcare
Defined
Benefit
Defined
Benefit
Retiree
Healthcare
Defined
Benefit
Defined
Benefit
Retiree
Healthcare
Defined
Benefit
Prior service
credit
Net loss
$ — $
(512) $
(218) $ — $ (1,847) $
(538) $ — $ (3,182) $
$ 22,490
$
1,260
$ 11,070
$ 19,122
$
2,387
$ 10,719
$ 17,194
$
3,697
(594)
$ 12,212
We expect to amortize a loss of $0.1 million from Accumulated other comprehensive loss to net periodic benefit
costs during 2017.
Information for plans with an accumulated benefit obligation in excess of plan assets as of December 31, 2016 and
2015 is as follows:
Projected benefit obligation
Accumulated benefit obligation
Plan assets
December 31, 2016
December 31, 2015
U.S.
Plans
Non-U.S.
Plans
U.S.
Plans
Non-U.S.
Plans
$
$
$
57,679
57,679
52,042
$
$
$
25,367
22,285
4,876
$
$
$
3,461
3,461
$
$
— $
29,874
26,012
6,448
Information for plans with a projected benefit obligation in excess of plan assets as of December 31, 2016 and
2015 is as follows:
Projected benefit obligation
Plan assets
December 31, 2016
December 31, 2015
U.S.
Plans
Non-U.S.
Plans
U.S.
Plans
Non-U.S.
Plans
$
$
67,975
52,042
$
$
54,849
33,606
$
$
14,852
$
— $
29,874
6,448
Other changes in plan assets and benefit obligations, net of tax, recognized in Other comprehensive (income)/loss
for the years ended December 31, 2016, 2015, and 2014 are as follows:
2016
2015
2014
For the year ended December 31,
U.S. Plans
Defined
Benefit
Retiree
Healthcare
Non-U.S.
Plans
Defined
Benefit
U.S. Plans
Defined
Benefit
Retiree
Healthcare
Non-U.S.
Plans
Defined
Benefit
U.S. Plans
Defined
Benefit
Retiree
Healthcare
Non-U.S.
Plans
Defined
Benefit
$ 5,368
$
(984) $ 2,505
$ 2,792
$
(949) $ (1,233) $
143
$
(735) $ 4,640
(707)
(143)
(436)
(473)
(361)
70
(262)
(482)
(167)
Settlement effect
(1,293)
—
—
1,335
—
—
15
(73)
(67)
—
—
(391)
—
— (1,272)
—
1,335
—
—
—
32
24
(330)
—
—
—
—
—
1,335
—
—
—
2
(592)
(51)
—
Net loss/(gain)
Amortization of
net (loss)/gain
Amortization of
prior service
credit
Plan amendment
Curtailment
effect
Total recognized
in other
comprehensive
loss/(income)
$ 3,368
$
208
$
672
$ 1,928
$
25
$ (1,437) $
(119) $
118
$ 3,832
96
Assumptions and Investment Policies
Weighted-average assumptions used to calculate the projected benefit obligations of our defined benefit and retiree
healthcare benefit plans as of December 31, 2016 and 2015 are as follows:
U.S. assumed discount rate
Non-U.S. assumed discount rate
Non-U.S. average long-term pay progression
December 31, 2016
December 31, 2015
Defined
Benefit
Retiree
Healthcare
Defined
Benefit
Retiree
Healthcare
3.20%
1.75%
2.46%
3.30%
NA
NA
3.10%
2.20%
2.13%
3.50%
NA
NA
Weighted-average assumptions used to calculate the net periodic benefit cost of our defined benefit and retiree
healthcare benefit plans for the years ended December 31, 2016, 2015, and 2014 are as follows:
For the year ended December 31,
2016
2015
2014
Defined
Benefit
Retiree
Healthcare
Defined
Benefit
Retiree
Healthcare
Defined
Benefit
Retiree
Healthcare
3.10%
3.83%
3.50%
NA
2.90%
4.19%
2.90%
NA
3.50%
2.66%
3.40%
NA
5.00%
— (1)
5.00%
— (1)
4.75%
— (1)
2.60%
3.78%
NA
NA
2.51%
4.34%
NA
NA
2.17%
3.13%
NA
NA
U.S. assumed discount rate
Non-U.S. assumed discount
rate
U.S. average long-term rate
of return on plan assets
Non-U.S. average long-term
rate of return on plan assets
Non-U.S. average long-term
pay progression
__________________
(1) Long-term rate of return on plan assets is not applicable to our U.S. retiree healthcare benefit plan as we do not
hold assets for this plan.
Assumed healthcare cost trend rates for the U.S. retiree healthcare benefit plan as of December 31, 2016, 2015, and
2014 are as follows:
Assumed healthcare trend rate for next year:
Attributed to less than age 65
Attributed to age 65 or greater
Ultimate trend rate
Year in which ultimate trend rate is reached:
Attributed to less than age 65
Attributed to age 65 or greater
Retiree Healthcare
December 31,
2016
December 31,
2015
December 31,
2014
7.10%
7.80%
4.50%
2038
2038
7.30%
6.80%
4.50%
2029
2029
7.60%
7.00%
4.50%
2029
2029
Assumed healthcare trend rates could have a significant effect on the amounts reported for retiree healthcare plans.
A one percentage point change in the assumed healthcare trend rates for the year ended December 31, 2016 would have
the following effect:
Effect on total service and interest cost components
Effect on post-retirement benefit obligations
97
1 percentage
point
increase
1 percentage
point
decrease
$
$
8
242
$
$
(7)
(210)
The table below outlines the benefits expected to be paid to participants from the plans in each of the following
years, which reflect expected future service, as appropriate. The majority of the payments will be paid from plan assets
and not company assets.
Expected Benefit Payments
2017
2018
2019
2020
2021
2022 - 2026
Plan Assets
U.S.
Defined
Benefit
U.S.
Retiree
Healthcare
Non-U.S.
Defined
Benefit
$
7,415
$
1,226
$
6,797
6,444
5,845
5,456
15,353
1,301
1,306
1,243
1,101
3,655
2,359
2,162
2,336
2,502
2,573
15,022
We hold assets for our defined benefit plans in the U.S., Japan, the Netherlands, and Belgium. Information about
the assets for each of these plans is detailed below.
U.S. Plan Assets
Our target asset allocation for the U.S. defined benefit plan is 84% fixed income and 16% equity securities. To
arrive at the targeted asset allocation, we and our investment adviser collaboratively reviewed market opportunities using
historic and statistical data, as well as the actuarial valuation for the plan, to ensure that the levels of acceptable return
and risk are well-defined and monitored. Currently, we believe that there are no significant concentrations of risk
associated with the plan assets.
The following table presents information about the plan’s target asset allocation, as well as the actual allocation, as
of December 31, 2016:
Asset Class
U.S. large cap equity
U.S. small / mid cap equity
International (non-U.S.) equity
Fixed income (U.S. investment and non-investment grade)
High-yield fixed income
International (non-U.S.) fixed income
The portfolio is monitored for automatic rebalancing on a monthly basis.
Target Allocation
Actual Allocation as of
December 31, 2016
6%
4%
6%
82%
1%
1%
7%
4%
6%
81%
1%
1%
98
The following table presents information about the plan assets measured at fair value as of December 31, 2016 and
2015, aggregated by the level in the fair value hierarchy within which those measurements fall:
December 31, 2016
December 31, 2015
Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Asset Class
U.S. large cap equity
$
3,786
$
— $
— $
3,786
$
3,787
$
— $
— $ 3,787
U.S. small / mid cap equity
International (non-U.S.)
equity
Total equity mutual funds
Fixed income (U.S.
investment grade)
High-yield fixed income
International (non-U.S.) fixed
income
Total fixed income mutual
funds
2,109
2,867
8,762
42,053
788
439
43,280
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,109
2,867
8,762
2,076
3,090
8,953
42,053
45,689
788
439
763
462
43,280
46,914
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,076
3,090
8,953
45,689
763
462
46,914
Total
$
52,042
$
— $
— $ 52,042
$
55,867
$
— $
— $ 55,867
Investments in mutual funds are based on the publicly-quoted final net asset values on the last business day of the
year.
Permitted asset classes include U.S. and non-U.S. equity, U.S. and non-U.S. fixed income, and cash and cash
equivalents. Fixed income includes both investment grade and non-investment grade. Permitted investment vehicles
include mutual funds, individual securities, derivatives, and long-duration fixed income securities. While investment in
individual securities, derivatives, long-duration fixed income, and cash and cash equivalents is permitted, the plan did
not hold these types of investments as of December 31, 2016 or 2015.
Prohibited investments include direct investment in real estate, commodities, unregistered securities, uncovered
options, currency exchange, and natural resources (such as timber, oil, and gas).
Japan Plan Assets
The target asset allocation of the Japan defined benefit plan is 50% equity securities and 50% fixed income
securities and cash and cash equivalents, with allowance for a 40% deviation in either direction. We, along with the
trustee of the plan's assets, minimize investment risk by thoroughly assessing potential investments based on indicators
of historical returns and current ratings. Additionally, investments are diversified by type and geography.
The following table presents information about the plan’s target asset allocation, as well as the actual allocation, as
of December 31, 2016:
Asset Class
Equity securities
Fixed income securities and cash and cash equivalents
Target Allocation
10%-90%
10%-90%
Actual Allocation as of
December 31, 2016
29%
71%
99
The following table presents information about the plan assets measured at fair value as of December 31, 2016 and
2015, aggregated by the level in the fair value hierarchy within which those measurements fall:
December 31, 2016
December 31, 2015
Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
2,791
$
— $
— $
2,791
$
2,228
$
— $
— $
2,228
5,581
8,372
2,894
11,288
14,182
5,927
—
—
249
—
249
—
—
—
—
—
—
—
5,581
8,372
3,143
7,048
9,276
3,059
11,288
10,873
14,431
5,927
13,932
2,349
—
—
—
1,956
1,956
—
—
—
—
—
—
—
7,048
9,276
3,059
12,829
15,888
2,349
Asset Class
U.S. equity
International (non-U.S.)
equity
Total equity securities
U.S. fixed income
International (non-U.S.)
fixed income
Total fixed income
securities
Cash and cash equivalents
Total
$
28,481
$
249
$
— $ 28,730
$
25,557
$
1,956
$
— $ 27,513
The fair value of equity securities and bonds are based on publicly-quoted final stock and bond values on the last
business day of the year.
Permitted asset classes include equity securities that are traded on the official stock exchange(s) of the respective
countries, fixed income securities with certain credit ratings, and cash and cash equivalents.
The Netherlands Plan Assets
The assets of the Netherlands defined benefit plans are composed of insurance policies. The contributions (or
premiums) we pay are used to purchase insurance policies that provide for specific benefit payments to our plan
participants. The benefit formula is determined independently by us. On retirement of an individual plan participant, the
insurance contracts purchased are converted to provide specific benefits for the participant. The contributions paid by us
are commingled with contributions paid to the insurance provider by other employers for investment purposes and to
reduce costs of plan administration. These Netherlands' defined benefit plans are not multi-employer plans.
The following tables present information about the plans’ assets measured at fair value as of December 31, 2016
and 2015, aggregated by the level in the fair value hierarchy within which those measurements fall:
December 31, 2016
December 31, 2015
Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
— $
— $
— $
— $
8,014
8,014
$
$
8,014
8,014
$
$
— $
— $
— $
— $
5,757
5,757
$
$
5,757
5,757
Asset Class
Other (insurance policies)
Total
100
The following table outlines the rollforward of the Netherlands plan Level 3 assets for the years ended
December 31, 2016 and 2015:
Balance at December 31, 2014
Actual return on plan assets still held at reporting date
Purchases, sales, settlements, and exchange rate changes
Balance at December 31, 2015
Actual return on plan assets still held at reporting date
Purchases, sales, settlements, and exchange rate changes
Balance at December 31, 2016
Fair value measurement using
significant unobservable
inputs (Level 3)
$
$
6,544
(786)
(1)
5,757
2,064
193
8,014
The fair values of the insurance contracts are measured based on the future benefit payments that would be made
by the insurance company to vested plan participants if we were to switch to another insurance company without actually
surrendering our policy. In this case, the insurance company would guarantee to pay the vested benefits at retirement
accrued under the plan based on current salaries and service to date (i.e., no allowance for future salary increases or
pension increases). The cash flows of the future benefit payments are discounted using the same discount rate as is used
to value the defined benefit plan liabilities.
Belgium Plan Assets
The assets of the Belgium defined benefit plan are composed of insurance policies. As of December 31, 2016 and
2015 the fair value of these plan assets was $0.8 million and $0.7 million, respectively, and are considered to be Level 3
financial instruments.
11. Share-Based Payment Plans
In connection with the completion of our initial public offering ("IPO"), we adopted the Sensata Technologies
Holding N.V. 2010 Equity Incentive Plan (the “2010 Equity Incentive Plan”). The purpose of the 2010 Equity Incentive
Plan is to promote long-term growth and profitability by providing our present and future eligible directors, officers, and
employees with incentives to contribute to, and participate in, our success. There are 10.0 million ordinary shares
authorized under the 2010 Equity Incentive Plan, of which 4.6 million were available as of December 31, 2016.
Share-Based Compensation Awards
We grant share-based compensation awards under the 2010 Equity Incentive Plan for which vesting is subject only
to continued employment and the passage of time (options and restricted stock units ("RSUs")), as well as those for
which vesting also depends on the attainment of certain performance criteria (performance options and performance-
based restricted stock units ("PRSUs")). RSUs and PRSUs are generally referred to in this Annual Report on Form 10-K
as "restricted securities."
101
Options
A summary of stock option activity for the years ended December 31, 2016, 2015, and 2014 is presented in the
table below (amounts have been calculated based on unrounded shares):
Weighted-Average
Exercise Price Per
Option
Weighted-Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic Value
Stock Options
Options
Balance at December 31, 2013
Granted
Forfeited and expired
Exercised
Balance at December 31, 2014
Granted
Forfeited and expired
Exercised
Balance at December 31, 2015
Granted (2)
Forfeited and expired
Exercised
Balance at December 31, 2016
Options vested and exercisable as of
December 31, 2016
Vested and expected to vest as of
December 31, 2016 (1)
5,142
767
(231)
(1,589)
4,089
353
(65)
(1,016)
3,361
654
(111)
(358)
3,546
2,323
3,398
$21.75
$43.61
$35.60
$15.42
$27.53
$56.60
$43.93
$18.85
$32.89
$37.89
$43.95
$11.05
$35.67
$32.71
$35.35
7.8
$87,506
6.3
6.2
6.3
5.3
6.2
$47,372
$101,705
$34,835
$47,967
$9,501
$19,844
$18,289
$19,740
__________________
(1)
Consists of vested options and unvested options that are expected to vest. The expected to vest options are
determined by applying the forfeiture rate assumption, adjusted for cumulative actual forfeitures, to total unvested
options.
Includes 257 performance-based options.
(2)
A summary of the status of our unvested options as of December 31, 2016 and of the changes during the year then
ended is presented in the table below (amounts have been calculated based on unrounded shares):
Unvested as of December 31, 2015
Granted during the year
Vested during the year
Forfeited during the year
Unvested as of December 31, 2016
Stock Options
Weighted-
Average Grant-
Date Fair Value
1,189
654
(529)
(91)
1,223
$14.04
$12.08
$13.40
$13.98
$13.28
The fair value of stock options that vested during the years ended December 31, 2016, 2015, and 2014 was $7.1
million, $7.5 million, and $7.4 million respectively.
102
Non-performance-based options granted to employees under the 2010 Equity Incentive Plan generally vest 25%
per year over four years from the date of grant. Performance-based options granted to employees under the 2010 Equity
Incentive Plan vest after three years, depending on the extent to which certain performance criteria are met. Options
granted to directors under the 2010 Equity Incentive Plan vest after one year.
We recognize compensation expense for options on a straight-line basis over the requisite service period, which is
generally the same as the vesting period. The options expire ten years from the date of grant. Except as otherwise
provided in specific option award agreements, if a participant ceases to be employed by us, options not yet vested expire
and are forfeited at the termination date, and options that are fully vested expire 60 days after termination of the
participant’s employment for any reason other than termination for cause (in which case the options expire on the
participant’s termination date) or due to death or disability (in which case the options expire 6 months after the
participant’s termination date).
The weighted-average grant-date fair value per option granted during the years ended December 31, 2016, 2015,
and 2014 was $12.08, $17.94, and $14.33, respectively. The fair value of options was estimated on the date of grant
using the Black-Scholes-Merton option-pricing model. See Note 2, "Significant Accounting Policies," for further
discussion of how we estimate the fair value of options. The weighted-average key assumptions used in estimating the
grant-date fair value of options are as follows:
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected term (years)
Fair value per share of underlying ordinary shares
For the year ended December 31,
2016
2015
2014
0%
30.00%
1.48%
6.0
$37.89
0%
30.00%
1.52%
5.9
$56.60
0%
30.00%
2.00%
5.9
$43.61
We did not grant options to our directors in 2016. We granted 72 and 96 options to our directors under the 2010
Equity Incentive Plan in 2015 and 2014, respectively. These options vested after one year and were not subject to
performance conditions. The weighted-average grant date fair value per option was $17.05 and $13.99, respectively.
Restricted Securities
We grant RSUs that cliff vest over various lengths of time ranging from one to four years, as well as those that vest
25% per year over four years. We grant PRSUs that generally cliff vest three years after the grant date. The number of
PRSUs that ultimately vest will depend on the extent to which certain performance criteria are met and could range
between 0% and 172.5% of the number of PRSUs granted. See Note 2, "Significant Accounting Policies," for discussion
of how we estimate the fair value of restricted securities.
A summary of restricted securities granted in the past three years is presented below:
Year ended December 31,
2016
2015
2014
RSUs Granted
Weighted-Average
Grant-Date
Fair Value
PRSUs Granted
Weighted-Average
Grant-Date
Fair Value
319
150
155
$38.33
$56.42
$44.52
180
128
110
$38.96
$56.94
$43.48
Compensation cost for the year ended December 31, 2016 reflects our estimate of the probable outcome of the
performance conditions associated with the PRSUs granted in 2016, 2015, and 2014.
103
A summary of activity related to outstanding restricted securities for 2016, 2015, and 2014 is presented in the table
below (amounts have been calculated based on unrounded shares):
Balance at December 31, 2013
Granted
Forfeited
Vested
Balance at December 31, 2014
Granted
Forfeited
Vested
Balance at December 31, 2015
Granted
Forfeited
Vested
Balance at December 31, 2016
Restricted
Securities
Weighted-Average
Grant-Date
Fair Value
629
265
(172)
(65)
656
278
(165)
(115)
654
499
(48)
(185)
920
$30.84
$44.09
$34.87
$21.32
$36.06
$56.66
$38.55
$26.72
$45.87
$38.56
$47.01
$33.41
$44.35
Aggregate intrinsic value information for restricted securities as of December 31, 2016, 2015, and 2014 is
presented below:
Outstanding
Expected to vest
December 31,
2016
December 31,
2015
December 31,
2014
$
$
35,845
26,937
$
$
30,115
22,704
$
$
34,404
26,982
The weighted-average remaining periods over which the restrictions will lapse, expressed in years, as of
December 31, 2016, 2015, and 2014 are as follows:
Outstanding
Expected to vest
December 31,
2016
December 31,
2015
December 31,
2014
1.5
1.5
1.4
1.4
1.5
1.7
The expected to vest restricted securities are calculated by considering our assessment of the probability of
meeting the required performance conditions (for PRSUs) and/or by applying a forfeiture rate assumption for all
restricted securities.
On April 25, 2016, our Board of Directors approved retroactive amendments to our RSUs and PRSUs to allow for
accelerated vesting upon termination without cause within 24 months after a change in control, as defined in the 2010
Equity Incentive Plan. These changes were made in order to provide consistency across our equity awards, to better align
management and shareholder interests, and to incorporate equity compensation best practices. There was no change to
the terms of our option awards, as Section 4.3(b) of the 2010 Equity Incentive Plan specifically provides for accelerated
vesting of options upon termination without cause within 24 months after a change in control.
104
Share-Based Compensation Expense
The table below presents non-cash compensation expense related to our equity awards:
Options
Restricted securities
Total share-based compensation expense
For the year ended
December 31,
2016
December 31,
2015
December 31,
2014
$
$
7,094
10,331
17,425
$
$
7,176
8,150
15,326
$
$
7,685
5,300
12,985
This compensation expense is recorded within SG&A expense in the consolidated statements of operations during
the identified periods. We did not recognize a tax benefit associated with these expenses. In the year ended December 31,
2014, we capitalized $0.1 million related to share based compensation. We did not capitalize any amounts in any other
period presented.
The table below presents unrecognized compensation expense at December 31, 2016 for each class of award, and
the remaining expected term for this expense to be recognized:
Options
Restricted securities
Total unrecognized compensation expense
12. Shareholders’ Equity
Unrecognized
compensation expense
Expected
recognition (years)
$
$
10,822
17,448
28,270
2.2
1.7
On March 16, 2010, we completed an IPO of our ordinary shares. Subsequent to our IPO, we have completed
various secondary public offerings of our ordinary shares. Our former principal shareholder, Sensata Investment
Company S.C.A. ("SCA"), and certain members of management participated in the secondary offerings. The share
capital of SCA was owned by entities associated with Bain Capital Partners, LLC (“Bain Capital”), a global private
investment firm, co-investors (Bain Capital and co-investors are collectively referred to as the “Sponsors”), and certain
members of our senior management. As of December 31, 2016, SCA no longer owned any of our outstanding ordinary
shares.
Our authorized share capital consists of 400.0 million ordinary shares with a nominal value of €0.01 per share, of
which 178.4 million ordinary shares were issued and 170.9 million were outstanding as of December 31, 2016. Issued
and outstanding shares exclude 0.9 million outstanding restricted securities and 3.5 million outstanding stock options.
We also have authorized 400.0 million preference shares with a nominal value of €0.01 per share, none of which are
issued or outstanding. See Note 11, "Share-Based Payment Plans," for awards available for grant under our outstanding
equity plans.
Treasury Shares
We have a $250.0 million share repurchase program in place. Under this program, we may repurchase ordinary
shares from time to time, at such times and in amounts to be determined by our management, based on market
conditions, legal requirements, and other corporate considerations, on the open market or in privately negotiated
transactions. The share repurchase program may be modified or terminated by our Board of Directors at any time.
We did not repurchase any ordinary shares under this program during the years ended December 31, 2016 and
2015. During the year ended December 31, 2014, we repurchased 4.3 million ordinary shares, for an aggregate purchase
price of $181.8 million, at an average price of $42.22 per ordinary share. Of the ordinary shares repurchased during the
year ended December 31, 2014, 4.0 million were repurchased from SCA in a private, non-underwritten transaction,
concurrent with the closing of the May 2014 secondary offering, at $42.42 per ordinary share, which was equal to the
price paid by the underwriters. On February 1, 2016, our Board of Directors amended the terms of this program in order
to reset the amount available for share repurchases to $250.0 million. At December 31, 2016, $250.0 million remained
available for share repurchase under this program.
105
Ordinary shares repurchased by us are recorded at cost as treasury shares and result in a reduction of shareholders'
equity. We reissue treasury shares as part of our share-based compensation programs. When shares are reissued, we
determine the cost using the first-in, first-out method. During the years ended December 31, 2016, 2015, and 2014, we
reissued 0.5 million, 1.1 million, and 1.6 million treasury shares, respectively. During the years ended December 31,
2016 and 2015, in connection with our treasury share reissuances, we recognized reductions in Retained earnings of
$16.8 million, and $23.7 million, respectively.
Accumulated Other Comprehensive Loss
The components of Accumulated other comprehensive loss were as follows:
Balance at December 31, 2013
Pre-tax current period change
Income tax (expense)/benefit
Balance at December 31, 2014
Pre-tax current period change
Income tax benefit/(expense)
Balance at December 31, 2015
Pre-tax current period change
Income tax benefit
Balance at December 31, 2016
Deferred (Loss)/
Gain on
Derivative
Instruments
Defined Benefit
and Retiree
Healthcare Plans
Accumulated
Other
Comprehensive
Loss
$
(7,612) $
34,521
(9,331)
17,578
(18,301)
4,575
3,852
(5,106)
1,277
$
23
$
(25,495) $
(4,667)
836
(29,326)
359
(875)
(29,842)
(4,934)
686
(34,090) $
(33,107)
29,854
(8,495)
(11,748)
(17,942)
3,700
(25,990)
(10,040)
1,963
(34,067)
The details of the components of Other comprehensive (loss)/income, net of tax, for the years ended December 31,
2016, 2015, and 2014 are as follows:
Year Ended December 31, 2016
Year Ended December 31, 2015
Year Ended December 31, 2014
Defined
Benefit
and
Retiree
Healthcare
Plans
Cash
Flow
Hedges
Cash
Flow
Hedges
Total
Defined
Benefit
and
Retiree
Healthcare
Plans
Cash
Flow
Hedges
Total
Defined
Benefit
and
Retiree
Healthcare
Plans
Total
Other comprehensive
(loss)/income
before
reclassifications
Amounts reclassified
from Accumulated
other
comprehensive loss
Net current period
other
comprehensive
(loss)/income
$ (6,356) $
(6,816) $(13,172) $ 19,464
$
(634) $ 18,830
$ 25,014
$
(3,456) $ 21,558
2,527
2,568
5,095
(33,190)
118
(33,072)
176
(375)
(199)
$ (3,829) $
(4,248) $ (8,077) $(13,726) $
(516) $(14,242) $ 25,190
$
(3,831) $ 21,359
106
The details of the amounts reclassified from Accumulated other comprehensive loss for the years ended
December 31, 2016, 2015, and 2014 are as follows:
Component
Derivative instruments designated and
qualifying as cash flow hedges
Amount of (Gain)/Loss Reclassified from
Accumulated Other Comprehensive Loss
Year Ended
December 31,
2016
Year Ended
December 31,
2015
Year Ended
December 31,
2014
Affected Line in
Consolidated Statements of
Operations
Interest rate caps
$
— $
— $
Foreign currency forward contracts
Foreign currency forward contracts
Total, before taxes
Income tax effect
Total, net of taxes
Defined benefit and retiree healthcare plans
Income tax effect
Total, net of taxes
(17,720)
21,089
3,369
(54,537)
10,284
(44,253)
(842)
2,527
2,975
$
$
(407)
2,568
$
$
$
$
11,063
(33,190) $
351
$
(361)
(233)
118
$
(14)
(375)
972
334
(1,070)
236
(60)
176
Interest expense (1)
Net revenue (1)
Cost of revenue (1)
Income before taxes
Provision for/(benefit
from) income taxes
Net income
Various (2)
Provision for/(benefit
from) income taxes
Net income
(1) See Note 16, "Derivative Instruments and Hedging Activities," for additional details on amounts to be reclassified in
the future from Accumulated other comprehensive loss.
(2) Amounts related to defined benefit and retiree healthcare plans reclassified from Accumulated other comprehensive
loss affect the Cost of revenue, Research and development, Restructuring and special charges, and SG&A line items
in the consolidated statements of operations. The amounts reclassified are included in the computation of net
periodic benefit cost. See Note 10, "Pension and Other Post-Retirement Benefits," for additional details of net
periodic benefit cost.
13. Related Party Transactions
SCA
Share Repurchases
Concurrent with the closing of the May 2014 secondary offering, we repurchased 4.0 million ordinary shares from
SCA in a private, non-underwritten transaction at a price per ordinary share of $42.42, which was equal to the price paid
by the underwriters.
Texas Instruments
Cross License Agreement
We have entered into a perpetual, royalty-free cross license agreement with TI (the “Cross License Agreement”).
Under the Cross License Agreement, the parties granted each other a license to use certain technology used in connection
with the other party’s business.
107
14. Commitments and Contingencies
Future minimum payments for capital leases, other financing obligations, and non-cancelable operating leases in
effect as of December 31, 2016 are as follows:
Future Minimum Payments
Capital
Leases
Other Financing
Obligations
Operating
Leases
Total
For the year ending December 31,
2017
$
5,076
$
2,504
$
13,107
$
2018
2019
2020
2021
5,113
5,148
5,184
4,753
2022 and thereafter
Net minimum rentals
Less: interest portion
Present value of future minimum rentals
19,507
44,781
(14,095)
30,686
$
$
2,344
2,344
324
—
—
7,516
(1,091)
6,425
$
10,186
7,362
4,934
3,750
30,455
69,794
—
69,794
$
20,687
17,643
14,854
10,442
8,503
49,962
122,091
(15,186)
106,905
Non-cancelable purchase agreements exist with various suppliers, primarily for services such as information
technology support. The terms of these agreements are fixed and determinable. As of December 31, 2016, we had the
following purchase commitments:
For the year ending December 31,
2017
2018
2019
2020
2021
2022 and thereafter
Total
Collaborative Arrangements
Purchase
Commitments
$
9,484
4,892
996
47
37
104
$
15,560
On March 4, 2016, we entered into a strategic partnership agreement (the "SPA") with Quanergy Systems, Inc.
("Quanergy") to jointly develop, manufacture, and sell solid state Light Detection and Ranging ("LiDAR") sensors.
Under the terms of the SPA, we will be exclusive partners with Quanergy for component level solid state LiDAR sensors
in the transportation market.
We are accounting for the SPA under the provisions of ASC Topic 808, Collaborative Arrangements, under which
the accounting for certain transactions is determined using principal versus agent considerations. Using the guidance in
ASC Subtopic 605-45, Principal Agent Considerations, we have determined that we are the principal with respect to the
SPA.
During the year ended December 31, 2016, there were no amounts recorded to earnings related to the SPA.
Off-Balance Sheet Commitments
From time to time, we execute contracts that require us to indemnify the other parties to the contracts. These
indemnification obligations generally arise in two contexts. First, in connection with certain transactions, such as the sale
of a business or the issuance of debt or equity securities, the agreement typically contains standard provisions requiring
us to indemnify the purchaser against breaches by us of representations and warranties contained in the agreement. These
indemnities are generally subject to time and liability limitations. Second, we enter into agreements in the ordinary
108
course of business, such as customer contracts, that might contain indemnification provisions relating to product quality,
intellectual property infringement, governmental regulations and employment related matters, and other typical
indemnities. In certain cases, indemnification obligations arise by law. Performance under any of these indemnification
obligations would generally be triggered by a breach of the terms of the contract or by a third-party claim. Historically,
we have experienced only immaterial and irregular losses associated with these indemnifications. Consequently, any
future liabilities brought about by these indemnifications cannot reasonably be estimated or accrued.
Indemnifications Provided As Part of Contracts and Agreements
We are party to the following types of agreements pursuant to which we may be obligated to indemnify a third
party with respect to certain matters.
Officers and Directors: Our articles of association provide for indemnification of directors and officers by us to the
fullest extent permitted by applicable law, as it now exists or may hereinafter be amended (but, in the case of an
amendment, only to the extent such amendment permits broader indemnification rights than permitted prior thereto),
against any and all liabilities, including all expenses (including attorneys’ fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him or her in connection with such action, suit, or proceeding, provided
he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests,
and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful or outside of his or her mandate. The articles do not provide a limit to the maximum future payments, if any,
under the indemnification. No indemnification is provided for in respect of any claim, issue, or matter as to which such
person has been adjudged to be liable for gross negligence or willful misconduct in the performance of his or her duty on
our behalf.
In addition, we have a liability insurance policy that insures directors and officers against the cost of defense,
settlement, or payment of claims and judgments under some circumstances. Certain indemnification payments may not
be covered under our directors’ and officers’ insurance coverage.
Initial Purchasers of Senior Notes: Pursuant to the terms of the purchase agreements entered into in connection
with our private placement senior note offerings, we are obligated to indemnify the initial purchasers of the Senior Notes
against certain liabilities caused by any untrue statement or alleged untrue statement of a material fact in various
documents relied upon by such initial purchasers, or to contribute to payments the initial purchasers may be required to
make in respect thereof. The purchase agreements do not provide a limit to the maximum future payments, if any, under
these indemnifications.
Intellectual Property and Product Liability Indemnification: We routinely sell products with a limited intellectual
property and product liability indemnification included in the terms of sale. Historically, we have had only immaterial
and irregular losses associated with these indemnifications. Consequently, any future liabilities resulting from these
indemnifications cannot reasonably be estimated or accrued.
Product Warranty Liabilities
Our standard terms of sale provide our customers with a warranty against faulty workmanship and the use of
defective materials, which, depending on the product, generally exists for a period of twelve to eighteen months after the
date we ship the product to our customer or for a period of twelve months after the date the customer resells our product,
whichever comes first. We do not offer separately priced extended warranty or product maintenance contracts. Our
liability associated with this warranty is, at our option, to repair the product, replace the product, or provide the customer
with a credit.
We also sell products to customers under negotiated agreements or where we have accepted the customer’s terms
of purchase. In these instances, we may provide additional warranties for longer durations, consistent with differing end-
market practices, and where our liability is not limited. In addition, many sales take place in situations where commercial
or civil codes, or other laws, would imply various warranties and restrict limitations on liability.
In the event a warranty claim based on defective materials exists, we may be able to recover some of the cost of the
claim from the vendor from whom the materials were purchased. Our ability to recover some of the costs will depend on
the terms and conditions to which we agreed when the materials were purchased. When a warranty claim is made, the
only collateral available to us is the return of the inventory from the customer making the warranty claim. Historically,
109
when customers make a warranty claim, we either replace the product or provide the customer with a credit. We
generally do not rework the returned product.
Our policy is to accrue for warranty claims when a loss is both probable and estimable. This is accomplished by
accruing for estimated returns and estimated costs to replace the product at the time the related revenue is recognized.
Liabilities for warranty claims have historically not been material. In some instances, customers may make claims for
costs they incurred or other damages related to a claim. Any potentially material liabilities associated with these claims
are discussed in this Note under the heading Legal Proceedings and Claims.
Environmental Remediation Liabilities
Our operations and facilities are subject to U.S. and non-U.S. laws and regulations governing the protection of the
environment and our employees, including those governing air emissions, water discharges, the management and
disposal of hazardous substances and wastes, and the cleanup of contaminated sites. We could incur substantial costs,
including cleanup costs, fines, civil or criminal sanctions, or third-party property damage or personal injury claims, in the
event of violations or liabilities under these laws and regulations, or non-compliance with the environmental permits
required at our facilities. Potentially significant expenditures could be required in order to comply with environmental
laws that may be adopted or imposed in the future. We are, however, not aware of any threatened or pending material
environmental investigations, lawsuits, or claims involving us or our operations.
Legal Proceedings and Claims
We account for litigation and claims losses in accordance with ASC Topic 450, Contingencies (“ASC 450”). Under
ASC 450, loss contingency provisions are recorded for probable and estimable losses at our best estimate of a loss or,
when a best estimate cannot be made, at our estimate of the minimum loss. These estimates are often developed prior to
knowing the amount of the ultimate loss, require the application of considerable judgment, and are refined each
accounting period as additional information becomes known. Accordingly, we are often initially unable to develop a best
estimate of loss and therefore the minimum amount, which could be an immaterial amount, is recorded. As information
becomes known, either the minimum loss amount is increased, or a best estimate can be made, generally resulting in
additional loss provisions. A best estimate amount may be changed to a lower amount when events result in an
expectation of a more favorable outcome than previously expected.
We are regularly involved in a number of claims and litigation matters in the ordinary course of business. Most of
our litigation matters are third-party claims for property damage allegedly caused by our products, but some involve
allegations of personal injury or wrongful death. We believe that the ultimate resolution of the current litigation matters
pending against us, except potentially those matters described below, will not be material to our financial statements.
Insurance Claims
The accounting for insurance claims depends on a variety of factors, including the nature of the claim, the
evaluation of coverage, the amount of proceeds (or anticipated proceeds), the ability of an insurer to satisfy the claim,
and the timing of the loss and corresponding recovery. In accordance with ASC 450, receipts from insurance up to the
amount of loss recognized are considered recoveries. Recoveries are recognized in the financial statements when they are
probable of receipt. Insurance proceeds in excess of the amount of loss recognized are considered gains. Gains are
recognized in the financial statements in the period in which contingencies related to the claim (or a specific portion of
the claim) have been resolved. We classify insurance proceeds in the consolidated statements of operations in a manner
consistent with the related losses.
Matters that have become immaterial for future disclosure
The following matters have been disclosed in previous filings. While these matters have not been resolved in 2016,
they have become immaterial for disclosure, as we believe any future activity is unlikely to be material to our financial
statements.
Environmental matters
In 2001, TI's subsidiary in Brazil ("TI Brazil") was notified by the State of São Paolo, Brazil regarding its potential
cleanup liability as a generator of wastes sent to the Aterro Mantovani disposal site, which operated near Campinas from
1972 to 1987. The site is a landfill contaminated with a variety of chemical materials, including petroleum products,
allegedly disposed at the site. TI Brazil is one of over 50 companies notified of potential cleanup liability. There have
110
been several lawsuits filed by third parties alleging personal injuries caused by exposure to drinking water contaminated
by the disposal site. Our subsidiary, Sensata Technologies Sensores e Controles do Brasil Ltda. ("ST Brazil"), is the
successor in interest to TI Brazil. However, TI has retained these liabilities and has agreed to indemnify us with regard to
these excluded liabilities. Additionally, in 2008, five lawsuits were filed against ST Brazil alleging personal injuries
suffered by individuals who were exposed to drinking water allegedly contaminated by the Aterro Mantovani disposal
site. These matters are managed and controlled by TI. TI is defending these five lawsuits in the 1st Civil Court of
Jaquariuna, São Paolo. Although ST Brazil cooperates with TI in this process, we do not anticipate incurring any non-
reimbursable expenses related to the matters described above. Accordingly, no amounts have been accrued for these
matters as of December 31, 2016.
Control Devices, Inc. (“CDI”), a wholly-owned subsidiary of one of our U.S. operating subsidiaries, Sensata
Technologies, Inc., acquired through our acquisition of First Technology Automotive, is party to a post-closure license,
along with GTE Operations Support, Inc. (“GTE”), from the Maine Department of Environmental Protection with
respect to a closed hazardous waste surface impoundment located on real property owned by CDI in Standish, Maine.
The post-closure license obligates GTE to operate a pump and treatment process to reduce the levels of chlorinated
solvents in the groundwater under the property. The post-closure license obligates CDI to maintain the property and
provide access to GTE. We do not expect the costs to comply with the post-closure license to be material. As a related
but separate matter, pursuant to the terms of an environmental agreement dated July 6, 1994, GTE retained liability and
agreed to indemnify CDI for certain liabilities related to the soil and groundwater contamination from the surface
impoundment and an out-of-service leach field at the Standish, Maine facility, and CDI and GTE have certain obligations
related to the property and each other. The site is contaminated primarily with chlorinated solvents. In 2013, CDI
subdivided and sold a portion of the property subject to the post-closure license, including a manufacturing building, but
retained the portion of the property that contains the closed hazardous waste surface impoundment, for which it and GTE
continue to be subject to the obligations of the post closure license. The buyer of the facility is also now subject to
certain restrictions of the post-closure license. CDI has agreed to complete an ecological risk assessment on sediments in
an unnamed stream crossing the sold and retained land and to indemnify the buyer for certain remediation costs
associated with sediments in the unnamed stream. We do not expect the remaining cost associated with addressing the
soil and groundwater contamination, or our obligations relating to the indemnification of the buyer of the facility, to be
material.
Pending Litigation and Claims
Automotive Customers: In the fourth quarter of 2013, one of our automotive customers alleged defects in certain of
our sensor products installed in the customer's vehicles during 2013. The alleged defects are not safety related. In the
third quarter of 2014, we made a contribution to this customer in the amount of $0.7 million, which resolved a portion of
the claim. In the first quarter of 2016, this customer requested an additional reimbursement related to these alleged
defects. In December 2016, we settled this matter with the customer. The settlement stipulates that we make a lump-sum
cash payment of $4.4 million as reimbursement for a portion of costs incurred to date, and compensate the customer for a
portion of costs associated with potential future claims. As of December 31, 2016, we have recorded an accrual related to
this settlement of $5.1 million, representing our estimate of the total amount to be paid under the terms of the settlement
agreement. We do not believe that future payments required per the terms of this settlement agreement will be materially
in excess of the accrued amount.
Brazil Local Tax: Schrader International Brasil Ltda. ("Schrader Brazil") is involved in litigation with the tax
department of the State of São Paulo, Brazil (the “São Paulo Tax Department”), which is claiming underpayment of state
taxes. The total amount claimed is approximately, $26.0 million, which includes penalties and interest. It is our
understanding that the courts have denied the São Paulo Tax Department’s claim, a decision which has been appealed.
Certain of our subsidiaries have been indemnified by a previous owner of Schrader (who is responsible for and is
currently managing the defense of this matter) for any potential loss relating to this issue, however Schrader Brazil had
been requested to pledge certain of its assets as collateral for the disputed amount while the case is heard. As of
December 31, 2016, Schrader Brazil has been released from this lien, and we have not recorded an accrual related to this
matter. Although this matter is ongoing, we believe that we no longer have any potential risk of loss.
Matters Resolved During 2016
Korean Supplier: In the first quarter of 2014, one of our Korean suppliers, Yukwang Co. Ltd. ("Yukwang"),
notified us that it was terminating its existing agreement with us and stopped shipping product to us. We brought legal
proceedings against Yukwang in Seoul Central District Court, seeking an injunction to protect Sensata-owned
111
manufacturing equipment physically located at Yukwang’s facility. Yukwang countered that we were in breach of
contract and alleged damages of approximately $7.6 million. The Seoul Central District Court granted our request for an
injunction ordering Yukwang not to destroy any of our assets physically located at Yukwang’s facility, but on August 25,
2014 did not grant injunctive relief requiring Yukwang to return equipment and inventory to us.
In the first quarter of 2014, Yukwang filed a complaint against us with the Small and Medium Business
Administration (the “SMBA”), a Korean government agency charged with protecting the interests of small and medium
sized businesses. The SMBA attempted to mediate the dispute between us and Yukwang, but its efforts failed. We believe
that the SMBA has abandoned its efforts to mediate the dispute.
On May 27, 2014, Yukwang filed a patent infringement action against us and our equipment supplier with the
Suwon district court seeking a preliminary injunction for infringement of Korean patent number 847,738. Yukwang also
filed a patent scope action on the same patent with the Korean Intellectual Property Tribunal ("KIPT") and sought police
investigation into the alleged infringement. Yukwang was seeking unspecified damages as well as an injunction barring
us from using parts covered by the patent in the future. On October 8, 2014, the Suwon district court entered an order
dismissing the patent infringement action on invalidity grounds. On October 14, 2014, Yukwang filed an appeal of that
decision to the Seoul High Court (an intermediate appellate court). The Seoul High Court decided in our favor on
February 29, 2016, and Yukwang did not attempt to appeal this decision to the Korean Supreme Court, so this decision is
now final. On April 24, 2015, the KIPT issued a decision in our favor, finding the patent to be invalid. On January 22,
2016, the Korean Patent Court affirmed the invalidity decision. On February 12, 2016, Yukwang filed an appeal to the
Korean Supreme Court. On June 9, 2016, the Korean Supreme Court decided not to hear further appeals. This concludes
the intellectual property matters.
In August 2014, the Korean Fair Trade Commission (the “KFTC”) opened investigations into allegations made by
Yukwang that our indirect, wholly-owned subsidiary, Sensata Technologies Korea Limited, engaged in unfair trade
practices and violated a Korean law relating to subcontractors (the "Subcontracting Act"). We have responded to
information requests from the KFTC. A hearing was held by the KFTC on October 2, 2015, and we held several
meetings and responded to a subpoena for documents in early 2016. On March 15, 2016, the KFTC issued a decision that
found us "not guilty" of several allegations involving alleged violations of the Fair Trade Act but found us "guilty" of
imposing unfair trade terms and conditions. The agency has issued a "strict warning" to compel future compliance but
will not issue a fine. On April 7, 2016, the KFTC issued a decision that found us “not guilty” of alleged violations of the
Subcontracting Act.
We believe that all of the above matters have now been resolved, with no amount due by us, and as a result, as of
December 31, 2016, we have not recorded an accrual related to these matters.
Hassett Class Action Lawsuit: On March 19, 2015, two named plaintiffs filed a class action complaint in the U.S.
District Court for the Eastern District of Michigan against Chrysler and Schrader-Bridgeport International, Inc., styled
Hassett v. FCA US, LLC et al., case number 2:2015cv11030 (E.D. Michigan). The lawsuit alleged that faulty valve stems
were used in Schrader TPMS installed on Chrysler vehicles model years 2007 through 2014. It alleged breach of
warranty, unjust enrichment, and violations of the Michigan Consumer Protection Act and the federal Magnuson-Moss
Warranty Act, and was seeking compensatory and punitive damages. Both the size of the class and the damages sought
were unspecified. The plaintiffs, joined by an additional individual, filed an amended complaint dated June 2, 2015. On
July 23, 2015, along with Chrysler, we filed motions to dismiss. The court held a hearing on these motions on December
2, 2015. On December 7, 2015, the court dismissed the complaint on procedural grounds. The plaintiffs did not re-file
their claim, and as a result, this matter is concluded.
15. Fair Value Measures
Our assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in
accordance with ASC 820. The levels of the fair value hierarchy are described below:
• Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets and liabilities that we
have the ability to access at the measurement date.
• Level 2 inputs utilize inputs, other than quoted prices included in Level 1, that are observable for the asset or
liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in
active markets, quoted prices in markets that are not active, and inputs other than quoted prices that are
112
observable for the asset or liability, such as interest rates and yield curves that are observable at commonly
quoted intervals.
• Level 3 inputs are unobservable inputs for the asset or liability, allowing for situations where there is little, if
any, market activity for the asset or liability.
Measured on a Recurring Basis
The following table presents information about certain of our assets and liabilities measured at fair value on a
recurring basis as of December 31, 2016 and 2015, aggregated by the level in the fair value hierarchy within which those
measurements fell:
December 31, 2016
December 31, 2015
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets
Foreign currency forward
contracts
Commodity forward
contracts
Total
Liabilities
Foreign currency forward
contracts
Commodity forward
contracts
Total
$
$
$
$
— $
32,757
$
— $
— $
28,569
$
2,639
— $
35,396
$
—
— $
—
42
— $
28,611
$
— $
27,201
$
— $
— $
20,561
$
—
3,790
— $
30,991
$
—
— $
—
13,685
— $
34,246
$
—
—
—
—
—
—
See Note 2, "Significant Accounting Policies," under the caption Financial Instruments, for discussion of how we
estimate the fair value of our financial instruments. See Note 16, "Derivative Instruments and Hedging Activities," for
specific contractual terms utilized as inputs in determining fair value and a discussion of the nature of the risks being
mitigated by these instruments.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the
fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as
estimates of current credit spreads, to appropriately reflect both our own non-performance risk and the respective
counterparties' non-performance risk in the fair value measurement. However, as of December 31, 2016 and 2015, we
have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative
positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our
derivatives. As a result, we have determined that our derivatives in their entirety are classified in Level 2 in the fair value
hierarchy.
Measured on a Non-Recurring Basis
We evaluate the recoverability of goodwill and indefinite-lived intangible assets in the fourth quarter of each fiscal
year, or more frequently if events or changes in circumstances indicate that goodwill or other intangible assets may be
impaired. As of October 1, 2016, we evaluated our goodwill for impairment using the qualitative method. Refer to
Critical Accounting Policies and Estimates in Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," included elsewhere in this Annual Report on Form 10-K for further discussion of this
process. Based on this analysis, we determined that it was more likely than not that the fair values of each of our
reporting units were greater than their net book values at that date.
As of October 1, 2016, we evaluated our indefinite-lived intangible assets for impairment (using the quantitative
method) and determined that the fair values of our indefinite-lived intangible assets exceeded their carrying values on
that date. The fair values of indefinite-lived intangible assets are considered level 3 fair value measurements.
113
As of December 31, 2016, no events or changes in circumstances occurred that would have triggered the need for
an additional impairment review of goodwill or indefinite-lived intangible assets.
Financial Instruments Not Recorded at Fair Value
The following table presents the carrying values and fair values of financial instruments not recorded at fair value
in the consolidated balance sheets as of December 31, 2016 and 2015:
Carrying
Value (1)
December 31, 2016
Fair Value
Level 1
Level 2
Level 3
Carrying
Value (1)
December 31, 2015
Fair Value
Level 1
Level 2
Level 3
Liabilities
Term Loan
$ 937,794
4.875% Senior Notes $ 500,000
5.625% Senior Notes $ 400,000
5.0% Senior Notes
$ 700,000
$ — $ 942,483
$ — $ 982,695
$ — $ 963,041
$ —
$ — $ 514,375
$ — $ 500,000
$ — $ 484,690
$ —
$ — $ 417,752
$ — $ 400,000
$ — $ 409,252
$ —
$ — $ 686,000
$ — $ 700,000
$ — $ 675,941
$ —
6.25% Senior Notes
$ 750,000
$ — $ 786,098
$ — $ 750,000
$ — $ 781,410
$ —
Revolving Credit
Facility
$
— $ — $
— $ — $ 280,000
$ — $ 266,877
$ —
(1) The carrying value is presented excluding discount.
The fair values of the Term Loan and the Senior Notes are determined using observable prices in markets where
these instruments are generally not traded on a daily basis. The fair value of the Revolving Credit Facility is calculated as
the present value of the difference between the contractual spread on the loan and the estimated replacement credit
spread using the current outstanding balance on the loan projected to the loan maturity.
Cash and cash equivalents, trade receivables, and trade payables are carried at their cost, which approximates fair
value because of their short-term nature.
In March 2016, we acquired Series B Preferred Stock of Quanergy for $50.0 million. In accordance with the
guidance in ASC Topic 323, Investments - Equity Method and Joint Ventures, we have accounted for this investment as a
cost method investment under ASC 325-20, Cost Method Investments, as the Series B Preferred Stock is not "in
substance" common stock and does not have a readily determinable fair value. Fair value of this cost method investment
as of December 31, 2016 has not been estimated, as there are no indicators of impairment, and it is not practicable to
estimate its fair value due to the restricted marketability of this investment.
16. Derivative Instruments and Hedging Activities
As required by ASC 815, we record all derivatives on the balance sheet at fair value. The accounting for changes in
the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate the
derivative as being in a hedging relationship, and whether the hedging relationship has satisfied the criteria necessary to
apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of
an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value
hedges. Derivatives designated and qualifying as hedges of the exposure to variability in expected future cash flows, or
other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of
the foreign currency exposure of a net investment in a foreign operation. We currently only utilize cash flow hedges.
Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging
instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the
hedged risk in a fair value hedge, or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We
may enter into derivative contracts that are intended to economically hedge certain risks, even though we elect not to
apply hedge accounting under ASC 815. Changes in the fair value of derivatives not designated in hedging relationships
are recorded directly in the consolidated statements of operations. Specific information about the valuations of
derivatives is described in Note 2, "Significant Accounting Policies," and classification of derivatives in the fair value
hierarchy is described in Note 15, “Fair Value Measures.”
114
The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is
recorded in Accumulated other comprehensive loss and is subsequently reclassified into earnings in the period in which
the hedged forecasted transaction affects earnings. Refer to Note 12, "Shareholders' Equity," and elsewhere in this Note,
for more details on the reclassification of amounts from Accumulated other comprehensive loss into earnings. The
ineffective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recognized
directly in earnings.
We do not offset the fair value amounts recognized for derivative instruments against fair value amounts
recognized for the right to reclaim cash collateral or the obligation to return cash collateral. As of December 31, 2016
and 2015, we had posted no cash collateral.
Hedges of Foreign Currency Risk
We are exposed to fluctuations in various foreign currencies against our functional currency, the U.S. dollar. We
use foreign currency forward agreements to manage this exposure. We currently have outstanding foreign currency
forward contracts that qualify as cash flow hedges intended to offset the effect of exchange rate fluctuations on
forecasted sales and certain manufacturing costs. We also have outstanding foreign currency forward contracts that are
intended to preserve the economic value of foreign currency denominated monetary assets and liabilities; these
instruments are not designated for hedge accounting treatment in accordance with ASC 815. Derivatives not designated
as hedges are not speculative and are used to manage our exposure to foreign exchange movements.
For each of the years ended December 31, 2016, 2015, and 2014, the ineffective portion of the changes in the fair
value of these derivatives that was recognized directly in earnings was not material and no amounts were excluded from
the assessment of effectiveness. As of December 31, 2016, we estimate that $2.7 million in net gains will be reclassified
from Accumulated other comprehensive loss to earnings during the twelve months ending December 31, 2017.
As of December 31, 2016, we had the following outstanding foreign currency contracts:
Effective Date
Maturity Date
Index
Notional
(in millions)
97.7 EUR
Various from February
2015 to December 2016
January 31, 2017
444.9 EUR
Various from March
2015 to December 2016
Various from February
2017 to December
2018
545.0 CNY
December 22, 2016
January 26, 2017
720.0 JPY
December 22, 2016
January 31, 2017
3,321.6 KRW
Various from February
2015 to August 2016
50,239.2 KRW
Various from March
2015 to December 2016
Various from February
2015 to April 2016
5.7 MYR
81.8 MYR
January 31, 2017
Various from February
2017 to November
2018
January 31, 2017
Euro to U.S. Dollar
Exchange Rate
Euro to U.S. Dollar
Exchange Rate
U.S. Dollar to Chinese
Renminbi Exchange Rate
U.S. Dollar to Japanese
Yen Exchange Rate
U.S. Dollar to Korean
Won Exchange Rate
U.S. Dollar to Korean
Won Exchange Rate
U.S. Dollar to Malaysian
Ringgit Exchange Rate
Weighted-
Average
Strike Rate
Cash Flow
Hedge
Designation
1.07 USD
Non-designated
1.13 USD
Designated
7.01 CNY
Non-designated
117.20 JPY
Non-designated
1,158.87
KRW
1,157.71
KRW
Non-designated
Designated
4.02 MYR
Non-designated
Various from March
2015 to November 2016
Various from February
2017 to October 2018
U.S. Dollar to Malaysian
Ringgit Exchange Rate
4.17 MYR
Designated
204.0 MXN
Various from February
2015 to December 2016
January 31, 2017
2,072.7 MXN
Various from March
2015 to December 2016
Various from February
2017 to December
2018
21.5 GBP
Various from February
2015 to December 2016
January 31, 2017
U.S. Dollar to Mexican
Peso Exchange Rate
U.S. Dollar to Mexican
Peso Exchange Rate
British Pound Sterling to
U.S. Dollar Exchange
Rate
18.62 MXN
Non-designated
19.00 MXN
Designated
1.27 USD
Non-designated
56.2 GBP
Various from March
2015 to December 2016
Various from February
2017 to December
2018
British Pound Sterling to
U.S. Dollar Exchange
Rate
1.40 USD
Designated
The notional amounts above represent the total quantities we have outstanding over the remaining contracted periods.
115
Hedges of Commodity Risk
Our objective in using commodity forward contracts is to offset a portion of our exposure to the potential change in
prices associated with certain commodities used in the manufacturing of our products, including silver, gold, nickel,
aluminum, copper, platinum, and palladium. The terms of these forward contracts fix the price at a future date for various
notional amounts associated with these commodities. These instruments are not designated for hedge accounting
treatment in accordance with ASC 815. Commodity forward contracts not designated as hedges are not speculative and
are used to manage our exposure to commodity price movements.
We had the following outstanding commodity forward contracts, none of which were designated as derivatives in
qualifying hedging relationships, as of December 31, 2016:
Commodity
Silver
Gold
Nickel
Aluminum
Copper
Platinum
Palladium
Notional
Remaining Contracted Periods
1,069,914 troy oz.
January 2017 - November 2018
14,113 troy oz.
January 2017 - November 2018
339,402 pounds
January 2017 - November 2018
5,807,659 pounds
January 2017 - November 2018
7,707,228 pounds
January 2017 - November 2018
8,719 troy oz.
1,923 troy oz.
January 2017 - November 2018
January 2017 - November 2018
Weighted-
Average
Strike Price Per Unit
$17.09
$1,233.30
$4.98
$0.76
$2.32
$1,017.41
$641.43
The notional amounts above represent the total quantities we have outstanding over the remaining contracted
periods.
Financial Instrument Presentation
The following table presents the fair values of our derivative financial instruments and their classification in the
consolidated balance sheets as of December 31, 2016 and 2015:
Derivatives designated as hedging
instruments under ASC 815
Foreign currency forward contracts
Asset Derivatives
Liability Derivatives
Fair Value
Fair Value
Balance Sheet
Location
December
31, 2016
December
31, 2015
Balance Sheet
Location
December
31, 2016
December
31, 2015
Prepaid expenses
and other current
assets
$
24,796
$
20,057 Accrued expenses and
other current liabilities
$
20,990
$
13,851
Foreign currency forward contracts
Other assets
5,693
5,382 Other long-term
liabilities
Total
Derivatives not designated as hedging
instruments under ASC 815
Commodity forward contracts
$
$
Prepaid expenses
and other current
assets
Commodity forward contracts
Other assets
Foreign currency forward contracts
Prepaid expenses
and other current
assets
30,489
$
25,439
2,097
$
— Accrued expenses and
other current liabilities
542
2,268
42 Other long-term
liabilities
3,130 Accrued expenses and
other current liabilities
$
$
3,814
3,763
24,804
$
17,614
2,764
$
10,876
1,026
2,397
2,809
2,947
Total
$
4,907
$
3,172
$
6,187
$
16,632
These fair value measurements are all categorized within Level 2 of the fair value hierarchy. Refer to Note 15,
"Fair Value Measures," for more information on these measurements.
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The following tables present the effect of our derivative financial instruments on the consolidated statements of
operations for the years ended December 31, 2016 and 2015:
Derivatives designated as
hedging instruments under ASC 815
Amount of Deferred Gain/
(Loss) Recognized in Other
Comprehensive (Loss)/Income
2016
2015
Location of Net
Gain/(Loss)
Reclassified from
Accumulated
Other
Comprehensive
Loss into Net
Income
Amount of Net Gain/(Loss)
Reclassified from Accumulated
Other Comprehensive Loss into
Net Income
2016
2015
Foreign currency forward contracts
Foreign currency forward contracts
$
$
24,044
$
(32,519) $
46,540
(20,588) Cost of revenue
Net revenue
$
$
$
17,720
(21,089) $
54,537
(10,284)
Derivatives not designated as
hedging instruments under ASC 815
Amount of Gain/(Loss) on
Derivatives Recognized in Net
Income
2016
2015
Location of Gain/(Loss) on Derivatives
Recognized in Net Income
Commodity forward contracts
Foreign currency forward contracts
$
$
7,399
$
(1,850) $
(18,468)
3,606
Other, net
Other, net
Credit risk related contingent features
We have agreements with certain of our derivative counterparties that contain a provision whereby if we default on
our indebtedness, and where repayment of the indebtedness has been accelerated by the lender, then we could also be
declared in default on our derivative obligations.
As of December 31, 2016, the termination value of outstanding derivatives in a liability position, excluding any
adjustment for non-performance risk, was $31.5 million. As of December 31, 2016, we have not posted any cash
collateral related to these agreements. If we breach any of the default provisions on any of our indebtedness as described
above, we could be required to settle our obligations under the derivative agreements at their termination values.
17. Restructuring and Special Charges
During the years ended December 31, 2016, 2015, and 2014, we recorded restructuring and special charges of $4.1
million, $21.9 million, and $21.9 million, respectively, in the consolidated statements of operations.
The restructuring and special charges recognized during the year ended December 31, 2016, consisted primarily of
facility exit costs related to the relocation of manufacturing lines from our facility in the Dominican Republic to a
manufacturing facility in Mexico, and severance charges recorded in connection with acquired businesses and the
termination of a limited number of employees. We completed the cessation of manufacturing in our Dominican Republic
facility in the third quarter of 2016.
The restructuring and special charges recognized during the year ended December 31, 2015, includes $7.6 million
in severance charges recorded in connection with acquired businesses in order to integrate these businesses with ours,
$4.0 million of severance charges recorded in the second quarter of 2015 related to the closing of our Schrader Brazil
manufacturing facility, with the remainder primarily associated with the termination of a limited number of employees in
various locations throughout the world. Additional charges related to the closing of the manufacturing facility in Brazil
are not included in the table above, and are discussed below in Exit and Disposal Activities.
The restructuring and special charges recognized during the year ended December 31, 2014 includes $16.2 million
in severance charges recorded in connection with acquired businesses, in order to integrate these businesses with ours,
with the remainder primarily associated with the termination of a limited number of employees in various locations
throughout the world.
117
The following table outlines the changes to the restructuring liability associated with the severance portion of our
restructuring actions during the years ended December 31, 2016 and 2015:
Balance at December 31, 2014
Charges, net of reversals
Payments
Impact of changes in foreign currency exchange rates
Balance at December 31, 2015
Charges, net of reversals
Payments
Impact of changes in foreign currency exchange rates
Balance at December 31, 2016
Severance
19,914
19,829
(13,737)
(2,020)
23,986
813
(7,252)
(785)
16,762
$
$
The following table outlines the current and long-term components of our restructuring liabilities recognized in the
consolidated balance sheets as of December 31, 2016 and 2015:
Accrued expenses and other current liabilities
Other long-term liabilities
Exit and Disposal Activities
December 31,
2016
December 31,
2015
$
$
14,566
3,082
17,648
$
$
14,089
10,918
25,007
In the second quarter of 2015, we decided to close our Schrader Brazil manufacturing facility. During the year
ended December 31, 2015, in connection with this closing, and in addition to the $4.0 million of severance charges
recorded in the Restructuring and special charges line of the consolidated statements of operations as discussed above,
we incurred approximately $5.0 million of charges, primarily recorded in Cost of revenue, related to the write-down of
certain assets, including PP&E and Inventory. These charges are not included in the restructuring and special charges
table above.
18. Segment Reporting
We organize our business into two reportable segments, Performance Sensing and Sensing Solutions, each of
which is also an operating segment. Our operating segments are businesses that we manage as components of an
enterprise, for which separate information is available and is evaluated regularly by our chief operating decision maker in
deciding how to allocate resources and assess performance.
An operating segment’s performance is primarily evaluated based on segment operating income, which excludes
share-based compensation expense, restructuring and special charges, and certain corporate costs not associated with the
operations of the segment, including amortization expense and a portion of depreciation expense associated with assets
recorded in connection with acquisitions. In addition, an operating segment’s performance excludes results from
discontinued operations, if any. Corporate costs excluded from an operating segment’s performance are separately stated
below and also include costs that are related to functional areas such as finance, information technology, legal, and
human resources. We believe that segment operating income, as defined above, is an appropriate measure for evaluating
the operating performance of our segments. However, this measure should be considered in addition to, and not as a
substitute for, or superior to, income from operations or other measures of financial performance prepared in accordance
with U.S. GAAP. The accounting policies of each of our two reporting segments are materially consistent with those in
the summary of significant accounting policies as described in Note 2, "Significant Accounting Policies."
The Performance Sensing segment is a manufacturer of pressure, temperature, speed, and position sensors, and
electromechanical sensor products used in subsystems of automobiles (e.g., engine, air conditioning and ride
stabilization), and heavy on- and off-road vehicles. These products help improve operating performance, for example, by
making an automobile’s heating and air conditioning systems work more efficiently, thereby improving gas mileage.
118
These products are also used in systems that address safety and environmental concerns, for example, by improving the
stability control of the vehicle and reducing vehicle emissions.
The Sensing Solutions segment is a manufacturer of a variety of control products used in industrial, aerospace,
military, commercial, medical device, and residential markets, and sensors used in aerospace and industrial products such
as HVAC systems and military and commercial aircraft. These products include motor and compressor protectors, circuit
breakers, semiconductor burn-in test sockets, electronic HVAC sensors and controls, solid state relays, linear and rotary
position sensors, precision switches, and thermostats. These products help prevent damage from overheating and fires in
a wide variety of applications, including commercial heating and air conditioning systems, refrigerators, aircraft,
lighting, and other industrial applications. The Sensing Solutions business also manufactures DC to AC power inverters,
which enable the operation of electronic equipment when grid power is not available.
The following table presents Net revenue and Segment operating income for our reportable segments and other
operating results not allocated to our reportable segments for the years ended December 31, 2016, 2015, and 2014:
Net revenue:
Performance Sensing
Sensing Solutions
Total net revenue
Segment operating income (as defined above):
Performance Sensing
Sensing Solutions
Total segment operating income
Corporate and other
Amortization of intangible assets
Restructuring and special charges
Profit from operations
Interest expense, net
Other, net
Income before income taxes
For the year ended December 31,
2016
2015
2014
$
$
$
$
2,385,380
816,908
3,202,288
615,526
261,914
877,440
(179,665)
(201,498)
(4,113)
492,164
(165,818)
(4,901)
321,445
$
$
$
$
2,346,226
628,735
2,974,961
598,524
199,744
798,268
(196,133)
(186,632)
(21,919)
393,584
(137,626)
(50,329)
205,629
$
$
$
$
1,755,857
653,946
2,409,803
475,943
202,115
678,058
(137,872)
(146,704)
(21,893)
371,589
(106,104)
(12,059)
253,426
No customer exceeded 10% of our Net revenue in any of the periods presented.
The following table presents Net revenue by product categories for the years ended December 31, 2016, 2015, and
2014:
Net revenue:
Pressure sensors
Speed and position sensors
Bimetal electromechanical controls
Temperature sensors
Power conversion and control
Thermal and magnetic-hydraulic circuit breakers
Pressure switches
Interconnection
Other
Performance
Sensing
Sensing
Solutions
For the year ended December 31,
2016
2015
2014
X
X
X
X
X
X
X
X
X
$ 1,764,622
$ 1,669,393
$ 1,186,913
420,111
321,202
191,463
120,357
109,719
88,905
57,518
328,102
318,721
191,369
58,180
110,980
86,994
61,738
275,628
359,610
152,662
35,160
117,816
99,489
69,332
128,391
149,484
113,193
$ 3,202,288
$ 2,974,961
$ 2,409,803
X
X
X
X
X
119
The following table presents depreciation and amortization expense for our reportable segments for the years
ended December 31, 2016, 2015, and 2014:
Total depreciation and amortization
Performance Sensing
Sensing Solutions
Corporate and other(1)
Total
__________________
For the year ended December 31,
2016
2015
2014
$
$
68,837
$
62,754
$
14,095
225,469
10,643
209,286
308,401
$
282,683
$
40,092
9,582
162,834
212,508
(1)
Included within Corporate and other is depreciation and amortization expense associated with the fair value step-
up recognized in prior acquisitions and accelerated depreciation recorded in connection with restructuring actions.
We do not allocate the additional depreciation and amortization expense associated with the step-up in the fair
value of the PP&E and intangible assets associated with these acquisitions or accelerated depreciation related to
restructuring actions to our segments. This treatment is consistent with the financial information reviewed by our
chief operating decision maker.
The following table presents total assets for the reported segments as of December 31, 2016 and 2015:
Total assets
Performance Sensing
Sensing Solutions
Corporate and other(1)
Total
December 31,
2016
December 31,
2015
$
1,295,381
$
1,263,790
396,224
4,549,371
329,055
4,706,065
$
6,240,976
$
6,298,910
__________________
(1)
Included within Corporate and other as of December 31, 2016 and 2015 is $3,005.5 million and $3,019.7 million,
respectively, of Goodwill, $1,075.4 million and $1,262.6 million, respectively, of Other intangible assets, net,
$351.4 million and $342.3 million, respectively, of cash, and $21.1 million and $29.0 million, respectively, of
PP&E, net. This treatment is consistent with the financial information reviewed by our chief operating decision
maker.
The following table presents capital expenditures for our reportable segments for the years ended December 31,
2016, 2015, and 2014:
Total capital expenditures
Performance Sensing
Sensing Solutions
Corporate and other
Total
Geographic Area Information
For the year ended December 31,
2016
2015
2014
$
$
99,299
$
125,376
$
11,947
18,971
16,899
34,921
95,534
13,832
34,845
130,217
$
177,196
$
144,211
In the geographic area data below, Net revenue is aggregated based on an internal methodology that considers both
the location of our subsidiaries and the primary location of each subsidiary's customers. PP&E is aggregated based on the
location of our subsidiaries.
120
The following tables present Net revenue by geographic area and by significant country for the years ended
December 31, 2016, 2015, and 2014:
Americas
Asia
Europe
United States
The Netherlands
China
Korea
Germany
Japan
All Other
Net Revenue
For the year ended December 31,
2016
2015
2014
$
1,367,860
$
1,217,626
$
810,094
1,024,334
764,298
993,037
961,024
742,263
706,516
$
3,202,288
$
2,974,961
$
2,409,803
Net Revenue
For the year ended December 31,
2016
2015
2014
$
1,322,206
$
1,084,757
$
550,937
412,460
182,464
168,447
152,234
413,540
553,192
346,890
198,440
144,102
153,114
494,466
913,958
496,376
341,864
181,588
25,206
150,018
300,793
$
3,202,288
$
2,974,961
$
2,409,803
The following tables present PP&E, net, by geographic area and by significant country as of December 31, 2016
and 2015:
Americas
Asia
Europe
Total
United States
China
Mexico
Bulgaria
United Kingdom
Malaysia
The Netherlands
All Other
Long-Lived Assets
December 31,
2016
December 31,
2015
$
$
271,405
$
262,045
192,304
725,754
$
249,996
254,224
189,935
694,155
Long-Lived Assets
December 31,
2016
December 31,
2015
$
111,308
$
208,821
155,607
81,719
75,495
48,477
4,142
40,185
128,434
204,835
116,644
74,433
73,463
43,994
7,254
45,098
$
725,754
$
694,155
121
19. Net Income per Share
Basic and diluted net income per share are calculated by dividing Net income by the number of basic and diluted
weighted-average ordinary shares outstanding during the period. For the years ended December 31, 2016, 2015, and
2014, the weighted-average ordinary shares outstanding for basic and diluted net income per share were as follows:
Basic weighted-average ordinary shares outstanding
Dilutive effect of stock options
Dilutive effect of unvested restricted securities
Diluted weighted-average ordinary shares outstanding
For the year ended
December 31,
2016
December 31,
2015
December 31,
2014
170,709
169,977
170,113
489
262
1,265
271
1,929
175
171,460
171,513
172,217
Net income and net income per share are presented in the consolidated statements of operations.
Certain potential ordinary shares were excluded from our calculation of diluted weighted-average shares
outstanding because they would have had an anti-dilutive effect on net income per share, or because they related to
share-based awards that were contingently issuable, for which the contingency had not been satisfied. Refer to Note 11,
"Share-Based Payment Plans," for further discussion of our share-based payment plans.
Anti-dilutive shares excluded
Contingently issuable shares excluded
20. Unaudited Quarterly Data
For the year ended
December 31,
2016
December 31,
2015
December 31,
2014
1,401
606
747
409
737
386
A summary of the unaudited quarterly results of operations for the years ended December 31, 2016 and 2015 is as
follows:
For the year ended December 31, 2016
Net revenue
Gross profit
Net income
Basic net income per share
Diluted net income per share
For the year ended December 31, 2015
Net revenue
Gross profit
Net income
Basic net income per share
Diluted net income per share
Acquisitions
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
$ 788,396
$ 278,898
$
$
$
66,527
0.39
0.39
$
$
$
$
$
789,798
280,854
69,785
0.41
0.41
December 31,
2015
September 30,
2015
$ 726,471
$ 249,814
$ 218,289
$
$
1.28
1.27
$
$
$
$
$
727,360
250,726
53,152
0.31
0.31
$
$
$
$
$
$
$
$
$
$
827,545
290,104
65,510
0.38
0.38
June 30,
2015
770,445
252,570
40,900
0.24
0.24
$
$
$
$
$
$
$
$
$
$
796,549
268,171
60,612
0.36
0.35
March 31,
2015
750,685
244,052
35,355
0.21
0.21
In the fourth quarter of 2015, we completed the acquisition of CST. In the third and fourth quarters of 2015, we
recorded transaction costs of $3.7 million and $5.6 million, respectively, in connection with this acquisition, which are
included within SG&A expense in the consolidated statements of operations. Refer to Note 6, "Acquisitions," for further
discussion of the acquisition of CST.
122
Debt transactions
In the first quarter of 2015, we completed a series of financing transactions including the settlement of $620.9
million of the 6.5% Senior Notes in connection with a tender offer, the related issuance and sale of the 5.0% Senior
Notes, and the entry into the Fifth Amendment. In connection with these transactions, in the first quarter of 2015, we
recorded charges of $19.6 million in Other, net.
In the second quarter of 2015, we redeemed the remaining 6.5% Senior Notes and entered into the Sixth
Amendment in order to refinance the Original Term Loan and the Incremental Term Loan with the Term Loan. In
connection with these transactions, in the second quarter of 2015, we recorded charges of $6.0 million in Other, net.
In the fourth quarter of 2015, we completed a series of debt transactions in order to fund the acquisition of CST,
including the issuance and sale of the 6.25% Senior Notes. In connection with these transactions, in the fourth quarter of
2015, we recorded $8.8 million in Interest expense, net. In addition, the debt incurred as a result of these transactions
resulted in an incremental $4.4 million of interest expense in the fourth quarter of 2015.
Refer to Note 8, "Debt," for further discussion of these transactions.
Income taxes
In the second quarter of 2015, we wrote off a $5.0 million tax indemnification asset related to a pre-acquisition tax
liability that was favorably resolved, which was recorded in SG&A expense.
The benefit from income taxes in the fourth quarter of 2015 included a benefit from income taxes of $180.0
million, primarily due to the release of a portion of the U.S. valuation allowance in connection with the acquisition of
CST, for which deferred tax liabilities were established related to acquired intangible assets.
Refer to Note 9, "Income Taxes," for further discussion of tax related matters.
Restructuring charges
In the second quarter of 2015, we recorded restructuring charges of $10.1 million, primarily related to severance
charges associated with the termination of a limited number of employees in various locations throughout the world and
severance charges recorded in connection with acquired businesses, including $4.0 million of severance charges related
to the closing of our manufacturing facility in Brazil that was part of the Schrader acquisition. Also in relation to the
closing of this facility, we incurred approximately $5.0 million of charges, primarily recorded in Cost of revenue, related
to the write-down of certain assets, including PP&E and Inventory.
In the fourth quarter of 2015, we recorded restructuring charges of $9.5 million, related to severance charges
recorded in connection with acquired businesses in order to integrate these businesses with ours and charges associated
with the termination of a limited number of employees in various locations throughout the world.
Refer to Note 17, "Restructuring and Special Charges," for further discussion of our restructuring charges.
Commodity forward contracts
Gains and losses related to our commodity forward contracts, which are not designated for hedge accounting
treatment in accordance with ASC 815, are recorded in Other, net in the consolidated statements of operations. During
the first, second, third, and fourth quarters of 2016, we recognized gains/(losses) of $5.3 million, $5.4 million, $1.3
million, and $(4.7) million, respectively, related to these contracts. During the first, second, third, and fourth quarters of
2015, we recognized (losses) of $(1.4) million, $(4.7) million, $(8.0) million, and $(4.4) million, respectively.
Refer to Note 16, "Derivative Instruments and Hedging Activities," for further discussion of our commodity
forward contracts, and Note 2, "Significant Accounting Policies," for a detail of Other, net for the years ended December
31, 2016 and 2015.
123
Litigation and claims
In the second quarter of 2015, we accrued $4.0 million in Cost of revenue related to a settlement of a warranty
claim brought against us by a U.S. automaker.
In the third quarter of 2015, we accrued $6.0 million in Cost of revenue related to the settlement of intellectual
property litigation brought against us by Bridgestone.
Refer to Note 14, "Commitments and Contingencies," of our audited consolidated financial statements in our
Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion of this settled litigation.
124
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
SENSATA TECHNOLOGIES HOLDING N.V.
(Parent Company Only)
Balance Sheets
(In thousands)
Assets
Current assets:
Cash and cash equivalents
Intercompany receivables from subsidiaries
Prepaid expenses and other current assets
Total current assets
Investment in subsidiaries
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable
Intercompany payables to subsidiaries
Accrued expenses and other current liabilities
Total current liabilities
Pension obligations
Total liabilities
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2016
December 31,
2015
$
1,719
$
84,396
683
86,798
1,283
79,384
886
81,553
1,857,502
1,592,310
$
1,944,300
$
1,673,863
$
63
$
175
1,580
1,818
475
2,293
486
2,885
983
4,354
933
5,287
1,942,007
1,668,576
$
1,944,300
$
1,673,863
The accompanying notes are an integral part of these condensed financial statements.
125
SENSATA TECHNOLOGIES HOLDING N.V.
(Parent Company Only)
Statements of Operations
(In thousands)
Net revenue
Operating costs/(income) and expenses:
Cost of revenue
Selling, general and administrative
Total operating costs/(income) and expenses
(Loss)/gain from operations
Interest expense, net
Other, net
Gain/(loss) before income taxes and equity in net income of
subsidiaries
Equity in net income of subsidiaries
Provision for income taxes
Net income
For the year ended
December 31,
2016
December 31,
2015
December 31,
2014
$
— $
— $
—
—
104
104
(104)
72
107
—
618
618
(618)
—
60
(2,417)
1,423
(994)
994
—
(50)
75
262,359
—
262,434
$
(558)
348,254
—
347,696
$
944
282,805
—
283,749
$
The accompanying notes are an integral part of these condensed financial statements.
126
SENSATA TECHNOLOGIES HOLDING N.V.
(Parent Company Only)
Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive (loss)/income, net of tax:
Defined benefit plan
Subsidiaries' other comprehensive (loss)/income
Other comprehensive (loss)/income
Comprehensive income
For the year ended
December 31,
2016
December 31,
2015
December 31,
2014
$
262,434
$
347,696
$
283,749
515
(8,592)
(8,077)
254,357
$
(22)
(14,220)
(14,242)
333,454
$
(374)
21,733
21,359
$
305,108
The accompanying notes are an integral part of these condensed financial statements.
127
SENSATA TECHNOLOGIES HOLDING N.V.
(Parent Company Only)
Statements of Cash Flows
(In thousands)
Net cash used in operating activities
Cash flows from investing activities:
Insurance proceeds
Return of capital from subsidiaries
Net cash provided by investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options and issuance of ordinary
shares
Payments to repurchase ordinary shares
Net cash (used in)/provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
For the year ended
December 31,
2016
December 31,
2015
December 31,
2014
$
(4,756) $
(25,576) $
(30,491)
—
6,000
6,000
3,944
(4,752)
(808)
436
1,283
—
6,100
6,100
19,411
(50)
19,361
(115)
1,398
2,417
164,200
166,617
24,909
(181,774)
(156,865)
(20,739)
22,137
$
1,719
$
1,283
$
1,398
The accompanying notes are an integral part of these condensed financial statements.
128
1. Basis of Presentation and Description of Business
Sensata Technologies Holding N.V. (Parent Company)—Schedule I—Condensed Financial Information of Sensata
Technologies Holding N.V. (“Sensata Technologies Holding”), included in this Annual Report on Form 10-K, provides
all parent company information that is required to be presented in accordance with the U.S. Securities and Exchange
Commission (“SEC”) rules and regulations for financial statement schedules. The accompanying condensed financial
statements have been prepared in accordance with the reduced disclosure requirements permitted by the SEC. Sensata
Technologies Holding and subsidiaries' audited consolidated financial statements are included elsewhere in this Annual
Report on Form 10-K.
Sensata Technologies Holding conducts limited separate operations and acts primarily as a holding company.
Sensata Technologies Holding has no direct outstanding debt obligations. However, Sensata Technologies B.V, an
indirect, wholly-owned subsidiary of Sensata Technologies Holding, is limited in its ability to pay dividends or otherwise
make other distributions to its immediate parent company and, ultimately, to Sensata Technologies Holding, under its
senior secured credit facilities and the indentures governing its senior notes. For a discussion of the debt obligations of
the subsidiaries of Sensata Technologies Holding, see Note 8, "Debt," of the audited consolidated financial statements
included elsewhere in this Annual Report on Form 10-K.
All U.S. dollar amounts presented except per share amounts are stated in thousands, unless otherwise indicated.
2. Commitments and Contingencies
For a discussion of the commitments and contingencies of the subsidiaries of Sensata Technologies Holding, see
Note 14, "Commitments and Contingencies," of the audited consolidated financial statements included elsewhere in this
Annual Report on Form 10-K.
3. Related Party Transactions
On September 10, 2014, Sensata Investment Company S.C.A. ("SCA") sold its remaining shares in Sensata
Technologies Holding, and was no longer a related party as of that date. The transactions below represent transactions
that occurred prior to that date.
Share Repurchase
Concurrent with the closing of the May 2014 secondary offering, Sensata Technologies Holding repurchased 4.0
million ordinary shares from SCA in private, non-underwritten transactions at a price per ordinary share of $42.42, which
was equal to the price paid by the underwriters.
129
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
For the year ended December 31, 2016
Accounts receivable allowances
For the year ended December 31, 2015
Accounts receivable allowances
For the year ended December 31, 2014
Accounts receivable allowances
Balance at the
beginning of
the period
Additions
Charged, net of
reversals,
to expenses/
against revenue
Deductions
Balance at the
end of
the period
$
$
$
9,535
10,364
9,199
$
$
$
3,072
2,424
2,015
$
$
$
(796) $
11,811
(3,253) $
9,535
(850) $
10,364
130
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
The required certifications of our Chief Executive Officer and Chief Financial Officer are included as Exhibits 31.1
and 31.2 to this Annual Report on Form 10-K. The disclosures set forth in this Item 9A contain information concerning
the evaluation of our disclosure controls and procedures, management's report on internal control over financial
reporting, and changes in internal control over financial reporting referred to in these certifications. These certifications
should be read in conjunction with this Item 9A for a more complete understanding of the matters covered by the
certifications.
Evaluation of Disclosure Controls and Procedures
With the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of our disclosure controls and procedures as of December 31, 2016. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated
to the company's management, including its principal executive and principal financial officers, as appropriate, to allow
timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving their objectives, and management
necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on
the evaluation of our disclosure controls and procedures as of December 31, 2016, our Chief Executive Officer and Chief
Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable
assurance level.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) occurred during the fourth quarter of the year ended December 31, 2016 that materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
131
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as is
defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control system was designed to provide
reasonable assurance to the Company’s management, Board of Directors, and shareholders regarding the preparation and
fair presentation of the Company’s published financial statements in accordance with generally accepted accounting
principles. The Company’s internal control over financial reporting includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures are
being made only in accordance with authorizations of management of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on the financial statements.
There are inherent limitations to the effectiveness of any system of internal control over financial reporting.
Accordingly, even an effective system of internal control over financial reporting can only provide reasonable assurance
with respect to financial statement preparation and presentation in accordance with accounting principles generally
accepted in the United States of America. Our internal controls over financial reporting are subject to various inherent
limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future
events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in
conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2016. In making its assessment of internal control over financial reporting, management used the criteria
issued by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission in May 2013.
Based on the results of this assessment, management, including our Chief Executive Officer and Chief Financial
Officer, has concluded that, as of December 31, 2016, the Company’s internal control over financial reporting was
effective.
The Company’s independent registered public accounting firm, Ernst & Young LLP, has also issued an audit report
on the Company’s internal control over financial reporting, which is included elsewhere in this Annual Report on Form
10-K.
Hengelo, The Netherlands
February 2, 2017
132
Report of Independent Registered Accounting Firm
The Board of Directors and Shareholders of
Sensata Technologies Holding N.V.
We have audited Sensata Technologies Holding N.V.'s internal control over financial reporting as of December 31,
2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Sensata Technologies Holding
N.V.'s management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, Sensata Technologies Holding N.V. maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Sensata Technologies Holding N.V. as of December 31, 2016 and
2015, and the related consolidated statements of operations, comprehensive income, cash flows and changes in
shareholders’ equity for each of the three years in the period ended December 31, 2016 of Sensata Technologies Holding
N.V. and our report dated February 2, 2017 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 2, 2017
133
ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 will be set forth in the Proxy Statement for our Annual General Meeting
of Shareholders to be held on May 18, 2017 and is incorporated by reference into this Annual Report on Form 10-K.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item 11 will be set forth in the Proxy Statement for our Annual General Meeting
of Shareholders to be held on May 18, 2017 and is incorporated by reference into this Annual Report on Form 10-K.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 will be set forth in the Proxy Statement for our Annual General Meeting
of Shareholders to be held on May 18, 2017 and is incorporated by reference into this Annual Report on Form 10-K.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item 13 will be set forth in the Proxy Statement for our Annual General Meeting
of Shareholders to be held on May 18, 2017 and is incorporated by reference into this Annual Report on Form 10-K.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 will be set forth in the Proxy Statement for our Annual General Meeting
of Shareholders to be held on May 18, 2017 and is incorporated by reference into this Annual Report on Form 10-K.
134
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
PART IV
1. Financial Statements — See “Financial Statements” under Item 8, "Financial Statements and Supplementary
Data," of this Annual Report on Form 10-K.
2. Financial Statement Schedules — See “Financial Statement Schedules” under Item 8, "Financial Statements and
Supplementary Data," of this Annual Report on Form 10-K.
3. Exhibits
3.1
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
10.2
10.3
10.4
10.5
EXHIBIT INDEX
Amended Articles of Association of Sensata Technologies Holding N.V. (incorporated by reference to
Exhibit 3.1 of the Registrant's Quarterly Report on Form 10-Q filed on July 26, 2016).
Indenture, dated as of April 17, 2013, among Sensata Technologies B.V., the Guarantors, and The Bank of
New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 of the Registrant's Current Report
on Form 8-K filed on April 18, 2013).
Form of 4.875% Senior Note due 2023 (incorporated by reference to Exhibit 4.2 of the Registrant's Current
Report on Form 8-K filed on April 18, 2013) (included as Exhibit A to Exhibit 4.1 thereof).
Indenture, dated as of October 14, 2014, among Sensata Technologies B.V., the Guarantors, and The Bank
of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 of the Registrant's Current Report
on Form 8-K filed on October 17, 2014).
Form of 5.625% Senior Note due 2024 (incorporated by reference to Exhibit 4.1 of the Registrant's Current
Report on Form 8-K filed on October 17, 2014) (included as Exhibit A thereto).
Indenture, dated as of March 26, 2015, among Sensata Technologies B.V., the Guarantors, and The Bank of
New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 of the Registrant's Current Report
on Form 8-K filed on April 1, 2015).
Form of 5.0% Senior Notes due 2025 (incorporated by reference to Exhibit 4.1 of the Registrant's Current
Report on Form 8-K filed on April 1, 2015) (included as Exhibit A thereto).
Indenture, dated as of November 27, 2015, among Sensata Technologies UK Financing Co. plc, the
Guarantors, and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 of the
Registrant's Current Report on Form 8-K filed on December 2, 2015).
Form of 6.25% Senior Notes due 2026 (incorporated by reference to Exhibit 4.1 of the Registrant's Current
Report on Form 8-K filed on December 2, 2015) (included as Exhibit A thereto).
Cross-License Agreement, dated April 27, 2006, among Texas Instruments Incorporated, Sensata
Technologies B.V. and Potazia Holding B.V. (incorporated by reference to Exhibit 10.10 of the Registration
Statement on Form S-4 of Sensata Technologies B.V. filed on December 29, 2006).
Sensata Technologies Holding B.V. First Amended and Restated 2006 Management Option Plan
(incorporated by reference to Exhibit 10.12 of the Registration Statement on Form S-4 of Sensata
Technologies B.V. filed on December 29, 2006).†
First Amendment to the Sensata Technologies Holding B.V. First Amended and Restated 2006 Management
Option Plan (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of Sensata
Technologies B.V. filed on November 13, 2009, Commission File Number 333-139739).†
Form of Indemnification Agreement, entered among Sensata Technologies Holding N.V. (formerly known
as Sensata Technologies Holding B.V.) and certain of its executive officers and directors listed on a
schedule attached thereto (incorporated by reference to Exhibit 10.51 of Amendment No. 2 of the
Registrant's Registration Statement on Form S-1 filed on January 22, 2010).†
Amended and Restated Employment Agreement, dated March 22, 2011, between Sensata Technologies,
Inc. and Jeffrey Cote (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on
Form 10-Q filed on April 22, 2011, Commission File Number 001-34652).†‡
135
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Credit Agreement, dated as of May 12, 2011, by and among Sensata Technologies B.V., Sensata
Technologies Finance Company, LLC, Sensata Technologies Intermediate Holding B.V., Morgan Stanley
Senior Funding, Inc., as administrative agent, the initial l/c issuer and initial swing line lender named
therein, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 of the Registrant's
Current Report on Form 8-K filed on May 17, 2011, Commission File Number 001-34652).
Domestic Guaranty, dated as of May 12, 2011, made by each of Sensata Technologies Finance Company,
LLC, Sensata Technologies, Inc., Sensata Technologies Massachusetts, Inc. and each of the Additional
Guarantors from time to time made a party thereto in favor of the Secured Parties (as defined therein)
(incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed on May 17,
2011, Commission File Number 001-34652).
Guaranty, dated as of May 12, 2011, made by Sensata Technologies B.V. in favor of the Secured Parties (as
defined therein) (incorporated by reference to Exhibit 10.3 of the Registrant's Current Report on Form 8-K
filed on May 17, 2011, Commission File Number 001-34652).
Foreign Guaranty, dated as of May 12, 2011, made by each of Sensata Technologies Holding Company US
B.V., Sensata Technologies Holland, B.V., Sensata Technologies Holding Company Mexico, B.V., Sensata
Technologies de México, S. de R.L. de C.V., Sensata Technologies Japan Limited, Sensata Technologies
Malaysia Sdn. Bhd. and each of the Additional Guarantors from time to time made a party thereto in favor
of the Secured Parties (as defined therein) (incorporated by reference to Exhibit 10.4 of the Registrant's
Current Report on Form 8-K filed on May 17, 2011, Commission File Number 001-34652).
Patent Security Agreement, dated as of May 12, 2011, made by each of Sensata Technologies Finance
Company, LLC, Sensata Technologies, Inc. and Sensata Technologies Massachusetts, Inc. to Morgan
Stanley Senior Funding, Inc., as collateral agent (incorporated by reference to Exhibit 10.5 of the
Registrant's Current Report on Form 8-K filed on May 17, 2011, Commission File Number 001-34652).
Trademark Security Agreement, dated as of May 12, 2011, made by each of Sensata Technologies Finance
Company, LLC, Sensata Technologies, Inc. and Sensata Technologies Massachusetts, Inc. to Morgan
Stanley Senior Funding, Inc., as collateral agent (incorporated by reference to Exhibit 10.6 of the
Registrant's Current Report on Form 8-K filed on May 17, 2011, Commission File Number 001-34652).
Domestic Pledge Agreement, dated as of May 12, 2011, made by each of Sensata Technologies B.V. and
Sensata Technologies Holding Company US B.V. to Morgan Stanley Senior Funding, Inc., as collateral
agent (incorporated by reference to Exhibit 10.7 of the Registrant's Current Report on Form 8-K filed on
May 17, 2011, Commission File Number 001-34652).
Domestic Security Agreement, dated as of May 12, 2011, made by each of Sensata Technologies Finance
Company, LLC, Sensata Technologies, Inc. and Sensata Technologies Massachusetts, Inc. to Morgan
Stanley Senior Funding, Inc., as collateral agent (incorporated by reference to Exhibit 10.8 of the
Registrant's Current Report on Form 8-K filed on May 17, 2011, Commission File Number 001-34652).
Amendment to Award Agreement between Sensata Technologies Holding N.V. and Jeffrey Cote dated
January 23, 2012 (incorporated by reference to Exhibit 10.39 of the Registrant's Annual Report on Form
10-K filed on February 10, 2012).†
Form of Director Options Agreement (incorporated by reference to Exhibit 10.1 of the Registrant's
Quarterly Report on Form 10-Q filed on July 27, 2012).
Amendment No. 1 to Credit Agreement dated as of December 6, 2012, to the Credit Agreement dated as of
May 12, 2011, by and among Sensata Technologies B.V., Sensata Technologies Finance Company LLC,
Sensata Technologies Intermediate Holding B.V., the subsidiary guarantors party thereto, Morgan Stanley
Senior Funding, Inc., and Barclays Bank PLC (incorporated by reference to Exhibit 10.1 of the Registrant's
Current Report on Form 8-K filed on December 10, 2012).
Separation Agreement, dated December 10, 2012, between Sensata Technologies, Inc. and Thomas Wroe
(incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed on
December 10, 2012).†
Amendment to Equity Award Agreements, dated December 10, 2012, between Sensata Technologies
Holding N.V. and Thomas Wroe (incorporated by reference to Exhibit 10.2 of the Registrant's Current
Report on Form 8-K filed on December 10, 2012).†
Second Amended and Restated Employment Agreement, dated January 1, 2013, between Sensata
Technologies, Inc. and Martha Sullivan (incorporated by reference to Exhibit 10.1 of the Registrant's
Current Report on Form 8-K filed on January 4, 2013).†‡
136
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
Employment Agreement, dated January 1, 2013, between Sensata Technologies, Inc. and Steven
Beringhause (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K
filed on January 4, 2013).†‡
Intellectual Property License Agreement, dated March 14, 2013, between Sensata Technologies, Inc. and
Measurement Specialties, Inc. (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report
on Form 8-K filed on March 20, 2013).
Sensata Technologies Holding N.V. 2010 Equity Incentive Plan, as Amended May 22, 2013 (incorporated
by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q filed on July 29, 2013).†
Share Repurchase Agreement, dated as of November 29, 2013, between Sensata Technologies Holding N.V.
and Sensata Investment Company S.C.A. (incorporated by reference to Exhibit 10.1 of the Registrant's
Current Report on Form 8-K filed on December 2, 2013)
Amendment No. 2 to Credit Agreement dated as of December 11, 2013, to the Credit Agreement dated as
of May 12, 2011, by and among Sensata Technologies B.V., Sensata Technologies Finance Company LLC,
Sensata Technologies Intermediate Holding B.V., the subsidiary guarantors party thereto, and Morgan
Stanley Senior Funding, Inc. (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report
on Form 8-K filed on December 11, 2013).
Employment Agreement, entered into on February 4, 2014 between Sensata Technologies, Inc. and Paul S.
Vasington (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed
on February 4, 2014).†‡
Share Repurchase Agreement, dated as of May 19, 2014, between Sensata Technologies Holding N.V. and
Sensata Investment Company S.C.A. (incorporated by reference to Exhibit 10.1 of the Registrant's Current
Report on Form 8-K filed on May 20, 2014).
Stock Purchase Agreement, dated as of July 3, 2014, by and among Sensata Technologies Minnesota, Inc.,
CoActive Holdings, LLC, and CoActive US Holdings, Inc. (incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K filed on July 7, 2014).
Share Purchase Agreement, dated as of August 15, 2014, by and among Sensata Technologies B.V., Sensata
Technologies Holding N.V., and Schrader International, Inc. (incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K filed on August 18, 2014).
Amendment No. 3 to Credit Agreement dated as of October 14, 2014, to the Credit Agreement dated as of
May 12, 2011, by and among Sensata Technologies B.V., Sensata Technologies Finance Company LLC,
Sensata Technologies Intermediate Holding B.V., the subsidiary guarantors party thereto, Barclays Bank
PLC and the other lenders party thereto, and Morgan Stanley Senior Funding, Inc. (incorporated by
reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed on October 17, 2014).
Amendment No. 4 to Credit Agreement, dated as of November 4, 2014, to the Credit Agreement, dated as
of May 12, 2011, by and among Sensata Technologies B.V., Sensata Technologies Finance Company, LLC,
Sensata Technologies Intermediate Holding B.V., the subsidiary guarantors party thereto, Morgan Stanley
Senior Funding, Inc. and the other lenders party thereto (incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K filed on November 10, 2014).
Amendment No. 5 to Credit Agreement, dated as of March 26, 2015, to the Credit Agreement dated as of
May 12, 2011, by and among Sensata Technologies B.V., Sensata Technologies Finance Company, LLC,
Sensata Technologies Intermediate Holding B.V., the subsidiary guarantors party thereto, Morgan Stanley
Senior Funding, Inc. and the other lenders party thereto (incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K filed on April 1, 2015).
Amendment No. 6 to Credit Agreement dated as of May 11, 2015, to the Credit Agreement dated as of May
12, 2011, by and among Sensata Technologies B.V., Sensata Technologies Finance Company, LLC, Sensata
Technologies Intermediate Holding B.V., Morgan Stanley Senior Funding, Inc. and Barclays Bank PLC as
joint lead arrangers and bookrunners, Morgan Stanley Senior Funding, Inc. as administrative agent on
behalf of the lenders party to the Credit Agreement, and the lenders party thereto (incorporated by reference
to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed on May 14, 2015).
10.33
Stock and Asset Purchase Agreement, dated as of July 30, 2015, by and among Sensata Technologies
Holding N.V., Custom Sensors &Technologies Ltd., Crouzet Automatismes S.A.S. and Custom Sensors &
Technologies (Huizhou) Limited (incorporated by reference to Exhibit 2.1 of the Registrant's Current
Report on Form 8-K filed on August 5, 2015).
137
10.34
10.35
10.36
10.37
21.1
23.1
31.1
31.2
32.1
101
Amendment No. 7 to Credit Agreement, dated as of September 29, 2015, to the Credit Agreement, dated as
of May 12, 2011, by and among Sensata Technologies B.V., Sensata Technologies Finance Company, LLC,
Sensata Technologies Intermediate Holding B.V., the subsidiary guarantors party thereto, Morgan Stanley
Senior Funding, Inc. and the other lenders party thereto (incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K filed on October 2, 2015).
Employment Agreement, dated February 26, 2016, between Sensata Technologies, Inc. and Allisha Elliott
(incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed on March
3, 2016).†
Form of modified Award Agreement for Performance Restricted Stock Units (incorporated by reference to
Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q filed on April 26, 2016).†
Form of modified Award Agreement for Restricted Stock Units (incorporated by reference to Exhibit 10.3
of the Registrant's Quarterly Report on Form 10-Q filed on April 26, 2016).†
Subsidiaries of Sensata Technologies Holding N.V.*
Consent of Ernst & Young LLP.*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
The following materials from Sensata's Annual Report on Form 10-K for the year ended December 31,
2016, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Statements of
Operations for the years ended December 31, 2016, 2015, and 2014, (ii) Consolidated Statements of
Comprehensive Income for the years ended December 31, 2016, 2015, and 2014, (iii) Consolidated
Balance Sheets at December 31, 2016 and 2015, (iv) Consolidated Statements of Changes in Shareholders’
Equity for the years ended December 31, 2016, 2015, and 2014, (v) Consolidated Statements of Cash
Flows for the years ended December 31, 2016, 2015, and 2014, (vi) the Notes to Consolidated Financial
Statements, (vii) Schedule I — Condensed Financial Information of the Registrant and (viii) Schedule II —
Valuation and Qualifying Accounts.
____________________
* Filed herewith.
†
‡ There have been non-material modifications to this contract since inception
Indicates management contract or compensatory plan, contract or arrangement.
138
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
SENSATA TECHNOLOGIES HOLDING N.V.
By:
Its:
/s/ MARTHA SULLIVAN
Martha Sullivan
President and Chief Executive Officer
Date: February 2, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
President, Chief Executive Officer, and Director
(Principal Executive Officer)
DATE
February 2, 2017
/S/ MARTHA SULLIVAN
Martha Sullivan
/S/ PAUL VASINGTON
Paul Vasington
/S/ PAUL EDGERLEY
Paul Edgerley
/S/ BEDA BOLZENIUS
Beda Bolzenius
/S/ JAMES HEPPELMANN
James Heppelmann
/S/ MICHAEL JACOBSON
Michael Jacobson
/S/ CHARLES PEFFER
Charles Peffer
/S/ KIRK POND
Kirk Pond
/S/ ANDREW TEICH
Andrew Teich
/S/ THOMAS WROE
Thomas Wroe
/S/ STEPHEN ZIDE
Stephen Zide
Executive Vice President and Chief Financial
Officer (Principal Financial Officer and Principal
Accounting Officer)
February 2, 2017
Chairman of the Board of Directors
February 2, 2017
Director
Director
Director
Director
Director
Director
Director
Director
February 2, 2017
February 2, 2017
February 2, 2017
February 2, 2017
February 2, 2017
February 2, 2017
February 2, 2017
February 2, 2017
/S/ MARTHA SULLIVAN
Authorized Representative in the United States
February 2, 2017
Martha Sullivan
139
Corporate Information
MANAGEMENT TEAM
BOARD OF DIRECTORS
STOCKHOLDER INFORMATION
Martha Sullivan
President and Chief Executive Officer
Jeffrey Cote
Executive Vice President,
Sensing Solutions and
Chief Operating Officer
Paul Vasington
Executive Vice President and
Chief Financial Officer
Steve Beringhause
Executive Vice President,
Performance Sensing and
Chief Technology Officer
Allisha Elliott
Senior Vice President,
Chief Human Resources Officer
Vineet Nargolwala
Senior Vice President,
Performance Sensing,
Auto North America, Japan and Korea
Paul Chawla
Senior Vice President,
Performance Sensing, Auto Europe
Hans Lidforss
Senior Vice President,
Strategy and M&A
Charles Kirol
Senior Vice President,
Global Operations
Steven Reynolds
Vice President,
General Counsel
Rob Stefanic
Vice President,
Chief Information Officer
Paul Edgerley 3,4
Chairman of the Board
Sensata Technologies
Senior Advisor
Bain Capital
Managing Director
VantEdge Partners
Martha Sullivan
President and Chief Executive Officer
Sensata Technologies
Beda Bolzenius 1
Retired Vice President and Vice
Chairman, Asia Pacific and President,
Automotive Experience
Johnson Controls International
James E. Heppelmann 2,3
President and Chief Executive Officer
PTC, Inc.
Michael J. Jacobson 1
Director and President
PGE Management, Inc. and Jacobson
Group, Inc.
Charles W. Peffer 1,4
Retired Partner
KPMG LLP
Kirk P. Pond 2,4
Retired President, Chief Executive
Officer, Chairman
Fairchild Semiconductor International
Andrew C. Teich 2,3
President and Chief Executive Officer
FLIR Systems
Thomas Wroe
Chairman of the Board
Apex Tool Group
Stephen Zide 3
Senior Advisor
Bain Capital
1 Member of the Audit Committee
2 Member of the Compensation Committee
3 Member of the Finance Committee
4 Member of the Nominating and Governance Committee
Corporate Headquarters
Jan Tinbergenstraat 80
7559 SP Hengelo
The Netherlands
Telephone: 31-74-357-8000
U.S. Headquarters
529 Pleasant Street
Attleboro, MA 02703
Telephone: 508-236-3800
Web: www.sensata.com
Investor Relations
Sensata Technologies
529 Pleasant Street
Attleboro, MA 02703
Email: Joshua.young@sensata.com
Independent Auditors
Ernst & Young LLP
Boston, Massachusetts
Legal Counsel
Nixon Peabody
Boston, Massachusetts
Loyens & Loeff N.V.
Amsterdam, Netherlands
Stock Listing
Sensata Technologies
Common stock is traded on the NYSE
under symbol “ST”
Transfer Agent
American Stock Transfer &
Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Attn: Shareholder Services
Telephone: 800-937-5449
Fax: 718-236-2641
Web: www.astfinancial.com
The 2016 Annual Report, Form 10-K
and other investor information
can be viewed online at Sensata
Technologies’ website:
www.sensata.com
sensata.com
The World Depends on Sensors and Controls
CORPORATE HEADQUARTERS
Sensata Technologies
Jan Tinbergenstraat 80
7559 SP Hengelo
The Netherlands
Telephone: 31-74-357-8000
U.S. HEADQUARTERS
Sensata Technologies
529 Pleasant Street
Attleboro, MA 02703
Telephone: 508-236-3800