sensata.com
Helping our customers and partners safely deliver a cleaner,
more efficient, electrified and connected world.
CORPORATE HEADQUARTERS
Interface House, Interface Business Park
Bincknoll Lane
Royal Wootton Bassett
Swindon, Wiltshire SN4 8SY
United Kingdom
U.S. HEADQUARTERS
Sensata Technologies
529 Pleasant Street
Attleboro, MA 02703
Telephone: +1-508-236-3800
2022 ANNUAL REPORT
Driving value in a world increasingly
dependent on sensors
Sensata is a global industrial technology company with extensive experience
in mission-critical design and sensor-rich solutions that address increasingly
complex engineering and operating performance requirements for
our customers.
Letter to our Shareholders
2022 was a year of tremendous transformation
at Sensata: Team Sensata delivered record
revenue, closed more than $1 billion in new
business wins and substantially reduced
greenhouse gas emissions intensity,
reaffirming once more our ESG commitment.
The year was not without its challenges. Global
market uncertainty, prolonged supply chain
disruptions and cost increases for labor and
materials pressured our operating profit, but
through it all, we remained focused on our
purpose: to help customers and partners safely
deliver a cleaner, more efficient, electrified, and
connected world.
2022 FINANCIAL RESULTS
In 2022, Sensata reported a record $4.03
billion in revenue, a 5.5% increase from
2021, despite worsening foreign exchange
headwinds. We worked closely with
customers to deliver mission-critical
sensors while offsetting rising inflationary
cost pressures through pricing actions. We
generated 820 basis points of outgrowth
across the Company compared to our end
NET REVENUE
$4,029M
$3,821M
$3,046M
2020
2021
2022
markets – well above our Company-wide
long-term outgrowth target of 400–600 basis
points for the third consecutive year.
Reflecting higher material costs and adverse
foreign exchange rates, in addition to increased
investment in our growth vectors, adjusted
earnings per share fell to $3.40 in 2022.
Adjusted operating income margins improved
sequentially throughout the year, reaching
20.1% in Q4, but ultimately ended the full year
lower by 180 basis points as compared to 2021.
Free cash flow generation was $311 million and
adjusted EBITDA was steady at $904 million,
while our net leverage ratio was 3.4x at year-
end 2022.
Our strong financial position sustained
capital returns to shareholders in 2022;
we repurchased 6.3 million shares at
a cumulative value of $292.3 million
and paid dividends of $51.1 million.
NEXT STAGE OF OUR STRATEGIC BLUEPRINT:
UNLOCKING THE PROMISE OF OUR FUTURE
Three years ago, when it became increasingly
clear that our world was quickly becoming
more electrified and more connected, we
embarked on an aggressive strategic pivot to
build capabilities to help our customers and
partners solve their most difficult engineering
challenges in support of these megatrends.
We invested aggressively to intersect these
transformational opportunities – through both
organic innovation and strategic acquisitions,
we constructed the necessary building blocks
to create the best solutions for our customers.
The robust commercial success that we see
today stems from our vision to deepen these
capabilities over the past few years. We are
now operating from a position of strength
and are ready to deliver on the promise of
our future.
As a result of our progress on strategic
repositioning, we are realigning our capital
allocation priorities from M&A to organic
growth and development, improving financial
returns and deleveraging.
ELECTRIFICATION GROWTH INITIATIVE
Electrification applications across our business
grew significantly in 2022, responding to
customer and consumer demands for greater
efficiency and a cleaner environment. In 2022,
we generated $460 million in Electrification
revenue, up 77% from the prior year.
Our success in winning new business in
Electrification – more than $700 million in
2022 – validates this key pillar of our growth
strategy. The continued growth of electric
vehicles is a significant opportunity for us, and
we expect Sensata’s content per vehicle on EVs
to be double that of current combustion engine
vehicles by 2026. But we see the Electrification
ecosystem as a much broader opportunity.
With the acquisition of Dynapower, a leading
provider of clean energy solutions, we aim
to not only be the provider of choice for
Electrification components across our markets
but a trusted partner for energy storage
systems and industrial power conversion.
We are confident that these combined areas
of Electrification could represent $2 billion in
revenue for Sensata by 2026.
2022 REVENUE BY END MARKET
52%
AUTO
23%
4%
21%
HEAVY VEHICLE &
OFF-ROAD (HVOR)
AEROSPACE
INDUSTRIAL
& OTHER
INSIGHTS GROWTH INITIATIVE
Our Insights growth initiative made important
strides in 2022 as we expanded our solutions
in the strategic verticals we serve, including
transportation, logistics and related markets.
In 2022, Insights generated $175 million in
revenue, up $100 million from 2021, and we
expect revenues to rise 20% annually going
forward, due to our expanded solution sets,
new business wins, and a strong pipeline
of opportunities. Our legacy of sensor-rich
solutions establishes us as a natural leader in
this growth area, for fleet operators and others
who seek to manage their businesses more
safely and efficiently.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE
(ESG)
Environmental, Social and Governance (ESG)
objectives are central to our Vision, our
Purpose and overall business strategy. Our
Electrification and Insights initiatives enable
our customers to do their part in slowing
climate change. Here at Sensata, we are doing
our own part as well.
In 2022, we lowered greenhouse gas emissions
intensity by more than 10% through concrete
actions worldwide, hitting our 2026 goal four
years ahead of schedule. Late in 2022, Sensata
was recognized on Newsweek’s America’s Most
Responsible Companies 2023 list, an accolade
to our ESG efforts and progress. We remain
committed to diversity, equity and inclusion.
We continue to update our human resources
programs and workplace policies to attract,
develop and retain the array of talent, voices
and perspectives on our team that drives
innovation to our customers.
SENSATA TECHNOLOGIES FOUNDATION
The Sensata Technologies Foundation helps realize our commitment
to the communities in which we operate. From its founding in 2017,
the Foundation has provided financial assistance to nonprofits that
promote STEM education for youth, support local community issues,
and align with employee interests. Sensata Technologies provides
most of the Foundation’s funding, along with contributions from
employees, including all of Sensata’s Strategy Leadership Team.
As our communities emerged from COVID-related restrictions, so
did our employee volunteers, and in 2022, ~40% of Sensata’s U.S.
employees dedicated more than 5,300 hours to volunteer with
numerous nonprofit organizations. The Sensata Foundation granted
$350,000 to 36 separate organizations to be distributed in 2023. In the
U.S., nearly 600 Sensata employees spent a day of service on May 9th
at 26 nonprofits. Despite the challenges in our world, Team Sensata’s
engagement made 2022 another successful year for the Foundation,
the Company, and the communities where we live and work.
LOOKING AHEAD
Our overall end markets are expected to
remain volatile in 2023, but our compelling
solutions portfolio, customer intimacy,
demonstrated agility and success in
winning new business will help us offset
coming challenges.
We remain committed to annually delivering
400–600 basis points of end market outgrowth,
and we expect our adjusted operating margin
to improve during the year towards our target
of 21%. Finally, we aim to reduce our net
leverage ratio to 3.0x by the end of 2023, on
our way to a longer-term target of 1.5-2.5x.
My first thanks for the year's success goes
to our employees. The past few years have
challenged us in ways we could never have
imagined. Our results this year, and more
importantly our future promise, are a testament
to your resilience and commitment to each
other and our customers.
I also want to thank our customers, our
shareholders, our Board members, and our
business partners for your support this year
and every year. Never forget that together
we are making our world safer, cleaner, and
greener for generations to come.
Jeffrey J. Cote
CHIEF EXECUTIVE OFFICER AND PRESIDENT
☒
☐
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, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
__________________________________________________________________________________________________________________________
SENSATA TECHNOLOGIES HOLDING PLC
Commission File Number 001-34652
(Exact name of registrant as specified in its charter)
__________________________________________________________________________________________________________________________
England and Wales
(State or other jurisdiction of incorporation or organization)
98-1386780
(I.R.S. Employer Identification No.)
529 Pleasant Street, Attleboro, Massachusetts, 02703, United States
(Address of principal executive offices, including zip code))
+1 (508) 236 3800
(Registrant's telephone number, including area code)
__________________________________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of exchange on which registered
Ordinary Shares - nominal value €0.01 per share
ST
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 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 every Interactive Data File required to be submitted 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 such
files). Yes ☒ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
o
Accelerated filer
Smaller reporting company
Emerging growth company
o
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒
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, 2022 was approximately $6.4 billion based on the New York
Stock Exchange closing price for such shares on that date.
As of January 27, 2023, 152,490,853 ordinary shares were outstanding.
Part III of this Report incorporates information from certain portions of the registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days of the registrant's fiscal year ended December 31, 2022.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
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 Accounting Fees and Services
Item 15.
Exhibits, Financial Statement Schedules
Signatures
4
4
17
29
30
30
31
31
31
32
33
58
61
122
122
125
125
125
125
125
125
125
125
126
126
131
Cautionary Statements Concerning Forward-Looking Statements
This Annual Report on Form 10-K (this "Report") includes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. 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," "potential," "opportunity," "guidance," and similar terms or phrases. Forward-looking statements involve, among other
things, expectations, projections, and assumptions about future financial and operating results, objectives, business and market
outlook, megatrends, priorities, growth, shareholder value, capital expenditures, cash flows, demand for products and services,
share repurchases, and Sensata’s strategic initiatives, including those relating to acquisitions and dispositions and the impact of
such transactions on our strategic and operational plans and financial results. These statements are subject to risks,
uncertainties, and other important factors relating to our operations and business environment, and we can give no assurances
that these forward-looking statements will prove to be correct.
A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either
expressed or implied by these forward-looking statements, including, but not limited to, risks related to public health crises,
instability and changes in the global markets, supplier interruption or non-performance, the acquisition or disposition of
businesses, adverse conditions or competition in the industries upon which we are dependent, intellectual property, product
liability, warranty, and recall claims, market acceptance of new product introductions and product innovations, labor
disruptions or increased labor costs, and changes in existing environmental or safety laws, regulations, and programs.
Investors and others should carefully consider the foregoing factors and other uncertainties, risks, and potential events
including, but not limited to, those described in Item 1A: Risk Factors included elsewhere in this Report and as may be updated
from time to time in Item 1A: Risk Factors included in our quarterly reports on Form 10-Q or other subsequent filings with the
United States ("U.S.") Securities and Exchange Commission (the "SEC"). All such forward-looking statements speak only as of
the date they are made, and we do not undertake any obligation to update these statements other than as required by law.
3
ITEM 1. BUSINESS
The Company
PART I
The reporting company is Sensata Technologies Holding plc, a public limited company incorporated under the laws of England
and Wales, and its consolidated subsidiaries, collectively referred to as the "Company," "Sensata," "we," "our," and "us." We
are a global industrial technology company that strives to create a safer, cleaner, and more efficient, electrified, and connected
world. We develop, manufacture, and sell sensors and sensor-rich solutions, electrical protection components and systems, and
other products used in mission-critical systems and applications that create valuable business insights for our customers and end
users. For more than 100 years, we have been providing a wide range of customized solutions that address increasingly
complex engineering and operating performance requirements to help our customers solve their most difficult challenges. We
serve customers in the automotive, heavy vehicle and off-road ("HVOR"), fleet management, industrial, clean energy, and
aerospace industries. We present financial information for two reportable segments, Performance Sensing and Sensing
Solutions.
Our sensors are used by our customers to translate a physical parameter, such as pressure, temperature, position, or location of
an object, into electronic signals that our customers’ products and solutions can act upon. Our electrical protection portfolio
(which includes both components and systems) is comprised of various switches, fuses, battery management systems, inverters,
energy storage systems, high-voltage distribution units, controllers, and software, and includes high-voltage contactors and
other products embedded within systems to maximize their efficiency and performance and ensure safety. Other products and
services we provide include vehicle area networks and data collection devices and software, battery storage systems, and power
conversion systems, the latter of which include inverters, converters, and rectifiers for renewable energy generation, green
hydrogen production, electric vehicle charging stations, and microgrid applications, as well as industrial and defense
applications.
Original equipment manufacturers ("OEMs") are facing ever-increasing mandates, due to regulation and consumer demand, to
make their products safer, cleaner, and more efficient, electrified, and connected. Our products and solutions are being used by
our customers in applications to address these demands, including those that help: industrial customers introduce new energy-
efficient and environmentally friendly motors, compressors, and heating, ventilation and air conditioning ("HVAC") systems;
transportation customers to meet the standards of emissions and pollution-control legislation; and fleet managers to proactively
monitor the location and performance of their vehicles and to operate more efficiently. We consider these capabilities to be core
to our historical success and will continue to be significant drivers of market outgrowth in the future. We use the term "market
outgrowth" to describe the impact of an increasing quantity and value of our products used in customer systems and
applications above external market growth. It is only loosely correlated to normal unit demand fluctuations in the markets we
serve.
We have long-standing relationships with a geographically-diverse base of leading OEMs and other multinational companies.
In certain geographic and product markets, where it is more effective and efficient for us and our customers, we use third-party
distributors to sell our products. We have had relationships with our top ten customers for an average of 27 years. Our largest
customer accounted for approximately 6% of our net revenue for the year ended December 31, 2022.
Business Strategy
Our business strategy involves leveraging certain material growth drivers to deliver products used in mission-critical systems
and applications that create valuable business insights for our customers and end users. These growth drivers include (1) the
overarching trend related to our core historical business that enables vehicles, industrial equipment, aircraft, and other systems
to be safer and more energy-efficient (a trend which we refer to as “Safe & Efficient”) and (2) certain new and emerging
technology trends that complement or enhance our existing product offerings (which we refer to as “megatrends”). These
megatrends, which are described more fully under the heading Growth Drivers included elsewhere in this Item 1: Business, are
significantly transforming the industries in which we operate and are creating greater secular demand for our current and new
innovative products, resulting in growth that exceeds end market production growth in many of the markets we serve, a
defining characteristic of our company.
We believe the medium- to long-term outlook for internal combustion engine powertrains and industrial equipment will evolve
with, and be impacted by, Electrification and other adjacent technologies. Accordingly, we are focusing on expanding our
market share on electrified platforms, including sensors, electrical protection components and systems, and battery-energy
management systems as full solutions. Many of the components and subsystems we have historically developed and produced
will play a significant role in this expansion, but we have and will continue to consider strategic partnerships and acquisitions to
4
accelerate the growth and transformation of our product portfolio. By entering such relationships, we obtain access to new
technologies, expertise, processes, and solutions, which we can leverage with our existing expertise to optimize and expand our
product portfolio.
We are seeking to expand our business and accelerate market share in other areas that we believe will experience high growth in
the future, such as the deployment of Internet of Things (“IoT”) solutions for light- through heavy-duty vehicles, particularly in
fleets. This is driven by the need for smarter and more connected sensors and equipment that collect, analyze, and provide
insights into the operations of light- through heavy-duty vehicles to improve its operations, making it more productive and
efficient. Within IoT, our principal area of focus is the Sensata INSIGHTS business, in which we deliver data insights across
heavy, medium, and light vehicle fleets. Our data-driven insight, connectivity, and prognostics provide solutions that increase
overall productivity and operational efficiency.
The table below sets forth the amount of net revenue generated by our end markets, reconciled to total net revenue, for the years
ended December 31, 2022, 2021, and 2020:
(In thousands)
Net revenue:
Automotive
HVOR
Industrial, HVAC, and other
Aerospace
Total net revenue (1)
For the year ended December 31,
2021
2022
2020
$
$
2,107,651 $ 2,062,407 $ 1,751,370
508,061
829,852
649,980
793,812
136,167
134,735
4,029,262 $ 3,820,806 $ 3,045,578
904,877
863,854
152,880
__________________________
(1) Total revenue for the years ended December 31, 2022, 2021, and 2020 includes approximately $460 million, $261 million,
and $165 million, respectively, of revenue related to the Electrification megatrend, portions of which are derived in each of
the industries presented above.
Our strategies of leveraging core technology platforms and focusing on high-volume applications enable us to provide our
customers with highly customized products at a relatively low cost compared to the systems in which our products are
embedded. We have achieved our current cost position through a continual process of migration and transformation to best-cost
manufacturing locations, global best-cost sourcing, product design improvements, and ongoing productivity-enhancing
initiatives.
Growth drivers
Significant drivers of growth in our business, which are expected to significantly impact our customers and business strategy,
include the Electrification and Insights/IoT megatrends, as well as the Safe & Efficient growth trend, each described in more
detail below.
Electrification megatrend
Our objective with the Electrification megatrend initiative is to become a leading and foundational player in electrification
components and sub-systems across broad industrial, transportation, aerospace, and stationary infrastructure recharging and
energy storage end markets and to be a comprehensive solutions provider in select end market segments. These components and
solutions will support a future that is more environmentally sustainable and efficient and include (1) clean energy transportation
components for electric vehicles, charging stations, and chargers and (2) mission-critical high-voltage components and
subsystems combined into high-value energy management or energy storage solutions. Throughout this Report, we use the term
“electric vehicles” holistically to reference plug-in hybrid and battery-electric vehicles of all kinds, unless otherwise specified.
The Electrification megatrend initiative provides a significant opportunity for us to expand our market share on electrified
platforms, including sensors, electrical protection components and systems, and battery-energy power conversion and storage
systems as full solutions within all of our end markets in the automotive, HVOR, industrial, material handling, and aerospace
industries.
Our transportation addressable markets (automotive and HVOR) are large today and growing, with expectations that they will
continue to grow over the next ten years. In addition to transportation applications, manufacturers of material handling
equipment, marine vessels, aircraft, and industrial systems are also addressing ever-tightening greenhouse gas emissions
regulations and taking advantage of falling battery costs and increasing energy capacities of lithium-ion battery cells to provide
electrified solutions to their customers.
5
Because of the prevalence of internal combustion engine vehicles today, applications in these vehicles make up most of our
current transportation addressable markets. As the demand and production of electric vehicles increase in the coming years, we
expect our automotive revenue mix to shift more towards electric vehicles. Our average U.S. dollar content in an electric
vehicle is expected to expand over the next several years to approximately two times the content that we currently realize on
average for internal combustion vehicles, resulting from the broad array of sensors and other components designed into electric
vehicles.
We provide many of our innovative and differentiated components, such as those used in braking, tires, and environmental
control, from traditional internal combustion engine vehicles for use in electric vehicle applications. Specific to electric
vehicles, we also provide and are developing several components that enable the safe and efficient operation of electrified
platforms, such as high-voltage electrical protection, advanced temperature and thermal management sensing, highly-sensitive
electric motor position, and next-generation current sensing. Thanks to products and services we have added via acquisition, we
have expanded our capabilities and reach to provide our customers with not only components but also either the subsystem of
assembled components to manage battery charging in the form of a power distribution unit for renewable energy systems and
applications or, in certain specialty transportation markets like marine, the full energy storage system, including battery
management and a customized battery pack.
Within Electrification, we address the needs of the charging infrastructure necessary to support the electrification ecosystem. In
addition, we see opportunities in industrial and grid applications, some of which are nascent today. Sensata is a leading provider
of high-voltage electrical protection on electric vehicles and charging infrastructure and we seek to be the partner of choice for
HVOR, industrial, marine, and aerospace OEMs transitioning to electrified solutions. We also intend to participate in other
areas of the evolving market that enable electrification to become more widespread.
To better pursue clean energy components and system opportunities, in fiscal year 2021, we organized a new business unit in
our Sensing Solutions reportable segment, Clean Energy Solutions, which includes products and solutions such as high-voltage
contactors, inverters, rectifiers, and battery management systems, that serve the industrial, stationary, and commercial energy
conversion and storage end markets. With the fiscal year 2021 acquisitions of Spear Power Systems ("Spear") and Sendyne
Corp. ("Sendyne"), we expanded our portfolio to include energy storage systems and electrical sensing products, augmenting
our offerings to our existing end markets as well as providing access to new end markets and applications. In addition, our
fiscal year 2022 acquisition of Dynapower is a foundational addition to our Clean Energy Solutions strategy. Refer to the
discussion under the heading Business Combinations below and in Note 21: Acquisitions and Divestitures of our audited
consolidated financial statements and accompanying notes thereto (the "Financial Statements") included elsewhere in this
Report for additional discussion of this acquisition.
Insights/IoT megatrend
Our objective within the Insights/IoT megatrend initiative is to become a leader in delivering data-driven insight, connectivity,
and prognostics to commercial fleet operators and asset managers, by providing solutions that increase overall operational
productivity and efficiency for these customers. The Insights/IoT megatrend initiative addresses a large and fast-growing
market opportunity to deliver data insights across heavy, medium, and light vehicle fleets, which require data on the location
and operation of their assets to monitor equipment health, lower maintenance costs, optimize operations, and improve safety
and performance.
Leveraging Sensata’s long history and expertise in sensor development, Sensata INSIGHTS’ portfolio includes a full-stack
offering of sensors, cameras, vehicle area networks, telematics gateways, cloud solutions, and data services. We collect data
from cameras and wireless sensors measuring information such as video telematics, tire pressure, cargo capacity, and a variety
of other sensing parameters, along with related vehicle system information. We then communicate this valuable data from our
telematics and video telematics devices to the cloud via Application Programming Interfaces for integration into our customers’
enterprise systems. Through cloud-based mobile applications and web portals, this data delivers actionable insight to drivers,
maintenance workers, and back-office personnel – allowing participants in the ecosystem to proactively monitor the health of
their vehicles, conduct proactive maintenance, optimize fleet operations, and enhance driver safety. As an independent third-
party technology provider, we serve multiple channels to market, including partnering with telematics service providers,
resellers and carriers, and serving fleet operators directly.
With the fiscal year 2021 acquisitions of Xirgo Technologies, LLC and SmartWitness Holdings, Inc. ("SmartWitness"), we
expanded our capabilities to provide data insights to transportation and logistics customers through telematics, video telematics,
asset tracking devices, and other cloud-based solutions. In addition, the fiscal year 2022 acquisition of Elastic M2M, Inc.
("Elastic M2M") augments our cloud capabilities critical to delivering actionable sensor-based insights, an increasingly
important capability in this fast-growing industry segment. Refer to the discussion under the heading Business Combinations
6
below and in Note 21: Acquisitions and Divestitures of our Financial Statements included elsewhere in this Report for
additional discussion of the acquisition of Elastic M2M.
Safe & Efficient
Due to global regulation and societal forces, our customers are facing increasing mandates to make higher-performance
products that are more reliable, safe, and efficient. Many customers are shifting their designs to meet these evolving
requirements. We will continue to design and manufacture products and solutions for mission-critical, hard-to-do applications
that enable our customers to protect the environment and improve quality of life. Examples of applications that fall within this
trend include next-generation powertrains, tire pressure monitoring systems ("TPMS”), safety and environmental systems,
operator sensing systems, and HVAC variable speed, flow, and air systems.
For example, responding to tightening legislation requirements and proliferating content, we enable vehicle OEMs to improve
combustion, reduce tailpipe emissions, and increase fuel economy in both traditional and hybrid vehicles with a combination of
sensors, such as pressure, high-temperature, and speed, in next-generation powertrains. In addition, tightening HVOR emissions
regulations in the United States, Europe, and China have resulted in increased sensor content in engines and after-treatment.
Our differentiated operator controls and systems improve operator productivity and enable simplified, improved, and safer
operation, even in harsh conditions. Our TPMS is used in automotive and HVOR OEMs and fleets to eliminate downtime,
reduce operating costs, improve fuel efficiency, and create safer driving conditions. Also, HVAC variable systems are the
preferred method to meet stringent energy efficiency and environmental regulations. Our pressure and temperature sensors are
critical to optimize these systems and enable them to achieve higher levels of efficiency.
Business Combinations
We completed two notable acquisitions in fiscal year 2022, summarized in the table below:
(In millions)
Acquisition
Elastic M2M (1)
Dynapower (1)
Date
February 11, 2022
July 12, 2022
Segment
Performance
Sensing
X
Sensing
Solutions
X
Purchase Price
$
$
51.6
577.5
__________________________
(1)
Purchase price accounting is preliminary.
Elastic M2M
On February 11, 2022, we acquired all of the equity interests of Elastic M2M, an innovator of connected intelligence for
operational assets across heavy-duty transport, warehouse, supply chain and logistics, industrial, light-duty passenger car, and a
variety of other industry segments. Elastic M2M primarily serves telematics service providers and resellers, enabling them to
leverage Elastic M2M’s cloud platform and analytics capabilities to deliver sensor-based operational insights to their end users.
This acquisition augments our cloud capabilities critical to delivering actionable sensor-based insights, an increasingly
important capability in this fast-growing industry segment.
Dynapower
On July 12, 2022, we completed the acquisition of all of the outstanding equity interests of DP Acquisition Corp
("Dynapower"), a leader in power conversion systems, including inverters, converters, and rectifiers for renewable energy
generation, green hydrogen production, electric vehicle charging stations, and microgrid applications, as well as industrial and
defense applications. Dynapower also provides aftermarket sales and service to maintain its equipment in the field. Dynapower
is a foundational addition to our Clean Energy Solutions strategy and will complement our recent acquisitions of GIGAVAC,
Lithium Balance, Sendyne, and Spear.
Refer to Note 21: Acquisitions and Divestitures of our Financial Statements included elsewhere in this Report for additional
information related to our acquisitions.
Performance Sensing
The Performance Sensing reportable segment, which accounted for approximately 74% of our net revenue in fiscal year 2022,
represents an aggregation of two operating segments, Automotive and HVOR. It primarily serves the Automotive and HVOR
industries through the development and manufacture of sensors, high-voltage solutions (i.e., electrical protection components),
and other solutions that are used in mission-critical systems and applications. Examples include those used in subsystems of
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automobiles, on-road trucks, and off-road equipment, such as tire pressure monitoring, thermal management, electrical
protection, regenerative braking, powertrain (engine/transmission), exhaust management, and operator controls. Our products
are used in subsystems that, among other things, improve operating performance and efficiency, contribute to environmentally
sustainable and safe solutions, and provide data-driven insight, connectivity, and prognostics to commercial fleet operators and
asset managers.
For fleet transportation and logistics customers and end users, we provide hardware and services that enable a variety of end-
use applications, including vehicle tracking and on-board vehicle diagnostic data to monitor vehicle health; the provision of
vehicle data to enable usage-based insurance offerings; cargo capacity data for trailers that increase the operational efficiency of
fleets; video telematics offerings that provide event analysis and in-cab monitoring to prevent and lower the cost of incidents;
and visibility to where assets are located across the supply chain.
Customers
Our customers include leading global automotive, on-road truck, construction, and agriculture OEMs, the companies that
supply parts directly to these OEMs, known as Tier 1 suppliers, various aftermarket distributors, fleet transportation, and
logistics customers. We believe large OEMs and other multinational companies are increasingly demanding a global presence
to supply sensors and electrical protection components for their key platforms worldwide. As our customers develop common
global electrified platforms to drive scale and efficiency across their global markets, we are well-positioned to serve them with
our global manufacturing and technical centers. We also see the growing importance of new ‘startup’ OEMs as market
disruptors, and Sensata’s flexibility, speed, expertise, and global footprint provide these new entrants with a supplier/partner
capable of meeting their demanding requirements. Fleet transportation and logistics customers demand data-driven insight,
connectivity, and prognostics to increase productivity and operational efficiency. We provide all our customers with a
worldwide technical, manufacturing presence and service support to enable their success globally.
Markets
The global sensor market is characterized by a broad range of products and applications across a diverse set of market
segments. According to third-party data, the global automotive sensor market was $24.4 billion in 2022, compared to $21.3
billion in 2021.
The markets we serve are seeking to provide cleaner, safer, more electrified, and connected solutions. Our solutions are present
in a wide variety of transportation systems and subsystems, playing a critical role in ensuring the functionality and safety of a
vehicle’s operation. Within the combustion and electrified propulsion architecture, we provide various sensor solutions (e.g.,
electric motor position, gasoline direct injection, oil pressure monitoring, fuel delivery, and various others) that enable superior
functionality, efficiency, and optimized performance while reducing environmental impact. As electrification proliferates, the
ability to protect the vehicle systems/sub-systems from high-voltage power sources becomes critical, a need that our electrical
protection portfolio (e.g., high-voltage contactors, fuses, high-voltage junction boxes) addresses. Our chassis (e.g., tire
management solutions), thermal management (e.g., pressure plus temperature sensing), and safety (e.g., braking and electronic
stability control) sensor/product solutions all play critical roles in enabling the safety, improved performance, and increased
efficiency and range of both electrified vehicles and internal combustion engine powertrains.
Applications we serve require close engineering collaboration between us and the OEM or their Tier 1 suppliers. Solutions are
designed to meet application-specific requirements with customer-specific fit, form, and function. As a result, OEMs and Tier 1
suppliers make significant investments in selecting, integrating, and testing sensors as part of their product development. Once
our solutions are designed into an application, we are well positioned as the incumbent supplier due to the high degree of sensor
customization and application/vehicle platform certification. This results in high switching costs for automotive and HVOR
manufacturers once a sensor is designed into a particular system or platform. We believe this is one of the reasons that sensors
are rarely changed during a platform life cycle, which in the case of the automotive industry typically lasts four to six years.
OEMs and Tier 1 suppliers seek to partner with suppliers with a proven record of quality, on-time delivery, and performance, as
well as the engineering and manufacturing scale/resources to meet their needs over the multi-year lifecycle of these highly
engineered vehicles and systems. As electrified transportation platforms continue to evolve and grow, we expect OEM and Tier
1 suppliers to continue to require sensing partners that can continue to meet their increasing needs for mission-critical sensors
and solutions, enabling their global vehicle strategies. We continue to drive investments in innovative technologies,
competencies, and solutions to enable our customers' success as they pivot toward an electrified world. Transportation
industries provide some of the largest markets for sensors, giving participants with a presence in these markets significant scale
advantages over those participating only in smaller, more niche industrial and medical markets.
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Market Trends
We believe that net revenue growth from the automotive and HVOR sensor markets served by Performance Sensing has
historically been driven by three principal trends, including (1) growth in the number of vehicles produced globally, (2)
expansion in the number and type of sensors per vehicle, and (3) efforts toward commercializing higher value sensors. In
addition, we believe that the automotive and HVOR sensor markets are, and will continue to be, substantially impacted in the
near term by current megatrends, including Electrification and Insights/IoT.
Light vehicle production: Global production of light vehicles had consistently demonstrated steady annual growth for most of
the decade up to 2019 when it started to decline. Fiscal years 2020 and 2021 were depressed production years due to the impact
of the COVID-19 pandemic on global markets. Fiscal year 2020 was hardest hit, with global production of light vehicles
declining approximately 16% from fiscal year 2019. In fiscal year 2022, global production of light vehicles increased about 6%
from fiscal year 2021, according to third-party data.
On-Road Truck Production: Global production of heavy-duty trucks had also demonstrated consistent growth until fiscal year
2020, which declined as a result of the economic impacts of COVID-19. Global production of heavy- and medium-duty trucks
in the markets we serve rebounded to increase approximately 20% in fiscal year 2021, but decreased approximately 12% in
fiscal year 2022.
Number of sensors per vehicle: We believe that the number of sensors used in vehicles of all classes will continue to be driven
by increasing requirements in vehicle emissions, efficiency, safety, electrification, and comfort-related control systems that
depend on sensors for proper functioning, such as electronic stability control, tire pressure monitoring, advanced driver
assistance, advanced combustion and exhaust after-treatment applications, and operator controls in heavy off-road equipment.
For example, government regulation of emissions, including fuel economy standards such as the National Highway Traffic
Safety Administration's Corporate Average Fuel Economy requirements in the U.S. and emissions requirements such as "Euro
6d" in Europe, "China National 6" in China, and "Bharat Stage VI" in India, require advanced sensors to achieve these
performance metrics. Sensors are crucial enablers for a vehicle’s systems and sub-systems to meet the ever-increasing
requirements in a vehicle’s operation.
Higher value sensors: We believe that our revenue growth has been augmented by a continuing shift away from legacy sensors
to next-generation, value-rich sensors and related solutions that include controllers, receivers, and software and will continue to
grow as our sensors get "smarter" with more embedded algorithms. As we strive to increase the value we bring to the market
and our customers, we are continually looking to bring solutions to our customers that drive the next-generation vehicle
enhancement in electrification, safety, and reliability through our engineering solutions combined with increased data insights
that are derived from these sensing solutions. Our ability to provide our customers with not only solutions in sensing and
electrical protection components and systems but also insights into the systems/sub-systems we serve increases the value of our
offering and enables improved performance, safety, efficiency, and environmental impacts. Our focus on delivering enhanced
value through our mission-critical solutions to the market positions us to drive profitable revenue growth as the market demands
continue to evolve.
New Technology: Automobiles and heavy vehicles continue to evolve, with new alternative technologies being developed to
make these vehicles more efficient, reliable, financially viable, and safe. We believe this trend will drive growth in our business
for the foreseeable future, particularly in the areas of Electrification and Insights/IoT. Moreover, we believe our broad customer
base, global diversification, and evolving portfolio provide the foundation that will allow us to grow with these megatrends
across a diverse set of markets.
Our GIGAVAC-branded high-voltage electrical protection products augment our electrical protection portfolio to address many
of the needs in electric vehicles as voltage systems continue to increase. As system voltages increase, the burden on the systems
and subsystems to properly control and protect the vehicle from electrical failure becomes mission-critical, and is where our
solutions play a critical role. Our electrical protection solutions safeguard the expensive electronics used to power the vehicle
and allow for an increase in power levels to improve charging times. The joint venture created with Churod Electronics in early
fiscal year 2021 expanded our contactor offering by making available new technology applicable to lower voltage ranges than
GIGAVAC's solutions.
The adoption of more advanced sensing technologies is also a key market trend, as fleet operators and owners demand more
sophisticated information about trucks and trailers, driving demand for cargo capacity, video telematics, and other sensing
applications. Also, participants across the supply chain ecosystem are increasingly adopting IoT solutions to provide them with
(1) tracking/visibility to where assets or goods are in the supply chain, (2) more advanced applications such as predictive
algorithms on the estimated time of arrival and sensors that can provide information on the condition of the goods (temperature,
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humidity, etc.), and (3) event analysis and in-cab monitoring through video telematics to help prevent and lower the cost of
incidents.
Product Categories
The following table presents the significant product categories offered by Performance Sensing and the corresponding key
products, solutions, applications, systems, and end markets:
Key Products/Solutions
Product category: Sensors
Pressure sensors
Speed and position sensors
High-temperature sensors
Product category: Electrical protection
High-voltage contactors/fuses
Battery management system
Charging inlet modules
High-voltage distribution units
Product category: Other
Vehicle area networks
Data collection devices and software
Key Applications/Systems
Key End Markets
Thermal management and air conditioning systems
Powertrain
Exhaust after-treatment
Suspension
Braking
Tire management solutions
Operator controls
Radar solutions
Battery packs
Electrical protection
Electrical powertrain
Battery management
Charging systems
Automotive
HVOR
Automotive
HVOR
Data insights (asset tracking and vehicle telematics)
Usage-based insurance
HVOR
The table below sets forth the amount of net revenue generated by our product categories in Performance Sensing, reconciled to
total segment net revenue, for the years ended December 31, 2022, 2021, and 2020:
(In thousands)
Net revenue:
Sensors (1)
Electrical protection
Other (1)
Performance Sensing net revenue
$
$
For the year ended December 31,
2021
2022
2020
2,627,788 $ 2,722,121 $ 2,171,364
35,366
17,080
2,976,756 $ 2,847,908 $ 2,223,810
85,167
263,801
41,882
83,905
__________________________
(1) Beginning in the year ended December 31, 2022, we adjusted our product categories to better reflect how we currently
view our products. Vehicle area networks and data collection devices and software, products used in our Sensata
INSIGHTS business, have been recast from the sensors product category to the other product category. As a result,
approximately $74.7 million of revenue in the year ended December 31, 2021 has been recast in the table above from the
sensors product category to other. There was no revenue related to these products in the year ended December 31, 2020.
The other product category in the year ended December 31, 2022 includes $173.3 million of revenue related to the Sensata
INSIGHTS business.
Competitors
Within each of the principal product categories in Performance Sensing, we compete with a variety of independent suppliers.
We believe that the key competitive factors in the markets served by this segment are product performance in mission-critical
operating environments, quality, service, reliability, manufacturing footprint, and commercial competitiveness. We believe that
our ability to design and produce customized solutions globally, breadth and scale of product offerings, technical expertise and
development capability, product service and responsiveness, and a commercially competitive offering position us well to
succeed in these markets. We are experts in the applications we serve, enabling us to provide industry-leading solutions to our
customers.
10
Sensing Solutions
Sensing Solutions, which accounted for approximately 26% of our net revenue in fiscal year 2022, primarily serves the
industrial and aerospace industries through the development and manufacture of a broad portfolio of application-specific sensor
and electrical protection products used in a diverse range of industrial markets, including the appliance, HVAC, water
management, operator controls, charging infrastructure, renewable energy generation, green hydrogen production, and
microgrid applications and markets, as well as the aerospace market, including commercial aircraft, defense, and aftermarket
markets.
Some of the products and solutions the segment sells include pressure, temperature, and position sensors, motor and compressor
protectors, high-voltage contactors, solid state relays, bimetal electromechanical controls, power inverters, charge controllers,
battery management systems, operator controls, and power conversion systems. Our products perform many functions,
including prevention of damage from excess heat or electrical current, optimization of system performance, low-power circuit
control, renewable energy generation, and power conversion from direct current ("DC") power to alternating current ("AC")
power.
Our Clean Energy Solutions business includes products such as high-voltage contactors, inverters, rectifiers, and battery
management systems and focuses on the industrial, stationary, and commercial energy storage end markets. Applications
include those in battery-energy storage and renewable energy. With the acquisition of Spear and Sendyne, we expanded our
portfolio to include energy storage systems and electrical sensing products, augmenting our offerings to our existing end
markets as well as providing access to new end markets and applications. In addition, our acquisition of Dynapower is a
foundational addition to our Clean Energy Solutions strategy. Refer to the discussion under the heading Business Combinations
above and in Note 21: Acquisitions and Divestitures of our Financial Statements included elsewhere in this Report for
additional discussion of this acquisition.
Customers
Overall, our customers include a wide range of industrial and commercial manufacturers and suppliers across multiple end
markets, primarily OEMs in the climate control, appliance, medical, energy and charging infrastructure, data/telecom,
aerospace and defense industries, as well as systems integrators and aerospace and motor and compressor distributors.
Markets
Demand for our sensor products is driven by many of the same factors as in the transportation sensor markets: regulation of
emissions, greater energy efficiency and safety, and consumer demand for new features. Gross Domestic Product growth is a
broad indicator of demand for our consolidated industrial markets over the long term. We use Purchasing Managers' Index to
gauge short-term trends in the industrial, appliance, and HVAC markets we serve. For instance, the growing consumer demand
for cleaner heat sources, like heat pumps, which utilize our content, is being driven by government initiatives to reduce carbon
emissions to net zero by 2050.
We continue to focus our efforts on expanding our presence in all global geographies and serving our global customers in a
highly efficient and cost-effective manner. Our customers include established multinationals as well as local producers in
markets such as China, India, Eastern Europe, and Turkey. China remains a priority for us because of its export focus and the
increasing domestic consumption of products that use our devices.
Clean Energy Solutions serves a broad range of industrial, transportation, and stationary energy storage end markets with
applications such as battery-energy storage, microgrids, and renewable energy generation and storage applications. Our go-to-
market approach leverages existing channels and also includes new channels.
11
Product Categories
The following table presents the significant product categories offered by Sensing Solutions and the corresponding key
products, solutions, applications, systems, and end markets:
Key Products/Solutions
Product category: Electrical protection
Bimetal electromechanical controls
Circuit breakers
High-voltage contactors/fuses
Battery management systems
Energy storage systems
Switches and relays
Product category: Sensors
Position sensors
Pressure sensors
Temperature sensors
Gas leak detection sensors
Product category: Other
Inverters
Brushless DC motors
Current sensors
Rectifiers and frequency converters
Power conversion systems
Key Applications/Systems
Key End Markets
Motors, compressors, pumps
Home appliances
Lighting
Commercial and military aircraft
Marine/industrial
Data and telecom equipment
Medical equipment
Recreational vehicles
Aerospace and defense
Industrial
Appliance and HVAC
Marine
Medical
Energy/solar
Motors, compressors, pumps
Hydraulic machinery
Motion control systems
Commercial and military aircraft
Motor/platform controllers
Aerospace and defense
Industrial automation
Appliance and HVAC
Marine
Energy
Recreational vehicles
Grid harmonics and power delivery
Mobile power
Renewable power generation
Energy storage
Aerospace and defense
The table below sets forth the amount of net revenue generated by our sensors and electrical protection product categories in
Sensing Solutions, reconciled to total segment net revenue, for the years ended December 31, 2022, 2021, and 2020:
(In thousands)
Net revenue:
Electrical protection
Sensors
Other
Sensing Solutions net revenue
Competitors
For the year ended December 31,
2022
2021
2020
$
$
625,316 $
259,275
167,915
1,052,506 $
593,259 $
230,364
149,275
972,898 $
468,635
209,244
143,889
821,768
Within each of the principal product categories in Sensing Solutions, we compete with divisions of large multinational
industrial corporations and companies with smaller market share that compete primarily in specific markets, applications,
systems, or products. We believe that the key competitive factors in these markets are product performance, quality, and
reliability.
Technology and Intellectual Property
We develop products that address increasingly complex engineering and operating performance requirements to help our
customers solve their most difficult engineering challenges in the automotive, HVOR, fleet management, industrial, clean
energy, and aerospace industries. We believe that continued focused investment in research and development ("R&D") is
critical to our future growth and maintaining our leadership positions in the markets we serve. Our R&D efforts are directly
related to the timely development of new and enhanced products that are central to our business strategy. We continually
develop our technologies to meet an evolving set of customer requirements and new product introductions. We conduct such
activities in areas we believe will increase our long-term revenue growth. Our development expense is typically associated with
engineering core technology platforms to specific applications and engineering major upgrades that improve functionality or
reduce the cost of existing products.
A large portion of our R&D activities is directed towards technologies and megatrends that we believe have the potential for
significant future growth but relate to products that are not currently within our core business or include new features and
capabilities for existing products. Expenses related to these activities are less likely than our more mainstream development
activities to result in increased near-term revenue.
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We benefit from many development opportunities at an early stage for several reasons: (1) we are the incumbent in many
systems for our key customers; (2) we have robust design and service capability; and (3) our global engineering teams are
located close to key customers in regional business centers. We work closely with our customers to deliver solutions that meet
their needs today and in the future. As a result of development lead times and the 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 increase
the switching costs once a customer has designed and installed a particular sensor into a system.
We rely primarily on patents, trade secrets, manufacturing know-how, confidentiality procedures, and licensing arrangements to
maintain and 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 business is 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.
The following table presents information on our patents and patent applications as of December 31, 2022:
Patents
Pending patent applications filed within the last five years
U.S.
Non-U.S.
341
105
587
340
Our patents have expiration dates ranging from 2023 to 2045. We also own a portfolio of trademarks and license various
patents and trademarks. "Sensata" and our logo are trademarks.
We use licensing arrangements with respect to certain technology provided in our sensor and electrical protection products. In
2006, we entered into a perpetual, royalty-free cross-license agreement with our former owner, Texas Instruments Incorporated,
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.
Raw Materials
We use a broad range of manufactured components, subassemblies, and raw materials in the manufacture of our products in
both our Performance Sensing and Sensing Solutions segments, including those containing certain commodities (e.g.,
semiconductors, resins, and metals), which may experience significant volatility in their price and availability due to, among
other things: new laws or regulations, including labor laws and the impact of tariffs; trade barriers and disputes; global
economic or political events, including government actions and labor strikes; suppliers' allocations to other purchasers;
interruptions in production by suppliers; increased logistics costs; changes in foreign currency exchange rates; and prevailing
price levels.
It has historically been difficult to pass increased prices for manufactured components and raw materials to our customers
through price increases. Therefore, a significant increase in the price or decrease in the availability of these items could
materially increase our operating costs and materially and adversely affect our business and results of operations. However, the
impact of the global supply chain shortages, including production delays on a vast and varied number of products across
industries and geographies and increased procurement and logistics costs, is unprecedented. Accordingly, we are actively
working with our customers to share the inflationary burden of these factors. In addition, where possible, we are working to
adjust our long-term supply agreements, strengthen our relationships with our suppliers, increase inventories on hand, increase
visibility into long-term supply and demand, and accelerate the use of alternate materials to improve supply chain visibility.
Seasonality
Because of the diverse global nature of the markets in which we operate, our net revenue is only moderately impacted by
seasonality. Sensing Solutions experiences some seasonality, specifically in its air conditioning and refrigeration products,
which tend to peak in the first two quarters of the year as inventories are built up for spring and summer sales. In addition,
Performance Sensing's net revenue tends to be weaker in the third quarter of the year as automotive OEMs retool production
lines for the coming model year. Our Sensata INSIGHTS business within Performance Sensing tends to peak in the last quarter
of the calendar year as customers exhaust their annual capital budgets.
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Human Capital Resources
Our employees, whom we refer to as Team Sensata, are responsible for upholding our purpose – to help our customers and
partners safely deliver a safer, cleaner, more efficient, more electrified, and increasingly more connected world – and they
embody our values in all aspects of daily work. Our corporate values are the essence of our identity, provide a level-set
foundation, and are an important way for us to improve our culture. Our values include passion, excellence, integrity,
flexibility, and teamwork—working together towards common goals, the latter of which we refer to as "OneSensata." In various
countries, local law requires our participation in works councils. We believe that our relations with our employees are good.
The following table presents a summary of our employee population as of December 31, 2022:
(in thousands)
Employees
Contractors (1)
Total
U.S. Based
Female
20.8
2.2
1.7
0.2
Covered by
Collective Bargaining
0.2
—
11.6
1.1
__________________________
(1) We engage contract workers in multiple locations, primarily to cost-effectively manage variations in manufacturing
volume, but also to perform engineering and other general services. Includes approximately 1,800 direct labor contract
workers worldwide.
In June 2022, we published our second Sustainability Report, which shares our environmental, social, and governance ("ESG")
strategies, performance, and goals. One of our key areas of prioritization as identified in the Sustainability Report is to empower
our workforce through promotion of a culture that values inclusion and diversity and prioritizes employee well-being and
safety. A summary of additional content in the Sustainability Report can be found under the heading Sustainability Report
included elsewhere in this Item 1: Business. The full report can be found on our website at www.sensata.com/sustainability.
Diversity, Equity, and Inclusion ("DEI")
We believe in treating all people with respect and dignity. Each person brings unique value through their varying backgrounds
and life experiences, no matter their age, race, color, disability, ethnicity, family or marital status, gender identity or expression,
language, national origin, physical or mental ability, political affiliation, religion, sexual orientation, socio-economic status,
veteran status, and other characteristics that make our employees unique. It is our policy and practice to hire and employ
qualified individuals without regard to these characteristics. Our DEI policy can be found at www.sensata.com/diversity-equity-
and-inclusion. This policy applies to all terms and conditions of employment, including recruitment and selection;
compensation and benefits; professional development and training; promotions; transfers; social and recreational programs;
reductions in force; terminations; and the ongoing development of a work environment built on the premise of diversity, equity,
and inclusion.
We provide regular training to all employees regarding our diversity policies and practices through which we communicate our
expectations that each employee is responsible for maintaining a respectful and inclusive workplace. We strive to create and
foster a supportive and understanding environment in which ideas are shared freely, helping all individuals realize their
maximum potential within Sensata, regardless of their differences. An inclusive culture is fundamental to innovation and
problem-solving, improving our ability to innovate, and is vital to our business.
We sponsor various employee resource groups (“ERGs”), groups of employees that come together to work strategically, both
internally and externally, to benefit and advance their group members by fostering awareness, respect, and inclusion within the
workplace. Our ERGs support our commitment to creating and sustaining a diverse workforce and a culture of inclusion where
everyone can thrive, encouraging different perspectives, thoughts, and ideas — creating a sense of community. Our ERGs
provide our employees meaningful community and global engagement, networking and mentoring opportunities, and an
inclusive workplace culture. Through interaction with these groups, senior leadership can identify emerging and high-potential
talent, acquire cultural knowledge, hear directly from employees who face challenges inherent in underrepresented groups, and
strengthen diversity management skills. Our ERGs contribute to our market success by actively contributing to our broader DEI
strategy. As of December 31, 2022, we had eleven ERGs globally focused on the following areas — gender equity, generational
diversity, cross-cultural appreciation, Black/African American, Hispanic/Latinx, Asian/ Asian-American & Pacific Islander
heritage, and LGBTQIA+ Pride.
We have published our diversity goals in our Sustainability Report as discussed under the heading Sustainability Report
included elsewhere in this Item 1: Business.
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Social and Human Rights Matters
We have policies related to our position on various social and human rights matters, including child labor, forced labor, human
trafficking, health and safety, non-discrimination, and environmental matters. Each of these policies can be found on our
website at www.sensata.com. Our human rights expectations apply to all our personnel, business partners, and other parties
involved directly in our operations, products, or services.
We are committed to responsible corporate practices in the area of human rights and working conditions and we respect the
United Nations Guiding Principles for Business and Human Rights (2011) and its principles within our operations and supply
chains. We also align with practices recommended by industry standards such as the Global Automotive Sustainability Practical
Guidance and the RBA Code of Conduct, which incorporate the International Bill of Human Rights, namely the Universal
Convention of Human Rights (1948), the International Covenant on Economic, Social and Cultural Rights and the International
Covenant on Civil and Political Rights and its two Optional Protocols (1966).
We also adhere to the principles set forth in the fundamental International Labor Organization ("ILO") Conventions, namely the
Forced Labor Convention (1930), the Minimum Age Convention (1973), the Worst Forms of Child Labor Convention (1999),
and the ILO Declaration on Fundamental Principles and Rights at Work (1998). The working conditions of our employees are,
at minimum, in compliance with internationally recognized labor standards and the laws of the countries we operate in. When
national law directly conflicts with international human rights standards or does not fully comply with them, we seek ways to
respect internationally recognized human rights.
Employee Engagement
Our long-term success depends on hiring, retaining, training, rewarding, and engaging employees. We strive to retain and
engage employees by providing competitive pay and benefits packages, a challenging and rewarding work experience, and by
consistently connecting how integral their work is to Sensata's larger purpose and to the work we do as a company.
We focus our employee communications on continual engagement, providing updates on our business, technology, and
workforce, including learning opportunities. We work to provide our employees with information to help them feel connected
to the business and company strategy and purpose, what we are doing to be a responsible corporate citizen and community
neighbor, and how we add value to our customers and investors.
We recognize the importance of supporting our employees’ health and well-being. Accordingly, we regularly review our benefit
offerings with external advisers with deep industry expertise in risk insurance, health insurance, and other employee benefits for
advice and market expertise. We are committed to providing comprehensive and competitive benefits packages that attract,
retain, and enhance the well-being of our employees by supporting their physical, financial, and emotional wellness. Our
benefits include an array of quality health and income protection benefits. Some benefits are provided automatically at no cost
to employees, while the cost of other benefits is shared between the employee and Sensata.
Our employees' health, safety, and well-being are a high priority and integral to our values. We consider safety a core value
embedded in the decisions we make across the company to protect our employees, business partners, and local communities.
Learning and Development
We believe that continued success in executing our business strategy requires us to provide a broad range of learning and
development programs and opportunities to our employees. We offer our employees an online global learning management
system ("Sensata Learning") that enables them to access live virtual and on-demand training. In fiscal year 2022, we delivered
approximately 85,650 hours of training spanning various required learning and professional development topics, including a
range of courses on diversity, inclusion, and ethics.
We have an integrated performance management process containing annual goal setting and periodic formal and informal
reviews and check-ins, ensuring that our employees are provided continual feedback on their performance regarding goals and
competencies. We also have templates for giving feedback anytime to employees, typically tied to performance as part of their
role, projects, and deliverables which helps foster transparency and delivery of real-time feedback.
In addition, we have a robust talent and succession planning process and have established programs to support the development
of our talent pipeline for critical roles in management, engineering, and operations. On an annual basis, we conduct a leadership
review process with our chief executive officer, chief human resources officer, and business and functional leaders to identify
key talent for additional development opportunities. This helps ensure optimal use of the talent for the benefit of both the
employee and Sensata.
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Ethics
We have adopted a Code of Business Conduct and Ethics governing the conduct of our personnel, including our principal
executive officer, principal financial officer, principal accounting officer, and controller, and persons performing similar
functions. Our Code of Business Conduct and Ethics is modified from time to time and is available on the investor relations
page of our website at www.sensata.com under Corporate Governance. We have a three-part annual training covering the
topics discussed in the Code of Business Conduct and Ethics on Sensata Learning, our online global learning management
system.
We hold an annual "Integrity Week," which focuses on integrity as a core value of the organization and underscores our
commitment to operating responsibly, one of the four key priority areas outlined in our Sustainability Report. Integrity is at the
core of what we do—from how we govern ourselves to how we conduct our business and manage relationships with our
stakeholders. The most recent Integrity Week, in fiscal year 2022, focused on “Doing What’s Right – Every Day, Every Site.”
By sharing best practices and stories from their professional journeys, various executives and site leaders at Sensata illustrated
how integrity is not just about doing the right thing but how it is intrinsic to delivering value and sustainability for our
company, environment, and communities.
We believe our management team has the experience necessary to effectively execute our strategy and advance our product and
technology leadership. Our chief executive officer and business leaders average approximately 25 years of industry experience.
They are supported by an experienced and talented management team dedicated to maintaining and expanding our position as a
global leader in the industry. For a discussion of the risks relating to the attraction and retention of management and executive
management employees, see Item 1A: Risk Factors included elsewhere in this Report.
Sustainability Report
In June 2022, we published our second annual Sustainability Report, which shares our ESG strategies, performance, and goals
that support our vision of creating a safer, cleaner, more efficient, more electrified, and increasingly more connected world.
Our sustainability efforts focus on four key areas of prioritization against which we measure progress:
• Empowering our workforce: We nurture a culture that promotes diversity and inclusion and prioritizes employee health,
safety, and well-being while supporting our communities and suppliers;
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Innovating for Sustainability: We develop products and technology solutions that help create a safer, cleaner, more
efficient, electrified, and connected world;
• Protecting Our Environment: We focus on building products that reduce environmental impact and improve
technological efficiencies while optimizing and reducing our operational footprint through energy, water, and waste
reduction;
• Operating Responsibly: We consider transparency and accountability fundamental in everything we do, guiding our
approach to governance, risk management, and ESG management.
As described in the Sustainability Report, we conducted a materiality assessment to identify the ESG issues that were most
important to our business and stakeholders. We identified the following key issues and set corresponding goals as follows:
◦ DEI: Our goals in this area are by 2026 to reach (1) 30% female representation in manager and above roles worldwide
and (2) 25% racial/ethnic diversity representation in manager and above roles in the U.S.;
◦ Energy and Emissions: Our goals in this area are (1) to achieve carbon neutrality in our operations by 2050 and (2) to
reduce greenhouse gas emissions intensity by 10% by 2026, from a 2021 baseline;
◦ Responsible Sourcing: Our goals in this area are by 2026 to (1) achieve a 75% response rate on our responsible sourcing
campaigns and (2) achieve 100% sourcing of conflict minerals and cobalt from smelters that are conformant with the
Responsible Minerals Assurance Process or equivalent standard.
Environmental and Governmental Regulations
Our operations and facilities are subject to numerous environmental, health, and safety laws and regulations, both domestic and
foreign, including those governing air emissions, chemical usage, water discharges, the management and disposal of hazardous
substances and wastes, and the cleanup of contaminated sites. We are not aware of any threatened or pending material
environmental investigations, lawsuits, or claims involving us or our operations.
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Many of our products are governed by material content restrictions and reporting requirements, examples of which include:
European Union ("EU") regulations, such as Registration, Evaluation, Authorization, and Restriction of Chemicals ("REACH"),
Restriction of Hazardous Substances ("RoHS"), and End of Life Vehicle ("ELV"); 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, such as the German Explosives Act. Further, numerous customers across all end markets require us to provide
declarations of compliance or, in some cases, extra material content documentation as a requirement of doing business with
them.
We are subject to compliance with laws and regulations controlling the import and export of goods, services, software, and
technical data. Certain of our products are subject to export regulations of the various jurisdictions in which we operate
(“Controlled Items”). The export of many such Controlled Items requires a license from the applicable government agency.
Licensing decisions are made based on the type of product, its destination, end use, end user, the parties involved in the
transaction, national security, and foreign policy. As a result, export license approvals are not guaranteed. We have a trade
compliance team and other systems in place to apply for licenses and otherwise comply with import and export regulations.
Any failure to maintain compliance with such regulations could limit our ability to import or export raw materials and finished
goods. These laws and regulations are subject to change, and any such change may limit or exclude existing or future business
opportunities, require us to change technology, or incur expenditures to comply with such laws and regulations.
Compliance with environmental and governmental regulations and meeting customer requirements have increased our cost of
doing business in various ways and may continue to do so in the future. We do not currently anticipate material capital
expenditures during fiscal year 2023 for environmental control facilities. We also do not believe that existing or pending
legislation, regulation, or international treaties or accords, whether related to environmental or other government regulations,
are reasonably likely to have a material adverse effect in the foreseeable future on our business or the markets we serve, nor on
our results of operations, capital expenditures, earnings, competitive position, or financial standing.
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 SEC. Our website and the information contained or incorporated therein are not intended to be
incorporated into this Report.
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 or our 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
The following are important factors that could cause actual results or events to differ materially from those contained in any
forward-looking statements made by us or on our behalf. Investors should carefully consider these risks and all other
information in this Report before investing in our securities. The risks and uncertainties described below are not the only ones
we face. Our business is also subject to general risks that affect many other companies. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our business, operations, liquidity, and financial
condition.
If actions taken by management to limit, monitor, or control enterprise risk exposures are not successful, our business and
consolidated financial statements could be materially adversely affected. In such case, the trading price of our common stock
and debt securities could decline and investors may lose all or part of their investment.
Business and Operational Risks
We are subject to various risks related to public health crises, including the COVID-19 pandemic, which have had, and
may in the future have, material and adverse impacts on our business, financial condition, liquidity, and results of
operations.
Any outbreaks of contagious diseases and other adverse public health developments in countries where we operate could have a
material and adverse impact on our business, financial condition, liquidity, and results of operations. As has occurred with the
COVID-19 pandemic, a global pandemic could cause significant disruption to the global economy, including in all of the
regions in which we, our suppliers, distributors, business partners, and customers do business and in which our workforce is
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located. A global pandemic and efforts to manage it, including those by governmental authorities, could have significant
impacts on global markets, and could have a significant, negative impact on our sales and operating results. Disruptions could
include: partial shutdowns of our facilities as mandated by government decree; government actions limiting our ability to adjust
certain costs; significant travel restrictions; “work-from-home” orders; limited availability of our workforce; supplier
constraints; supply chain interruptions; logistics challenges and limitations; and reduced demand from certain customers. The
COVID-19 pandemic has had, and could continue to have, these effects on the economy and our business.
As of December 31, 2022, we were still experiencing lingering disruptions of these types. The extent to which the COVID-19
pandemic will continue to impact our business and financial results going forward will be dependent on future developments
such as the length and severity of the crisis, the potential resurgence of the crisis, variant strains of the virus, vaccine
availability and effectiveness, future government actions in response to the crisis and the overall impact of the COVID-19
pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and
unpredictable. This unpredictability could limit our ability to respond to future developments quickly. Additionally, the impacts
described above and other impacts of a global pandemic, including the COVID-19 pandemic and responses to it, could
substantially increase the risk to us from the other risks described in this Item 1A: Risk Factors.
Our business is subject to numerous global risks, including regulatory, political, economic, governmental, and military
concerns and instability.
Our business, including our employees, customers, and suppliers, is located throughout the world. We employ approximately
92% of our workforce outside of the U.S. We have many manufacturing, administrative, and sales facilities outside of the U.S.
Our subsidiaries located outside of the U.S. generated approximately 61% of our net revenue in fiscal year 2022 (including
approximately 20% in China) and we expect sales from non-U.S. markets to continue to represent a significant portion of our
total net revenue. International sales and operations are subject to changes in local government regulations and policies,
including those related to tariffs and trade barriers, economic sanctions, investments, taxation, exchange controls, and
repatriation of earnings.
As a result, we are exposed to numerous global, regional, and local risks that could decrease revenue and/or increase expenses,
and therefore decrease our profitability. Such risks may result from instability in economic or political conditions, inflation,
recession, and/or actual or anticipated military or political conflicts, and include, without limitation: trade regulations, including
customs, import, export, and sourcing restrictions, tariffs, trade barriers, trade disputes, and economic sanctions; changes in
local employment costs, laws, regulations, and conditions; difficulties with, and costs for, protecting our intellectual property;
challenges in collecting accounts receivable; tax laws and regulatory changes, including examinations by taxing authorities,
variations in tax laws from country to country, changes to the terms of income tax treaties, and difficulties in the tax-efficient
repatriation of earnings generated or held in a number of jurisdictions; natural disasters; and the impact of each of the foregoing
on our business operations, manufacturing, and supply chain.
Other risks 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, a scarcity of resources or other
hardships caused by a global pandemic may result in increased nationalism, protectionism, and political tensions which may
cause governments and/or other entities to take actions that may have a significant negative impact on our ability – and the
ability of our suppliers and customers – to conduct business.
We have sizable operations in China, including two principal manufacturing sites. Economic and political conditions in China
have been and may continue to be volatile and uncertain, especially as the U.S. and China continue to discuss and have
differences in trade policies and the U.S. continues to add restrictions on both exports to China and use of materials from
certain regions within China. In addition, the legal and regulatory system in China is still developing and is subject to change.
Our operations and transactions with customers in China could continue to be adversely affected by increased tariffs and export
restrictions and could be otherwise adversely affected by other changes to market conditions, changes to the regulatory
environment, or interpretation of Chinese law.
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Adverse conditions in the industries upon which we are dependent, including the automotive industry, have had, and
may in the future have, adverse effects on our business.
We are dependent on market dynamics to sell our products, and our operating results could be adversely affected by cyclical
and reduced demand in these markets. Periodic downturns in our customers’ industries could significantly reduce demand for
certain of our products, which could have a material adverse effect on our results of operations, financial condition, and cash
flows.
Much of our business depends on, and is directly affected by, the global automobile industry. Sales in our automotive end
markets accounted for approximately 52% of our total net revenue in fiscal year 2022. Declines in demand such as experienced
as a result of the COVID-19 pandemic and other adverse developments like those we have seen in past years in the automotive
industry, including but not limited to customer bankruptcies and increased demands on us for lower prices, could have adverse
effects on our results of operations and could impact our liquidity 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.
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 will 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 and/or regulatory non-compliance. 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.
The impact of the current global supply chain shortages includes various factors that could impact our actual or perceived
liability due to quality issues, whether at a supplier or customer. Shortages of materials at our suppliers or customers could
cause them to work longer production hours to meet demand, resulting in fatigue on manufacturing workers, delays in planned
maintenance, and other factors that could impact the actual or perceived quality of our products. In addition, customers may be
forced to assemble parts into the end product in an order not anticipated by design, or to assemble parts in a location without
proper environmental controls (e.g. a parking lot), increasing the potential that our part fails through no fault of our own. While
we would defend ourselves from warranty claims in these circumstances, there is no guarantee that we would prevail.
As we continue to develop products containing complex information technology (“IT”) systems designed to support today’s
increasingly connected vehicles, these systems result in potential increases to our risks in product safety, regulatory compliance,
product liability, warranty, and recall claims. In addition, the warranty period for certain electric vehicle components is
generally eight to ten years, which increases our risk for warranty claims over the life of a product.
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.
We are dependent on market acceptance of our new product introductions and product innovations for future revenue
and we may not realize all of the revenue or achieve anticipated gross margins from products subject to existing awards
or for which we are currently engaged in development.
Substantially all markets in which we operate are impacted by technological change or change in consumer tastes and
preferences, which are rapid in certain markets. Our operating results depend substantially upon our ability to continually
design, develop, introduce, and sell new and innovative products; to modify existing products; and to customize products to
meet customer requirements driven by such change. There are numerous risks inherent in these processes, including the risk
that we will be unable to anticipate the direction of technological change; that we will be unable to develop and market
profitable new products and applications before our competitors or in time to satisfy customer demands; the possibility that
investment of significant time and resources will not be successful; the possibility that the marketplace does not accept our
products or services; that we are unable to retain customers that adopt our new products or services; and the risk of additional
liabilities associated with these efforts.
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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 agreements provide for the supply of a certain share of the
customer’s requirements for a particular application or platform, rather than for 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 may be 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 our customers at all, or they 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.
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 in
both our Performance Sensing and Sensing Solutions segments, including those containing certain commodities (e.g.
semiconductors, resins, and metals), which may experience significant volatility in their price and availability due to, among
other things, new laws or regulations, including the impact of tariffs, trade barriers, trade disputes, export or sourcing
restrictions, economic sanctions, and global economic or political events including government actions, labor strikes, suppliers'
allocations to other purchasers, interruptions in production by suppliers, changes in foreign currency exchange rates, and
prevailing price levels.
It has historically been 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.
However, the impact of the current global supply chain shortages, including production delays on a vast and varied number of
products across industries and geographies and increased procurement and logistics costs, are unprecedented. Accordingly, we
are actively working with our customers to share the inflationary burden of these factors. In addition, where possible, we are
working to adjust our long-term supply agreements, strengthen our relationships with our suppliers, increase inventory on hand,
increase visibility into long-term supply and demand, and accelerate the use of alternate materials to increase supply chain
visibility. If the impacts of these shortages are more severe than we currently expect, it could result in further deterioration of
our results, potentially for a longer period than currently anticipated. In addition, the impact of the current global supply chain
shortages on one or more of our key suppliers could adversely impact our profitability.
We have entered into hedge arrangements for certain metals used in our products 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.
In connection with the implementation of our corporate strategies, we face risks associated with the acquisition of
businesses, the integration of acquired businesses, and the growth and development of these businesses.
In pursuing our corporate strategy, we often acquire other businesses. The success of this strategy is dependent upon our ability
to identify appropriate acquisition targets, negotiate transactions on favorable terms, complete transactions, and successfully
integrate them into our existing businesses. There can be no assurance that we will realize the anticipated synergies or cost
savings related to acquisitions, including, but not limited to, revenue growth and operational efficiencies, or that they will be
achieved in our estimated timeframe. 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.
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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. Refer to separate risk factor for additional information related to risks regarding our level of
indebtedness.
In addition, many of the businesses that we acquire and develop will likely have significantly smaller scales of operations prior
to the implementation of our growth strategy. If we are not able to manage the growing complexity of these businesses,
including improving, refining, or revising our systems and operational practices, and enlarging the scale and scope of the
businesses, our business may be adversely affected. Other risks include developing knowledge of and experience in the new
business, integrating the acquired business into our systems and culture, recruiting professionals, and developing and
capitalizing on new relationships with experienced market participants. External factors, such as compliance with new or
revised regulations, competitive alternatives, and shifting market preferences may also impact the successful implementation of
a new line of business. Failure to manage these risks in the acquisition or development of new businesses could materially and
adversely affect our business, results of operations, and financial condition.
Restructuring our business or divesting some of our businesses or product lines in the future may have a material
adverse effect on our results of operations, financial condition, and cash flows.
In pursuing our corporate strategy, we continue to evaluate the strategic fit of specific businesses and products and occasionally
dispose of or exit businesses and products. The success of this strategy is dependent upon our ability to identify appropriate
disposition targets, negotiate transactions on favorable terms, and complete transactions. Any divestitures may result in
significant write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect
on our results of operations and financial condition. Divestitures could involve additional risks, including difficulties in the
separation of operations, services, products, and personnel; the diversion of management's attention from other business
concerns; the disruption of our business; and the potential loss of key employees. There can be no assurance that we will be
successful in addressing these or any other significant risks encountered. In the year ended December 31, 2022, we sold various
assets and liabilities comprising our semiconductor test and thermal business (collectively, the "Qinex Business"). Refer to Note
21: Acquisitions and Divestitures of our Financial Statements included elsewhere in this Report for additional information
We also may seek to restructure our business in the future by relocating operations, disposing of certain assets, or consolidating
operations. There can be no assurance that any restructuring of our business will not adversely affect our financial condition,
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.
Labor disruptions or increased labor costs have had, and may in the future have, adverse impacts on our business.
A material labor disruption or work stoppage at one or more of our manufacturing or business 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 transportation 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 reduce
production levels or shut down production facilities relating to those products, which could have a material adverse effect on
our business, results of operations, and/or financial condition.
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 in mission-critical
operating environments, quality, service, reliability, manufacturing footprint, and commercial competitiveness across the
industries and end markets we serve. A significant element of our competitive strategy is to design and manufacture high-
quality products that meet the needs of our customers at a commercially competitive price, particularly in markets where low-
cost, country-based suppliers, primarily in China with respect to the Sensing Solutions segment, have entered the markets or
increased their per-unit sales in these markets by delivering products at low cost to local OEMs. In addition, certain of our
competitors in the transportation sensor market are influenced or controlled by major OEMs or suppliers, thereby limiting our
access to these 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, primarily to reduce risk of delivery interruptions or as a means of extracting
more value from us. Certain of our customers currently have, or may develop in the future, the capability to internally produce
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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.
Many of our customers, including transportation manufacturers and other industrial and commercial OEMs, demand annual
price reductions. If we are not able to offset continued price reductions through improved operating efficiencies and reduced
expenditures, these 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. Further, as our customers grow larger, they may increasingly require us to
provide them with our products on an exclusive basis, which could limit sales, 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 in the automotive industry, are increasingly requiring their suppliers to agree to their standard purchasing terms
without deviation as a condition to engage in future business transactions, many of which are increasing warranty requirements.
As a result, we may find it difficult to enter into agreements with such customers on terms that are commercially reasonable to
us.
Security breaches and other disruptions to our IT infrastructure could interfere with our operations, compromise
confidential information, and expose us to liability, which could have a material adverse impact our business and
reputation.
In the ordinary course of business, we rely on IT 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.
We are at risk of attack by a growing list of adversaries through increasingly sophisticated methods. Because the techniques
used to obtain unauthorized access or sabotage systems change frequently, we may be unable to anticipate these techniques or
implement adequate preventative measures. In addition, we may not be able to detect breaches in our IT systems or assess the
severity or impact of a breach in a timely manner. We have experienced attacks to our systems and networks and have from
time to time experienced cybersecurity breaches, such as computer viruses and malware, unauthorized parties gaining access to
our IT systems, and similar incidents, which to date have not had a material impact on our business. If we are unable to
efficiently and effectively maintain and upgrade our system safeguards, we may incur unexpected costs and certain of our
systems may become more vulnerable to unauthorized access. Additionally, we are an acquisitive organization and the process
of integrating the information systems of the businesses we acquire is complex and exposes us to additional risk as we might
not adequately identify weaknesses in the targets’ information systems, which could expose us to unexpected liabilities or make
our own systems more vulnerable to attack.
Despite our cybersecurity measures (including employee and third-party training, monitoring of networks and systems,
maintenance of backup and protective systems, and maintenance of cybersecurity insurance), our IT networks and infrastructure
may still be vulnerable to damage, disruptions, or shutdowns due to attacks by hackers, breaches, employee error or
malfeasance, power outages, computer viruses, malware and ransomware, telecommunication or utility failures, systems
failures, natural disasters, or other catastrophic events. We also face the challenge of supporting our older systems and
implementing necessary upgrades.
Moreover, as we continue to develop products containing complex IT systems designed to support today’s increasingly
connected world, these systems also could be susceptible to similar interruptions, including the possibility of unauthorized
access. Further, as we transition to offering more cloud-based solutions that are dependent on the internet or other networks to
operate with increased users, we may become a greater target for cyber threats, such as malware, denial of service, external
adversaries, or insider threats.
These types of incidents affecting us or our third-party vendors could result in intellectual property or other confidential
information being lost or stolen, including client, employee, or company data. Any such events could result in legal claims or
proceedings, liability or penalties under privacy laws and/or export control laws, disruption in operations, and damage to our
reputation, which could materially adversely affect our business. Further, to the extent that any disruption or security breach
results in a loss of, or damage to, our data, or an inappropriate disclosure of confidential information, it could cause significant
damage to our reputation, affect our relationships with our customers, lead to claims against us, and ultimately harm our
business, financial condition, and/or results of operations.
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Improper disclosure of confidential, personal, or proprietary data could result in regulatory scrutiny, legal liability, or
harm to our reputation. Changes to data protection laws, new customer requirements, and changes to international data
transfer rules could impose new burdens.
One of our significant responsibilities is to maintain the security and privacy of our employees’ and customers’ confidential and
proprietary information. We maintain policies, procedures, and technological safeguards designed to protect the security and
privacy of this information and regularly review compliance changes in the jurisdictions where Sensata operates. Nevertheless,
we cannot eliminate the risk of human error, employee or vendor malfeasance, or cyber-attacks that could result in improper
access to or disclosure or transfer of confidential, personal, or proprietary information by Sensata or our supply chain. Such
access transfers could harm our reputation and subject us to liability under our contracts and the laws and regulations that
protect personal and export-controlled data, resulting in increased costs, loss of revenue, and loss of customers. The release of
confidential information could also lead to litigation or other proceedings against us by affected individuals, business partners,
or by regulators, and the outcome of such proceedings, which could include penalties or fines, could have a significant negative
impact on our business.
In many jurisdictions we are subject to laws and regulations relating to the use of this information. These laws and regulations
are changing rapidly, are becoming increasingly complex, and can conflict across the jurisdictions in which we operate. Our
failure to adhere to processes in response to changing regulatory requirements could result in legal liability, significant regulator
penalties and fines, or impair our reputation in the marketplace.
The technological capabilities we are developing in the Sensata INSIGHTS business bring new risks to our company. Laws and
regulations for smart vehicles are expected to continue to evolve in numerous jurisdictions globally, which could affect our
product portfolio and operations. Further, managing and securing personal and customer data that our products, as well as our
partners’ products, gather is a new and evolving risk for us. We must also prepare and adjust for rapid design philosophies
associated with building these new solutions.
Our future success depends in part on our ability to attract and retain key senior management and qualified technical,
sales, and other personnel.
Our future success depends in part on our continued ability to retain key executives and our ability to attract and retain qualified
technical, sales, and other personnel. Significant competition exists for such personnel and we cannot assure the retention of our
key executives, technical, and sales personnel or our ability to attract, integrate, and retain other such personnel that may be
required in the future. We cannot assure that employees will not leave and subsequently compete against us. If we are unable to
attract and retain key personnel, our business, financial condition, and results of operations could be adversely affected.
Financial Risks
We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash
flows.
A portion of our net revenue, expenses, receivables, and payables are denominated in currencies other than the U.S. dollar (the
"USD"). We, therefore, face exposure to adverse movements in exchange rates of currencies other than the USD, which may
change over time and could affect our financial results and cash flows. For financial reporting purposes, we, and most of our
subsidiaries, operate under a USD functional currency because of the significant influence of the USD on our operations. In
certain instances, we enter into transactions that are denominated in a currency other than the 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 the USD are adjusted to USD using the exchange rate at the balance sheet date, with gains
or losses recognized in other, net in the consolidated statements of operations. During times of a weakening USD, our revenue
recognized in currencies other than the USD may increase because the non-U.S. currency will translate into more USD.
Conversely, during times of a strengthening USD, our revenue recognized in currencies other than the USD may decrease
because the local currency will translate into fewer USD.
23
Our level of indebtedness could adversely affect our financial condition and our ability to operate our business,
including our ability to service our debt and/or comply with the related covenants.
The credit agreement governing our secured credit facility (as amended, the "Credit Agreement") provides for senior secured
credit facilities (the "Senior Secured Credit Facilities") consisting of a term loan facility (the "Term Loan"), a $750.0 million
revolving credit facility (the "Revolving Credit Facility"), and incremental availability (the "Accordion") under which
additional secured credit facilities could be issued under certain circumstances. As of December 31, 2022, we had $4,273.4
million of gross outstanding indebtedness, including various tranches of senior unsecured notes (the “Senior Notes”). Refer to
Note 14: Debt of our Financial Statements included elsewhere in this Report for additional information related to our
outstanding indebtedness.
Our substantial indebtedness could have important consequences. For example, it could make it more difficult for us to satisfy
our debt obligations; restrict us from making strategic acquisitions; limit our ability to repurchase shares; 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 market
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 Accordion permits us to incur additional secured credit
facilities in certain circumstances in the future, subject to certain limitations as defined in the indentures under which the Senior
Notes were issued. This could allow us to issue additional secured debt or increase the capacity of the Revolving Credit
Facility. If we increase our indebtedness by borrowing under the Revolving Credit Facility or incur other new indebtedness
under the Accordion, the risks described above would increase.
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 complete such actions, if necessary, on commercially reasonable
terms, or at all.
If we experience an event of default under any of our debt instruments that is 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. 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.
Changes in government trade policies, including the imposition of tariffs, may have a material impact on our results of
operations.
We evaluate all trade policies that impact us, and we adjust our operational strategies to mitigate the impact of these policies.
However, trade policies, including quotas, duties, tariffs, taxes, or other restrictions on the import or export of our products, are
subject to change, and we cannot ensure that any mitigation strategies employed will remain available in the future or that we
will be able to offset tariff-related costs or maintain competitive pricing of our products. The adoption and expansion of trade
restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the
potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the global economy, which
in turn could have a material adverse effect on our business, operating results and financial condition.
Existing duty reduction and deferral programs, such as free-trade agreements, duty drawback, and inward processing relief,
provide beneficial impacts to our duties and tariffs for qualifying imports and exports, subject to compliance with each
program’s unique requirements. Changes in laws or policies governing the terms of these duty reduction and deferral programs
could have a material adverse effect on our business and financial results. In addition, most of our facilities in Mexico operate
under the Mexican Maquiladora program. This program provides for reduced tariffs and eased import regulations; we could be
adversely affected by changes in such program, or by our failure to comply with its requirements.
24
Further tariffs may be imposed on other imports of our products or our business may be further impacted by retaliatory trade
measures taken by China or other countries in response to existing or future U.S. tariffs or other measures (e.g., subsidies). We
may raise our prices on products subject to such tariffs to share the cost with our customers, which could harm our operating
performance or cause our customers to seek alternative suppliers. In addition, we may seek to shift some of our China
manufacturing to other countries, which could result in additional costs and disruption to our operations. We also sell our
products globally and, therefore, our export sales could be impacted by the tariffs. Any material reduction in sales may have a
material adverse effect on our results of operations.
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 $4.9 billion as of December 31, 2022, or 56% 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 $3.9 billion as of December 31, 2022, or 45% 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, significant unexpected or planned changes in the use of assets, and a
variety of other factors. We consider a combination of quantitative and qualitative factors to determine whether a reporting unit
is at risk of failing the goodwill impairment test, including: the timing of our most recent quantitative impairment tests and the
relative amount by which a reporting unit’s fair value exceeded its then carrying value, the inputs and assumptions underlying
our valuation models and the sensitivity of our fair value measurements to those inputs and assumptions, the impact that
adverse economic or market conditions may have on the degree of uncertainty inherent in our long-term operating forecasts,
and changes in the carrying value of a reporting unit’s net assets from the time of our most recent goodwill impairment test.
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. 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 11:
Goodwill and Other Intangible Assets, Net of our Financial Statements included elsewhere in this Report for additional
information related to our goodwill and other identifiable intangible assets. 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
Report for additional information related to the assumptions used in the development of the fair value of our reporting units.
Our global effective tax rate is subject to a variety of different factors that could create volatility in that tax rate, expose
us to greater than anticipated tax liabilities, or cause us to adjust previously recognized tax assets and liabilities.
We are subject to income taxes in the United Kingdom (the "U.K."), China, Mexico, the U.S., and many other jurisdictions. As
a result, our global effective tax rate from period to period can be affected by many factors, including changes in tax legislation,
changes in tax rates and tax laws, our jurisdictional mix of earnings, the use of global funding structures, the tax characteristics
of our income, the effects on our revenues and costs of complying with transfer pricing requirements under differing laws of
various countries, consequences of acquisitions and dispositions of businesses and business segments, the generation of
sufficient future taxable income to realize our deferred tax assets, and the taxation of subsidiary income in the jurisdiction of its
parent company regardless of whether or not distributed. Significant judgment is required in determining our worldwide
provision for (or benefit from) income taxes, and our determination of the amount of our tax liability is always subject to review
by applicable tax authorities. Refer to Note 7: Income Taxes of our Financial Statements included elsewhere in this Report for
additional information related to our accounting for income taxes.
We cannot provide any assurances as to what our tax rate will be in any period because of, among other things, uncertainty
regarding the nature and extent of our business activities in any particular jurisdiction in the future and the tax laws of such
jurisdictions, as well as changes in U.S. and other tax laws, treaties, and regulations, in particular related to proposed tax laws
by the U.S. government as a result of a new administration, which could increase our tax liabilities. Our actual global tax rate
may vary from our expectation and that variance may be material. We continually monitor all global regulatory developments
and consider alternatives to limit their detrimental impacts. However, not all unfavorable developments can be moderated, and
we may consequently experience adverse effects on our effective tax rate and cash flows.
For example, the European Commission (the "EC") has been conducting investigations of state aid and have focused on
whether EU sovereign country laws or rulings provide favorable treatment to taxpayers conflicting with its interpretation of EU
law. EC findings may have retroactive effect and can cause increases in tax liabilities where we considered ourselves in full
compliance with local legislation.
25
Furthermore, on October 8, 2021, the Organization for Economic Co-operation and Development (the "OECD") announced
most of its member jurisdictions agreed to the OECD’s Inclusive Framework of the Base Erosion and Profit Shifting project,
which establishes global minimum tax rules. These rules have begun to be reflected in local country laws where we do business
and are expected to apply beginning in calendar 2024. The precise impact of these laws is not yet known, and we cannot
provide assurances that Sensata can mitigate any increases in tax liabilities under these new rules. We continue to monitor
developments and will react accordingly.
We could be subject to future audits conducted by both foreign and domestic tax authorities, and the resolution of such audits
could impact our tax rate in future periods, as would any reclassification or other changes (such as those in applicable
accounting rules) that increases the amounts we have provided for income taxes in our consolidated financial statements. There
can be no assurance that we would be successful in attempting to mitigate the adverse impacts resulting from any changes in
law, audits, and other matters. Our inability to mitigate the negative consequences of any changes in the law, audits, and other
matters could cause our global tax rate to increase, our use of cash to increase, and our financial condition and results of
operations to suffer.
We are a holding company and, therefore, may not be able to receive dividends or other payments in needed amounts
from our subsidiaries.
We are organized as a holding company, a legal entity that is separate and distinct from our operating entities. As a holding
company without significant operations of its own, our principal assets are the shares of capital stock of our subsidiaries. We
rely on dividends, interest, and other payments from these subsidiaries to meet our obligations for paying principal and interest
on outstanding debt, repurchasing ordinary shares, and corporate expenses. Certain of our subsidiaries are subject to regulatory
requirements of the jurisdictions in which they operate or other restrictions that may limit the amounts that subsidiaries can pay
in dividends or other payments to us. No assurance can be given that there will not be further changes in law, regulatory
actions, or other circumstances that could restrict the ability of our subsidiaries to pay dividends or otherwise make payments to
us. Furthermore, no assurance can be given that our subsidiaries may be able to make timely payments to us in order for us to
meet our obligations.
Legal and Regulatory Risks
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act (the "U.S. FCPA"), the U.K.'s
Bribery Act, and similar worldwide anti-bribery laws.
The U.S. FCPA, the U.K.'s Bribery Act, and similar worldwide anti-bribery laws generally prohibit companies and their
intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Our
policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that 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 training and compliance program, we cannot provide assurance that our internal
control policies and procedures will protect us from reckless or criminal acts committed by our employees or agents. Violations
of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results
of operations, financial condition, and/or cash flows.
Export of our products is subject to various export control regulations and may require a license for export. Any failure
to comply with such regulations could result in governmental enforcement actions, fines, penalties, loss of export
privileges, or other remedies, which could have a material adverse effect on our business, results of operations, and
financial condition.
We are subject to compliance with laws and regulations controlling the import and export of goods, services, software, and
technical data. Certain of our products are subject to export regulations of the various jurisdictions in which we operate
(“Controlled Items”). The export of many such Controlled Items requires a license from the applicable government agency.
Licensing decisions are made based on type of product, its destination, end use, end user, the parties involved in the transaction,
national security, and foreign policy. As a result, export license approvals are not guaranteed. We have a trade compliance team
and other systems in place to apply for licenses and otherwise comply with import and export regulations. Any failure to
maintain compliance with such regulations could limit our ability to import or export raw material and finished goods. These
laws and regulations are subject to change, and any such change may limit or exclude existing or future business opportunities,
require us to change technology, or incur expenditures to comply with such laws and regulations.
26
We have discovered in the past, and may discover in the future, deficiencies in our trade compliance program. Although we
continue to enhance our trade compliance program, we cannot guarantee that any such enhancements will ensure full
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 regulations. Any failure by us to comply with applicable
laws and regulations could result in governmental enforcement actions, fines, penalties, criminal and/or civil proceedings, or
other remedies, any of which could have a material adverse effect on our business, results of operations, and/or financial
condition.
Changes in existing environmental or safety laws, regulations, and programs could reduce demand for our 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 operations expose us to the risk of material environmental liabilities, litigation, government enforcement actions,
and reputational risk.
We are subject to numerous federal, state, and local environmental protection and health and safety laws and regulations in the
various countries where we operate and where our products are sold. These laws and regulations govern, among other things,
the generation, storage, use, and transportation of hazardous materials; emissions or discharges of substances into the
environment; investigation and remediation of hazardous substances or materials at various sites; greenhouse gas emissions;
product hazardous material content; and the health and safety of our employees.
We may not have been, or we may not always be, in compliance with all environmental and health and safety laws and
regulations. If we violate these laws, we could be fined, criminally charged, or otherwise sanctioned by regulators. In addition,
environmental and health and safety laws are becoming more stringent, resulting in increased costs and compliance burdens.
Certain environmental laws assess liability on current or previous owners or operators of real property for the costs of
investigation, removal, and remediation of hazardous substances or materials at their properties or properties at which they have
disposed of hazardous substances. Liability for investigation, removal, and remediation costs under certain federal and state
laws is retroactive, strict, and joint and several. In addition to cleanup actions brought by governmental authorities, private
parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances.
We cannot provide assurance that our costs of complying with current or future environmental protection and health and safety
laws, or our liabilities arising from past or future releases of, or exposures to, hazardous substances will not exceed our
estimates or adversely affect our results of operations, financial condition, and cash flows, or that we will not be subject to
additional environmental claims for personal injury, property damage, and/or cleanup in the future based on our past, present, or
future business activities.
In addition, our products are subject to various requirements related to chemical usage, hazardous material content, and
recycling. The EU, China, and other jurisdictions in which our products are sold have enacted, or are proposing to enact, laws
addressing environmental and other impacts from product disposal, use of hazardous materials in products, use of chemicals in
manufacturing, recycling of products at the end of their useful life, and other related matters. These laws include but are not
limited to the EU RoHS, ELV, and Waste Electrical and Electronic Equipment Directives; the EU REACH regulation; the
German Explosives Act; and the China law on Management Methods for Controlling Pollution by Electronic Information
Products. These laws prohibit the use of certain substances in the manufacture of our products and directly and indirectly
impose a variety of requirements for modification of manufacturing processes, registration, chemical testing, labeling, and other
matters. These laws continue to proliferate and expand in these and other jurisdictions to address other materials and aspects of
our product manufacturing and sale. These laws could make the manufacture or sale of our products more expensive or
impossible, could limit our ability to sell our products in certain jurisdictions, and could result in liability for product recalls,
penalties, or other claims.
27
Our ability to compete effectively depends, in part, on our ability to maintain the proprietary nature of our products
and technology.
The electronics industry is characterized by litigation regarding patent and other intellectual property rights. Within this
industry, companies have become more aggressive in asserting and defending patent claims against competitors. There can be
no assurance that we will not be subject to future litigation alleging infringement or invalidity of certain of our intellectual
property rights, or that we will not have to pursue litigation to protect our property rights. Depending on the importance of the
technology, product, patent, trademark, or trade secret in question, an unfavorable outcome regarding one of these matters may
have a material adverse effect on our results of operations, financial condition, and/or cash flows.
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 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 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 also may 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.
We are a defendant to a variety of litigation in the course of our business that could cause a material adverse effect on
our results of operations, financial condition, and/or cash flows.
In the normal course of business, we are, from time to time, a defendant in litigation, including litigation alleging the
infringement of intellectual property rights, anti-competitive behavior, product liability, breach of contract, and employment-
related claims. In certain circumstances, patent infringement and antitrust laws permit successful plaintiffs to recover treble
damages. The defense of these lawsuits may divert our management's attention, and we may incur significant expenses in
defending these lawsuits. In addition, we may be required to pay damage awards or settlements, or become subject to
injunctions or other equitable remedies, that could cause a material adverse effect on our results of operations, financial
condition, and/or cash flows.
U.K. Domicile Risks
As a public limited company incorporated under the laws of England and Wales, we may have less flexibility with
respect to certain aspects of capital management.
English law imposes additional restrictions on certain corporate actions. For example, English law provides that a board of
directors may only allot, or issue, securities with the prior authorization of shareholders, such authorization being up to the
aggregate nominal amount of shares and for a maximum period of five years, each as specified in the articles of association or
relevant shareholder resolution. English law also generally provides shareholders with preemptive rights when new shares are
issued for cash; however, it is possible for the articles of association, or shareholders at a general meeting, to exclude
preemptive rights. Such an exclusion of preemptive rights may be for a maximum period of up to five years as specified in the
articles of association or relevant shareholder resolution. We currently only have authorization to issue shares under our equity
plan excluding preemptive rights until our next annual general meeting. This authorization and exclusion needs to be renewed
by our shareholders periodically and we intend to renew the authorization and exclusion at each annual general meeting.
English law also requires us to have available "distributable reserves" to make share repurchases or pay dividends to
shareholders. Distributable reserves may be created through the earnings of the U.K. parent company or other actions. While we
intend to maintain a sufficient level of distributable reserves, there is no assurance that we will continue to generate sufficient
earnings in order to maintain the necessary level of distributable reserves to make share repurchases or pay dividends.
28
English law also generally prohibits a company from repurchasing its own shares by way of "off-market purchases" without the
prior approval of our shareholders. Such approval lasts for a maximum period of up to five years. Our shares are traded on the
New York Stock Exchange, which is not a recognized investment exchange in the U.K. Consequently, any repurchase of our
shares is currently considered an "off-market purchase." Our current authorization expires on May 28, 2025, and we intend to
renew this authorization periodically.
As a public limited company incorporated under the laws of England and Wales, the enforcement of civil liabilities
against us may be more difficult.
Because we are a public limited company incorporated under the laws of England and Wales, investors could experience more
difficulty enforcing judgments obtained against us in U.S. courts than would have been the case for a U.S. company. In
addition, it may be more difficult (or impossible) to bring some types of claims against us in courts in England than it would be
to bring similar claims against a U.S. company in a U.S. court.
As a public limited company incorporated under the laws of England and Wales, it may not be possible to effect service
of process upon us within the U.S. to enforce judgments of U.S. courts against us based on the civil liability provisions of
the U.S. federal securities laws.
There is doubt as to the enforceability in England and Wales, in original actions or in actions for enforcement of judgments of
U.S. courts, of civil liabilities solely based on the U.S. federal securities laws. The English courts will, however, treat any
amount payable by us under U.S. judgment as a debt and new proceedings can be commenced in the English courts to enforce
this debt against us. The following criteria must be satisfied for the English court to enforce the debt created by the U.S.
judgment: (1) the U.S. court having had jurisdiction over the original proceedings according to English conflicts of laws
principles and rules of English private international law at the time when proceedings were initiated; (2) the U.S. proceedings
not having been brought in breach of a jurisdiction or arbitration clause except with the agreement of the defendant or the
defendant’s subsequent submission to the jurisdiction of the court; (3) the U.S. judgment being final and conclusive on the
merits in the sense of being final and unalterable in the court which pronounced it and being for a definite sum of money; (4)
the recognition or enforcement, as the case may be, of the U.S. judgment not contravening English public policy in a
sufficiently significant way or contravening the Human Rights Act 1998 (or any subordinate legislation made thereunder, to the
extent applicable); (5) the U.S. judgment not being for a sum payable in respect of taxes, or other charges of a like nature, or in
respect of a penalty or fine, or otherwise based on a U.S. law that an English court considers to be a penal or revenue law; (6)
the U.S. judgment not having been arrived at by doubling, trebling or otherwise multiplying a sum assessed as compensation for
the loss or damages sustained, and not otherwise being a judgment contrary to section 5 of the Protection of Trading Interests
Act 1980 or is a judgment based on measures designated by the Secretary of State under Section 1 of that Act; (7) the U.S.
judgment not having been obtained by fraud or in breach of English principles of natural justice; (8) the U.S. judgment not
being a judgment on a matter previously determined by an English court, or another court whose judgment is entitled to
recognition (or enforcement as the case may be) in England, in proceedings involving the same parties that conflicts with an
earlier judgment of such court; (9) the party seeking enforcement (being a party who is not ordinarily resident in some part of
the U.K. or resident in an EU Member State) providing security for costs, if ordered to do so by the English courts; and (10) the
English enforcement proceedings being commenced within the relevant limitation period.
If an English court gives judgment for the sum payable under a U.S. judgment, the English judgment will be enforceable by
methods generally available for this purpose. These methods generally permit the English court discretion to prescribe the
manner of enforcement. In addition, in any enforcement proceedings, the judgment debtor may raise any counterclaim that
could have been brought if the action had been originally brought in England unless the subject of the counterclaim was in issue
and denied in the U.S. proceedings.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
29
ITEM 2.
PROPERTIES
As of December 31, 2022, we occupied principal manufacturing facilities and business centers in the following locations:
Country
Bulgaria
Bulgaria
Bulgaria
China
China
India
Malaysia
Mexico
Mexico
Mexico
The Netherlands
United Kingdom
United Kingdom
United States
United States
United States
United States
United States
Location
Botevgrad
Plovdiv
Sofia
Baoying (1)
Changzhou
Pune
Subang Jaya
Aguascalientes
Mexicali
Tijuana
Hengelo
Antrim
Swindon (2)
Attleboro, MA (3)
Carpinteria, CA
Grandview, MO
Thousand Oaks, CA
Burlington, VT (4)
Reportable Segment
Performance
Sensing
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Sensing
Solutions
X
X
X
X
X
X
X
X
X
X
X
X
Approximate Square Footage (in thousands)
Owned
169
125
—
301
362
—
138
489
41
—
—
—
—
—
—
—
—
—
1,625
Leased
—
—
121
385
256
32
—
—
116
235
94
137
34
443
51
47
115
133
2,199
__________________________
(1) The owned portion of the properties in this location serves the Sensing Solutions segment only.
(2) Our U.K. headquarters is located in this facility.
(3) Our U.S. headquarters is located in this facility.
(4) This facility was added with the acquisition of Dynapower.
These facilities are primarily devoted to research, development, engineering, manufacturing, and assembly. In addition to these
principal facilities, we occupy other manufacturing, engineering, warehousing, administrative, and sales facilities worldwide,
which are primarily leased.
We consider our manufacturing facilities sufficient to meet our current operational requirements. 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 an
increase in demand, our customer relationships, results of operations, and/or financial condition may suffer materially. Leases
covering our currently occupied principal leased facilities expire at varying dates within the next 14 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.
A significant portion of our owned properties and equipment is subject to a lien under the Senior Secured Credit Facilities.
Refer to Note 14: Debt of our Financial Statements included elsewhere in this Report for additional information related to the
Senior Secured Credit Facilities.
ITEM 3. LEGAL PROCEEDINGS
We are regularly involved in a number of claims and litigation matters that arise in the ordinary course of business. Although it
is not feasible to predict the outcome of these matters, based upon our experience and current information known to us, we do
not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on our results
of operations, financial condition, or cash flows.
30
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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 under the symbol "ST."
Performance Graph
The following graph compares the total shareholder return of our ordinary shares since December 31, 2017 to the total
shareholder return since that date of 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, 2017.
Total Shareholder Return of $100.00 Investment from December 31, 2017
As of December 31,
Sensata
S&P 500
S&P 500 Industrial
2017
2018
2019
2020
2021
2022
$
$
$
100.00 $
100.00 $
100.00 $
87.73 $
95.62 $
85.00 $
105.40 $
125.72 $
107.81 $
103.19 $
148.85 $
117.52 $
120.70 $
191.58 $
140.32 $
79.61
156.88
130.35
The information in the graph and table above is not "soliciting material," is not deemed "filed" with the United States (the
"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 (this "Report"), 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 27, 2023, there were three holders of record of our ordinary shares, primarily Cede & Co. (which acts as nominee
shareholder for the Depository Trust Company).
31
SensataS&P 500S&P 500 Industrial201720182019202020212022$60$80$100$120$140$160$180$200
Dividends
In April 2022, our Board of Directors approved our first quarterly dividend of $0.11 per share, paid in May 2022. Subsequent to
this payment, we made additional quarterly payments in August 2022 and November 2022, each at $0.11 per share. Because we
are a holding company, our ability to continue 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"), may be limited in its ability to pay dividends or otherwise make distributions to its immediate parent company and,
ultimately, to us. Refer to Note 14: Debt of our audited consolidated financial statements and accompanying notes thereto
included elsewhere in this Report for additional information related to our dividend restrictions.
Additionally, certain of our subsidiaries may be limited in their ability to 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 the laws of England and Wales, we are able to declare dividends, make distributions, or repurchase shares
only out of distributable reserves on our statutory balance sheet. Distributable reserves are a company’s accumulated, realized
profits, so far as not previously utilized by distribution or capitalization, less its accumulated, realized losses, so far as not
previously written off in a reduction or reorganization of capital duly made. Realized reserves are determined in accordance
with International Financial Reporting Standards at the time the relevant accounts are prepared. We are not permitted to make a
distribution if, at the time, the amount of our net assets is less than the aggregate of our issued and paid-up share capital and
undistributable reserves or to the extent that the distribution will reduce our net assets below such amount. Subject to these
limitations, the payment of future cash dividends 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.
Under current United Kingdom ("U.K.") tax legislation, any future dividends paid by us will not be subject to withholding or
deduction on account of U.K. tax, irrespective of the tax residence or the individual circumstances of the recipient shareholder.
Shareholders should consult their tax advisors regarding their particular tax situation and the income tax consequences on any
potential dividend income received from us.
Issuer Purchases of Equity Securities
Period
October 1 through October 31, 2022
November 1 through November 30, 2022
December 1 through December 31, 2022
Quarter total
Total Number of
Shares Purchased
(in shares) (1)
Weighted-
Average
Price
Paid per
Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plan or
Programs
(in shares)(2)
Approximate Dollar Value of
Shares that May Yet Be Purchased
Under the Plan or Programs
(in millions) (2)
713,766 $
458,510 $
10,893 $
1,183,169 $
39.67
42.75
41.16
40.88
708,904 $
457,187 $
— $
1,166,091 $
244.1
224.5
224.5
224.5
__________________________
(1) The number of ordinary shares presented includes ordinary shares that were withheld to cover payment of employee
withholding tax upon the vesting of restricted securities. These withholdings took place outside of a publicly announced
repurchase plan. There were 4,862, 1,323, and 10,893 ordinary shares withheld in October 2022, November 2022, and
December 2022, respectively, representing a total aggregate fair value of $0.7 million based on the closing price of our
ordinary shares on the date of withholdings.
(2) All purchases during the three months ended December 31, 2022 were conducted pursuant to a $500.0 million share
repurchase program authorized by our Board of Directors and publicly announced on January 20, 2022 (the “January 2022
Program”). The January 2022 Program does not have an established expiration date.
ITEM 6. RESERVED
32
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, and liquidity and capital resources. You should read the following discussion in conjunction with Item 1: Business
and our audited consolidated financial statements and accompanying notes thereto (the "Financial Statements"), each included
elsewhere in this Annual Report on Form 10-K (this "Report").
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 Report. Our actual results may differ materially from those contained in or implied by any
forward-looking statements.
Overview
We innovate on behalf of our broad array of customers, solving some of their most difficult engineering challenges by
providing our products and solutions in the areas that we consider our most significant growth drivers, Electrification, Insights/
IoT, and Safe & Efficient. Solving these mission-critical challenges enables us to deliver differentiated value for both our
customers and shareholders while also investing in our growth opportunities and our people. Refer to Item 1: Business, included
elsewhere in this Report, for additional discussion on our growth drivers, including megatrends.
In fiscal year 2022, we completed two notable acquisitions in Electrification and Insights/IoT, Dynapower and Elastic M2M,
Inc. ("Elastic M2M"), respectively. Refer to Item 1: Business – Business Combinations and Note 21: Acquisitions and
Divestitures of our Financial Statements, each included elsewhere in this Report, for additional information related to these
acquisitions.
We anticipate significant change in the markets that we serve over the next 10 years, as our customers transform their
businesses and product portfolios to adjust to decarbonization trends. Many equipment categories are electrifying, and
significant investment is being made in global infrastructure to support this trend. During fiscal year 2022, we recognized
approximately $460 million of revenue in Electrification. In addition, new business wins ("NBOs") exceeded $1.0 billion in
fiscal year 2022, an increase from NBOs of $640 million in fiscal year 2021. We define NBOs as incremental revenue to our
current base of business that is expected to be recognized on average in the fifth year after entry into the agreement, when
programs typically reach their normal volume. Accordingly, NBOs are an indicator of future revenue potential. Approximately
70% of those NBOs in fiscal year 2022 were in Electrification, which will help drive future revenue outgrowth in this
megatrend.
Within our Insights/IoT megatrend initiative, we see a large and fast-growing market opportunity to deliver data insights across
heavy, medium, and light vehicle fleets. The Sensata INSIGHTS business addresses this opportunity by providing data and
video telematics, asset tracking devices, and other cloud-based solutions. In February 2022, we acquired Elastic M2M, which
augments our cloud capabilities critical to delivering actionable sensor-based insights, continuing the expansion of Sensata
INSIGHTS begun with the fiscal year 2021 acquisitions of Xirgo Technologies, LLC ("Xirgo") and SmartWitness Holdings,
Inc. ("SmartWitness"). Refer to Item 1: Business, included elsewhere in this Report, for additional discussion of the acquisition
of Elastic M2M. Sensata INSIGHTS revenue in fiscal year 2022 was approximately $173.3 million.
We believe regulatory requirements for safer vehicles, higher fuel efficiency, and lower emissions, as well as customer demand
for operator productivity and convenience, drive the need for advancements in powertrain management, efficiency, safety, and
operator controls. These advancements lead to sensor growth rates that we expect to exceed underlying production growth in
many of our key end markets, which we expect will continue to offer us significant growth opportunities. In fiscal year 2022,
according to third party data, global production of light vehicles increased approximately 6% from fiscal year 2021. Global
production in the heavy vehicle and off-road ("HVOR") markets we serve decreased approximately 12% from fiscal year 2021.
Our consolidated revenue increased 5.5% in fiscal year 2022 from the prior year. Excluding a decrease of 2.4% attributed to
changes in foreign currency exchange rates and an increase of 3.1% due to the net effect of acquisitions and divestitures,
consolidated net revenue increased 4.8% on an organic basis. This reflects organic revenue growth of 3.9% in Performance
Sensing and 7.5% in Sensing Solutions. Organic revenue growth (or decline), discussed throughout this Item 7: Management's
Discussion and Analysis of Financial Condition and Results of Operations (this "MD&A"), is a financial measure not presented
in accordance with U.S. generally accepted accounting principles ("GAAP"). Refer to Non-GAAP Financial Measures included
elsewhere in this MD&A for additional information related to our use of organic revenue growth (or decline).
33
While our underlying markets were pressured by continuing supply chain disruptions, we produced 820 basis points of market
outgrowth in fiscal year 2022, which includes higher pricing, content growth in the automotive and aerospace businesses, and
new Electrification launches in our Industrial business. We use the term "market outgrowth" to describe the impact of an
increasing quantity and value of our products used in customer systems and applications, above normal market growth. It is
only loosely correlated to normal unit demand fluctuations in the markets we serve. We believe we can continue to deliver end
market outgrowth based on our high levels of new business awards and our large and expanding pipeline of new opportunities.
Operating income for the year ended December 31, 2022 increased $36.9 million, or 5.8%, to $670.1 million (16.6% of net
revenue) compared to $633.2 million (16.6% of net revenue) in the prior year. This increase was primarily due to higher
volumes, improved pricing to offset inflationary material and logistics costs, partially offset by unfavorable movements in
foreign currency, the impact from investments in the growth vectors of Electrification and Insights/IoT, and the divestiture of
various assets and liabilities comprising our semiconductor test and thermal business (collectively, the "Qinex Business"). Refer
to Results of Operations included elsewhere in this MD&A for additional discussion of our earnings results for the year ended
December 31, 2022.
We have sufficient cash to take advantage of strategic opportunities as they arise. We generated $460.6 million of operating
cash flow in fiscal year 2022, ending the year with $1.2 billion in cash. In fiscal year 2022, we used approximately $631.5
million in cash for acquisitions and approximately $292.3 million for share repurchases. We also paid approximately $51.1
million in cash dividends. In fiscal year 2023, we will continue to return capital to shareholders through our dividend and
opportunistic share repurchases. We expect improving free cash flow will naturally allow leverage to decline and returns on
invested capital to improve over time. On January 31, 2023, we announced that we intended to pay down $250.0 million of
principal on the balance outstanding of the term loan facility (the “Term Loan”) under the senior secured credit facilities (the
"Senior Secured Credit Facilities"). That payment was completed on February 6, 2023.
Our long-standing mission is to help create a cleaner, safer, and more connected world, not just for our customer's products but
also through our own operations. We reduced our greenhouse gas emission intensity by more than 10% in fiscal year 2022,
reaching our fiscal year 2026 target four years earlier than anticipated. In addition, we're on our way to achieving the other
targets laid out in our Sustainability Report, bolstering the long-term sustainability and success of the company for all of its
stakeholders.
Selected Segment Information
We present financial information for two reportable segments, Performance Sensing and Sensing Solutions. Set forth below is
selected information for each of these segments for the periods presented. Amounts and percentages in the tables below have
been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of
rounding.
The following table presents net revenue by segment for the identified periods:
($ in millions)
Net revenue:
Performance Sensing
Sensing Solutions
Total net revenue
For the year ended December 31,
2022
2021
2020
Amount
Percent of
Total
Amount
Percent of
Total
Amount
Percent of
Total
$
$
2,976.8
1,052.5
4,029.3
73.9 % $
26.1
100.0 % $
2,847.9
972.9
3,820.8
74.5 % $
25.5
100.0 % $
2,223.8
821.8
3,045.6
73.0 %
27.0
100.0 %
34
The following table presents segment operating income in U.S. dollars ("USD") and as a percentage of segment net revenue for
the identified periods:
($ in millions)
Segment operating income:
Performance Sensing
Sensing Solutions
Total segment operating income
For the year ended December 31,
2022
2021
2020
Percent of
Segment
Net Revenue
Amount
Amount
Percent of
Segment
Net Revenue
Percent of
Segment
Net Revenue
Amount
$
$
751.6
300.0
1,051.7
25.2 % $
28.5 %
$
777.2
293.2
1,070.4
27.3 % $
30.1 %
$
532.5
241.2
773.7
23.9 %
29.4 %
For a reconciliation of total segment operating income to consolidated operating income, refer to Note 20: Segment Reporting
of our Financial Statements included elsewhere in this Report.
Selected Geographic Information
We are a global business with significant operations around the world and a diverse revenue mix by geography, customer, and
end market. The following table presents (as a percentage of total) property, plant and equipment ("PP&E") and net revenue by
geographic region for the identified periods:
Americas
Europe
Asia and rest of world
PP&E, net as of December 31,
Net revenue for the year ended December 31,
2022
2021
2022
2021
2020
33.7 %
20.0 %
46.3 %
32.3 %
22.0 %
45.7 %
42.3 %
25.9 %
31.8 %
38.0 %
26.2 %
35.8 %
39.3 %
26.8 %
33.9 %
Refer to Note 20: Segment Reporting of our Financial Statements included elsewhere in this Report for additional information
related to our PP&E, net balances by selected geographic area as of December 31, 2022 and 2021 and net revenue by selected
geographic area for the years ended December 31, 2022, 2021, and 2020.
Net Revenue by End Market
Our net revenue for the years ended December 31, 2022, 2021, and 2020 was derived from the following end markets:
(Percentage of total)
Automotive
HVOR
Industrial
Appliance and HVAC (1)
Aerospace
Other
__________________________
(1) Heating, ventilation and air conditioning
For the year ended December 31,
2022
2021
2020
52.3 %
22.5 %
13.0 %
5.4 %
3.8 %
3.0 %
54.0 %
21.7 %
10.8 %
6.4 %
3.5 %
3.6 %
57.5 %
16.7 %
11.0 %
6.2 %
4.5 %
4.1 %
We are a significant supplier to multiple original equipment manufacturers within many of these end markets, thereby reducing
customer concentration risk.
Factors Affecting Our Operating Results
The following discussion describes components of the consolidated statements of operations as well as factors that impact those
components. Refer to Note 2: Significant Accounting Policies of our Financial Statements included elsewhere in this Report,
and Critical Accounting Policies and Estimates included elsewhere in this MD&A for additional information related to the
accounting policies and estimates made related to these components. Refer to Results of Operations included elsewhere in this
MD&A for discussion of the actual impact on our financial statements of these factors.
35
Net revenue
We derive a significant portion of our revenue from sales into the automotive end market, and conditions in the automotive
industry can have a significant impact on the amount of revenue that we recognize. Outside of the automotive industry, we sell
our products and solutions to end-users in a wide range of industries, end markets, and geographic regions, and the drivers of
demand for these products and solutions vary considerably and are influenced by industry, market, or geographic conditions.
Changes in demand for these products and solutions could impact our revenue materially. Our overall net revenue is impacted
by various factors, which we characterize as "organic" or "inorganic." Inorganic factors include fluctuations in foreign currency
exchange rates and the net effect of acquisitions and divestitures.
Organic factors include fluctuations in overall economic activity within the industries, end markets, and geographic regions in
which we operate, which we term market growth. Other organic factors combine to reflect what we refer to as market
outgrowth. Such factors include (but are not limited to): (a) the number of our products used within existing applications, or the
development of new applications requiring these products, due to regulations or other factors; (b) the "mix" of products sold,
including the proportion of new or upgraded products and their pricing relative to existing products; (c) changes in product
sales prices (including quantity discounts, rebates, and cash discounts for prompt payment); (d) changes in the level of
competition faced by our products, including the launch of new products by competitors; (e) our ability to successfully develop,
launch, and sell new products and applications; and (f) the evolution of the markets we serve to safer, cleaner, and more
efficient, electrified, and connected technologies.
While the factors described above may impact net revenue in each of our reportable segments, the magnitude of that impact can
differ. For more information about revenue risks relating to our business, refer to Item 1A: Risk Factors included elsewhere in
this Report.
Cost of revenue
We manufacture most of our products, subcontracting only a limited number to third parties. As such, our cost of revenue
consists principally of the following:
• Production Materials Costs. We source production materials globally to ensure a highly effective and efficient supply
chain. However, we are still impacted by local market conditions, including fluctuations in foreign currency exchange
rates. A portion of our production materials contains certain commodities, resins, and metals, the cost of which may vary
with underlying pricing and foreign currency exchange rates. We use forward contracts to economically hedge a portion
of our exposure to the potential change in prices associated with certain of these commodities, including the impact of
exchange rate fluctuations. The terms of these forward contracts fix the price of these commodities at a future date for
various notional amounts. Gains and losses recognized on these derivatives are recorded in other, net and are not
included in cost of revenue. Refer to Note 6: Other, Net of our Financial Statements included elsewhere in this Report
for additional information.
• Employee Costs. Wages and benefits, including variable incentive compensation, for employees involved in our
manufacturing operations and certain customer service and engineering activities is reflected in cost of revenue. A
substantial portion of these costs can fluctuate on an aggregate basis in direct correlation with changes in production
volumes. These costs may decline as a percentage of net revenue due to economies of scale associated with higher
production volumes, and conversely, may increase with lower production volumes. These costs also fluctuate based on
local labor market conditions. We rely on contract workers for direct labor in certain geographies. As of December 31,
2022, we had approximately 1,800 direct labor contract workers worldwide.
•
Sustaining Engineering Activity Costs. Modifications of existing products for use by new and existing customers in
familiar applications are included in cost of revenue, as are costs related to improvements in our manufacturing
processes.
• 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; material yields; costs to import raw materials, such as tariffs;
depreciation of fixed assets used in the manufacturing process; freight costs; warehousing expenses; maintenance and
repair expenses; costs of quality assurance; operating supplies; and other general manufacturing expenses, such as
expenses for energy consumption and operating lease expense.
36
Changes in cost of revenue as a percentage of net revenue have historically been impacted by several factors, including:
•
•
•
•
•
•
•
•
•
•
•
•
changes in the price of raw materials, including the impact of changes in costs to import such raw materials, such as
tariffs;
changes in customer prices and surcharges;
implementation of cost improvement measures aimed at increasing productivity, including reduction of fixed production
costs, refinements in inventory management, design and process driven changes, and the coordination of procurement
within each subsidiary and at the business level;
product lifecycles, as we typically incur higher costs associated with new product development (related to excess
manufacturing capacity and higher production costs during the initial stages of product launches) and during the phase-
out of discontinued products;
changes in production volumes, as a portion of production costs are fixed;
transfer of production to our lower-cost manufacturing facilities;
changes in depreciation expense, including those arising from the adjustment of PP&E to fair value associated with
acquisitions;
fluctuations in foreign currency exchange rates;
changes in product mix;
changes in logistics costs;
acquisitions and divestitures – acquired and divested businesses may generate higher or lower cost of revenue as a
percentage of net revenue than our core business; and
the increase in the carrying value of inventory adjusted to fair value upon the application of purchase accounting
associated with acquisitions.
Research and development expense
We develop products that address increasingly complex engineering and operating performance requirements to help our
customers solve their most difficult challenges in the automotive, HVOR, fleet management, industrial, clean energy, and
aerospace industries. We believe that continued focused investment in research and development ("R&D") is critical to our
future growth and maintaining our leadership positions in the markets we serve. Our R&D efforts are directly related to timely
development of new and enhanced products that are central to our business strategy. We continually develop our technologies
to meet an evolving set of customer requirements and new product introductions. We conduct such activities in areas that we
believe will increase our long-term 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. In addition, we continually consider new technologies where we may have expertise for potential
investment or acquisition.
A large portion of our R&D activities is directed towards technologies and megatrends that we believe have the potential for
significant future growth, but that relate to products that are not currently within our core business or include new features and
capabilities for existing products. Expenses related to these activities are less likely to result in increased near-term revenue than
our more mainstream development activities.
R&D expense consists of costs related to product design, development, and process engineering. Costs related to modifications
of existing products for use by new and existing customers in familiar applications are presented in cost of revenue and are not
included in R&D expense. The level of R&D expense in any period 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.
Selling, general and administrative expense
Selling, general and administrative ("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 and marketing
personnel and administrative staff; share-based incentive compensation expense; charges related to the use and maintenance of
administrative offices, including depreciation expense; other administrative costs, including expenses relating to information
systems, human resources, and legal, finance, and accounting services; other selling and marketing related costs, such as
expenses incurred in connection with travel and communications; and transaction costs associated with acquisitions.
37
Changes in SG&A expense as a percentage 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 selling, marketing, and
administrative expense over higher revenue (e.g. expenses relating to our sales and marketing personnel can fluctuate
due to prolonged trends in sales volume, while expenses relating to administrative personnel generally do not increase or
decrease directly with changes in sales volume);
changes in customer prices and surcharges;
changes in the mix of products we sell, as some products may require more customer support and sales effort than others;
new product launches in existing and new markets, as these launches typically involve a more intense sales and
marketing activity before they are integrated into customer applications and systems;
changes in our customer base, as new customers may require different levels of sales and marketing attention;
fluctuations in foreign currency exchange rates; and
acquisitions and divestitures - acquired and divested businesses may require different levels of SG&A expense as a
percentage of net revenue than our core business.
Depreciation expense
Depreciation expense includes depreciation of PP&E, which includes assets held under finance lease and amortization of
leasehold improvements. 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 vary according to the age of existing PP&E and
the level of capital expenditures.
Amortization expense
We have recognized a significant amount of definite-lived intangible assets. Acquisition-related definite-lived 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 and timing of definite-lived intangible assets acquired and where previously acquired definite-lived
intangible assets are in their estimated life-cycle. In general, the economic benefit of a definite-lived intangible asset is
concentrated towards the beginning of its useful life.
Restructuring and other charges, net
Restructuring and other charges, net consists of severance, outplacement, other separation benefits, and facility and other exit
costs. These charges may be incurred as part of an announced restructuring plan or may be individual charges recognized
related to acquired businesses or the termination of a limited number of employees that do not represent the initiation of a larger
restructuring plan. Restructuring and other charges, net also includes the gain, net of transaction costs, from the sale of
businesses, expense incurred from acquisition-related compensation arrangements, and other operating income or expense that
is not presented elsewhere in operating income.
Amounts recognized in restructuring and other charges, net will vary according to the extent of our restructuring programs and
other income or expense items not presented elsewhere in operating income.
Interest expense, net
As of December 31, 2022 and 2021, we had gross outstanding indebtedness of $4,273.4 million and $4,280.2 million,
respectively. This indebtedness consists of a secured credit facility and senior unsecured notes. Refer to Note 14: Debt of our
Financial Statements included elsewhere in this Report for additional information.
The credit agreement governing our secured credit facility (as amended, the "Credit Agreement") provides for the Senior
Secured Credit Facilities, consisting of the Term Loan, the $750.0 million revolving credit facility (the "Revolving Credit
Facility"), and incremental availability (the "Accordion") under which additional secured credit facilities could be issued under
certain circumstances.
Our various tranches of senior unsecured notes (the "Senior Notes") accrue interest at fixed rates. However, the Term Loan and
the Revolving Credit Facility accrue interest at variable interest rates, which drives some of the variability in interest expense,
net. Refer to Item 7A: Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this Report for more
information regarding our exposure to potential changes in variable interest rates.
38
Interest income, which is netted against interest expense on the consolidated statements of operations, relates to interest earned
on our cash and cash equivalent balances, and varies according to the balances in, and the interest rates provided by, these
investments.
Other, net
Other, net primarily includes gains and losses associated with the remeasurement of non-USD denominated monetary assets
and liabilities into USD, changes in the fair value of derivative financial instruments not designated as cash flow hedges, mark-
to-market gains and losses on investments, losses on debt financing transactions, and net periodic benefit cost, excluding
service cost.
Amounts recognized in other, net vary according to changes in foreign currency exchange rates, changes in the forward prices
for the foreign currencies and commodities that we hedge, the value of equity investments recorded on our consolidated balance
sheets at fair value, the number and magnitude of debt financing transactions we undertake, and the change in funded status of
our pension and other post-retirement benefit plans.
Refer to Note 6: Other, Net of our Financial Statements included elsewhere in this Report for additional information related to
the components of other, net. Refer to Item 7A: Quantitative and Qualitative Disclosures About Market Risk included elsewhere
in this Report for additional information related to our exposure to potential changes in foreign currency exchange rates and
commodity prices. Refer to Note 14: Debt of our Financial Statements included elsewhere in this Report for additional
information related to our debt financing transactions.
Provision for (or benefit from) income taxes
We are subject to income tax in the various jurisdictions in which we operate. The provision for (or benefit from) income taxes
consists of: current tax expense, which relates primarily to our profitable operations in non-U.S. tax jurisdictions and
withholding taxes related to interest, royalties, and repatriation of foreign earnings; and deferred tax expense (or benefit), which
represents adjustments in book-to-tax basis differences primarily related to the step-up in fair value of fixed and intangible
assets, including goodwill, acquired in connection with business combination transactions, the utilization of net operating
losses, changes in tax rates, and changes in our assessment of the realizability of our deferred tax assets.
Our current tax expense is favorably impacted by the amortization of definite-lived intangible assets and other tax benefits
derived from our operating and capital structure, including tax incentives in both the United Kingdom (the "U.K.") and China as
well as favorable tax status in Mexico. In addition, our tax structure takes advantage of participation exemption regimes that
permit the receipt of intercompany dividends without incurring taxable income in those jurisdictions.
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 of our
subsidiaries and of Sensata as a whole.
Our effective tax rate will generally not equal the U.S. statutory tax rate 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:
•
•
•
•
•
•
establishing or releasing a portion of the valuation allowance related to our gross deferred tax assets;
foreign tax rate differential - we operate in locations outside the U.S., including Belgium, Bulgaria, China, Malaysia,
Malta, the Netherlands, South Korea, and the U.K., that historically have had statutory tax rates different than the U.S.
statutory tax rate. This can result in a foreign tax rate differential that may reflect a tax benefit or detriment. This foreign
tax rate differential can change from year to year based upon the jurisdictional mix of earnings and changes in current
and future enacted tax rates, tax holidays, and favorable tax regimes available to certain of our foreign subsidiaries;
changes in tax laws and rates, also Organization for Economic Co-operation and Development ("OECD") developments
and European Commission ("EC") challenges to sovereign European Union member states;
losses incurred in certain jurisdictions, which cannot be currently benefited, if it is not more likely than not that the
associated deferred tax asset will be realized in the foreseeable future;
foreign currency exchange gains and losses;
as a result of income tax audit settlements, final assessments, or lapse of applicable statutes of limitation, we may
recognize an income tax expense or benefit including adjustment of previously accrued interest and penalties; and
39
•
in certain jurisdictions, we recognize withholding and other taxes on intercompany payments, including dividends, and
such taxes are deducted if they cannot be credited against the recipient's tax liability in its country of residence.
Seasonality
Refer to Item 1: Business included elsewhere in this Report for discussion of our assessment of seasonality related to our
business.
Legal Proceedings
Refer to Item 3: Legal Proceedings included elsewhere in this Report for discussion of legal proceedings related to our
business.
Results of Operations
Our discussion and analysis of results of operations are based upon our Financial Statements included elsewhere in this Report.
The Financial Statements have been prepared in accordance with U.S. GAAP. The preparation of the Financial Statements
requires us to make estimates and judgments that affect the amounts reported therein. We base our estimates on historical
experience and assumptions believed to be reasonable under the circumstances, and we re-evaluate such estimates on an
ongoing basis. 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 Financial
Statements included elsewhere in this Report and Critical Accounting Policies and Estimates included elsewhere in this
MD&A.
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 from our Financial Statements. Amounts and percentages in the table below have been
calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of
rounding.
For the year ended December 31,
2022
2021
2020
Amount
Percent of
Net Revenue
Amount
Percent of
Net Revenue
Amount
Percent of
Net Revenue
$
$
2,976.8
1,052.5
4,029.3
3,359.1
670.1
(178.8)
(94.6)
396.7
86.0
310.7
73.9 % $
26.1
100.0 %
83.4
16.6
(4.4)
(2.3)
9.8
2.1
7.7 % $
2,847.9
972.9
3,820.8
3,187.6
633.2
(179.3)
(40.0)
413.9
50.3
363.6
74.5 % $
25.5
100.0 %
83.4
16.6
(4.7)
(1.0)
10.8
1.3
9.5 % $
2,223.8
821.8
3,045.6
2,707.8
337.7
(171.8)
(0.3)
165.6
1.4
164.3
73.0%
27.0
100.0%
88.9
11.1
(5.6)
0.0
5.4
0.0
5.4 %
Net revenue:
Performance Sensing
Sensing Solutions
Total net revenue
Operating costs and expenses
Operating income
Interest expense, net
Other, net
Income before taxes
Provision for income taxes
Net income
Net revenue - Overall
Net revenue for the year ended December 31, 2022 increased 5.5% compared to the year ended December 31, 2021. Excluding
a decrease of 2.4% attributed to changes in foreign currency exchange rates and an increase of 3.1% due to the net effect of
acquisitions and divestitures, net revenue increased 4.8% on an organic basis, which represented market outgrowth of 820 basis
points.
Net revenue for the year ended December 31, 2021 increased 25.5% compared to the year ended December 31, 2020 largely
due to improved market results and our continued outperformance relative to those markets. Excluding an increase of 2.3%
attributed to changes in foreign currency exchange rates and an increase of 2.5% due to the effect of acquisitions, net revenue
increased 20.7% on an organic basis, which represented market outgrowth of 960 basis points.
40
Net Revenue - Performance Sensing
Fiscal year 2022 vs. fiscal year 2021
Performance Sensing net revenue for the year ended December 31, 2022 increased 4.5% compared to the year ended
December 31, 2021. Excluding a decrease of 2.7% attributed to changes in foreign currency exchange rates and an increase of
3.3% due to the effect of acquisitions, Performance Sensing net revenue increased 3.9% on an organic basis. Both the
Automotive and HVOR operating segments contributed to these results as discussed below.
Automotive net revenue for the year ended December 31, 2022 increased 2.7% compared to the year ended December 31, 2021.
Excluding a decrease of 3.0% attributed to changes in foreign currency exchange rates, automotive net revenue increased 5.7%
on an organic basis. This organic revenue growth was primarily due to continued content growth and pricing.
HVOR net revenue for the year ended December 31, 2022 increased 9.0% compared to the year ended December 31, 2021.
Excluding a decrease of 1.7% attributed to changes in foreign currency exchange rates and an increase of 11.4% due to the
effect of acquisitions, HVOR net revenue decreased 0.7% on an organic basis. This organic revenue decline was primarily due
to declining market conditions, largely offset by continued content growth and pricing.
Fiscal year 2021 vs. fiscal year 2020
Performance Sensing net revenue for the year ended December 31, 2021 increased 28.1% compared to the year ended
December 31, 2020. Excluding an increase of 2.4% attributed to changes in foreign currency exchange rates and an increase of
3.4% due to the effect of acquisitions, Performance Sensing net revenue increased 22.3% on an organic basis compared to the
year ended December 31, 2020. Both the Automotive and HVOR operating segments contributed to these results as discussed
below.
Automotive net revenue for the year ended December 31, 2021 increased 17.6% compared to the year ended December 31,
2020. Excluding an increase of 2.5% attributed to changes in foreign currency exchange rates, automotive net revenue increased
15.1% on an organic basis. Although automotive production was constrained due to global supply chain shortages, resulting in
muted end market growth of 1.2% for the year, we delivered organic revenue growth due to our continued outperformance
relative to the automotive market, led by new product launches in powertrain and emissions, safety, and electrification-related
applications and systems.
HVOR net revenue for the year ended December 31, 2021 increased 63.3% compared to the year ended December 31, 2020.
Excluding an increase of 2.1% attributed to changes in foreign currency exchange rates and an increase of 14.8% due to the
effect of acquisitions, HVOR net revenue increased 46.4% on an organic basis. This organic revenue increase is primarily due
to recovery of customer production combined with our continued outperformance relative to the HVOR markets. Our China on-
road truck business saw significant market outgrowth from the adoption of NS6 emissions regulations, and we are also
benefiting from a wave of electromechanical operator controls being installed in new off-road equipment.
Net Revenue - Sensing Solutions
Fiscal year 2022 vs. fiscal year 2021
Sensing Solutions net revenue for the year ended December 31, 2022 increased 8.2% compared to the year ended December 31,
2021. Excluding a decrease of 1.7% attributed to changes in foreign currency exchange rates and an increase of 2.4% due to the
net effect of acquisitions and divestitures, Sensing Solutions net revenue increased 7.5% on an organic basis, which primarily
reflects the launch of new industrial Electrification applications within the Clean Energy Solutions business as well as growth in
content in other industrial businesses and aerospace, partially offset by weakness in our industrial markets, particularly
appliance and HVAC.
Fiscal year 2021 vs. fiscal year 2020
Sensing Solutions net revenue for the year ended December 31, 2021 increased 18.4% compared to the year ended
December 31, 2020. Excluding an increase of 1.7% attributed to changes in foreign currency exchange rates and an increase of
0.3% due to the effect of acquisitions, Sensing Solutions net revenue increased 16.4% on an organic basis. The increase in net
revenue was driven by the continued recovery of global industrial end markets, as well as new Electrification launches and
HVAC market recovery.
41
Operating costs and expenses
Operating costs and expenses for the years ended December 31, 2022, 2021, and 2020 are presented, in millions of dollars and
as a percentage of revenue, in the following table. Amounts and percentages in the table below have been calculated based on
unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
For the year ended December 31,
2022
2021
2020
Amount
Percent of
Net Revenue
Amount
Percent of
Net Revenue
Amount
Percent of
Net Revenue
$ 2,712.0
189.3
370.6
153.8
(66.7)
$ 3,359.1
67.3 % $
4.7
9.2
3.8
(1.7)
83.4 % $
2,542.4
159.1
337.0
134.1
14.9
3,187.6
66.5 % $
4.2
8.8
3.5
0.4
83.4 % $
2,119.0
131.4
294.7
129.5
33.1
2,707.8
69.6 %
4.3
9.7
4.3
1.1
88.9 %
Operating costs and expenses:
Cost of revenue
Research and development
Selling, general and administrative
Amortization of intangible assets
Restructuring and other charges, net
Total operating costs and expenses
Cost of revenue
Cost of revenue as a percentage of net revenue increased in fiscal year 2022, primarily due to the impacts of inflation on
material and logistics costs and the unfavorable impact of product mix, partially offset by improved pricing.
Cost of revenue as a percentage of net revenue decreased in fiscal year 2021 primarily as a result of (1) higher volume and the
nonrecurrence of productivity headwinds from our manufacturing facilities running at lower-than-normal capacity in fiscal year
2020 and (2) the nonrecurrence of a $29.2 million loss from fiscal year 2020 in intellectual property litigation originally brought
against August Cayman Company, Inc. ("Schrader") by Wasica Finance GmbH ("Wasica"). These favorable impacts on cost of
revenue as a percentage of revenue were partially offset by increased costs related to global supply chain shortages.
Research and development expense
We invest in R&D in megatrend-related areas to design and develop differentiated solutions for the fast-growing trends
impacting our customers’ businesses, Electrification and Insights/IoT. Megatrend-related R&D expense in fiscal year 2022 was
$68.5 million, an increase of $20.5 million from fiscal year 2021. We currently expect approximately $65 million to $70
million in total megatrend spend in fiscal year 2023, the vast majority of which will be recorded as R&D expense.
Total R&D expense increased in fiscal year 2022, primarily as a result of (1) higher spend to support megatrend growth
initiatives and (2) incremental R&D expense related to acquired businesses, partially offset by the favorable effect of foreign
currency exchange rates.
R&D expense increased in fiscal year 2021, primarily as a result of (1) higher spend to support megatrend growth initiatives,
(2) incremental R&D expense related to acquired businesses, and (3) the unfavorable effect of changes in foreign currency
exchange rates, partially offset by the impact on fiscal year 2021 of ongoing savings resulting from cost reduction activities
taken in fiscal year 2020. R&D expense in fiscal year 2021 related to megatrends was $48.0 million, an increase of
$22.0 million from fiscal year 2020.
Selling, general and administrative expense
SG&A expense increased in fiscal year 2022, primarily as a result of (1) incremental SG&A expense related to acquired
businesses, including related transaction costs, (2) increased selling expenses attributed to organic revenue growth, and (3)
higher share-based compensation, partially offset by the favorable effect of changes in foreign currency exchange rates. Refer to
Note 21: Acquisitions and Divestitures and Note 4: Share-Based Payment Plans of our Financial Statements, included
elsewhere in this Report, for additional information related to acquired businesses and share-based compensation, respectively.
SG&A expense increased in fiscal year 2021, primarily as a result of (1) incremental SG&A expense related to acquired
businesses, including related transaction costs, (2) higher incentive compensation aligned to improved financial performance,
(3) increased selling expenses attributed to organic revenue growth, and (4) the unfavorable effect of changes in foreign
currency exchange rates. These increases were partially offset by the fiscal year 2020 completion of a project related to
enhancements and improvements of our global operating processes to increase productivity and the resulting reduction in
professional fees.
42
Amortization of intangible assets
Amortization expense increased in fiscal year 2022, primarily due to increased intangibles from recent acquisitions. Refer to
Note 21: Acquisitions and Divestitures of our Financial Statements, included elsewhere in this Report, for additional
information related to acquired businesses.
We expect amortization expense to be approximately $153.7 million in fiscal year 2023. Refer to Note 11: Goodwill and Other
Intangible Assets, Net of our Financial Statements included elsewhere in this Report for additional information regarding
definite-lived intangible assets and the related amortization.
Amortization expense increased in fiscal year 2021 primarily as a result of increased intangibles from recent acquisitions
partially offset by the effect of the economic-benefit method of amortization as described in Note 2: Significant Accounting
Policies of our Financial Statements included elsewhere in this Report.
Restructuring and other charges, net
We recorded a net credit of $66.7 million in restructuring and other charges, net in the year ended December 31, 2022,
compared to a net charge of $14.9 million in the prior year, representing a favorable change in earnings of $81.6 million. This
change was primarily due to (1) a gain of $135.1 million on the sale of the Qinex Business and (2) a gain of $8.6 million
resulting from the reduction of the liability for contingent consideration for Spear Power Systems ("Spear"), partially offset by
(1) expense of $48.9 million for acquisition-related compensation arrangements and (2) higher severance that does not represent
the initiation of a larger plan. Refer to Note 5: Restructuring and Other Charges, Net of our Financial Statements, included
elsewhere in this Report, for additional information on the components of restructuring and other charges, net.
Restructuring and other charges, net decreased in fiscal year 2021 primarily due to lower restructuring charges incurred as part
of a plan commenced in fiscal year 2020 to reorganize our business in response to the potential long-term impact of the global
financial and health crisis caused by the COVID-19 pandemic (the “Q2 2020 Global Restructure Program”). Refer to Note 5:
Restructuring and Other Charges, Net of our Financial Statements included elsewhere in this Report for additional information
related to the Q2 2020 Global Restructure Program.
Operating income
In fiscal year 2022, operating income increased $36.9 million or 5.8%, to $670.1 million (16.6% of net revenue) compared to
$633.2 million (16.6% of net revenue) in fiscal year 2021, primarily due to (1) the gain on the sale of the Qinex Business and
(2) improvements in pricing to offset increased costs, partially offset by (1) the impact of inflation on our component and
logistics costs, (2) higher acquisition-related incentive compensation, (3) the negative impact of product mix, (4) higher
amortization, primarily due to acquired intangible assets, (5) higher spend to support our megatrends initiatives, and (6) the
unfavorable effect of changes in foreign currency exchange rates.
In fiscal year 2021, operating income increased $295.5 million or 87.5%, to $633.2 million (16.6% of net revenue) compared to
$337.7 million (11.1% of net revenue) in fiscal year 2020. This increase was primarily driven by improved gross margins, due
mainly to (1) higher organic sales volumes and (2) the turnaround effect of the Wasica litigation settlement in fiscal year 2020,
partially offset by (1) increased costs related to global supply chain shortages, and (2) lower restructuring costs. This effect of
improved gross margins was partially offset by (1) higher spend to support megatrend growth initiatives, (2) higher incentive
compensation aligned to improved financial performance, and (3) the turnaround effect of temporary salary reductions and
furloughs taken in the second quarter 2020.
Interest expense, net
Interest expense, net did not change materially in fiscal year 2022, as the impact of various transactions and higher interest rates
largely offset. Refer to the table detailing interest expense by debt instrument under the heading Indebtedness and Liquidity,
included elsewhere in this MD&A. On January 31, 2023, we announced that we intended to pay down $250.0 million of
outstanding principal on the Term Loan. That payment was completed on February 6, 2023.
Interest expense, net increased in fiscal year 2021 primarily as a result of (1) interest expense in fiscal year 2021 related to the
issuance of $1.0 billion aggregate principal amount of 4.0% senior notes due 2029 (the “4.0% Senior Notes”), (2) additional
interest expense in fiscal year 2021 related to the $750.0 million aggregate principal amount of 3.75% senior notes due 2031
(the "3.75% Senior Notes") as a result of their issuance in fiscal year 2020, partially offset by reduced interest as a result of the
redemption of the $750.0 million aggregate principal amount outstanding on the 6.25% senior notes due 2026 (the "6.25%
Senior Notes") early in fiscal year 2021.
43
Other, net
Other, net for the years ended December 31, 2022, 2021, and 2020 consisted of the following (amounts have been calculated
based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):
(In millions)
Currency remeasurement (loss)/gain on net monetary assets (1)
Gain/(loss) on foreign currency forward contracts (2)
(Loss)/gain on commodity forward contracts (2)
Loss on debt financing (3)
Mark-to-market loss on investments, net (4)
Net periodic benefit cost, excluding service cost
Other
Other, net
For the year ended December 31,
2021
2020
2022
$
$
(18.2) $
4.3
(3.4)
(5.5)
(75.6)
(5.1)
8.7
(94.6) $
3.4 $
(7.6)
(3.0)
(30.1)
—
(7.5)
4.6
(40.0) $
10.8
(6.8)
10.0
—
—
(10.0)
(4.5)
(0.3)
__________________________
(1) Relates to the remeasurement of non-USD denominated monetary assets and liabilities into USD.
(2) Relates to changes in the fair value of derivative financial instruments that are not designated as hedges. Refer to Note 19:
Derivative Instruments and Hedging Activities of our Financial Statements included elsewhere in this Report for additional
information related to gains and losses on our commodity and foreign currency forward contracts. Refer to Item 7A:
Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this Report for an analysis of the
sensitivity of other, net to changes in foreign currency exchange rates and commodity prices.
(3) Refer to Note 14: Debt of our Financial Statements included elsewhere in this Report for additional information related to
our debt financing transactions.
(4) Primarily relates to mark-to-market losses on our investment in Quanergy Systems, Inc. ("Quanergy"), as disclosed in Note
18: Fair Value Measures, of our Financial Statements included elsewhere in this Report.
Provision for income taxes
The components of provision for income taxes for the years ended December 31, 2022, 2021, and 2020 are described in more
detail in the table below (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not
appear to recalculate due to the effect of rounding):
(In millions)
Tax computed at statutory rate of 21% (1)
Foreign tax rate differential (2)
Valuation allowances (3)
Withholding taxes not creditable
Research and development incentives (4)
Unrealized foreign currency exchange losses, net
Dispositions and capital restructurings (5)
Change in tax laws or rates
Reserve for tax exposure
Other (6)
Provision for income taxes
For the year ended December 31,
2022
2021
2020
$
$
83.3 $
(44.3)
15.7
12.3
(10.8)
9.3
4.5
2.6
1.3
12.1
86.0 $
86.9 $
(30.5)
20.5
13.3
(11.1)
(6.1)
—
(7.1)
(16.3)
0.7
50.3 $
34.8
(22.0)
8.9
12.2
(7.4)
2.7
(54.2)
11.2
(0.2)
15.4
1.4
__________________________
(1) Represents the product of the applicable statutory tax rate and income before taxes, as reported in the consolidated
statements of operations.
(2) We operate in locations outside the U.S., including Belgium, Bulgaria, China, Malaysia, Malta, Mexico, the Netherlands,
South Korea, and the U.K., that historically have had statutory tax rates different than the U.S. statutory tax rate. This can
result in a foreign tax rate differential that may reflect a tax benefit or detriment. This foreign tax rate differential can
change from year to year based upon the jurisdictional mix of earnings and changes in current and future enacted tax rates.
Certain of our subsidiaries are currently eligible, or have been eligible, for tax exemptions or reduced tax rates in their
respective jurisdictions.
44
(3) During the years ended December 31, 2022, 2021, and 2020, we established an additional valuation allowance and
recognized a deferred tax expense. The valuation allowance as of December 31, 2022 and 2021 was $249.5 million and
$225.9 million, respectively. A significant portion of our valuation allowance is against interest carryforwards due to our
assessment of our inability to utilize these carryforwards based on our forecasts of future taxable income. The remaining
valuation allowance primarily relates to foreign tax credits, capital loss carryforwards, goodwill tax basis, and net operating
losses in jurisdictions outside the U.S. It is more likely than not that these attributes 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 provision for (or benefit from) income taxes.
In China, we benefit from the R&D super deduction regime. In the U.K., certain of our subsidiaries are eligible for lower
tax rates under the "patent box" regime. In the U.S., we benefit from the federal research and development credit.
(5) The increase in our effective tax rate for the year ended December 31, 2022 is due to the tax accounting impacts of the
(4)
divestiture of the Qinex Business, partially offset by separate intangible property transfers. For the year ended December
31, 2020, the decrease in our effective tax rate was due to a net $54.2 million deferred tax benefit in the fourth quarter of
2020 related to intangible property transfers.
(6) Refer to Note 7: Income Taxes of our Financial Statements included elsewhere in this Report for additional information
related to other components of our 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.
Non-GAAP Financial Measures
This section provides additional information regarding certain non-GAAP financial measures, including organic revenue
growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted earnings per share
("EPS"), free cash flow, adjusted corporate and other expenses, net debt, net leverage ratio, and adjusted earnings before
interest, taxes, depreciation, and amortization ("EBITDA"), which are used by our management, Board of Directors, and
investors. We use these non-GAAP financial measures internally to make operating and strategic decisions, including the
preparation of our annual operating plan, evaluation of our overall business performance, and as a factor in determining
compensation for certain employees.
The use of our non-GAAP financial measures has limitations. They should be considered as supplemental in nature and are not
intended to be considered in isolation from, or as an alternative to, reported net revenue growth (or decline), operating income,
operating margin, net income, diluted EPS, operating cash flows, corporate and other expenses, total debt, finance lease, and
other financing obligations, or EBITDA, respectively, calculated in accordance with U.S. GAAP. In addition, our measures of
organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted EPS,
free cash flow, adjusted corporate and other expenses, net leverage ratio, and adjusted EBITDA may not be the same as, or
comparable to, similar non-GAAP financial measures presented by other companies.
Organic revenue growth (or decline)
Organic revenue growth (or decline) is defined as the reported percentage change in net revenue, calculated in accordance with
U.S. GAAP, excluding the period-over-period impact of foreign currency exchange rate differences as well as the net impact of
material acquisitions and divestitures for the 12-month period following the respective transaction date(s).
We believe that 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 as well as for internal
planning and forecasting purposes. We believe that 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 period.
Adjusted operating income, adjusted operating margin, adjusted net income, and adjusted EPS
We define adjusted operating income as operating income, determined in accordance with U.S. GAAP, excluding certain non-
GAAP adjustments which are described below. Adjusted operating margin is calculated by dividing adjusted operating income
by net revenue determined in accordance with U.S. GAAP. We define adjusted net income as follows: net income (or loss)
determined in accordance with U.S. GAAP, excluding certain non-GAAP adjustments which are described in Non-GAAP
adjustments below. Adjusted EPS is calculated by dividing adjusted net income by the number of diluted weighted-average
ordinary shares outstanding in the period.
45
Management uses adjusted operating income, adjusted operating margin, adjusted net income, and adjusted EPS as measures 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, in
communications with our Board of Directors and investors concerning our financial performance, and as factors in determining
compensation for certain employees. We believe investors and securities analysts also use these non-GAAP financial measures
in their evaluation of our performance and the performance of other similar companies. These non-GAAP financial measures
are not measures of liquidity.
Free cash flow
Free cash flow is defined as net cash provided by operating activities less additions to PP&E and capitalized software. We
believe free cash flow is useful to management and investors as a measure of cash generated by business operations that will be
used to repay scheduled debt maturities and can be used to, among other things, fund acquisitions, repurchase ordinary shares,
and (or) accelerate the repayment of debt obligations.
Adjusted corporate and other expenses
Adjusted corporate and other expenses is defined as corporate and other expenses calculated in accordance with U.S. GAAP,
excluding the portion of non-GAAP adjustments described below that relate to corporate and other expenses. We believe
adjusted corporate and other expenses is useful to management and investors in understanding the impact of non-GAAP
adjustments on operating expenses not allocated to our segments.
Adjusted EBITDA
Adjusted EBITDA is defined as net income (or loss), determined in accordance with U.S. GAAP, excluding interest expense,
net, provision for (or benefit from) income taxes, depreciation expense, amortization of intangible assets, and the following
non-GAAP adjustments, if applicable: (1) restructuring related and other, (2) financing and other transaction costs, (3) deferred
loss or gain on derivative instruments, and (4) step-up inventory amortization. Refer to Non-GAAP adjustments below for
additional discussion of these adjustments.
Net leverage ratio
Net leverage ratio represents net debt (total debt, finance lease, and other financing obligations less cash and cash equivalents)
divided by last twelve months ("LTM") adjusted EBITDA. We believe that the net leverage ratio is a useful measure to
management and investors in understanding trends in our overall financial condition.
Non-GAAP adjustments
Many of our non-GAAP adjustments 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 business, supply chain, or corporate activities, and
various financing transactions. We describe these adjustments in more detail below, each of which is net of current tax impacts,
as applicable.
• Restructuring related and other: includes charges, net related to certain restructuring and other exit activities as well as
other costs (or income) that we believe are either unique or unusual to the identified reporting period, and that we
believe impact comparisons to prior period operating results. Such costs include charges related to optimization of our
manufacturing processes to increase productivity. This type of activity occurs periodically, however each action is
unique, discrete, and driven by various facts and circumstances. Such amounts are excluded from internal financial
statements and analyses that management uses in connection with financial planning, and in its review and assessment of
our operating and financial performance, including the performance of our segments.
• Financing and other transaction costs: includes losses or gains related to debt financing transactions, losses or gains
related to the divestiture of a business, and costs incurred, including for legal, accounting, and other professional
services, that are directly related to an acquisition, divestiture, or equity financing transaction.
• Deferred loss or gain on derivative instruments: includes unrealized losses or gains on derivative instruments that do not
qualify for hedge accounting as well as the impact of commodity prices on our raw material costs relative to the strike
price on our commodity forward contracts.
46
•
Step-up depreciation and amortization: includes depreciation and amortization expense associated with the step-up in
fair value of assets acquired in connection with a business combination (e.g., PP&E, definite-lived intangible assets, and
inventories).
• Deferred taxes and other tax related: includes adjustments for book-to-tax basis differences due primarily to the step-up
in fair value of fixed and intangible assets and goodwill, the utilization of net operating losses, and adjustments to our
valuation allowance in connection with certain acquisitions and tax law changes. Other tax related items include certain
adjustments to unrecognized tax benefits and withholding tax on repatriation of foreign earnings.
• Amortization of debt issuance costs. We adjust our results recorded in accordance with U.S. GAAP by the amortization
of debt issuance costs, which are deferred as a contra-liability against our long-term debt, net on the consolidated
balance sheets and which are reflected in interest expense on the consolidated statements of operations.
• Where applicable, the current income tax effect of non-GAAP adjustments.
Our definition of adjusted net income excludes the deferred provision for (or benefit from) income taxes and other tax related
items described above. As we treat deferred income taxes 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.
Non-GAAP reconciliations
The following tables present reconciliations of certain financial measures calculated in accordance with U.S. GAAP to the
related non-GAAP financial measures for the periods presented. Refer to Non-GAAP adjustments section above for additional
information related to these adjustments. Amounts and percentages in the table below have been calculated based on unrounded
numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
($ in millions, except per share amounts)
Reported (GAAP)
Non-GAAP adjustments:
Restructuring related and other (e)
Financing and other transaction costs (a)
Step-up depreciation and amortization
Deferred (gain)/loss on derivative instruments
Amortization of debt issuance costs
Deferred taxes and other tax related (c)
Total adjustments
Adjusted (non-GAAP)
($ in millions, except per share amounts)
Reported (GAAP)
Non-GAAP adjustments:
Restructuring related and other (e)
Financing and other transaction costs (b)
Step-up depreciation and amortization
Deferred loss on derivative instruments
Amortization of debt issuance costs
Deferred taxes and other tax related (c)
Total adjustments
Adjusted (non-GAAP)
For the year ended December 31, 2022
Operating
Income
Operating
Margin
Net Income
Diluted EPS
$
670.1
16.6 % $
310.7 $
36.5
(75.6)
148.3
(1.5)
—
—
107.7
777.9
$
0.9
(1.9)
3.7
0.0
—
—
2.7
19.3 % $
34.5
10.7
148.3
1.5
7.0
17.8
219.8
530.5 $
1.99
0.22
0.07
0.95
0.01
0.04
0.11
1.41
3.40
For the year ended December 31, 2021
Operating
Income
Operating
Margin
Net Income
Diluted EPS
$
663.2
16.6 % $
363.6 $
2.28
23.6
13.2
127.6
8.3
—
—
172.8
806.0
0.6
0.3
3.3
0.2
—
—
4.5
21.1 % $
21.4
41.0
127.6
11.3
6.9
(4.9)
203.3
566.8 $
0.13
0.26
0.80
0.07
0.04
(0.03)
1.28
3.56
$
47
($ in millions, except per share amounts)
Reported (GAAP)
Non-GAAP adjustments:
Restructuring related and other (e)
Financing and other transaction costs
Step-up depreciation and amortization
Deferred loss/(gain) on derivative instruments
Amortization of debt issuance costs
Deferred taxes and other tax related (d)
Total adjustments
Adjusted (non-GAAP)
For the year ended December 31, 2020
Operating
Income
Operating
Margin
Net Income
Diluted EPS
$
337.7
11.1 % $
164.3 $
1.04
87.4
8.2
125.7
3.1
—
—
224.4
562.1
$
2.9
0.3
4.1
0.1
—
—
7.4
18.5 % $
93.8
6.4
125.7
(7.0)
6.9
(40.9)
184.9
349.2 $
0.59
0.04
0.79
(0.04)
0.04
(0.26)
1.17
2.21
__________________________
(a)
Includes gains of $135.1 million and $9.4 million on the sale of the Qinex Business and changes in the fair value of
acquisition-related contingent consideration, respectively, partially offset by $48.9 million of expense related to
compensation arrangements entered into concurrent with the closing of acquisitions, each of which were recorded in
restructuring and other charges, net. Also includes $75.6 million of mark-to-market losses on our equity investments,
primarily our investment in Quanergy, which are presented in other, net in our consolidated statements of operations.
(b)
Includes a $30.1 million loss related to the early redemption of the 6.25% Senior Notes. The loss primarily reflects the
payment of $23.4 million for the early redemption premium, with the remaining loss representing write-off of debt
discounts and deferred financing costs. The loss is presented in other, net in our consolidated statements of operations.
(c) The years ended December 31, 2022 and 2021 include current tax expense of $14.7 million and $10.9 million, respectively,
related to the repatriation of earnings from certain Asian subsidiaries to their parent companies in the Netherlands. The
decision to repatriate these earnings was the result of our goal to reduce our balance sheet exposure and corresponding
earnings volatility related to changes in foreign currency exchange rates as well as to fund our deployment of capital.
Includes a net $54.2 million deferred tax benefit recorded as a result of the transfer of intangible property.
(d)
(e) The following table presents the components of our restructuring related and other non-GAAP adjustment to net income for
fiscal years 2022, 2021, and 2020 (amounts have been calculated based on unrounded numbers, accordingly, certain
amounts may not appear to recalculate due to the effect of rounding):
(In millions)
Business and corporate repositioning (i)
Supply chain repositioning and transition (ii)
Pre-acquisition legal matters (iii)
Income tax effect (iv)
Total non-GAAP restructuring related and other (v)
For the year ended December 31,
2022
2021
2020
$
$
27.2 $
4.5
6.4
(3.5)
34.5 $
10.7 $
8.2
6.0
(3.5)
21.4 $
35.8
30.8
31.5
(4.2)
93.8
__________________________
i.
Fiscal year 2020 includes charges incurred under the Q2 2020 Global Restructure Program and charges for other
business and corporate workforce rationalization.
Primarily includes costs related to optimization of our manufacturing processes to increase productivity and
rationalize our manufacturing footprint and supply chain workforce rationalization.
ii.
iii. Represents charges incurred related to legal matters associated with acquired businesses, for which new information
is brought to light after the measurement period for the business combination is closed, but for which the liability
relates to events or activities that occurred prior to our acquisition of the business. Fiscal year 2020 primarily
includes the settlement of intellectual property litigation brought against Schrader by Wasica.
iv. We treat deferred taxes as a non-GAAP adjustment. Accordingly, the income tax effect of the restructuring related
and other non-GAAP adjustment refers only to the current income tax effect.
v.
Total presented is the non-GAAP adjustment to net income. Certain portions of these adjustments are non-operating
and are excluded from the non-GAAP adjustments to operating income.
48
The following table presents a reconciliation of net cash provided by operating activities calculated in accordance with U.S.
GAAP to free cash flow.
(In millions)
Net cash provided by operating activities
Additions to property, plant and equipment and capitalized software
Free cash flow
For the year ended December 31,
2021
2020
2022
$
$
460.6 $
(150.1)
310.5 $
554.2 $
(144.4)
409.7 $
559.8
(106.7)
453.1
The following table presents a reconciliation of corporate and other expenses calculated in accordance with U.S. GAAP to
adjusted corporate and other expenses.
(In millions)
Corporate and other expenses (GAAP)
Non-GAAP adjustments
Restructuring related and other
Financing and other transaction costs
Step-up depreciation and amortization
Deferred (gain)/loss on derivative instruments
Total Adjustments
Adjusted corporate and other expenses (non-GAAP)
For the year ended December 31,
2022
2021
2020
$
(294.4) $
(288.1) $
(273.4)
11.9
15.7
1.2
(1.5)
27.3
(267.1) $
9.9
11.9
1.7
8.3
31.8
(256.3) $
54.9
7.6
2.8
3.1
68.4
(205.0)
$
The following table presents a reconciliation of net income calculated in accordance with U.S. GAAP to adjusted EBITDA.
(In millions)
Net income
Interest expense, net
Provision for income taxes
Depreciation expense
Amortization of intangible assets
EBITDA
Non-GAAP adjustments
Restructuring related and other
Financing and other transaction costs
Deferred loss/(gain) on derivative instruments
Adjusted EBITDA
For the year ended December 31,
2022
2021
2020
$
$
310.7 $
178.8
86.0
127.2
153.8
856.5
38.0
7.5
1.9
903.9 $
363.6 $
179.3
50.3
125.0
134.1
852.3
23.6
41.0
11.3
928.3 $
164.3
171.8
1.4
125.7
129.5
592.6
93.1
6.4
(7.0)
685.1
The following table presents a reconciliation of total debt, finance lease, and other financing obligations calculated in
accordance with U.S. GAAP to net leverage ratio.
($ in millions)
Current portion of long-term debt, finance lease and other financing obligations
Finance lease and other financing obligations, less current portion
Long-term debt, net
Total debt, finance lease, and other financing obligations
Less: debt discount, net of premium
Less: deferred financing costs
Total gross indebtedness
Less: cash and cash equivalents
Net debt
Adjusted EBITDA (LTM)
Net leverage ratio
For the year ended December 31,
2022
2021
2020
$
256.5 $
24.7
3,958.9
4,240.1
(3.4)
(29.9)
4,273.4
1,225.5
3,047.9 $
903.9 $
3.4
$
$
6.8 $
26.6
4,214.9
4,248.3
(5.2)
(26.7)
4,280.2
1,709.0
2,571.3 $
928.3 $
2.8
757.2
27.9
3,213.7
3,998.9
(9.6)
(28.1)
4,036.6
1,862.0
2,174.6
685.1
3.2
49
Liquidity and Capital Resources
As of December 31, 2022 and 2021, we held cash and cash equivalents in the following regions (amounts have been calculated
based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):
(In millions)
United Kingdom
United States
The Netherlands
China
Other
Total cash and cash equivalents
As of December 31,
2022
2021
$
$
15.7 $
16.1
861.3
210.0
122.4
1,225.5 $
20.4
25.0
1,304.3
293.8
65.5
1,709.0
The amount of cash and cash equivalents held in these geographic regions fluctuates throughout the year due to a variety of
factors, such as our use of intercompany loans and dividends and the timing of cash receipts and disbursements in the normal
course of business. Our earnings are not considered to be permanently reinvested in certain jurisdictions in which they were
earned. We recognize a deferred tax liability on these unremitted earnings to the extent the remittance of such earnings cannot
be recovered in a tax-free manner.
In certain jurisdictions, our cash balances are subject to withholding taxes immediately upon withdrawal of funds to a different
jurisdiction. In addition, in order to take advantage of incentive programs offered by various jurisdictions, including tax
incentives, we are required to maintain minimum cash balances in these jurisdictions. The transfer of cash from these
jurisdictions could result in loss of incentives or higher cash tax expense, but those impacts are not expected to be material.
Our cash and cash equivalent balances as of December 31, 2022 and 2021 were held in the following significant currencies:
(In millions)
United Kingdom
United States
The Netherlands
China
Other
Total
USD Equivalent
(In millions)
United Kingdom
United States
The Netherlands
China
Other
Total
USD Equivalent
USD
EUR
GBP
CNY
Other
As of December 31, 2022
2.7 €
16.1
848.6
95.0
99.9
1,062.3 €
$
0.0 £
—
10.9
—
2.3
13.2 £
14.0 $
10.7 ¥
—
0.2
—
—
10.9 ¥
13.2 $
—
—
—
794.4
—
794.4
115.2 $
20.8
USD
EUR
GBP
CNY
Other
As of December 31, 2021
1.8 €
25.0
1,294.2
50.8
51.0
1,422.8 €
$
0.0 £
—
8.9
—
1.7
10.6 £
12.0 $
13.2 ¥
—
—
—
—
13.2 ¥
17.8 $
—
—
—
1,549.4
—
1,549.4
243.1 $
13.3
$
$
$
$
50
Cash Flows
The table below summarizes our primary sources and uses of cash for the years ended December 31, 2022, 2021, and 2020. We
have derived this summarized statement of cash flows from our Financial Statements included elsewhere in this Report.
Amounts in the table below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to
recalculate due to the effect of rounding.
(In millions)
Net cash provided by/(used in):
Operating activities:
Net income adjusted for non-cash items
Changes in operating assets and liabilities, net
Operating activities
Investing activities
Financing activities
Net change in cash and cash equivalents
Operating Activities
For the year ended December 31,
2021
2020
2022
$
$
586.4 $
(125.8)
460.6
(590.6)
(353.5)
(483.4) $
678.2 $
(124.0)
554.2
(882.1)
174.9
(153.0) $
405.3
154.5
559.8
(182.1)
710.2
1,087.9
Net cash provided by operating activities for the year ended December 31, 2022 decreased compared to the prior year, primarily
due to lower net income, increases in receivables as our business and revenues grew, our decision to carry higher inventory
levels to ensure continuity of supply in uncertain markets, and from acquisition-related compensation payments. Refer to
Results of Operations included elsewhere in this MD&A for discussion of the drivers of changes in net income from fiscal year
2022.
We have non-cancelable purchase agreements with various suppliers, primarily for services such as information technology
support. The terms of these agreements are fixed and determinable. We have cash commitments under these agreements of
$77.7 million and $11.2 million in fiscal years 2023 and 2024, respectively. Refer to Note 15: Commitments and Contingencies
of our Financial Statements included elsewhere in this Report for additional information related to our non-cancelable purchase
agreements.
Net cash provided by operating activities decreased slightly in fiscal year 2021 compared to fiscal year 2020. Net income
adjusted for non-cash items increased significantly from fiscal year 2020, which was substantially offset by changes in working
capital. Refer to Results of Operations included elsewhere in this MD&A for discussion of the drivers of changes in net income
from fiscal year 2020. In fiscal year 2021, management of working capital resulted in a reduction of cash due to higher raw
material purchases in order to maximize production flexibility given widespread parts shortages in our supply chain and higher
accounts receivables as a result of higher revenue and timing of receipts from customers. In addition, net cash provided by
operating activities was reduced by cash paid at closing of certain acquisitions related to employee retention arrangements.
Investing Activities
Investing activities primarily include cash exchanged for the acquisition or divestiture of a business or group of assets, cash
paid for additions to PP&E and capitalized software, and the acquisition or sale of certain debt and equity securities.
Net cash used in investing activities for the year ended December 31, 2022 decreased compared to the corresponding period of
the prior year primarily due to lower cash paid for acquisitions (Elastic M2M and Dynapower) and the receipt of $198.8 million
of cash proceeds of from the divestiture of the Qinex Business. In fiscal year 2023, we anticipate additions to PP&E and
capitalized software of approximately $170.0 million to $180.0 million, which we expect to be funded with cash flows from
operations.
Net cash used in investing activities increased in fiscal year 2021 primarily due to cash paid for acquisitions. In fiscal year
2021, we completed five acquisitions, Lithium Balance, Xirgo, Spear, SmartWitness, and Sendyne Corp. ("Sendyne").
Financing Activities
In fiscal year 2022, we used net cash of $353.5 million in financing activities, compared to net cash of $174.9 million provided
by financing activities in fiscal year 2021. This increased use of cash was primarily due to additional payments to repurchase
our ordinary shares in fiscal year 2022, less cash received from debt financing in fiscal year 2022, and $51.1 million of cash
used for payment of dividends, a program which we began in fiscal year 2022. We used $292.3 million of cash for share
51
repurchases, compared to $47.8 million in fiscal year 2021. We also issued $500.0 million aggregate principal amount of
5.875% senior notes due 2030 (the "5.875% Senior Notes") and redeemed $500.0 million aggregate principal amount of
4.875% senior notes due 2023 (the "4.875% Senior Notes") in fiscal year 2022, the cash impact of which largely offset. In fiscal
year 2021, cash provided by financing activities was primarily the result of the issuance of $1.0 billion of the 4.0% Senior
Notes, partially offset by the redemption of $750.0 million of the 6.25% Senior Notes. In addition, in fiscal year 2022 we used
$13.7 million in cash related to debt financing transactions, compared to $33.1 million in the prior year. On February 6, 2023,
we prepaid $250.0 million of outstanding principal on the Term Loan.
In fiscal year 2021, net cash provided by financing activities decreased primarily due to the impact of debt financing
transactions. In fiscal year 2021, we issued $1.0 billion of 4.0% Senior Notes and redeemed the $750.0 million aggregate
principal amount outstanding on the 6.25% Senior Notes, representing net cash inflow of $218.8 million (including associated
fees). This compares to the issuance of $750.0 million aggregate principal amount of 3.75% Senior Notes in fiscal year 2020
and the borrowing and subsequent repayment of $400.0 million on the Revolving Credit Facility, which, including associated
fees, provided net cash inflow of $732.8 million.
Indebtedness and Liquidity
The following table details our gross outstanding indebtedness as of December 31, 2022, and the associated interest expense for
the year then ended (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear
to recalculate due to the effect of rounding):
(In millions)
Term Loan (1)
4.875% Senior Notes (2)
5.625% Senior Notes
5.0% Senior Notes
4.375% Senior Notes
3.75% Senior Notes
4.0% Senior Notes
5.875% Senior Notes (3)
Finance lease and other financing obligations
Total gross outstanding indebtedness
Other interest expense, net (4)
Interest expense, net
Balance as of
December 31, 2022
$
Interest Expense, net
for the year ended
December 31, 2022
446.8 $
—
400.0
700.0
450.0
750.0
1,000.0
500.0
26.6
4,273.4
17.0
18.1
22.5
35.0
19.7
28.1
40.0
10.0
2.3
$
$
(13.9)
178.8
__________________________
(1) On February 6, 2023, we prepaid $250.0 million on our outstanding variable rate Term Loan.
(2) We redeemed the full outstanding balance on the 4.875% Senior Notes in September 2022.
(3) We issued the 5.875% Senior Notes in August 2022.
(4) Other interest expense, net includes interest income and interest costs capitalized in accordance with Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") Subtopic 835-20, Capitalization of Interest,
partially offset by amortization of debt issuance costs and fees related to our unused balance on the Revolving Credit
Facility.
Debt Instruments
As of December 31, 2022, our debt instruments included the Term Loan, $400.0 million in aggregate principal amount of
5.625% senior notes due 2024 (the "5.625% Senior Notes"), $700.0 million in aggregate principal amount of 5.0% senior notes
due 2025 (the "5.0% Senior Notes"), $450.0 million aggregate principal amount of 4.375% senior notes due 2030 (the "4.375%
Senior Notes"), the 3.75% Senior Notes, the 4.0% Senior Notes, and the 5.875% Senior Notes.
On June 23, 2022, we entered into an amendment (the “Eleventh Amendment”) to (i) the credit agreement, dated as of May 12,
2011 (as amended, supplemented, waived, or otherwise modified, the “Credit Agreement”), and (ii) the Foreign Guaranty, dated
as of May 12, 2011. The Eleventh Amendment, among other things: increased the aggregate principal amount of the Revolving
Credit Facility to $750.0 million; extended the maturity date of the Revolving Credit Facility to June 23, 2027 (subject to
certain exceptions as described in Note 14: Debt of our Financial Statements included elsewhere in this Report); released
52
certain guarantors from their obligations relating to the Revolving Credit Facility and certain related obligations; and replaced
the LIBOR-based interest rates referenced by the Credit Agreement regarding revolving credit loans.
On August 29, 2022, we completed the issuance and sale of the 5.875% Senior Notes. On September 28, 2022, we redeemed in
full the $500.0 million aggregate principal amount outstanding on the 4.875% Senior Notes due 2023 in accordance with the
terms of the indenture under which the 4.875% Senior Notes were issued, at a price of 101.0% of the aggregate principal
amount of the outstanding 4.875% Senior Notes (which includes the applicable premium), plus accrued and unpaid interest to
(but not including) the redemption date.
Refer to Note 14: Debt of our Financial Statements included elsewhere in this Report for additional information related to our
debt transactions.
On February 6, 2023, we prepaid $250.0 million of principal on the Term Loan.
The aggregate principal amount of each tranche of our Senior Notes is due in full at its maturity date. The Term Loan must be
repaid in full on or prior to its final maturity date. Loans made pursuant to the Revolving Credit Facility must be repaid in full
at its maturity date and can be repaid prior to then 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 following table presents the remaining mandatory principal repayments of long-term debt, in millions, excluding finance
lease payments, other financing obligations, and discretionary repurchases of debt, in each of the years ended December 31,
2023 through 2027 and thereafter. The table reflects the payment of $250.0 million principal amount of the Term Loan on
February 6, 2023. Amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to
recalculate due to the effect of rounding.
For the year ended December 31,
2023
2024
2025
2026
2027
Thereafter
Total long-term debt principal payments
Capital Resources
Aggregate Maturities
$
$
254.6
404.6
704.6
182.9
—
2,700.0
4,246.8
The Credit Agreement provides for the Senior Secured Credit Facilities consisting of the Term Loan, the Revolving Credit
Facility, and the Accordion.
Our sources of liquidity include cash on hand, cash flows from operations, and available capacity under the Revolving Credit
Facility. As of December 31, 2022, there was $746.1 million available under the Revolving Credit Facility, net of $3.9 million
of obligations in respect of outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for
the benefit of certain operating activities. As of December 31, 2022, no amounts had been drawn against these outstanding
letters of credit.
Availability under the Accordion varies each period based on our attainment of certain financial metrics as set forth in the terms
of the Credit Agreement and the indentures under which our Senior Notes were issued (the "Senior Notes Indentures"). As of
December 31, 2022, availability under the Accordion was approximately $0.7 billion. Our primary historical uses of cash on
hand have been to support the growth of the business through capital expenditures, acquire businesses that extend our market
position within our key growth vectors of Electrification and Insights/IoT, and to repurchase our ordinary shares, augmenting
our existing capital deployment strategies and enabling us to drive attractive returns on invested capital over the long-term.
We believe, based on our current level of operations for the year ended December 31, 2022, and taking into consideration the
restrictions and covenants included in the Credit Agreement and Senior Notes Indentures discussed below and in Note 14: Debt
of our Financial Statements included elsewhere in this Report, 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.
53
The Credit Agreement provides that if our senior secured net leverage ratio exceeds a specified level, we are required to use a
portion of our excess cash flow, as defined in 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 upon the incurrence of certain
indebtedness (excluding any permitted indebtedness). These provisions were not triggered during the year ended December 31,
2022.
All obligations under the Senior Secured Credit Facilities are unconditionally guaranteed by certain of our subsidiaries (the
"Guarantors"). The collateral for such borrowings under the Senior Secured Credit Facilities consists of substantially all present
and future property and assets of our indirect, wholly-owned subsidiary, Sensata Technologies B.V. ("STBV"), and the
Guarantors.
Our ability to raise additional financing, and our borrowing costs, may be impacted by short- 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, 2023, Moody’s Investors Service’s corporate credit
rating for STBV was Ba2 with a stable outlook, and Standard & Poor's corporate credit rating for STBV was BB+ with a stable
outlook. Any future downgrades to STBV's credit ratings may increase our future borrowing costs but will not reduce
availability under the Credit Agreement.
The Credit Agreement and the Senior Notes Indentures contain restrictions and covenants (described in more detail in Note 14:
Debt of our Financial Statements included elsewhere in this Report) that limit the ability of STBV and certain of its subsidiaries
to, among other things, incur subsequent indebtedness, sell assets, 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, were taken into consideration when we established our share repurchase programs and will be
evaluated periodically with respect to future potential funding of those program. We do not believe that these restrictions and
covenants will prevent us from funding share repurchases under our share repurchase programs with available cash and cash
flows from operations. As of December 31, 2022, we believe that we were in compliance with all the covenants and default
provisions under the Credit Agreement and the Senior Notes Indentures.
Share repurchase program
From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or
terminated by our Board of Directors at any time. Under these programs, we may repurchase ordinary shares 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, provided that such transactions were completed
pursuant to an agreement and with a third party approved by our shareholders at the annual general meeting.
In July 2019 our Board of Directors authorized a $500.0 million share repurchase program (the "July 2019 Program"). During
the year ended December 31, 2021, we repurchased approximately 0.8 million ordinary shares, at a weighted-average price per
share of $59.28, under the July 2019 Program. As of December 31, 2021, approximately $254.5 million remained available
under the July 2019 Program.
On January 20, 2022, we announced that our Board of Directors had authorized a new $500.0 million ordinary share repurchase
program (the "January 2022 Program"), which replaced the July 2019 Program. Sensata’s shareholders have previously
approved the forms of share repurchase agreements and the potential broker counterparties needed to execute the buyback
program.
During the year ended December 31, 2022, we repurchased approximately 6.3 million ordinary shares under the January 2022
Program, at a weighted-average price per share of $46.08. As of December 31, 2022, approximately $224.5 million remained
available under the January 2022 Program.
Critical Accounting Policies and Estimates
As discussed in Note 2: Significant Accounting Policies of our Financial Statements included elsewhere in this Report, which
more fully describes our significant accounting policies, the preparation of consolidated financial statements in accordance with
U.S. GAAP requires us to exercise judgment in the process of applying our accounting policies. It also requires that we make
estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and
accompanying notes. The accounting policies and estimates that we believe are most critical to the portrayal of our financial
54
condition and results of operations are listed below. We believe these policies require the most difficult, subjective, and
complex judgments in estimating the effect of inherent uncertainties.
Revenue Recognition
The discussion below details the most significant judgments and estimates we make regarding recognition of revenue in
accordance with FASB ASC Topic 606, Revenue from Contracts with Customers. In accordance with FASB ASC Topic 606,
we recognize revenue to depict the transfer of promised goods to customers in an amount that reflects the consideration to
which we expect to be entitled in exchange for those goods, using a five-step model. The most critical judgments and estimates
we make in the implementation of this model relate to identifying the contract with the customer and determination of the
transaction price associated with the performance obligation(s) in the contract, specifically related to variable consideration.
While many of the agreements with our customers specify certain terms and conditions that apply to any transaction between
the parties, many of which are in effect for a defined term, the vast majority of these agreements do not result in contracts (as
defined in FASB ASC Topic 606) because they do not create enforceable rights and obligations on the parties. Specifically, (1)
the parties are not committed to perform any obligations in accordance with the specified terms and conditions until a customer
purchase order is received and accepted by us and (2) there is a unilateral right of each party to terminate the agreement at any
time without compensating the other party. For this reason, the vast majority of our contracts (as defined in FASB ASC Topic
606) are customer purchase orders. If this assessment were to change, it could result in a material change to the amount of net
revenue recognized in a period.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring
promised goods or services to a customer. In determining the transaction price related to a contract, we determine whether the
amount promised in a contract includes a variable amount (variable consideration). Variable consideration may be specified in
the customer purchase order, in another agreement that identifies terms and conditions of the transaction, or based on our
customary practices. We have identified certain types of variable consideration that may be included in the transaction price
related to our contracts, including sales returns (which generally include a right of return for defective or non-conforming
product) and trade discounts (including retrospective volume discounts and early payment incentives). Such variable
consideration has not historically been material. However, should our judgments and estimates regarding variable consideration
change, it could result in a material change to the amount of net revenue recognized in a period.
Goodwill, Intangible Assets, and Long-Lived Assets
Businesses acquired are recognized 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. Intangible assets acquired may include
either definite-lived or indefinite-lived intangible assets, or both. In accordance with FASB ASC Topic 350, Intangibles—
Goodwill and Other, 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.
Goodwill
Our judgments regarding the existence of indicators of goodwill impairment 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.
Identification of reporting units. We have six identified reporting units, Automotive, HVOR, Sensata INSIGHTS, Industrial
Solutions, Aerospace, and Clean Energy Solutions. These reporting units have been identified based on the definitions and
guidance provided in FASB ASC Topic 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. 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. Other assets and liabilities, such as
55
debt, cash and cash equivalents, and PP&E associated with our corporate offices, are viewed as being corporate in nature.
Accordingly, we do not assign these assets and liabilities to our 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 a new or existing reporting unit as of the date of the acquisition. In the event a disposal
group meets the definition of a business, goodwill is allocated to the disposal group based on the relative fair value of the
disposal group to the retained portion of the related reporting unit.
Evaluation of goodwill for impairment. We have the option to first assess qualitative factors to determine whether a quantitative
analysis must be performed. The objective of a qualitative analysis is to assess whether it is more likely than not that the fair
value of a reporting unit is less than its carrying value. We make this assessment based on macroeconomic conditions, industry
and market considerations, cost factors, overall financial performance, and other relevant factors as applicable. 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 carrying
value, then we prepare a discounted cash flow analysis to determine whether the carrying value of the reporting unit exceeds its
estimated fair value. If the carrying value of a reporting unit exceeds its estimated fair value, we recognize an impairment of
goodwill for the amount of this excess, in accordance with the guidance in FASB ASC Topic 350.
We evaluated the goodwill of each reporting unit for impairment as of October 1, 2022 using a quantitative method. As a result
of this evaluation we determined that none of our reporting units were impaired. In performing our evaluation under the
quantitative method, we estimated the fair values of our reporting units using the discounted cash flow method. For this method,
we prepared detailed annual projections of future net cash flows for the reporting unit for the subsequent five fiscal years (the
"Discrete Projection Period"). We estimated the value of the net cash flows beyond the fifth fiscal year (the "Terminal Year")
by applying a multiple to the projected Terminal Year EBITDA. The net cash flows from the Discrete Projection Period and the
Terminal Year were discounted at an estimated weighted-average cost of capital ("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 net cash flows, including the Terminal Year valuation, were reasonable and
consistent with accepted valuation practices.
The preparation of forecasts of revenue growth and profitability for use in the long-range forecasts, the selection of the discount
rates, and the estimation of the multiples used in valuing the Terminal Year involve significant judgments. Changes to these
assumptions 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.
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, including the long-range forecasts, the selection 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 values 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 Report could cause us to revise our long-term projections and could reduce the multiples used to
determine Terminal Year value. Such revisions could result in a goodwill impairment charge in the future.
We consider a combination of quantitative and qualitative factors to determine whether a reporting unit is at risk of failing the
goodwill impairment test, including: the timing of our most recent quantitative impairment tests and the relative amount by
which a reporting unit’s fair value exceeded its then carrying value, the inputs and assumptions underlying our valuation
models and the sensitivity of our fair value measurements to those inputs and assumptions, the impact that adverse economic or
market conditions may have on the degree of uncertainty inherent in our long-term operating forecasts, and changes in the
carrying value of a reporting unit’s net assets from the time of our most recent goodwill impairment test. We also consider the
impact of recent acquisitions in our expectations of the reporting units, and how these acquisitions perform against their original
expected performance, as these might put pressure on the reporting units' fair value over carrying value in the short term. Based
on the results of this analysis, we do not consider any of our reporting units to be at risk of failing the goodwill impairment test.
Evaluation of other intangible assets for impairment
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 analysis in which we estimate the fair value of the indefinite-lived intangible
56
asset and compare that amount to its carrying value. In performing this analysis, we estimate the fair value by using the relief-
from-royalty method, in which we make assumptions about future conditions impacting the fair value of our 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, 2022 (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 values of our indefinite-lived intangible assets change, we may be required to recognize an
impairment charge in the future.
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 that such 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 an asset, the impairment charge is measured as the excess of the carrying value over the fair value
of that asset. We determine fair value by using the appropriate income approach valuation methodology depending on the
nature of the definite-lived intangible asset.
Evaluation of long-lived assets for impairment
We periodically re-evaluate the carrying values and estimated useful lives of long-lived assets whenever events or changes in
circumstances indicate that the carrying values of these assets may not be recoverable. We use estimates of undiscounted net
cash flows from long-lived assets to determine whether the carrying values of such assets are recoverable over the assets’
remaining useful lives. These estimates include assumptions about our future performance and the performance of the end
markets we serve. If an asset is determined to be impaired, the impairment is the amount by which its carrying value exceeds its
fair value. These evaluations are performed at a level where discrete net 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 (or benefit from)
income taxes in each of the jurisdictions in which we operate. This involves estimating our current tax expense, 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. Management
judgment is required in determining various elements of our provision for (or benefit from) income taxes, including the amount
of tax benefits on uncertain tax positions, and deferred tax assets that should be recognized.
In accordance with FASB ASC Topic 740, Income Taxes, we record uncertain tax positions on the basis of a two-step process.
First, we determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the
position. Second, for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest
amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the relevant tax
authority. Significant judgment is required in evaluating whether our tax positions meet this two-step process. The more-likely-
than-not recognition threshold must be met in each reporting period to support continued recognition of any tax benefits
claimed, both in the current year, as well as any year which remains open for review by the relevant tax authority at the balance
sheet date. Penalties and interest related to uncertain tax positions 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 uncertain tax positions within
the provision for (or benefit from) income taxes line of the consolidated statements of operations.
We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In measuring
our deferred tax assets, we consider all available evidence, both positive and negative, including future reversals of existing
taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations in
various jurisdictions, 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. Significant judgment is required in considering the relative impact of these items along
with the weight that should be given to each category, 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 FASB ASC
Topic 740 to determine whether the future tax benefit from the deferred tax assets should be recognized.
57
Ultimately, the ability to realize our deferred tax assets is based on our assessment of future taxable income, which is based on
estimated future results. In the event that actual results differ from these estimates, or we adjust our estimates in the future, we
may need to adjust our valuation allowance assessment, which could materially impact our consolidated financial position and
results of operations.
Share-Based Compensation
FASB ASC Topic 718, Compensation—Stock Compensation, 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.
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 expense is recognized if it is probable that the performance condition will be
achieved.
We elect to recognize share-based compensation expense net of estimated forfeitures as permitted by FASB ASC Topic 718,
and therefore only recognize compensation expense for those awards 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.
Material changes to any of these assumptions may have a significant effect on our valuation of share-based compensation
awards and, accordingly, the related expense recognized in the consolidated statements of operations.
Recently Issued Accounting Standards
There have been no recently issued accounting standards that have been adopted in the current period or will be adopted in
future periods that have had or are expected to have a material impact on our consolidated financial position or results of
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in foreign currency exchange rates because we 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
foreign currency exchange rates and commodity prices may have an impact on future cash flows and earnings. We monitor our
exposure to these risks and may employ derivative financial 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 FASB ASC Topic 815, Derivatives and Hedging, which can result in volatility to earnings depending upon
fluctuations in the underlying markets.
By using derivative instruments, we are subject to credit and market risk. The fair market values of these derivative instruments
are based upon valuation models whose inputs are derived using market observable inputs, including foreign currency exchange
and commodity spot and forward rates, and reflect the asset and liability positions 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 (or repayment) risk in the event of non-performance by counterparties to our derivative
agreements. We attempt to minimize this risk by entering transactions with major financial institutions of investment grade
credit rating.
Interest Rate Risk
As discussed further in Note 14: Debt of our Financial Statements included elsewhere in this Report, the Credit Agreement
provides for the Senior Secured Credit Facilities consisting of the Term Loan, the Revolving Credit Facility, and incremental
availability under which additional secured credit facilities could be issued under certain circumstances.
The Term Loan accrues interest at a variable rate that, as of December 31, 2022, is based on London Interbank Offered Rate
("LIBOR"), plus an interest rate margin, in accordance with the terms of the Credit Agreement.
58
Sensitivity Analysis
As of December 31, 2022, we had an outstanding balance on the Term Loan (excluding debt discount and deferred financing
costs) of $446.8 million. The applicable interest rate associated with the Term Loan at December 31, 2022 was 5.87%. An
increase of 100 basis points in this rate would result in additional interest expense of $1.5 million in fiscal year 2023. An
additional 100 basis point increase in this rate would result in incremental interest expense of $3.1 million in fiscal year 2023.
As of December 31, 2021, we had an outstanding balance on the Term Loan (excluding debt discount and deferred financing
costs) of $451.5 million. The applicable interest rate associated with the Term Loan at December 31, 2021 was 1.87%. An
increase of 100 basis points in this rate would have resulted in additional interest expense of $3.9 million in fiscal year 2022.
An additional 100 basis point increase in this rate would have resulted in incremental interest expense of $8.2 million in fiscal
year 2022.
Foreign Currency Risk
Consistent with our risk management objective and strategy to reduce exposure to variability in cash flows, and for non-trading
purposes, we enter into foreign currency exchange rate derivatives that qualify as cash flow hedges, and that are intended to
offset the effect of exchange rate fluctuations on forecasted sales and certain manufacturing costs. We also enter into foreign
currency forward contracts that are not designated for hedge accounting purposes. Refer to Note 19: Derivative Instruments and
Hedging Activities of our Financial Statements included elsewhere in this Report for additional information related to the
foreign currency forward contracts outstanding as of December 31, 2022.
Sensitivity Analysis
The tables below present our foreign currency forward contracts as of December 31, 2022 and 2021 and the estimated impact to
future pre-tax earnings as a result of a 10% strengthening/weakening in the foreign currency exchange rate:
(In millions)
Euro
Chinese Renminbi
Japanese Yen
Korean Won
Malaysian Ringgit
Mexican Peso
British Pound Sterling
(In millions)
Euro
Chinese Renminbi
Japanese Yen
Korean Won
Malaysian Ringgit
Mexican Peso
British Pound Sterling
Net Asset/(Liability) Balance as
of December 31, 2022
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
(Decrease)/Increase to Future Pre-tax Earnings Due to:
$
$
$
$
$
$
$
10.7 $
0.0 $
0.0 $
0.4 $
0.0 $
13.2 $
(3.1) $
(43.3) $
(5.8) $
0.5 $
(1.5) $
0.5 $
17.2 $
6.4 $
43.3
5.8
(0.5)
1.5
(0.5)
(17.2)
(6.4)
Net Asset/(Liability) Balance as
of December 31, 2021
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
(Decrease)/Increase to Future Pre-tax Earnings Due to:
(45.3) $
(19.9) $
0.5 $
(1.9) $
0.6 $
17.3 $
7.8 $
45.3
19.9
(0.5)
1.9
(0.6)
(17.3)
(7.8)
$
$
$
$
$
$
$
17.8 $
(0.6) $
0.0 $
0.6 $
0.0 $
4.5 $
(0.3) $
59
Commodity Risk
We are exposed to the potential change in prices associated with certain commodities used in the manufacturing of our
products. We offset a portion of this exposure by entering forward contracts that fix the price at a future date for various
notional amounts associated with these commodities. These forward contracts are not designated as accounting hedges. Refer to
Note 19: Derivative Instruments and Hedging Activities of our Financial Statements included elsewhere in this Report for
additional information related to the commodity forward contracts outstanding as of December 31, 2022.
Sensitivity Analysis
The tables below present our commodity forward contracts as of December 31, 2022 and 2021 and the estimated impact to pre-
tax earnings associated with a 10% increase/(decrease) in the related forward price for each commodity:
(In millions, except per unit amounts)
Silver
Gold
Nickel
Aluminum
Copper
Platinum
Palladium
(In millions, except per unit amounts)
Silver
Gold
Nickel
Aluminum
Copper
Platinum
Palladium
Net Asset/(Liability)
Balance as of
December 31, 2022
Average Forward Price
Per Unit as of
December 31, 2022
Increase/(Decrease) to Pre-tax Earnings Due to
10% Increase
in the Forward Price
10% Decrease
in the Forward Price
$
$
$
$
$
$
$
1.1 $
0.1 $
0.7 $
(0.5) $
(2.2) $
0.9 $
(0.5) $
24.33 $
1,877.27 $
13.76 $
1.11 $
3.80 $
1,070.21 $
1,803.34 $
2.3 $
1.5 $
0.3 $
0.5 $
3.1 $
1.2 $
0.2 $
(2.3)
(1.5)
(0.3)
(0.5)
(3.1)
(1.2)
(0.2)
Net (Liability)/Asset
Balance as of December
31, 2021
Average Forward Price
Per Unit as of
December 31, 2021
Increase/(Decrease) to Pre-tax Earnings Due to
10% Increase
in the Forward Price
10% Decrease
in the Forward Price
$
$
$
$
$
$
$
(1.7) $
0.0 $
0.3 $
0.6 $
1.1 $
(1.0) $
(0.8) $
23.24 $
1,827.45 $
9.32 $
1.25 $
4.37 $
952.76 $
1,872.73 $
2.8 $
1.7 $
0.2 $
0.5 $
2.9 $
1.2 $
0.3 $
(2.8)
(1.7)
(0.2)
(0.5)
(2.9)
(1.2)
(0.3)
60
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1.
Financial Statements
The following audited consolidated financial statements of Sensata Technologies Holding plc are included in this Annual
Report on Form 10-K:
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
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
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
62
65
66
67
68
69
70
116
121
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.
61
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Sensata Technologies Holding plc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sensata Technologies Holding plc (the Company) as of
December 31, 2022 and 2021, 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, 2022, and the related notes and
financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the "consolidated financial
statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2022, 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 13, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
Description of the
Matter
Goodwill - Quantitative Impairment Assessment
As of December 31, 2022, the Company’s goodwill balance was $3.9 billion. The Company’s goodwill
is initially assigned to its reporting units as of the acquisition date. As discussed in Note 2 of the
consolidated financial statements, goodwill is tested for impairment at the reporting unit level. The
Company evaluated goodwill for impairment as of October 1, 2022, and used the quantitative method
to assess their goodwill for impairment.
62
Auditing management’s quantitative goodwill impairment test involved a high degree of auditor
judgment due to the significant estimation required to determine the fair value of each reporting unit.
In particular, the fair value estimate for certain reporting units was sensitive to significant assumptions
such as the long-range forecasts, the selection of discount rates, and the estimation of the multiples or
long-term growth rates used in valuing the terminal year which are affected by expectations about
future market or economic conditions, which led to a high degree of auditor judgment, subjectivity and
effort in performing procedures and evaluating management's significant assumptions as outlined
above, used in determining the fair value of these reporting units.
How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s quantitative goodwill impairment review process. For example, we tested controls
over management’s review of the data used in their valuation models and reviewed significant
assumptions discussed above used in determining the reporting unit fair values.
Description of the
Matter
How We Addressed
the Matter in Our
Audit
To test the estimated fair value of the Company’s reporting units, with the assistance of our valuation
professionals, our audit procedures included, among others, assessing fair value methodologies and
testing the significant assumptions discussed above. We compared the significant assumptions used by
management to current industry and economic trends, the Company’s historical trends with
consideration given to changes in the Company’s business, customer base or product mix and other
relevant factors. We assessed the historical accuracy of management’s estimates and performed
sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting
units that would result from changes in the assumptions. We also evaluated the reconciliation of the
estimated aggregate fair value of the reporting units to the Company’s market capitalization.
Income Taxes – Uncertain Tax Positions
As discussed in Note 7, at December 31, 2022, the Company had approximately $224.6 million of
unrecognized tax benefits associated with uncertain tax positions. Uncertainty in a tax position may
arise as tax laws are subject to interpretation. The Company uses significant judgment in (1)
determining whether a tax position’s technical merits are more-likely-than-not to be sustained and (2)
measuring the amount of tax benefit that qualifies for recognition.
Auditing the recognition and measurement of tax positions related to uncertain tax positions involved
significant auditor judgment and use of tax professionals with specialized skills and knowledge
because both the recognition and measurement of the tax positions are complex, highly judgmental and
based on interpretations of tax laws and legal rulings.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s process to identify and record the reserve for uncertain tax positions. For example,
we tested controls over management’s evaluation of the technical merits of tax positions and
identification of uncertain tax positions and the controls to measure the benefit of those tax positions,
including management’s review of the inputs and calculations of unrecognized tax benefits resulting
from uncertain tax positions.
To test the amounts recorded as uncertain tax positions we involved our tax professionals to evaluate
the technical merits of the Company’s income tax positions. Our procedures included, among others,
evaluating income tax technical analysis or other third-party advice obtained by the Company and
inspecting correspondence from the relevant tax authorities. We also applied our knowledge and
experience with the application of federal, foreign and state income tax laws to evaluate the
Company’s accounting for those tax positions. We analyzed the Company’s assumptions and data used
to determine the amount of tax benefit to recognize and tested the accuracy of the calculations. We also
evaluated the Company’s income tax disclosures included in Note 7 in relation to these matters.
Description of the
Matter
Accounting for Acquisitions – Valuation of Identified Intangibles
As described in Note 21 to the consolidated financial statements, the Company completed the
acquisition of DP Acquisition Corp ("Dynapower") for an aggregate cash purchase price of $577.5
million in 2022. The transaction was accounted for as a business combination. The allocation of
purchase price is preliminary and is subject to revision as the final valuations are completed.
63
Auditing the Company's accounting for its acquisition of Dynapower was complex due to the
significant estimation required by management in determining the fair value of identifiable intangible
assets of $164.4 million, which principally consisted of completed technologies, customer
relationships, and tradename assets. The significant estimation uncertainty was primarily due to the
sensitivity of the respective fair values to underlying assumptions about the future performance of the
acquired business. The Company used the income approach to measure the completed technologies,
customer relationships, and tradenames intangible assets. The significant assumptions used to estimate
the fair value of these intangible assets included the expected discounted future net cash flows
generated by each asset. These significant assumptions are forward looking and could be affected by
future economic and market conditions.
How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company's process for valuing intangible assets acquired in business combinations. For
example, we tested controls over the appropriateness of the valuation model, assumptions management
used and the completeness and accuracy of the data underlying the valuation of the completed
technologies, customer relationships and tradenames intangible assets.
To test the estimated fair value of the completed technologies, customer relationships and tradenames
intangible assets, our audit procedures included, among others, assessing methodologies and testing the
significant assumptions discussed above and the underlying data supporting the significant
assumptions and estimates used by the Company in the valuations. We tested significant assumptions
through a combination of procedures, as applicable for each assumption, including comparing them to
current and forecasted industry trends, as well as to the historical results of the acquired business and
other guideline companies within the same industry. With the assistance of our valuation specialists,
we evaluated the methodology used by the Company and significant assumptions included in the fair
value estimates.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2005.
Boston, Massachusetts
February 13, 2023
64
SENSATA TECHNOLOGIES HOLDING PLC
Consolidated Balance Sheets
(In thousands, except per share amounts)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $24,246 and $17,003 as of December 31, 2022 and
2021, 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, finance 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
Finance lease and other financing obligations, less current portion
Long-term debt, net
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 15)
Shareholders' equity:
Ordinary shares, €0.01 nominal value per share, 177,069 shares authorized and 175,207 and
174,287 shares issued as of December 31, 2022 and 2021, respectively
Treasury shares, at cost, 22,781 and 16,438 shares as of December 31, 2022 and 2021,
respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders' equity
Total liabilities and shareholders' equity
As of December 31,
2022
2021
$
1,225,518 $
1,708,955
742,382
653,438
$
$
644,875
162,268
2,775,043
840,819
3,911,224
999,722
100,539
128,873
8,756,220 $
256,471 $
531,572
43,987
346,942
1,178,972
364,593
36,086
24,742
3,958,928
82,092
5,645,413
588,231
126,370
3,076,994
820,933
3,502,063
946,731
105,028
162,017
8,613,766
6,833
459,093
26,517
343,816
836,259
339,273
38,758
26,564
4,214,946
63,232
5,519,032
2,242
2,232
(1,124,713)
(832,439)
1,866,201
2,383,341
(16,264)
3,110,807
8,756,220 $
1,812,244
2,132,257
(19,560)
3,094,734
8,613,766
$
The accompanying notes are an integral part of these financial statements.
65
SENSATA TECHNOLOGIES HOLDING PLC
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 other charges, net
Total operating costs and expenses
Operating income
Interest expense, net
Other, net
Income before taxes
Provision for income taxes
Net income
Basic net income per share
Diluted net income per share
For the year ended December 31,
2021
3,820,806 $
2022
4,029,262 $
2020
3,045,578
$
2,712,048
189,344
370,644
153,787
(66,700)
3,359,123
670,139
(178,819)
(94,618)
396,702
86,017
310,685
2,542,434
159,072
336,989
134,129
14,942
3,187,566
633,240
(179,291)
(40,032)
413,917
50,337
363,580
$
$
2.00 $
1.99 $
2.30 $
2.28 $
2,119,044
131,429
294,725
129,549
33,094
2,707,841
337,737
(171,757)
(339)
165,641
1,355
164,286
1.04
1.04
The accompanying notes are an integral part of these financial statements.
66
SENSATA TECHNOLOGIES HOLDING PLC
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive (loss)/income, net of tax:
Cash flow hedges
Defined benefit and retiree healthcare plans
Other comprehensive (loss)/income
Comprehensive income
For the year ended December 31,
2022
2021
2020
$
310,685 $
363,580 $
164,286
(1,166)
4,462
3,296
313,981 $
23,564
6,411
29,975
393,555 $
(23,279)
(5,772)
(29,051)
135,235
$
The accompanying notes are an integral part of these financial statements.
67
SENSATA TECHNOLOGIES HOLDING PLC
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 debt issuance costs
Gain on sale of business
Share-based compensation
Loss on debt financing
Amortization of intangible assets
Deferred income taxes
Acquisition-related compensation payments
Mark-to-market loss on equity investments, net
Unrealized loss on derivative instruments and other
Changes in operating assets and liabilities, net of the 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:
Acquisitions, net of cash received
Additions to property, plant and equipment and capitalized software
Investment in debt and equity securities
Proceeds from sale of business, net of cash sold
Other
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options and issuance of ordinary shares
Payment of employee restricted stock tax withholdings
Proceeds from borrowings on debt
Payments on debt
Dividends paid
Payments to repurchase ordinary shares
Payments of debt financing costs
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,
2022
2021
2020
$
310,685 $
363,580 $
164,286
127,184
6,969
(135,112)
31,791
5,468
153,787
(781)
(23,500)
75,569
34,309
(108,992)
(44,362)
(16,961)
40,930
17,490
(13,881)
460,593
(631,516)
(150,064)
(7,983)
198,841
152
(590,570)
124,959
6,858
—
25,663
30,066
134,129
(5,270)
(15,630)
—
13,837
(48,106)
(119,961)
6,624
35,333
8,602
(6,533)
554,151
(736,077)
(144,403)
(5,533)
—
3,919
(882,094)
22,803
(8,525)
500,000
(510,701)
(51,072)
(292,274)
(13,691)
(353,460)
(483,437)
1,708,955
1,225,518 $
26,290
(9,048)
1,001,875
(763,263)
—
(47,843)
(33,093)
174,918
(153,025)
1,861,980
1,708,955 $
125,680
6,854
—
19,125
—
129,549
(44,900)
—
—
4,709
(16,668)
58,390
36,431
90,479
(16,019)
1,859
559,775
(64,432)
(106,719)
(22,963)
—
12,022
(182,092)
15,457
(2,911)
1,150,000
(408,914)
—
(35,175)
(8,279)
710,178
1,087,861
774,119
1,861,980
188,533 $
68,768 $
188,857 $
66,642 $
164,494
65,823
$
$
$
The accompanying notes are an integral part of these financial statements.
68
SENSATA TECHNOLOGIES HOLDING PLC
Consolidated Statements of Changes in Shareholders' Equity
(In thousands)
Ordinary Shares
Treasury Shares
Number
Amount
Number
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shareholders'
Equity
Balance as of December 31, 2019
172,561 $
2,212
(14,733) $
(749,421) $
1,725,091 $
1,616,357 $
(20,484) $
2,573,755
Surrender of shares for tax withholding
Stock options exercised
Vesting of restricted securities
Repurchase of ordinary shares
Retirement of ordinary shares
Share-based compensation
Net income
Other comprehensive loss
—
452
349
—
(96)
—
—
—
—
5
4
—
(1)
—
—
—
(96)
—
—
(2,911)
—
—
(898)
(35,175)
96
—
—
—
2,911
—
—
—
—
15,452
—
—
—
19,125
—
—
—
—
(4)
—
(2,910)
—
164,286
—
—
—
—
—
—
—
(2,911)
15,457
—
(35,175)
—
19,125
164,286
—
(29,051)
(29,051)
Balance as of December 31, 2020
173,266
2,220
(15,631)
(784,596)
1,759,668
1,777,729
(49,535)
2,705,486
Surrender of shares for tax withholding
Stock options exercised
Vesting of restricted securities
Repurchase of ordinary shares
Retirement of ordinary shares
Share-based compensation
Net income
Other comprehensive income
—
707
469
—
(155)
—
—
—
—
8
6
—
(2)
—
—
—
(155)
(9,048)
—
—
(807)
155
—
—
—
—
—
(47,843)
9,048
—
—
—
—
26,913
—
—
—
25,663
—
—
—
—
(6)
—
(9,046)
—
363,580
—
—
—
—
—
—
—
—
29,975
(9,048)
26,921
—
(47,843)
—
25,663
363,580
29,975
Balance as of December 31, 2021
174,287
2,232
(16,438)
(832,439)
1,812,244
2,132,257
(19,560)
3,094,734
Surrender of shares for tax withholding
Stock options exercised
Vesting of restricted securities
Cash dividends paid
Repurchase of ordinary shares
Retirement of ordinary shares
Share-based compensation
Net income
Other comprehensive loss
—
572
522
—
—
(174)
—
—
—
—
6
6
—
—
(2)
—
—
—
(174)
(8,525)
—
—
—
—
—
—
(6,343)
(292,274)
174
—
—
—
8,525
—
—
—
—
22,166
—
—
—
—
31,791
—
—
—
—
(6)
(51,072)
—
(8,523)
—
310,685
—
—
—
—
—
—
—
—
—
3,296
(8,525)
22,172
—
(51,072)
(292,274)
—
31,791
310,685
3,296
Balance as of December 31, 2022
175,207 $
2,242
(22,781) $
(1,124,713) $
1,866,201 $
2,383,341 $
(16,264) $
3,110,807
The accompanying notes are an integral part of these financial statements.
69
SENSATA TECHNOLOGIES HOLDING PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business Description and Basis of Presentation
Description of Business
The accompanying audited consolidated financial statements reflect the financial position, results of operations, comprehensive
income, cash flows, and changes in shareholders' equity of Sensata Technologies Holding plc ("Sensata plc"), a public limited
company incorporated under the laws of England and Wales, and its consolidated subsidiaries, collectively referred to as the
"Company," "Sensata," "we," "our," and "us."
We are a global industrial technology company that develops, manufactures, and sells sensors and sensor-rich solutions,
electrical protection components and systems, and other products that are used in mission-critical systems and applications that
create valuable business insights for our customers and end users. Our sensors are used by our customers to translate a physical
parameter, such as pressure, temperature, position, or location of an object, into electronic signals that our customers’ products
and solutions can act upon. These actionable insights lead to products that are safer, cleaner, more efficient, more electrified,
and increasingly more connected. Our electrical protection portfolio (which includes both components and systems) is
comprised of various switches, fuses, battery management systems, inverters, energy storage systems, high-voltage distribution
units, controllers, and software, and includes high-voltage contactors and other products embedded within systems to maximize
their efficiency and performance and ensure safety. Other products and services we provide include vehicle area networks and
data collection devices and software, battery storage systems, and power conversion systems, the latter of which include
inverters, converters, and rectifiers for renewable energy generation, green hydrogen production, electric vehicle charging
stations, and microgrid applications, as well as industrial and defense applications.
Sensata plc conducts its operations through subsidiary companies that operate business and product development centers
primarily in Belgium, Bulgaria, China, Denmark, India, Japan, Lithuania, the Netherlands, South Korea, the United Kingdom
(the "U.K."), and the United States (the "U.S."); and manufacturing operations primarily in Bulgaria, China, Malaysia, Mexico,
the U.K., and the U.S.
We present financial information for two reportable segments, Performance Sensing and Sensing Solutions. Refer to Note 20:
Segment Reporting for additional information related to each of our segments.
Basis of Presentation
The accompanying audited consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") and 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 ("USD") and share amounts presented, except
per share amounts, are stated in thousands, unless otherwise indicated.
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, disclosures of contingencies at the date of the financial statements, and the reported amounts of
net revenue and expense during the reporting periods.
Estimates are used when accounting for certain items such as: allowance for doubtful accounts and sales returns; inventory
obsolescence; asset impairments (including goodwill and other intangible assets); contingencies; the value of certain equity
awards and the measurement of share-based compensation; the determination of accrued expenses; certain asset valuations;
accounting for income taxes; the useful lives of plant and equipment; measurement of our post-retirement benefit obligations;
and with respect to business combinations, valuation of contingent consideration and the identification, valuation, and
determination of useful lives of acquired identifiable intangible assets. The accounting estimates used in the preparation of the
consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is
obtained, and as the operating environment changes. Actual results could differ from those estimates.
70
Revenue Recognition
We recognize revenue to depict the transfer of promised goods to customers in an amount that reflects the consideration to
which we expect to be entitled in exchange for those goods. In order to achieve this, we use the five-step model outlined in
Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, Revenue from
Contracts with Customers. This five-step model requires us to identify the contract with the customer, identify the performance
obligation(s) in the contract, determine the transaction price, allocate the transaction price to the performance obligation(s), and
recognize revenue when (or as) we satisfy the performance obligation(s).
The vast majority of our contracts (as defined in FASB ASC Topic 606) are customer purchase orders that require us to transfer
specified quantities of tangible products to our customers. These performance obligations are generally satisfied within a short
period of time. Amounts billed to our customers for shipping and handling after control has transferred are recognized as
revenue and the related costs that we incur are presented in cost of revenue.
In determining the transaction price, we evaluate whether the consideration promised in the contract includes a variable amount
and, if applicable, we include in the transaction price some or all of an amount of variable consideration only to the extent it is
probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty
associated with the variable consideration is subsequently resolved. Variable consideration may be explicitly stated in the
contract or implied based on our customary practices. Examples of variable consideration present in our contracts include rights
of return, in the case of a defective or non-conforming product, and trade discounts, including early payment discounts and
retrospective volume discounts. Such variable consideration has not historically been material in relation to our net revenue.
Our contract terms generally require the customer to make payment shortly (that is, less than one year) after the shipment date.
In such instances, we do not consider the effects of a significant financing component in determining the transaction price.
Lastly, we exclude from our determination of the transaction price value-added tax and other similar taxes.
Our performance obligations are satisfied, and revenue is recognized, when control of the product is transferred to the customer.
The transfer of control generally occurs at the point in time the product is shipped from our warehouse or, less often, at the
point in time it is received by the customer, depending on the specific terms of the arrangement. 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. However, in certain cases, pre-production activities are a performance obligation in a customer purchase order, and
revenue is recognized when the performance obligation is satisfied. Customer arrangements do not involve post-installation or
post-sale testing and acceptance.
Our standard terms of sale provide our customers with a warranty against faulty workmanship and the use of defective
materials, which is not considered a distinct performance obligation in accordance with FASB ASC Topic 606. Depending on
the product, we generally provide such warranties for a period of three years after the date we ship the product to our original
equipment manufacturer ("OEM") customers or for a period of twelve months after the date the customer resells our product to
the end consumer, whichever comes first. 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 do not offer separately priced extended warranty or product
maintenance contracts. 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.
Refer to Note 3: Revenue Recognition for additional information related to the net revenue recognized in the consolidated
statements of operations.
Share-Based Compensation
We 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 in accordance
with FASB ASC Topic 718, Compensation—Stock Compensation. 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 presented, however, such costs, or a portion thereof, may be capitalized provided certain criteria are met.
Share-based awards may be subject to either cliff vesting (i.e., the entire award vests on a particular date) or graded vesting (i.e.,
portions of the award vest at different points in time). In accordance with FASB ASC Topic 718, compensation expense
associated with share-based awards subject to cliff vesting must be recognized on a straight-line basis. For awards without
performance conditions that are subject to graded vesting, companies have the option to recognize compensation expense either
71
on a straight-line or accelerated basis. We have elected to recognize compensation expense for these awards on a straight-line
basis. However, awards that are subject to both graded vesting and performance conditions must be expensed on an accelerated
basis.
Restricted securities are valued using the closing price of our ordinary shares on the New York Stock Exchange (the "NYSE")
on the grant date. Certain of our restricted securities include performance conditions, which require us to estimate the probable
outcome of the performance condition. Compensation expense is recognized if it is probable that the performance condition will
be achieved.
We elect to recognize share-based compensation expense net of estimated forfeitures as permitted by FASB ASC Topic 718.
Accordingly, we only recognize compensation expense 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.
Refer to Note 4: Share-Based Payment Plans for additional information related to share-based compensation.
Financial Instruments
Our material financial instruments include derivative instruments, debt instruments, equity investments, and trade accounts
receivable.
Derivative financial instruments
We account for derivative financial instruments in accordance with FASB ASC Topic 820, Fair Value Measurement and FASB
ASC Topic 815, Derivatives and Hedging. In accordance with FASB ASC Topic 815, we recognize all derivatives on the
balance sheet at fair value. The fair value of our derivative financial instruments is determined using widely accepted valuation
techniques, including discounted cash flow analysis on the expected net cash flows of each instrument. These analyses utilize
observable market-based inputs, including foreign currency exchange rates and commodity forward curves, and reflect the
contractual terms of these instruments, including the period to maturity.
Derivative instruments that are designated and qualify as hedges of the exposure to changes in the fair value of an asset,
liability, or commitment, and that are attributable to a particular risk, such as interest rate risk, are considered fair value hedges.
Derivative instruments that are designated and qualify as hedges of the exposure to variability in expected future cash flows are
considered cash flow hedges. Derivative instruments may also be designated as hedges of the foreign currency exposure of a net
investment in a foreign operation. Currently, all of our derivative instruments that are designated as accounting hedges are cash
flow hedges. We also hold derivative instruments that are not designated as accounting hedges.
The accounting for changes in the fair value of our cash flow hedges depends on whether we have elected to designate the
derivative as a hedging instrument for accounting purposes and whether the hedging relationship has satisfied the criteria
necessary to apply hedge accounting. In accordance with FASB ASC Topic 815, both the effective and ineffective portions of
changes in the fair value of derivatives designated and qualifying as cash flow hedges are recognized in accumulated other
comprehensive loss and are subsequently reclassified into earnings in the period in which the hedged forecasted transaction
affects earnings. Changes in the fair value of derivative instruments that are not designated as accounting hedges are recognized
immediately in other, net. Refer to Note 16: Shareholders' Equity and Note 19: Derivative Instruments and Hedging Activities
for additional information related to the reclassification of amounts from accumulated other comprehensive loss into earnings.
We present the cash flows arising from our derivative financial instruments in a manner consistent with the presentation of cash
flows that relate to the underlying hedged items.
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. 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. We maintain derivative 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 instruments.
Refer to Note 19: Derivative Instruments and Hedging Activities for additional information related to our derivative
instruments.
72
Debt Instruments
A premium or discount on a debt instrument is recognized on the balance sheet as an adjustment to the carrying value 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.
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 also 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 financing transactions, we apply the provisions of FASB ASC Subtopic 470-50, Modifications and
Extinguishments. Our evaluation of the accounting under FASB ASC Subtopic 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 14: Debt for additional information related to our debt instruments and transactions.
Equity Investments
We measure equity investments (other than those accounted for under the equity method, those that result in consolidation of
the investee, and certain other investments) either at fair value, with changes to fair value recognized in net income, or, in
certain instances, by use of a measurement alternative prescribed in FASB ASC Topic 321, Investments - Equity Securities.
Under the measurement alternative, such investments are measured at cost, less any impairment, plus or minus changes
resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.
Refer to Note 18: Fair Value Measures for additional information related to our measurement of financial instruments,
including equity investments.
Trade accounts receivable
Trade accounts receivable are recognized at invoiced amounts and do not bear interest. Trade accounts receivable are reduced
by an allowance for losses on receivables. 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. We estimate an allowance for credit losses on trade accounts
receivable at an amount that represents our estimated expected credit losses over the lifetime of our receivables. Our contract
terms generally require the customer to make payment shortly after (that is, less than one year) the shipment date. Our largest
customer accounted for approximately 6% of our net revenue for the year ended December 31, 2022.
Allowance for Losses on Receivables
The allowance for losses on receivables is used to present accounts receivable, net at an amount that represents our estimate of
the related transaction price recognized as revenue in accordance with FASB ASC Topic 606. The allowance represents an
estimate of expected credit losses over the lifetime of our receivables, even if the loss is considered remote, and reflects
expected recoveries of amounts previously written-off. 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. We consider the need to adjust historical information to reflect the extent to which we
expect current conditions and reasonable forecasts to differ from the conditions that existed for the historical period considered.
The allowance for losses on receivables also includes an allowance for sales returns (variable consideration).
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. Customers are generally not required to provide collateral for purchases.
Losses on receivables have not historically been significant.
73
Goodwill and Other Intangible Assets
Businesses acquired are recognized 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. Intangible assets acquired may include
either definite-lived or indefinite-lived intangible assets, or both.
In accordance with the guidance in FASB ASC Topic 350, Intangibles—Goodwill and Other, 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
Our reporting units have been identified based on the definitions and guidance provided in FASB ASC Topic 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.
Some assets and liabilities relate to the operations of multiple reporting units. We allocate these assets and liabilities to the
related 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. Other assets and liabilities, such as debt, cash and cash equivalents, and property, plant and
equipment ("PP&E") associated with our corporate offices, are viewed as being corporate in nature. Accordingly, we do not
assign these assets and liabilities to our 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 a new or existing reporting unit as of the date of the acquisition. In the event a disposal
group meets the definition of a business, goodwill is allocated to the disposal group based on the relative fair value of the
disposal group to the retained portion of the related reporting unit.
We have the option to first assess qualitative factors to determine whether a quantitative analysis must be performed. The
objective of a qualitative analysis is to assess whether it is more likely than not that the fair value of a reporting unit is less than
its carrying value. We make this assessment based on macroeconomic conditions, industry and market considerations, cost
factors, overall financial performance, and other relevant factors as applicable. 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 carrying value, then we prepare a
discounted cash flow analysis to determine whether the carrying value of reporting unit exceeds its estimated fair value. If the
carrying value of a reporting unit exceeds its estimated fair value, we recognize an impairment of goodwill for the amount of
this excess, in accordance with the guidance in FASB ASC Topic 350.
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 analysis in which we estimate the fair value of the indefinite-lived intangible asset and compare that amount to its
carrying value. In this analysis, we estimate the fair value by using the relief-from-royalty method, in which we make
assumptions about future conditions impacting the fair value of our 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.
Definite-lived intangible assets
Acquisition-related definite-lived 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. 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.
74
Reviews are regularly performed to determine whether facts or circumstances exist that indicate that the carrying values of our
definite-lived intangible assets are impaired. If we determine that such 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 is less than the carrying value of an asset,
the impairment charge is measured as the excess of the carrying value over the fair value of that asset. We determine fair value
by using the appropriate income approach valuation methodology, depending on the nature of the definite-lived intangible asset.
Refer to Note 11: Goodwill and Other Intangible Assets, Net for additional information related to our goodwill and other
intangible assets.
Income Taxes
We estimate our provision for (or benefit from) income taxes in each of the jurisdictions in which we operate. The provision for
(or benefit from) income taxes includes both our current and deferred tax expense. Our deferred tax expense is measured using
the asset and liability method, under which deferred income taxes are recognized to reflect the future tax consequences 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.
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 measuring our deferred tax assets, we consider 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. 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. As a result, we maintain valuation allowances against the deferred tax assets in jurisdictions
that have incurred losses in recent periods and in which it is more likely than not that such deferred tax assets will not be
utilized in the foreseeable future.
In accordance with FASB ASC Topic 740, Income Taxes, we record uncertain tax positions on the basis of a two-step process.
First, we determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the
position. Second, for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest
amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the relevant tax
authority. Significant judgment is required in evaluating whether our tax positions meet this two-step process. The more-likely-
than-not recognition threshold must be met in each reporting period to support continued recognition of any tax benefits
claimed, both in the current year, as well as any year which remains open for review by the relevant tax authority at the balance
sheet date. Penalties and interest related to uncertain tax positions 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 uncertain tax positions within
the provision for (or benefit from) income taxes line of the consolidated statements of operations.
Refer to Note 7: Income Taxes for additional information related to our income taxes.
Pension and Other Post-Retirement Benefits
We sponsor various pension and other post-retirement benefit plans covering our current and former employees in several
countries. The funded status of pension and other post-retirement benefit plans, recognized on our consolidated balance sheets
as an asset, current liability, or long-term liability, is measured as the difference between the fair value of plan assets and the
benefit obligation at the measurement date.
Benefit obligations represent the actuarial present value of all benefits attributed by the pension formula as of the measurement
date to employee service rendered before that date. The value of benefit obligations takes into consideration various financial
assumptions, including assumed discount rate and the rate of increase in healthcare costs, and demographic assumptions,
including compensation rate increases, retirement patterns, employee turnover rates, and mortality rates. We review these
assumptions annually.
Contributions made to pension and other post-retirement benefit plans are presented as a component of operating cash flows
within the consolidated statements of cash flows. We present the service cost component of net periodic benefit cost in the cost
of revenue, research and development ("R&D"), and SG&A expense line items, and we present the non–service components of
net periodic benefit cost in other, net.
Refer to Note 13: Pension and Other Post-Retirement Benefits for additional information related to our pension and other post-
retirement benefit plans.
75
Inventories
Inventories are stated at the lower of cost or estimated net realizable value. The cost of raw materials, work-in-process, and
finished goods is determined based on a first-in, first-out basis and includes material, labor, and applicable manufacturing
overhead. We conduct quarterly inventory reviews for salability and obsolescence, and inventories considered unlikely to be
sold are adjusted to net realizable value.
Refer to Note 9: Inventories for additional information related to our inventory balances.
Property, Plant and Equipment 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. Amortization of leasehold improvements is included in depreciation
expense.
Assets held under finance leases are recognized 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. Depreciation expense associated with finance leases 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 depreciated,
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 10: Property, Plant and Equipment, Net for additional information related to our PP&E balances.
Leases
We account for leases in accordance with the guidance in FASB ASC Topic 842, Leases. We enter into lease agreements for
many of our facilities around the world. We occupy leased facilities with initial terms ranging up to 20 years. Our 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: finance leases and operating leases. For both
forms of leases, we recognize a related lease liability and right-of-use asset on our consolidated balance sheets. Our lease
liabilities are initially measured at the present value of the lease payments not yet paid, discounted using our incremental
borrowing rate for a period that is comparable to the remaining lease term. We use our incremental borrowing rate, adjusted for
collateralization, because the discount rates implicit in our leases are generally not readily determinable.
For finance leases, the consolidated statements of operations include separate recognition of interest on the lease liability and
amortization of the right-of-use asset. For operating leases, the consolidated statements of operations include a single lease cost,
calculated so that the cost of the lease is allocated over the lease term on a straight-line basis.
Net cash flows from operating activities include (1) interest on finance lease liabilities and (2) payments arising from operating
leases. Net cash flows from financing activities include repayments of the principal portion of finance lease liabilities.
We also lease certain vehicles and equipment, which generally have a term of one year or less. We have elected to account for
leases with a term of one year or less (short-term leases) using a method similar to the operating lease model under FASB ASC
Topic 840, Leases (i.e., they are not recorded on the consolidated balance sheets) as permitted by FASB ASC Topic 842.
Refer to Note 17: Leases for additional information related to amounts recognized in the consolidated financial statements
related to our leases.
76
Foreign Currency
We derive a significant portion of our net revenue from markets outside of the U.S. For financial reporting purposes, the
functional currency of almost all of our subsidiaries is the USD because of the significant influence of the USD on our
operations. In certain instances, we enter into transactions that are denominated in a currency other than the 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 recognized in other, net in the consolidated statements of operations. The impact of currency translation adjustment for
subsidiaries with a functional currency other than USD is not material.
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.
Recently issued accounting standards:
There have been no recently issued accounting standards that have been adopted in the current period or will be adopted in
future periods that have had or are expected to have a material impact on our consolidated financial position or results of
operations.
3. Revenue Recognition
We recognize revenue to depict the transfer of promised goods to customers in an amount that reflects the consideration to
which we expect to be entitled in exchange for those goods. The vast majority of our revenue is derived from the sale of
tangible products whereby control of the product transfers to the customer at a point in time, we recognize revenue at a point in
time, and the underlying contract is a purchase order that establishes a firm purchase commitment for a short period of time.
Our standard terms of sale provide our customers with a warranty against faulty workmanship and the use of defective
materials. We do not offer separately priced extended warranty or product maintenance contracts. Refer to Note 2: Significant
Accounting Policies for additional information.
We have elected to apply certain practical expedients that allow for more limited disclosures than those that would otherwise be
required by FASB ASC Topic 606, including (1) the disclosure of transaction price allocated to the remaining unsatisfied
performance obligations at the end of the period and (2) an explanation of when we expect to recognize the related revenue.
We believe that our end markets are the categories that best depict how the nature, amount, timing, and uncertainty of revenue
and cash flows are affected by economic factors. The following table presents net revenue disaggregated by segment and end
market for the years ended December 31, 2022, 2021, and 2020:
Performance Sensing
Sensing Solutions
Total
For the year ended December 31,
For the year ended December 31,
For the year ended December 31,
2022
2021
2020
2022
2021
2020
2022
2021
2020
Net revenue:
Automotive
HVOR (1)
Industrial
Appliance and HVAC (2)
Aerospace
Other
Net revenue
$ 2,071,879 $ 2,018,056 $ 1,715,749 $
35,772 $
44,351 $
35,621 $ 2,107,651 $ 2,062,407 $ 1,751,370
904,877
829,852
508,061
—
—
—
—
—
—
—
—
—
—
—
—
—
525,443
218,115
152,880
120,296
—
413,885
243,938
134,735
135,989
—
336,506
189,782
136,167
123,692
904,877
525,443
218,115
152,880
120,296
829,852
413,885
243,938
134,735
135,989
508,061
336,506
189,782
136,167
123,692
$ 2,976,756 $ 2,847,908 $ 2,223,810 $ 1,052,506 $ 972,898 $ 821,768 $ 4,029,262 $ 3,820,806 $ 3,045,578
__________________________
(1) Heavy vehicle and off-road
(2) Heating, ventilation and air conditioning
In addition, refer to Note 20: Segment Reporting for a presentation of net revenue disaggregated by product category and
geographic region.
77
Contract Assets and Liabilities
Excluding trade receivables, which are presented on our consolidated balance sheets, our contract assets are not material.
Contract liabilities, whereby we receive payment from customers related to our promise to satisfy performance obligations in
the future, are not material.
4. Share-Based Payment Plans
At our Annual General Meeting held on May 27, 2021, our shareholders approved the Sensata Technologies Holding plc 2021
Equity Incentive Plan (the "2021 Equity Plan"), which replaced the Sensata Technologies Holding plc First Amended and
Restated 2010 Equity Incentive Plan (the "2010 Equity Plan"). The 2021 Equity Plan is substantially similar to the 2010 Equity
Plan with some updates based on changes in law and current practices. The purpose of the 2021 Equity Plan is to promote the
long-term growth, profitability, and interests of the Company and its shareholders by aiding us in attracting and retaining
employees, officers, consultants, advisors, and non-employee directors capable of assuring our future success. All awards
granted subsequent to this approval were made under the 2021 Equity Plan. The 2010 Equity Plan was terminated as to the
grant of any additional awards, but prior awards remain outstanding in accordance with their terms. As of December 31, 2022,
there were 5.0 million ordinary shares available for grants of awards under the 2021 Equity Plan.
Refer to Note 2: Significant Accounting Policies for additional information related to our share-based compensation accounting
policies.
Share-Based Compensation Awards
We grant restricted stock unit ("RSU") and performance-based restricted stock unit ("PRSU") awards. We no longer grant stock
option awards, with the last grants of option awards made in the year ended December 31, 2019. Throughout this Annual
Report on Form 10-K, RSU and PRSU awards are often referred to collectively as "restricted securities." Share-based
compensation awards granted prior to May 27, 2021 were made under the 2010 Equity Plan, with all subsequent awards granted
under the 2021 Equity Plan.
For option and RSU awards, vesting is typically subject only to service conditions. For PRSU awards, vesting is also subject to
service conditions, however the number of awarded units that ultimately vest also depends on the attainment of certain
predefined performance criteria. Our awards include continued vesting provisions for retirement-eligible employees.
Options
A summary of stock option activity for the years ended December 31, 2022, 2021, and 2020 is presented in the table below
(amounts have been calculated based on unrounded shares, accordingly, certain amounts may not appear to recalculate due to
the effect of rounding):
Number of
Options
(thousands)
Weighted-
Average
Exercise Price
Per Option
Weighted-Average
Remaining
Contractual Term
(years)
Balance as of December 31, 2019
Forfeited or expired
Exercised
Balance as of December 31, 2020
Forfeited or expired
Exercised
Balance as of December 31, 2021
Forfeited or expired
Exercised
Balance as of December 31, 2022
Options vested and exercisable as of December 31, 2022
Vested and expected to vest as of December 31, 2022
3,464 $
(155) $
(452) $
2,857 $
(15) $
(707) $
2,135 $
(36) $
(572) $
1,527 $
1,460 $
1,523 $
41.19
48.30
34.22
41.90
49.93
38.07
43.11
50.45
38.80
44.55
44.44
44.55
5.0
4.4
3.9
3.3
3.2
3.3
Aggregate
Intrinsic Value
44,696
$
$
$
$
$
$
$
$
$
5,117
31,955
14,264
39,660
8,265
1,802
1,802
1,802
78
A summary of the status of our unvested options as of December 31, 2022 and of the changes during the year then ended is
presented in the table below (amounts have been calculated based on unrounded shares, accordingly, certain amounts may not
appear to recalculate due to the effect of rounding):
Balance as of December 31, 2021
Vested during the year
Forfeited during the year
Balance as of December 31, 2022
Number of
Options
(thousands)
Weighted-
Average Grant-
Date Fair Value
18.40
12.01
13.68
29.46
194 $
(119) $
(4) $
71 $
The fair value of stock options that vested during the years ended December 31, 2022, 2021, and 2020 was $1.4 million, $2.5
million, and $4.4 million, respectively.
Option awards granted to employees generally vest 25% per year over four years from the grant date. 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 generally expire ten years from the date of grant.
For options granted prior to April 2019, except as otherwise provided in specific option award agreements, if a participant
ceases to be employed by us, options not yet vested generally expire and are forfeited at the termination date, and options that
are fully vested generally expire 90 days after termination of the participant’s employment. Exclusions to the general policy for
terminated employees include termination for cause (in which case the options expire on the participant’s termination date) and
termination due to death or disability (in which case any unvested options shall immediately vest and expire one year after the
participant’s termination date). For options granted in or after April 2019, the same terms apply, except that in the event of
termination due to a qualified retirement, options not yet vested will continue to vest and will expire ten years from the grant
date.
We did not grant any options in the years ended December 31, 2022, 2021 or 2020.
Restricted Securities
Starting in April 2020, we grant RSU awards that vest ratably over three years and PRSU awards that cliff vest three years after
the grant date. Previously, we granted RSU and PRSU awards each of which cliff vested three years after the grant date.
In the event of a qualifying termination, any unvested restricted securities that would have otherwise vested within the next six
months vest in full on the termination date, and in the event of termination by reason of a covered retirement, any unvested
restricted securities remain outstanding on the termination date and subject to continued vesting. For PRSU awards, the number
of units that ultimately vest depends on the extent to which certain performance criteria, described in the table below, are met.
A summary of restricted securities granted in the years ended December 31, 2022, 2021, and 2020 is presented below:
Percentage Range of Units That May Vest (1)
0.0% to 172.5%
0.0% to 200.0%
(Awards in thousands)
2022
2021
2020
RSU Awards
Granted
Weighted-Average
Grant-Date
Fair Value
PRSU Awards
Granted
Weighted-Average
Grant-Date
Fair Value
PRSU Awards
Granted
Weighted-Average
Grant-Date
Fair Value
618 $
413 $
806 $
49.68
58.29
29.06
231 $
170 $
401 $
50.12
58.56
28.22
194 $
76 $
— $
48.33
57.04
—
__________________________
(1) Represents the percentage range of PRSU award units granted that may vest according to the terms of the awards. The
amounts presented within this table do not reflect our current assessment of the probable outcome of vesting based on the
achievement or expected achievement of performance conditions.
Compensation expense for the year ended December 31, 2022 reflects our estimate of the probable outcome of the performance
conditions associated with the PRSU awards granted in the years ended December 31, 2022, 2021, and 2020.
79
A summary of activity related to outstanding restricted securities for the years ended December 31, 2022, 2021, and 2020 is
presented in the table below (amounts have been calculated based on unrounded shares, accordingly, certain amounts may not
appear to recalculate due to the effect of rounding):
Balance as of December 31, 2019
Granted
Forfeited
Vested
Balance as of December 31, 2020
Granted
Forfeited
Vested
Balance as of December 31, 2021
Granted
Forfeited
Vested
Balance as of December 31, 2022
Restricted
Securities
(thousands)
Weighted-Average
Grant-Date
Fair Value
1,105 $
1,207 $
(284) $
(349) $
1,679 $
659 $
(348) $
(469) $
1,521 $
1,043 $
(287) $
(522) $
1,755 $
47.51
28.78
37.89
43.54
36.49
58.21
41.00
38.36
43.31
49.53
46.96
42.40
46.68
Aggregate intrinsic value information for restricted securities as of December 31, 2022, 2021, and 2020 is presented below:
Outstanding
Expected to vest
As of December 31,
2022
2021
2020
$
$
70,941 $
55,235 $
93,830 $
69,798 $
88,534
58,675
The weighted-average remaining periods over which the restrictions will lapse as of December 31, 2022, 2021, and 2020 are as
follows:
Outstanding
Expected to vest
As of December 31,
2022
2021
2020
1.2
1.2
1.0
1.0
1.1
1.1
The expected to vest restricted securities are calculated based on the application of a forfeiture rate assumption to all
outstanding restricted securities as well as our assessment of the probability of meeting the required performance conditions that
pertain to the PRSU awards.
Share-Based Compensation Expense
The table below presents non-cash compensation expense related to our equity awards, which is recognized within SG&A
expense in the consolidated statements of operations, for the years ended December 31, 2022, 2021, and 2020:
Stock options
Restricted securities
Share-based compensation expense
For the year ended December 31,
2022
2021
2020
$
$
632 $
31,159
31,791 $
1,389 $
24,274
25,663 $
2,868
16,257
19,125
In the years ended December 31, 2022, 2021, and 2020, we recognized $3.8 million, $3.2 million, and $2.5 million,
respectively, of income tax benefit associated with share-based compensation expense.
80
The table below presents unrecognized compensation expense at December 31, 2022 for each class of award and the remaining
expected term for this expense to be recognized:
Options
Restricted securities
Total unrecognized compensation expense
5. Restructuring and Other Charges, Net
Unrecognized
Compensation Expense
Expected
Recognition (years)
$
$
1,687
36,539
38,226
0.1
1.3
The following table presents the components of restructuring and other charges, net for the years ended December 31, 2022,
2021, and 2020:
Q2 2020 Global Restructure Program, net
Other restructuring charges
Severance costs, net
Facility and other exit costs
Gain on sale of Qinex Business (1)
Acquisition-related compensation arrangements (2)
Other (3)
Restructuring and other charges, net
$
$
For the year ended December 31,
2022
2021
2020
— $
7,120 $
19,112
5,464
(135,112)
48,864
(5,028)
(66,700) $
4,504
2,433
—
—
885
14,942 $
24,458
3,042
1,323
—
—
4,271
33,094
__________________________
(1) Refer to Note 21: Acquisitions and Divestitures for additional information on the sale of various assets and liabilities
comprising our semiconductor test and thermal business (collectively, the "Qinex Business").
(2) Refer to Note 21: Acquisitions and Divestitures for additional information regarding our acquisition-related compensation
arrangements.
(3) Represents charges that are not included in one of the other classifications. The year ended December 31, 2022 primarily
includes transaction-related charges to sell the Qinex Business, partially offset by gains related to changes in the fair value
of acquisition-related contingent consideration amounts. Refer to Note 21: Acquisitions and Divestitures for additional
information. In the year ended December 31, 2020, we settled intellectual property litigation brought against August
Cayman Company, Inc. ("Schrader”) by Wasica Finance GmbH ("Wasica") and released $11.7 million of the related
liability, which is presented in restructuring and other charges, net. This release largely offset a charge of $12.1 million
resulting from a prejudgment interest-related award granted by the court on behalf of Wasica in fiscal year 2020.
On June 30, 2020, in response to the potential long-term impact of the global financial and health crisis caused by the
COVID-19 pandemic on our business, we committed to a plan to reorganize our business (the “Q2 2020 Global Restructure
Program”) consisting of voluntary and involuntary reductions-in-force and certain site closures. The Q2 2020 Global
Restructure Program was commenced in order to align our cost structure to the then anticipated future demand outlook. We
have completed all actions contemplated thereunder, with approximately 840 positions impacted. We recognized total
cumulative costs of $33.2 million under the Q2 2020 Global Restructure Program, of which $28.4 million related to severance
charges and $4.8 million related to facility and other exit costs.
81
Charges recognized in the years ended December 31, 2021 and 2020 resulting from the Q2 2020 Global Restructure Program
are presented by impacted segment below. However, as discussed in Note 20: Segment Reporting, restructuring and other
charges, net are excluded from segment operating income. There were no charges recognized in the year ended December 31,
2022.
Performance Sensing (1)
Sensing Solutions (2)
Corporate and other
Q2 2020 Global Restructure Program, net
For the year ended December 31,
2021
2020
$
$
2,584 $
5,898
(1,362)
9,073
6,445
8,940
7,120 $
24,458
__________________________
(1) Approximately $1.2 million of these charges for the year ended December 31, 2021 relate to site closures. There were no
site closures in the Performance Sensing reportable segment in the year ended December 31, 2020.
(2) Approximately $3.8 million and $0.6 million of these charges for the years ended December 31, 2021 and 2020,
respectively, relate to site closures.
The following table presents a rollforward of the severance portion of our restructuring obligations for the years ended
December 31, 2022 and 2021:
Balance as of December 31, 2020
Charges, net of reversals
Payments
Foreign currency remeasurement
Balance as of December 31, 2021
Charges, net of reversals
Payments
Foreign currency remeasurement
Balance as of December 31, 2022
Q2 Plan
Other
Total
$
10,842 $
2,181
(8,993)
(177)
3,853
(660)
(3,155)
(16)
22 $
$
4,037 $
4,504
(5,145)
(16)
3,380
19,772
(14,479)
(78)
8,595 $
14,879
6,685
(14,138)
(193)
7,233
19,112
(17,634)
(94)
8,617
The severance portion of our restructuring obligations for each period presented was entirely recorded in accrued expenses and
other current liabilities on our consolidated balance sheets. Refer to Note 12: Accrued Expenses and Other Current Liabilities.
6. Other, Net
The following table presents the components of other, net for the years ended December 31, 2022, 2021, and 2020:
Currency remeasurement (loss)/gain on net monetary assets (1)
Gain/(loss) on foreign currency forward contracts (2)
(Loss)/gain on commodity forward contracts (2)
Loss on debt financing (3)
Mark-to-market loss on investments, net (4)
Net periodic benefit cost, excluding service cost
Other
Other, net
For the year ended December 31,
2022
2021
2020
$
(18,155) $
3,449 $
4,324
(3,350)
(5,468)
(75,569)
(5,125)
8,725
(7,553)
(2,967)
(30,066)
—
(7,528)
4,633
$
(94,618) $
(40,032) $
10,833
(6,762)
10,027
—
—
(9,980)
(4,457)
(339)
__________________________
(1) Relates to the remeasurement of non-USD denominated net monetary assets and liabilities into USD. Refer to Note 2:
Significant Accounting Policies — Foreign Currency for additional information.
(2) Relates to changes in the fair value of derivative financial instruments not designated as cash flow hedges. Refer to Note
19: Derivative Instruments and Hedging Activities for additional information related to gains and losses on our commodity
and foreign currency forward contracts.
82
(3) Refer to Note 14: Debt for additional information related to our debt financing transactions.
(4) Primarily reflects a mark-to-market loss on our investment in Quanergy Systems, Inc. ("Quanergy"). Refer to Note 18: Fair
Value Measures for additional information.
7. Income Taxes
Refer to Note 2: Significant Accounting Policies for detailed discussion of the accounting policies related to income taxes.
Income before taxes
Income before taxes for the years ended December 31, 2022, 2021, and 2020 was categorized by jurisdiction as follows:
2022
2021
2020
Provision for income taxes
U.S.
Non-U.S.
Total
$
$
$
(66,899) $
39,947 $
(80,856) $
463,601 $
373,970 $
246,497 $
396,702
413,917
165,641
Provision for income taxes for the years ended December 31, 2022, 2021, and 2020 comprised provisions for (or benefits from)
income tax by jurisdiction as follows:
2022
2021
2020
Current
Deferred
Total
Current
Deferred
Total
Current
Deferred
Total
U.S. Federal
Non-U.S.
U.S. State
Total
$
$
$
$
$
$
2,111 $
81,912 $
2,775 $
86,798
3,699
(4,865)
385
(781)
5,810 $
77,047 $
3,160 $
86,017
1,005 $
54,401 $
201 $
6,261
(12,747)
1,216
7,266 $
41,654 $
1,417 $
(2,624) $
48,572 $
307 $
(14,776)
(34,252)
4,128
(17,400) $
14,320 $
4,435 $
55,607
(5,270)
50,337
46,255
(44,900)
1,355
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, 2022,
2021, and 2020 were as follows:
Tax computed at statutory rate of 21%
Foreign tax rate differential
Valuation allowances
Withholding taxes not creditable
Research and development incentives
Unrealized foreign currency exchange losses/gains, net
Dispositions and capital restructurings
Change in tax laws or rates
U.S. state taxes, net of federal benefit
Reserve for tax exposure
Nontaxable items and other
Provision for income taxes
83
For the year ended December 31,
2022
2021
2020
83,307 $
(44,327)
15,679
12,337
(10,834)
9,306
4,496
2,611
2,496
1,315
9,631
86,017 $
86,923 $
(30,485)
20,512
13,259
(11,067)
(6,137)
—
(7,070)
1,119
(16,330)
(387)
50,337 $
34,785
(21,994)
8,869
12,198
(7,408)
2,650
(54,188)
11,229
3,504
(171)
11,881
1,355
$
$
Foreign tax rate differential
We operate in locations outside the U.S., including Belgium, Bulgaria, China, Malaysia, Malta, the Netherlands, South Korea,
and the U.K., that historically have had statutory tax rates different than the U.S. statutory tax rate. This can result in a foreign
tax rate differential that may reflect a tax benefit or detriment. This foreign tax rate differential can change from year to year
based upon the jurisdictional mix of earnings and changes in current and future enacted tax rates.
Certain of our subsidiaries are currently eligible, or have been eligible, for tax exemptions or reduced tax rates in their
respective jurisdictions. From 2020 through 2022, a subsidiary in Changzhou, China was eligible for a reduced corporate
income tax rate of 15%. The impact on current tax expense of the tax holidays and exemptions is included in the foreign tax rate
differential disclosure, reconciling the statutory rate to our effective rate. The remeasurement of the deferred tax assets and
liabilities is included in the change in tax laws or rates caption.
Withholding taxes not creditable
Withholding taxes may apply to intercompany interest, royalty, management fees, and certain payments to third parties. Such
taxes are deducted if they cannot be credited against the recipient’s tax liability in its country of residence. Additional
consideration has been given to the withholding taxes associated with 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 recognize a deferred tax liability on withholding and other taxes on intercompany payments
including dividends.
Research and development incentives
Certain income of our U.K. subsidiaries is eligible for lower tax rates under the "patent box" regime, resulting in certain of our
intellectual property income being taxed at a rate lower than the U.K. statutory tax rate. Qualified investments are eligible for a
bonus deduction under China’s R&D super deduction regime. In the U.S., we benefit from R&D credit incentives.
Dispositions and capital restructuring
The increase of $4.5 million in our effective tax rate for the year ended December 31, 2022 was due to the tax accounting
impacts of the divestiture of the Qinex Business, partially offset by separate intangible property transfers. For the year ended
December 31, 2020, the decrease in our effective tax rate was due to a net $54.2 million deferred tax benefit in the fourth
quarter of 2020 related to intangible property transfers.
84
Deferred income tax assets and liabilities
The primary components of deferred income tax assets and liabilities as of December 31, 2022 and 2021 were as follows:
Deferred tax assets:
Net operating loss, interest expense, and other carryforwards
Prepaid and accrued expenses
Intangible assets and goodwill
Pension liability and other
Property, plant and equipment
Share-based compensation
Inventories and related reserves
Unrealized exchange loss
Total deferred tax assets
Valuation allowance
Net deferred tax asset
Deferred tax liabilities:
Intangible assets and goodwill
Tax on undistributed earnings of subsidiaries
Operating lease right of use assets
Property, plant and equipment
Unrealized exchange gain
Total deferred tax liabilities
Net deferred tax liability
As of December 31,
2022
2021
$
$
379,036 $
48,540
67,330
9,801
15,042
7,862
17,329
17,645
562,585
(249,525)
313,060
(489,169)
(60,535)
(6,803)
(14,309)
(6,298)
(577,114)
(264,054) $
393,724
55,794
87,830
11,278
16,290
8,421
10,767
805
584,909
(225,919)
358,990
(493,787)
(68,384)
(9,360)
(14,506)
(7,198)
(593,235)
(234,245)
Valuation allowance and net operating loss carryforwards
We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In measuring
our deferred tax assets, we consider 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. Significant judgment
is required in considering the relative impact of the negative and positive evidence, and weight given to each category of
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 FASB ASC Topic 740 to determine whether the future
tax benefit from the deferred tax assets should be recognized. As a result, we have established valuation allowances 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.
As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regard to
future realization of deferred tax assets. Our interest expense carryforwards in certain jurisdictions are subject to limitations. We
consider these limitations in our assessment of positive and negative evidence. Our assessment of these limitations has resulted
in the conclusion that a portion of our interest carryforwards are subject to a valuation allowance.
For tax purposes, certain goodwill and indefinite-lived intangible assets are generally amortizable over 6 to 15 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 indefinite-lived 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.
85
The total valuation allowance increased $23.6 million and $23.8 million in the years ended December 31, 2022 and 2021,
respectively. As a result of changes in interest limitation rules in the Netherlands that became effective in 2021, we recorded a
valuation allowance against our interest carryforwards in this jurisdiction in the year ended December 31, 2021. Subsequently
reported tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 2022 will be allocated to
income tax benefit recognized in the consolidated statements of operations.
As of December 31, 2022, we have U.S. federal net operating loss carryforwards of $828.0 million, of which $246.5 million
will expire from 2028 to 2037, and $581.5 million do not expire. We have state net operating loss carryforwards with limited
and unlimited lives. Our limited life state net operating losses will expire beginning in 2023. As of December 31, 2022, we have
suspended interest expense carryforwards of $418.9 million, which have an unlimited life. We also have net operating loss
carryforwards in foreign jurisdictions of $576.5 million, which will begin to expire in 2023.
Unrecognized tax benefits
A reconciliation of the amount of unrecognized tax benefits is as follows:
Balance at beginning of year
Increases related to current year tax positions
Increases related to prior year tax positions
(Decreases)/increases related to business combinations
Decreases related to settlements with tax authorities
Decreases related to prior year tax positions
Decreases related to lapse of applicable statute of limitations
Changes related to foreign currency exchange rates
Balance at end of year
For the year ended December 31,
2021
2020
2022
$
$
223,791 $
4,997
1,312
(883)
—
(3,097)
(743)
(789)
224,588 $
201,410 $
3,574
37,869
1,370
(11,015)
(8,363)
(483)
(571)
223,791 $
117,591
46,329
43,082
—
(5,183)
(1,294)
(452)
1,337
201,410
We recognize interest and penalties related to unrecognized tax benefits in the consolidated statements of operations and the
consolidated balance sheets. The following table presents the expense/(income) related to such interest and penalties recognized
in the consolidated statements of operations during the years ended December 31, 2022, 2021, and 2020, and the amount of
interest and penalties recorded on the consolidated balance sheets as of December 31, 2022 and 2021:
(In millions)
Interest
Penalties
Statements of Operations
For the year ended December 31,
Balance Sheets
As of December 31,
2022
2021
2020
2022
2021
$
$
0.5 $
0.1 $
(0.1) $
0.0 $
0.4 $
0.2 $
2.1 $
0.5 $
1.6
0.4
At December 31, 2022, we anticipate that the liability for unrecognized tax benefits could decrease by up to $41.0 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, 2022 that if recognized would impact our
effective tax rate is $174.8 million.
Our major tax jurisdictions include Belgium, Bulgaria, China, France, Germany, Japan, Malaysia, Malta, Mexico, the
Netherlands, South Korea, the U.K., and the U.S. These jurisdictions generally remain open to examination by the relevant tax
authority for the tax years 2006 through 2022.
Indemnifications
We have various indemnification provisions in place with parties including Honeywell (sellers of First Technology Automotive
and Special Products), the Terence Richard Prime Trust dated August 10, 1999 and John Christopher Lakey (sellers of Elastic
M2M, Inc.), John Milios (seller of Sendyne Corp.), the former stockholders of SmartWitness Holdings, Inc., and the sellers of
Xirgo Technologies Intermediate Holdings, LLC and Xirgo Holdings, Inc., whereby such provisions provide for the
reimbursement of future tax liabilities paid by us that relate to the pre-acquisition periods of the acquired businesses.
86
8. 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, 2022, 2021, and 2020, the weighted-
average ordinary shares outstanding used to calculate basic and diluted net income per share were as follows:
(In thousands)
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,
2022
2021
2020
155,253
212
462
155,927
158,166
640
564
159,370
157,373
275
486
158,134
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 ordinary shares outstanding
because either they would have had an anti-dilutive effect on net income per share or they related to equity awards that were
contingently issuable for which the contingency had not been satisfied. Refer to Note 4: Share-Based Payment Plans for
additional information related to our equity awards. These potential ordinary shares are as follows:
(In thousands)
Anti-dilutive shares excluded
Contingently issuable shares excluded
9. Inventories
For the year ended December 31,
2022
2021
2020
1,115
1,294
6
1,029
1,575
995
The following table presents the components of inventories as of December 31, 2022 and 2021:
Finished goods
Work-in-process
Raw materials
Inventories
As of December 31,
2022
2021
$
202,531 $
117,691
324,653
$
644,875 $
201,424
101,558
285,249
588,231
Refer to Note 2: Significant Accounting Policies for a discussion of our accounting policies related to inventories.
10. Property, Plant and Equipment, Net
PP&E, net as of December 31, 2022 and 2021 consisted of the following:
Land
Buildings and improvements
Machinery and equipment
Total property, plant and equipment
Accumulated depreciation
Property, plant and equipment, net
As of December 31,
2022
$
17,881 $
300,288
1,634,371
1,952,540
2021
17,972
285,113
1,534,166
1,837,251
(1,111,721)
(1,016,318)
$
840,819 $
820,933
Depreciation expense for PP&E, including amortization of leasehold improvements and depreciation of assets under finance
leases, totaled $127.2 million, $125.0 million, and $125.7 million for the years ended December 31, 2022, 2021, and 2020,
respectively.
87
PP&E, net as of December 31, 2022 and 2021 included the following assets under finance leases:
Assets under finance leases in property, plant and equipment
Accumulated depreciation
Assets under finance leases in property, plant and equipment, net
As of December 31,
2022
2021
$
$
49,714 $
(29,442)
20,272 $
49,714
(27,821)
21,893
Refer to Note 2: Significant Accounting Policies for a discussion of our accounting policies related to PP&E, net.
11. Goodwill and Other Intangible Assets, Net
The following table presents the changes in net goodwill by segment for the years ended December 31, 2022 and 2021.
Balance as of December 31, 2020
Acquisitions
Balance as of December 31, 2021
Acquisitions
Divestiture of Qinex Business
Balance as of December 31, 2022
$
$
Performance Sensing
Sensing Solutions
Total
2,189,771 $
921,578 $
290,827
2,480,598
30,873
—
99,887
1,021,465
423,288
(45,000)
2,511,471 $
1,399,753 $
3,111,349
390,714
3,502,063
454,161
(45,000)
3,911,224
At each of December 31, 2022, 2021, and 2020, accumulated goodwill impairment related to Performance Sensing and Sensing
Solutions was $0.0 million and $18.5 million, respectively. Refer to Note 21: Acquisitions and Divestitures for additional
information related to goodwill acquired and written off as a result of our recent acquisitions and the divestiture of the Qinex
Business, respectively.
Goodwill attributed to acquisitions reflects our allocation of purchase price to the estimated fair value of certain assets acquired
and liabilities assumed. Net assets acquired are comprised of tangible and identifiable intangible assets acquired and liabilities
assumed based on their estimated fair values. We apply estimates and assumptions to determine the fair value of the intangible
assets and of any contingent consideration obligations. Critical estimates in valuing purchased technology, customer
relationships, and other identifiable intangible assets include future cash flows that we expect to generate from the acquired
assets. In addition, we estimate the economic lives of these identified intangible assets and these lives are used to calculate
amortization expense. Goodwill has been included in our segments based on a methodology using anticipated future earnings of
the components of business.
We own the Klixon® and Airpax® tradenames, which are indefinite-lived intangible assets as they have each been in continuous
use for almost 75 years and we have no plans to discontinue using either of them. We have recorded $59.1 million and $9.4
million, respectively, on our consolidated balance sheets related to these tradenames. In addition, in the year ended December
31, 2020, we recognized indefinite-lived intangible assets of $6.9 million related to in-process research & development acquired
in a fiscal year 2020 business combination transaction.
Effective July 1, 2021, we reorganized our Sensing Solutions operating segment, which resulted in realignment of our reporting
units. As a result of this reorganization, our electrical protection product category that includes high-voltage contactors,
inverters, rectifiers, and battery management systems was moved to a new reporting unit, Clean Energy Solutions. The
remaining portions of our Electrical Protection, Industrial Sensing, Power Management, and Interconnection reporting units
were consolidated into a new reporting unit, Industrial Solutions. This reorganization had no impact on our Aerospace reporting
unit. Accordingly, as of October 1, 2021, we had five reporting units, Automotive, HVOR, Industrial Solutions, Aerospace, and
Clean Energy Solutions.
With the acquisition of SmartWitness Holdings, Inc. ("SmartWitness") in the fourth quarter of 2021, we formed Sensata
INSIGHTS, a business unit organized under the HVOR operating segment, to drive growth of our smart and connected
offerings to the transportation market, including both those developed organically and through the acquisition of Xirgo
Technologies, LLC ("Xirgo") and SmartWitness. We concluded that Sensata INSIGHTS was a separate reporting unit from
HVOR. There have been no subsequent changes to our reporting units. Accordingly, as of October 1, 2022, we had six
reporting units, Automotive, HVOR, Sensata INSIGHTS, Industrial Solutions, Aerospace, and Clean Energy Solutions.
88
In July 2022, we sold the Qinex Business, which had previously been consolidated into the Industrial Solutions reporting unit.
Upon closing of the sale, we transferred approximately $70 million of assets (including allocated goodwill of $45 million) and
$2 million of liabilities to the buyer. Refer to Note 21: Acquisitions and Divestitures for additional information on this
transaction.
We concluded that these reorganizations have not impacted our reportable or operating segment evaluations. We reassigned
assets and liabilities, including goodwill, to these new reporting units as required by FASB ASC Topic 350. We evaluated our
goodwill and other indefinite-lived intangible assets for impairment before and after the reorganization and formation of these
reporting units and determined that they were not impaired.
We evaluated our goodwill and other indefinite-lived intangible assets for impairment as of October 1, 2022 using a
quantitative analysis for each reporting unit, under which a discounted cash flow analysis is prepared to determine whether the
fair value of the reporting unit is less than its carrying value. Based on these analyses, we have determined that as of October 1,
2022, the fair value of each of our reporting units and indefinite-lived intangible assets exceeded their carrying values.
We consider a combination of quantitative and qualitative factors to determine whether a reporting unit is at risk of failing the
goodwill impairment test, including: the timing of our most recent quantitative impairment tests and the relative amount by
which a reporting unit’s fair value exceeded its then carrying value, the inputs and assumptions underlying our valuation
models and the sensitivity of our fair value measurements to those inputs and assumptions, the impact that adverse economic or
market conditions may have on the degree of uncertainty inherent in our long-term operating forecasts, and changes in the
carrying value of a reporting unit’s net assets from the time of our most recent goodwill impairment test. We also consider the
impact of recent acquisitions in our expectations of the reporting units, and how these acquisitions perform against their original
expected performance, as these might put pressure on the reporting units' fair value over carrying value in the short term. Based
on the results of this analysis, we do not consider any of our reporting units to be at risk of failing the goodwill impairment test.
The following tables outline the components of definite-lived intangible assets as of December 31, 2022 and 2021:
As of December 31, 2022
Completed technologies (2)
Customer relationships (2)(3)
Tradenames (3)
Capitalized software and other (1)
Total
Completed technologies
Customer relationships
Tradenames
Capitalized software and other (1)
Total
Weighted-
Average
Life (years)
13
12
18
7
12
Weighted-
Average
Life (years)
14
12
19
7
12
Gross
Carrying
Amount
1,017,911 $
2,092,088
107,577
74,163
3,291,739 $
$
$
Accumulated
Amortization
Accumulated
Impairment
Net
Carrying
Value
(684,181) $
(1,586,454)
(24,575)
(57,603)
(2,352,813) $
(2,430) $
(12,144)
—
—
(14,574) $
331,300
493,490
83,002
16,560
924,352
As of December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Accumulated
Impairment
Net
Carrying
Value
$
917,929 $
(626,490) $
2,095,735
77,484
72,180
3,163,328 $
(1,575,902)
(23,544)
(51,457)
(2,277,393) $
$
(2,430) $
(12,144)
—
—
(14,574) $
289,009
507,689
53,940
20,723
871,361
__________________________
(1) During the year ended December 31, 2022, we retired approximately $2.2 million of capitalized software that was not in
use, along with approximately $0.5 million of associated accumulated amortization. During the year ended December 31,
2021, we wrote off approximately $2.4 million of fully-amortized capitalized software that was not in use.
(2) During the year ended December 31, 2022, we disposed of the Qinex Business, which included approximately $4.2 million
and $26.5 million of fully amortized completed technologies and customer relationships, respectively.
(3) During the year ended December 31, 2022, we wrote-off approximately $43.1 million and $4.1 million of fully-amortized
customer relationships and tradenames, respectively, that were not in use.
89
The following table outlines amortization of definite-lived intangible assets for the years ended December 31, 2022, 2021, and
2020:
Acquisition-related definite-lived intangible assets
Capitalized software
Amortization of intangible assets
$
$
147,110 $
125,982 $
6,677
8,147
153,787 $
134,129 $
122,915
6,634
129,549
The table below presents estimated amortization of definite-lived intangible assets for each of the next five years:
For the year ended December 31,
2022
2021
2020
For the year ended December 31,
2023
2024
2025
2026
2027
$
$
$
$
$
153,685
138,980
113,824
95,916
82,327
12. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of December 31, 2022 and 2021 consisted of the following:
Accrued compensation and benefits
Accrued interest
Foreign currency and commodity forward contracts
Current portion of operating lease liabilities
Accrued severance
Current portion of pension and post-retirement benefit obligations
Other accrued expenses and current liabilities
Accrued expenses and other current liabilities
13. Pension and Other Post-Retirement Benefits
As of December 31,
2022
2021
$
85,995 $
50,146
10,652
9,971
8,617
2,504
179,057
$
346,942 $
98,839
45,123
5,591
11,035
7,233
2,554
173,441
343,816
We provide various pension and other post-retirement benefit plans for current and former employees, including defined
benefit, defined contribution, and retiree healthcare benefit plans. Refer to Note 2: Significant Accounting Policies for
discussion of our accounting policies related to our pension and other post-retirement benefit plans.
The total net periodic benefit cost associated with our defined benefit and retiree healthcare plans for the years ended
December 31, 2022, 2021, and 2020 were $9.1 million, $11.6 million, and $13.5 million, respectively. Components of net
periodic benefit cost other than service cost are presented in other, net in the consolidated statements of operations. Refer to
Note 6: Other, Net.
90
The following table presents changes in the benefit obligation and plan assets for our defined benefit and other post-retirement
benefit plans in total for the years ended December 31, 2022 and 2021:
Change in benefit obligation:
Beginning balance
Service cost
Interest cost
Plan participants’ contributions
Actuarial (gain)/loss
Curtailment loss/(gain)
Benefits paid
Divestiture
Foreign currency remeasurement
Ending balance
Change in plan assets:
Beginning balance
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Benefits paid
Foreign currency remeasurement
Ending balance
Funded status at end of year
Accumulated benefit obligation at end of year
14. Debt
For the year ended December 31,
2022
2021
$
108,511 $
129,627
3,897
2,485
562
(11,710)
466
(12,436)
(997)
(6,327)
84,451 $
67,199 $
(8,606)
4,368
562
(12,436)
(5,226)
45,861 $
(38,590) $
72,468 $
4,070
2,223
698
1,163
(1,368)
(20,467)
—
(7,435)
108,511
78,127
2,635
10,961
698
(20,467)
(4,755)
67,199
(41,312)
95,213
$
$
$
$
$
Our long-term debt, net and finance lease and other financing obligations as of December 31, 2022 and 2021 consisted of the
following:
Maturity Date
September 20, 2026
October 15, 2023
November 1, 2024
October 1, 2025
February 15, 2030
February 15, 2031
April 15, 2029
September 1, 2030
As of December 31,
2022
2021
$
446,834 $
—
400,000
700,000
450,000
750,000
1,000,000
500,000
(3,360)
(29,916)
(254,630)
451,465
500,000
400,000
700,000
450,000
750,000
1,000,000
—
(5,207)
(26,682)
(4,630)
$
$
$
3,958,928 $
4,214,946
26,583 $
(1,841)
24,742 $
28,767
(2,203)
26,564
Term Loan (1)
4.875% Senior Notes (2)
5.625% Senior Notes
5.0% Senior Notes
4.375% Senior Notes
3.75% Senior Notes
4.0% Senior Notes
5.875% Senior Notes
Less: debt discount, net of premium
Less: deferred financing costs
Less: current portion (1)
Long-term debt, net
Finance lease and other financing obligations
Less: current portion
Finance lease and other financing obligations, less current portion
_______________________________
91
(1) On February 6, 2023, we prepaid $250.0 million of outstanding principal on our Term Loan balance. Accordingly, that
portion of the term loan principal balance has been presented in current portion of long-term debt on our consolidated
balance sheet as of December 31, 2022.
(2) The 4.875% Senior Notes were redeemed on September 28, 2022.
Fiscal year 2022 transactions
On June 23, 2022, certain of our indirect, wholly-owned subsidiaries, including Sensata Technologies, Inc. ("STI"), Sensata
Technologies Intermediate Holding B.V. ("STIHBV"), and Sensata Technologies B.V. (“STBV”), entered into an amendment
(the “Eleventh Amendment”) to (i) the credit agreement, dated as of May 12, 2011 (as amended, supplemented, waived, or
otherwise modified, the “Credit Agreement”), and (ii) the Foreign Guaranty, dated as of May 12, 2011. Refer to discussion
under the heading Secured Credit Facility below for additional information regarding the Eleventh Amendment.
On August 29, 2022, STBV completed the issuance and sale of $500.0 million aggregate principal amount of 5.875% senior
notes due 2030 (the "5.875% Senior Notes"). The 5.875% Senior Notes bear interest at 5.875% per year and mature on
September 1, 2030. Interest is payable semi-annually on September 1 and March 1 of each year, commencing on March 1,
2023. The 5.875% Senior Notes were issued under an indenture dated as of August 29, 2022, among STBV, as issuer, The
Bank of New York Mellon, as trustee, and our guarantor subsidiaries named therein (the "5.875% Senior Notes Indenture").
The 5.875% Senior Notes are guaranteed by each of STBV's wholly-owned subsidiaries that is a borrower or guarantor under
the senior secured credit facilities (the "Senior Secured Credit Facilities") of STI and an issuer or a guarantor under our existing
senior notes as follows: STBV's $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"), and
$1.0 billion aggregate principal amount of 4.0% senior notes due 2029 (the "4.0% Senior Notes"); and STI's $450.0 million
aggregate principal amount of 4.375% senior notes due 2030 (the "4.375% Senior Notes") and $750 million aggregate principal
amount of 3.75% senior notes due 2031 (the "3.75% Senior Notes"). Refer to discussion under the heading Senior Notes below
for additional information regarding the issuance of the 5.875% Senior Notes.
On September 28, 2022, we redeemed in full the $500.0 million aggregate principal amount outstanding on our 4.875% senior
notes due 2023 (the "4.875% Senior Notes") in accordance with the terms of the indenture under which the 4.875% Senior
Notes were issued, at a price of 101.0% of the aggregate principal amount of the outstanding 4.875% Senior Notes (which
includes the applicable premium), plus accrued and unpaid interest to (but not including) the redemption date.
Fiscal Year 2021 transactions
On March 5, 2021, we redeemed the $750.0 million aggregate principal amount outstanding on the 6.25% senior notes due
2026 (the "6.25% Senior Notes") in accordance with the terms of the indenture under which the 6.25% Senior Notes were
issued and the terms of the notice of redemption, at a redemption price equal to 103.125% of the aggregate principal amount of
the outstanding 6.25% Senior Notes, plus accrued and unpaid interest to (but not including) the redemption date. In addition to
the $750.0 million aggregate principal amount outstanding, at redemption we paid a premium of $23.4 million and accrued
interest of $2.6 million.
On March 29, 2021, our indirect, wholly-owned subsidiary, STBV, completed the issuance and sale of $750.0 million aggregate
principal amount of 4.0% senior notes due 2029, issued under an indenture dated as of March 29, 2021 among STBV, as issuer,
The Bank of New York Mellon, as trustee (the "Trustee"), and our guarantor subsidiaries (the "Guarantors") named therein (the
"4.0% Senior Notes Indenture"). On April 8, 2021, STBV completed the issuance and sale of an additional $250.0 million in
aggregate principal amount of 4.0% senior notes due 2029, which were priced at 100.75% and were issued pursuant to the 4.0%
Senior Notes Indenture, as supplemented by the First Supplemental Indenture, dated as of April 8, 2021, among STBV, the
Guarantors, and the Trustee. The 4.0% senior notes due 2029 issued in March 2021 have the same terms as those issued in
April 2021, other than with respect to the date of issuance and the issue price. The two issuances of 4.0% senior notes are
consolidated and form a single class of 4.0% Senior Notes due 2029.
Refer to discussion under the heading Senior Notes below for additional information regarding these transactions.
92
Secured Credit Facility
The Credit Agreement provides for the Senior Secured Credit Facilities, consisting of a term loan facility (the "Term Loan"), a
revolving credit facility, and incremental availability under which additional secured credit facilities could be issued under
certain circumstances. All obligations under the Senior Secured Credit Facilities are unconditionally guaranteed by certain of
our subsidiaries and secured by substantially all present and future property and assets of STBV and its guarantor subsidiaries.
On June 23, 2022, we entered into the Eleventh Amendment, which amended the Credit Agreement as follows: (i) increased the
aggregate principal amount of the revolving credit facility under the Credit Agreement (the "Revolving Credit Facility") to
$750.0 million; (ii) extended the maturity date of the Revolving Credit Facility to June 23, 2027 (which could be accelerated to
June 22, 2026 if, prior to June 22, 2026, the Term Loan is not refinanced with a maturity date that is on or after June 23, 2027);
(iii) released the Foreign Guarantors (as defined in the Credit Agreement), excluding STBV, from their obligations to guarantee
the obligations of STI and the other Loan Parties (as defined in the Credit Agreement) relating to the Revolving Credit Facility
and certain related obligations, subject to an obligation to reinstate such guaranties under certain conditions; (iv) replaced the
LIBOR-based interest rates referenced by the Credit Agreement regarding revolving credit loans to (a) for revolving credit
loans denominated in U.S. dollars, an interest rate based on the secured overnight financing rate ("SOFR") published by the
Federal Reserve Bank of New York and (b) for revolving credit loans denominated in pounds sterling, an interest rate based on
the Sterling Overnight Index Average ("SONIA"); and (v) certain of the operational and restrictive covenants and other terms
and conditions of the Credit Agreement were modified to provide STI and its affiliates increased flexibility and permissions
thereunder.
The Credit Agreement provides that, if our senior secured net leverage ratio exceeds a specified level, we are required to use a
portion of our excess cash flow, as defined in the Credit Agreement, generated by operating, investing, or financing activities to
prepay 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, 2022.
Term Loan
The principal amount of the Term Loan amortizes in equal quarterly installments in an aggregate annual amount equal to 1.0%
of the aggregate principal amount of the Term Loan upon completion of the tenth amendment of the Credit Agreement entered
into on September 20, 2019 (the "Tenth Amendment,") with the balance due at maturity.
In accordance with the terms of the Credit Agreement, as of December 31, 2022, the Term Loan may, at our option, be
maintained from time to time as a Base Rate loan or a Eurodollar Rate loan (each as defined in the Credit Agreement), with
each representing a different determination of interest rates. The interest rate margins for the Term Loan are fixed at, and as of
December 31, 2022 were, 0.75% and 1.75% for Base Rate loans and Eurodollar Rate loans, respectively, subject to floors of
1.00% and 0.00% for Base Rate loans and Eurodollar Rate loans, respectively. As of December 31, 2022, we maintained the
Term Loan as a Eurodollar Rate loan, which accrued interest at 5.87%. On January 4, 2023, we entered into an amendment to
the Credit Agreement (the “Twelfth Amendment”) that will change the referenced rates related to the Term Loan to the SOFR
and SONIA, effective in April 2023.
Revolving Credit Facility
In accordance with the terms of the Credit Agreement, borrowings under the Revolving Credit Facility may, at our option, be
maintained from time to time as Base Rate loans, Term SOFR loans, or Daily Simple SONIA loans (each as defined in the
Credit Agreement), with each representing a different determination of interest rates. The interest rate margins and letter of
credit fees under the Revolving Credit Facility are as follows (each depending on our senior secured net leverage ratio): (i) the
interest rate margin for Base Rate loans range from 0.00% to 0.50%; (ii) the interest rate margin for Term SOFR and Daily
Simple SONIA loans range from 1.00% to 1.50%; and (iii) the letter of credit fees range from 0.875% to 1.375%.
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 ranges from 0.125% to 0.250%, depending on our senior secured net leverage
ratios.
As of December 31, 2022, there was $746.1 million available under the Revolving Credit Facility, net of $3.9 million of
obligations in respect of outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the
benefit of certain operating activities. As of December 31, 2022, no amounts had been drawn against these outstanding letters of
credit. Availability under the Revolving Credit Facility may be borrowed, repaid, and re-borrowed to fund our working capital
needs and for other general corporate purposes.
93
Senior Notes
We have various tranches of senior unsecured notes outstanding as of December 31, 2022. Information regarding these senior
notes (together, the "Senior Notes") is included in the following table. The Senior Notes were issued under indentures (the
"Senior Notes Indentures") among the issuers listed in the table below, The Bank of New York Mellon, as trustee, and our
guarantor subsidiaries named in the respective Senior Notes Indentures.
Aggregate principal amount
Interest rate
Issue price
Issuer
Issue date
Interest due
Interest due
5.625% Senior
Notes
5.0% Senior
Notes
4.375% Senior
Notes
3.75% Senior
Notes
$400,000
5.625%
100.000%
STBV
$700,000
5.000%
100.000%
STBV
$450,000
4.375%
100.000%
STI
$750,000
3.750%
100.000%
STI
October 2014
March 2015
September 2019
August 2020
4.0% Senior
Notes
$1,000,000
4.000%
Various (1)
STBV
Various (1)
April 15
5.875% Senior
Notes
$500,000
5.875%
100.000%
STBV
August 2022
September 1
May 1
November 1
April 1
October 1
February 15
February 15
August 15
August 15
October 15
March 1
__________________________
(1) On March 29, 2021, we issued $750.0 million of 4.0% Senior Notes that were priced at 100.00%. On April 8, 2021, we
issued $250.0 million of 4.0% Senior Notes that were priced at 100.75%.
Redemption - General
Upon the occurrence of certain specific change in control events, we will be required to offer to repurchase the Senior Notes at
101% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
If changes in certain tax laws or treaties, or any change in the official application, administration, or interpretation thereof, of
any relevant taxing jurisdiction become effective that would impose withholding taxes or other deductions on the payments of
any of the Senior Notes or the guarantees thereof, we may, at our option, redeem the relevant Senior Notes in whole but not in
part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but
excluding, the redemption date, premium, if any, and all additional amounts (as described in the relevant Senior Notes
Indenture), if any, then due and which will become due on the date of redemption.
Except as described below with respect to the 4.375% Senior Notes, 3.75% Senior Notes, the 4.0% Senior Notes, and the
5.875% Senior Notes, at any time, and from time to time, we may optionally redeem the Senior Notes, in whole or in part, at a
price equal to 100% of the principal amount of the notes redeemed, plus accrued and unpaid interest, if any, up to, but
excluding, the date of redemption, plus a "make-whole" premium set forth in the relevant Senior Notes Indenture.
Redemption - 4.375% Senior Notes
The "make-whole" premium will not be payable with respect to any such redemption of the 4.375% Senior Notes on or after
November 15, 2029.
Redemption - 3.75% Senior Notes
The "make-whole" premium will not be payable with respect to any such redemption of the 3.75% Senior Notes on or after
February 15, 2026. On or after such date, we may optionally redeem the 3.75% Senior Notes, in whole or in part, at the
following prices (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, up to but excluding
the redemption date:
Period beginning February 15,
2026
2027
2028 and thereafter
Price
101.875 %
100.938 %
100.000 %
94
Redemption - 4.0% Senior Notes
The "make-whole" premium will not be payable with respect to any such redemption of the 4.0% Senior Notes on or after April
15, 2024. On or after such date, we may optionally redeem the 4.0% Senior Notes, in whole or in part, at the following prices
(expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, up to but excluding the redemption
date:
Period beginning April 15,
2024
2025
2026 and thereafter
Price
102.000 %
101.000 %
100.000 %
In addition, at any time prior to April 15, 2024, STBV may redeem up to 40% of the principal amount of the outstanding 4.0%
Senior Notes (including additional 4.0% Senior Notes, if any, that may be issued after March 29, 2021) with the net cash
proceeds of certain equity offerings at a redemption price (expressed as a percentage of principal amount) of 104.00%, plus
accrued and unpaid interest, if any, up to but excluding the redemption date, provided that at least 60% of the aggregate
principal amount of the 4.0% Senior Notes (including additional 4.0% Senior Notes, if any) remains outstanding immediately
after each such redemption.
Redemption - 5.875% Senior Notes
At any time, and from time to time, prior to September 1, 2025, STBV may redeem the 5.875% Senior Notes, in whole or in
part, at a redemption price equal to 100% of the principal amount of the 5.875% Senior Notes being redeemed, plus a “make
whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time on or after
September 1, 2025, STBV may redeem the 5.875% Senior Notes, in whole or in part, at the following prices (expressed as a
percentage of principal amount), plus accrued and unpaid interest, if any, up to but excluding the redemption date:
Period beginning September 1,
2025
2026
2027 and thereafter
Price
102.398 %
101.469 %
100.000 %
In addition, at any time prior to September 1, 2025, STBV may redeem up to 40% of the principal amount of the outstanding
5.875% Senior Notes (including additional 5.875% Senior Notes, if any) with the net cash proceeds of certain equity offerings
at a redemption price (expressed as a percentage of principal amount) of 105.875%, plus accrued and unpaid interest, if any, up
to but excluding the redemption date, provided that at least 60% of the aggregate principal amount of the 5.875% Senior Notes
(including additional 5.875% Senior Notes, if any) remains outstanding immediately after each such redemption.
Guarantees
The obligations of the issuers of the Senior Notes are guaranteed by STBV and all of its subsidiaries (excluding the company
that is the issuer of the relevant Senior Notes) that guarantee the obligations of STI under the Credit Agreement (after giving
effect to the Guarantees Release pursuant to the Tenth Amendment).
Events of Default
The Senior Notes Indentures provide for events of default that include, among others, nonpayment of principal or interest when
due, breach of covenants or other provisions in the relevant Senior Notes Indenture, defaults in payment of certain other
indebtedness, certain events of bankruptcy or insolvency, failure to pay certain judgments, and the cessation of the full force
and effect of the guarantees of significant subsidiaries. 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 issued under the relevant Senior Notes Indenture may
declare the principal of, and accrued but unpaid interest on, all of the relevant Senior Notes to be due and payable immediately.
All provisions regarding remedies in an event of default are subject to the relevant Senior Notes Indenture.
95
Restrictions and Covenants
As of December 31, 2022, STBV and all of its subsidiaries were subject to certain restrictive covenants under the Credit
Agreement and the Senior Notes Indentures. Under certain circumstances, STBV is permitted to designate a subsidiary as
"unrestricted" for purposes of the Credit Agreement, in which case the restrictive covenants thereunder will not apply to that
subsidiary; the Senior Notes Indentures do not contain such a permission. STBV has not designated any subsidiaries as
unrestricted. The net assets of STBV subject to these restrictions totaled $2.9 billion at December 31, 2022.
Credit Agreement
The Credit Agreement contains non-financial restrictive covenants (subject to important exceptions and qualifications set forth
in the Credit Agreement) that limit our ability to, among other things:
•
incur indebtedness or liens, prepay subordinated debt, or amend the terms of our subordinated debt;
• make loans and investments (including acquisitions) or sell assets;
•
•
•
•
change our business or accounting policies, merge, consolidate, dissolve or liquidate, or amend the terms of our
organizational documents;
enter into affiliate transactions;
pay dividends and make other restricted payments;
or enter into certain burdensome contractual obligations.
In addition, under the Credit Agreement, STBV and its 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 20% of the commitments under the Revolving Credit Facility.
Senior Notes Indentures
The Senior Notes Indentures contain restrictive covenants (subject to important exceptions and qualifications set forth in the
Senior Notes Indentures) that limit the ability of STBV and its subsidiaries to, among other things: incur liens; incur or
guarantee indebtedness without guaranteeing the Senior Notes; engage in sale and leaseback transactions; or effect mergers or
consolidations, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of the assets of STBV and
its subsidiaries.
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 provided no default has occurred and is continuing at such time. The
suspended covenants will be reinstated if the Senior Notes are no longer assigned an investment grade rating by either rating
agency or an event of default has occurred and is continuing at such time. As of December 31, 2022, none of the Senior Notes
were assigned an investment grade rating by either rating agency.
Restrictions on Payment of Dividends
STBV's subsidiaries 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 Sensata plc, under the Credit Agreement. Specifically, the Credit Agreement prohibits STBV from paying
dividends or making distributions to its parent companies except for purposes that include, but are not limited to, the following:
•
•
•
customary and reasonable operating expenses, legal and accounting fees and expenses, and overhead of such parent
companies incurred in the ordinary course of business, provided that such amounts, in the aggregate, do not exceed
$20.0 million in any fiscal year;
dividends and other distributions in an aggregate amount not to exceed $200.0 million plus certain amounts, including
the retained portion of excess cash flow, but only insofar 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;
so long as no default or an event of default exists, dividends and other distributions in an aggregate amount not to exceed
$50.0 million in any calendar year (with the unused portion in any year being carried over to succeeding years) plus
96
unlimited additional amounts but only insofar as the senior secured net leverage ratio is less than 2.5:1.0 calculated on a
pro forma basis; and
•
other dividends and other distributions in an aggregate amount not to exceed $150.0 million, so long as no default or
event of default exists.
The Senior Notes Indentures generally allow STBV to pay dividends and make other distributions to its parent companies.
Compliance with Financial and Non-Financial Covenants
We were in compliance with all of the financial and non–financial covenants and default provisions associated with our
indebtedness as of December 31, 2022 and for the fiscal year then ended.
Accounting for Debt Financing Transactions
In the year ended December 31, 2022, in connection with the entry into the Eleventh Amendment, we recognized $2.7 million
of deferred financing costs, which are presented as a reduction of long-term debt on our consolidated balance sheets. In
connection with the issuance of the 5.875% Senior Notes, we capitalized $6.1 million of deferred financing costs, which are
presented on the consolidated balance sheets as a reduction of long-term debt. In connection with the redemption of the 4.875%
Senior Notes, we recognized a loss of $5.5 million, presented in other, net, related to the write-off of unamortized deferred
financing costs and debt discounts.
In the year ended December 31, 2021, in connection with the early redemption of the 6.25% Senior Notes, we recognized a loss
of $30.1 million, which primarily reflects payment of $23.4 million for the early redemption premium, with the remaining loss
representing write-off of debt discounts and deferred financing costs. In addition, in connection with the issuance of the 4.0%
Senior Notes, we recognized $9.6 million of deferred financing costs, which are presented as a reduction of long-term debt on
our consolidated balance sheets and $1.7 million of issuance premiums, which are presented as an addition to long-term debt on
our consolidated balance sheets.
In the year ended December 31, 2020, in connection with the entry into the 3.75% Senior Notes, we incurred $8.4 million of
related third-party costs, which are presented as a reduction of long-term debt on our consolidated balance sheets.
Refer to Note 2: Significant Accounting Policies for additional information related to our accounting policies regarding debt
financing transactions.
Finance Lease and Other Financing Obligations
Refer to Note 17: Leases for additional information related to our finance leases.
Debt Maturities
The aggregate principal amount of each tranche of our Senior Notes is due in full at its maturity date. The Term Loan must be
repaid in full on or prior to its final maturity date. Loans made pursuant to the Revolving Credit Facility must be repaid in full
at its maturity date and can be repaid prior to then 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 following table presents the remaining mandatory principal repayments of long-term debt, excluding finance lease
payments, other financing obligations, and discretionary repurchases of debt, in each of the years ended December 31, 2023
through 2027 and thereafter. On February 6, 2023, we prepaid $250.0 million of outstanding principal on our Term Loan, which
has been reflected below as paid in 2023.
For the year ended December 31,
2023
2024
2025
2026
2027
Thereafter
Total long-term debt principal payments
Aggregate Maturities
$
$
254,630
404,630
704,630
182,944
—
2,700,000
4,246,834
97
15. Commitments and Contingencies
Non-cancelable purchase agreements exist with various suppliers, primarily for services such as information technology ("IT")
support. The terms of these agreements are fixed and determinable. As of December 31, 2022, we had the following purchase
commitments, presented by expected payment dates:
For the year ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total purchase commitments
Off-Balance Sheet Arrangements
$
$
77,671
11,227
4,238
2,460
1,022
96
96,714
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 divestiture 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.
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.
98
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
Refer to Note 2: Significant Accounting Policies — Revenue Recognition for additional information related to the warranties we
provide to customers.
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, 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.
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, chemical usage, 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 are regularly involved in a number of claims and litigation matters that arise in the ordinary course of business. Although it
is not feasible to predict the outcome of these matters, based upon our experience and current information known to us, we do
not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on our results
of operations, financial position, and/or cash flows.
We account for litigation and claims losses in accordance with FASB ASC Topic 450, Contingencies. Under FASB ASC Topic
450, loss contingency provisions are recognized 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 recognized. 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.
Pending Litigation and Claims:
There are no material pending litigation or claims outstanding as of December 31, 2022.
16. Shareholders' Equity
Cash Dividends
In the year ended December 31, 2022, we paid three quarterly dividends totaling $0.33 per share, or $51.1 million in the
aggregate.
99
Treasury Shares
From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or
terminated by our Board of Directors at any time. Under these programs, we may repurchase ordinary shares 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, provided that such transactions were completed
pursuant to an agreement and with a third party approved by our shareholders at the annual general meeting. The authorized
amount of our various share repurchase programs may be modified or terminated by our Board of Directors at any time.
Ordinary shares repurchased by us are recognized, measured at cost, and presented as treasury shares on our consolidated
balance sheets, resulting in a reduction of shareholders' equity.
In July 2019 our Board of Directors authorized a $500.0 million share repurchase program (the "July 2019 Program"). On April
2, 2020, we announced a temporary suspension of the July 2019 Program. At the time of this announcement, approximately
$302.3 million remained available under this program. We resumed repurchasing shares under the July 2019 Program in
November 2021, and during the year ended December 31, 2021, we repurchased approximately 0.8 million shares for
$47.8 million (an average price of $59.28 per share). As of December 31, 2021, approximately $254.5 million remained
available under the July 2019 Program.
On January 20, 2022, we announced that our Board of Directors had authorized a new $500.0 million ordinary share repurchase
program (the “January 2022 Program”), which replaced the July 2019 Program. Sensata’s shareholders had previously
approved the forms of share repurchase agreements and the potential broker counterparties needed to execute the buyback
program. During the year ended December 31, 2022, we repurchased approximately 6.3 million shares for $292.3 million (an
average price of $46.08 per share). As of December 31, 2022, approximately $224.5 million remained available for repurchase
under the January 2022 Program.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss for the years ended December 31, 2022, 2021, and 2020 were as
follows:
Cash Flow Hedges
Defined Benefit and Retiree
Healthcare Plans
Accumulated Other
Comprehensive Loss
Balance as of December 31, 2019
Pre-tax current period change
Income tax effect
Balance as of December 31, 2020
Pre-tax current period change
Income tax effect
Balance as of December 31, 2021
Pre-tax current period change
Income tax effect
Balance as of December 31, 2022
$
$
16,546 $
(31,114)
7,835
(6,733)
31,671
(8,107)
16,831
(1,571)
405
15,665 $
(37,030) $
(7,848)
2,076
(42,802)
8,145
(1,734)
(36,391)
5,311
(849)
(31,929) $
(20,484)
(38,962)
9,911
(49,535)
39,816
(9,841)
(19,560)
3,740
(444)
(16,264)
The components of other comprehensive (loss)/income, net of tax, for the years ended December 31, 2022, 2021, and 2020
were as follows:
For the year ended December 31,
2022
Defined
Benefit and
Retiree
Healthcare
Plans
Cash Flow
Hedges
2021
Defined
Benefit and
Retiree
Healthcare
Plans
Total
Cash Flow
Hedges
2020
Defined
Benefit and
Retiree
Healthcare
Plans
Total
Total
Cash Flow
Hedges
$ 37,957 $
1,597 $ 39,554 $ 23,883 $
(30) $ 23,853 $ (17,738) $ (12,494) $ (30,232)
(39,123)
2,865
(36,258)
(319)
6,441
6,122
(5,541)
6,722
1,181
$
(1,166) $
4,462 $
3,296 $ 23,564 $
6,411 $ 29,975 $ (23,279) $
(5,772) $ (29,051)
Other comprehensive
(loss)/income before
reclassifications
Amounts reclassified
from accumulated other
comprehensive loss
Other comprehensive
(loss)/income
100
The amounts reclassified from accumulated other comprehensive loss for the years ended December 31, 2022, 2021, and 2020
were as follows:
Amount of (Gain)/Loss Reclassified from Accumulated
Other Comprehensive Loss
For the year ended December 31,
2022
2021
2020
Affected Line in Consolidated
Statements of Operations
Derivative instruments designated and qualifying
as cash flow hedges:
Foreign currency forward contracts
Foreign currency forward contracts
Total, before taxes
Income tax effect
Total, net of taxes
Defined benefit and retiree healthcare plans
Total, before taxes
Income tax effect
Total, net of taxes
$
$
$
$
(46,183) $
(6,543)
(52,726)
13,603
(39,123) $
3,844 $
3,844
(979)
2,865 $
9,281 $
(9,707)
(426)
107
(319) $
8,268 $
8,268
(1,827)
6,441 $
(10,785)
3,397
(7,388)
1,847
(5,541)
Net revenue (1)
Cost of revenue (1)
Income before taxes
Provision for income taxes
Net income
9,118
9,118
(2,396)
6,722
Other, net
Income before taxes
Provision for income taxes
Net income
__________________________
(1) Refer to Note 19: Derivative Instruments and Hedging Activities for additional information related to amounts to be
reclassified from accumulated other comprehensive loss in future periods.
17. Leases
The table below shows right-of-use asset and lease liability amounts and the financial statement line item in which those
amounts are presented:
Operating lease right-of-use assets:
Other assets
Total operating lease right-of-use assets
Operating lease liabilities:
Accrued expenses and other current liabilities
Other long-term liabilities
Total operating lease liabilities
Finance lease right-of-use assets:
Property, plant and equipment, at cost
Accumulated depreciation
Property, plant and equipment, net
Finance lease liabilities:
Current portion of long-term debt, finance lease and other financing obligations
Finance lease and other financing obligations, less current portion
Total finance lease liabilities
As of December 31,
2022
2021
42,836 $
42,836 $
9,971 $
32,721
42,692 $
44,118
44,118
11,035
35,741
46,776
49,714 $
(29,442)
20,272 $
49,714
(27,821)
21,893
1,841 $
24,742
26,583 $
2,203
26,564
28,767
$
$
$
$
$
$
$
$
The table below presents the lease liabilities arising from obtaining right-of-use assets in the years ended December 31, 2022
and 2021:
Operating leases
Finance leases
For the year ended December 31,
2022
2021
$
$
4,230 $
284 $
1,684
—
101
The table below presents our total lease cost for the years ended December 31, 2022, 2021, and 2020 (short-term lease cost was
not material for any of the years presented):
Operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Total finance lease cost
For the year ended December 31,
2022
2021
2020
14,900 $
15,529 $
16,658
1,621 $
2,339
3,960 $
1,714 $
2,477
4,191 $
1,794
2,565
4,359
$
$
$
The table below presents the cash paid related to our operating and finance leases for the years ended December 31, 2022, 2021,
and 2020:
Operating cash outflow related to operating leases
Operating cash outflow related to finance leases
Financing cash outflow related to finance leases
For the year ended December 31,
2022
2021
2020
$
$
$
15,498 $
2,119 $
2,423 $
15,173 $
2,372 $
1,806 $
16,489
2,262
944
The table below presents the weighted-average remaining lease term of our operating and finance leases (in years) as of
December 31, 2022:
Operating leases
Finance leases
The table below presents our weighted-average discount rate as of December 31, 2022:
Operating leases
Finance leases
2022
6.5
10.1
2022
5.2 %
8.7 %
The table below presents a maturity analysis of the obligations related to our operating lease liabilities and finance lease
liabilities in effect as of December 31, 2022:
Year ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total undiscounted cash flows related to lease liabilities
Less imputed interest
Total lease liabilities
18. Fair Value Measures
Operating Leases
Finance Leases
$
$
12,577 $
10,973
7,893
4,727
3,058
13,833
53,061
(10,369)
42,692 $
3,845
3,832
3,893
3,952
4,016
21,402
40,940
(14,357)
26,583
Our assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with
FASB ASC Topic 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.
102
• 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 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
Our assets and liabilities measured at fair value on a recurring basis as of as of December 31, 2022 and 2021 are shown in the
below table. All fair value measures presented are categorized in Level 2 of the fair value hierarchy.
Assets measured at fair value:
Foreign currency forward contracts
Commodity forward contracts
Total assets measured at fair value
Liabilities measured at fair value:
Foreign currency forward contracts
Commodity forward contracts
Total liabilities measured at fair value
As of December 31,
2022
2021
$
$
$
$
31,126 $
4,181
35,307 $
9,866 $
4,671
14,537 $
25,112
2,979
28,091
3,073
4,492
7,565
Refer to Note 2: Significant Accounting Policies for additional information related to the methods used to estimate the fair value
of our financial instruments and Note 19: Derivative Instruments and Hedging Activities for additional information related to
the inputs used to determine these fair value measurements and the nature of the risks that these derivative instruments are
intended to mitigate.
Although we have determined that the majority of the inputs used to value our derivative instruments 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. As of December 31, 2022 and 2021, 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.
Quanergy
As of December 31, 2021, we held a $50.0 million investment in Quanergy Series B Preferred Stock (the "Series B
Investment"). The Series B Investment did not have a readily determinable fair value and was held using the measurement
alternative prescribed in FASB ASC Topic 321. On February 8, 2022, Quanergy merged with CITIC Capital Acquisition Corp,
a special purpose acquisition corporation. On February 9, 2022, Quanergy was listed on the NYSE under the ticker symbol
QNGY.
Upon completion of the merger, our investment in Quanergy was $75.1 million, consisting of a $50.0 million investment in
common shares converted from the Series B Investment, a $7.5 million private investment in public equity, and 2.5 million
warrants with a fair value of $17.6 million, each of which represented the right to purchase one common share of Quanergy at a
price of $0.01 per share. We subsequently converted these warrants to common shares.
On October 6, 2022, Quanergy executed a 1-to-20 reverse stock split. Upon execution of the reverse stock split, our holdings of
Quanergy common stock declined to approximately 0.4 million shares. As of December 31, 2022, the share price of Quanergy
was $0.11 per share and we have marked the full investment to approximately zero, resulting in a mark-to-market loss of
$75.1 million in the year ended December 31, 2022, which was recorded in other, net. Refer to Note 6: Other, Net for details of
the components of other, net.
103
Measured on a Nonrecurring Basis
We evaluated our goodwill and other indefinite-lived intangible assets for impairment as of October 1, 2022. Refer to Note 11:
Goodwill and Other Intangible Assets, Net for additional information. Based on these analyses, we determined that they were
not impaired. As of December 31, 2022, no events or changes in circumstances occurred that would have triggered the need for
an additional impairment review of goodwill or other indefinite-lived intangible assets.
In July 2022, we sold the Qinex Business. We allocated goodwill to the Qinex Business based on its fair value relative to the
total fair value of the Industrial Solutions reporting unit. Refer to Note 21: Acquisitions and Divestitures for additional
information.
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, 2022 and 2021. All fair value measures presented are categorized within Level
2 of the fair value hierarchy.
Term Loan
4.875% Senior Notes
5.625% Senior Notes
5.0% Senior Notes
4.375% Senior Notes
3.75% Senior Notes
4.0% Senior Notes
5.875% Senior Notes
2022
Carrying Value (1)
$
$
$
$
$
$
$
$
446,834 $
— $
400,000 $
700,000 $
450,000 $
750,000 $
1,000,000 $
500,000 $
As of December 31,
2021
Fair Value
Carrying Value (1)
Fair Value
443,483 $
— $
398,000 $
684,250 $
400,500 $
626,250 $
875,000 $
473,750 $
451,465 $
500,000 $
400,000 $
700,000 $
450,000 $
750,000 $
1,000,000 $
— $
450,901
526,250
438,000
759,500
479,250
747,188
1,022,500
—
__________________________
(1) Excluding any related debt discounts, premiums, and deferred financing costs.
In addition to the above, we hold certain equity investments that do not have readily determinable fair values, for which we use
the measurement alternative prescribed in FASB ASC Topic 321. Such investments are measured at cost, less any impairment,
plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the
same issuer. There were no impairments or changes resulting from observable transactions for any of these investments and no
adjustments were made to their carrying values.
Refer to the table below for the carrying values of equity investments using the measurement alternative, which are presented as
a component of other assets in the consolidated balance sheets.
Quanergy Systems, Inc. (1)
Other
Total
As of December 31,
2022
2021
$
$
— $
15,000
15,000 $
50,000
15,000
65,000
_________________________
(1) As of December 31, 2022, Quanergy is no longer classified as an equity investment without a readily determinable fair
value. See additional discussion under the heading Quanergy included elsewhere in this Note.
19. Derivative Instruments and Hedging Activities
We utilize derivative instruments that are designated and qualify as hedges of our exposure to variability in expected future cash
flows. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on these hedging
instruments with the earnings effect of the hedged forecasted transactions. We may enter into other derivative contracts that are
intended to economically hedge certain risks, even though we elect not to apply hedge accounting under FASB ASC Topic 815.
Derivative financial instruments not designated as hedges are used to manage our exposure to certain risks, not for trading or
speculative purposes. Refer to Note 2: Significant Accounting Policies for additional information related to the valuation
techniques and accounting policies regarding derivative instruments and hedging activities.
104
Foreign Currency Risk
We are exposed to fluctuations in the values of certain foreign currencies relative to our functional currency, the USD. We enter
into forward contracts 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, which are not designated for hedge accounting treatment in accordance
with FASB ASC Topic 815.
For each of the years ended December 31, 2022, 2021, and 2020, amounts excluded from the assessment of effectiveness of our
foreign currency forward contracts that are designated as cash flow hedges were not material. As of December 31, 2022, we
estimate that $20.5 million of net gains will be reclassified from accumulated other comprehensive loss to earnings during the
twelve-month period ending December 31, 2023.
As of December 31, 2022, we had the following outstanding foreign currency forward contracts:
Notional
(in millions)
Effective Date(s)
Maturity Date(s)
Index (Exchange Rates)
Weighted-
Average Strike
Rate
Hedge
Designation (1)
37.0 EUR
December 28, 2022
January 31, 2023
Euro ("EUR") to USD
1.07 USD
Not designated
364.0 EUR
Various from January 2021
to December 2022
Various from January 2023
to December 2024
402.0 CNY
December 27, 2022
January 31, 2023
EUR to USD
1.11 USD
Cash flow hedge
USD to Chinese Renminbi
("CNY")
6.96 CNY
Not designated
655.0 JPY
December 28, 2022
January 31, 2023
USD to Japanese Yen ("JPY")
133.01 JPY
Not designated
18,304.3 KRW
Various from February 2021
to December 2022
Various from January 2023
to November 2024
24.0 MYR
December 27, 2022
January 31, 2023
83.0 MXN
December 28, 2022
January 31, 2023
3,431.8 MXN
Various from January 2021
to December 2022
Various from January 2023
to December 2024
6.3 GBP
December 28, 2022
January 31, 2023
58.9 GBP
Various from January 2021
to December 2022
Various from January 2023
to December 2024
USD to Korean Won ("KRW")
1,228.41 KRW Cash flow hedge
USD to Malaysian Ringgit
("MYR")
USD to Mexican Peso
("MXN")
4.41 MYR
Not designated
19.53 MXN
Not designated
USD to MXN
22.19 MXN
Cash flow hedge
British Pound Sterling ("GBP")
to USD
1.21 USD
Not designated
GBP to USD
1.26 USD
Cash flow hedge
__________________________
(1) Derivative financial instruments not designated as hedges are used to manage our exposure to currency exchange rate risk.
They are intended to preserve the economic value, and they are not used for trading or speculative purposes.
Commodity Risk
We enter into commodity forward contracts in order to limit our exposure to variability in raw material costs that is caused by
movements in the price of underlying metals. 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 FASB ASC Topic 815.
As of December 31, 2022, we had the following outstanding commodity forward contracts, none of which were designated for
hedge accounting treatment in accordance with FASB ASC Topic 815:
Commodity
Silver
Gold
Nickel
Aluminum
Copper
Platinum
Palladium
Notional
972,101 troy oz.
7,894 troy oz.
236,860 pounds
4,310,163 pounds
8,271,686 pounds
10,820 troy oz.
1,355 troy oz.
Remaining Contracted Periods
January 2023 to November 2024
January 2023 to November 2024
January 2023 to November 2024
January 2023 to November 2024
January 2023 to November 2024
January 2023 to November 2024
January 2023 to November 2024
$
$
$
$
$
$
$
Weighted-Average
Strike Price Per Unit
23.24
1,861.63
10.88
1.22
4.07
986.14
2,215.19
105
Financial Instrument Presentation
The following table presents the fair value of our derivative financial instruments and their classification in the consolidated
balance sheets as of December 31, 2022 and 2021:
Asset Derivatives
Liability Derivatives
Balance Sheet
Location
As of December 31,
2022
2021
Balance Sheet
Location
As of December 31,
2022
2021
Derivatives designated as hedging instruments:
Foreign currency forward contracts
Prepaid expenses and
other current assets
$ 27,114 $ 20,562
Foreign currency forward contracts
Other assets
3,763
4,391
Accrued expenses and
other current liabilities
Other long-term
liabilities
$ 6,586 $ 1,981
3,280
904
Total
$ 30,877 $ 24,953
$ 9,866 $ 2,885
Derivatives not designated as hedging instruments:
Commodity forward contracts
Prepaid expenses and
other current assets
$ 2,542 $ 2,583
Commodity forward contracts
Other assets
Foreign currency forward contracts
Prepaid expenses and
other current assets
1,639
249
396
159
Accrued expenses and
other current liabilities
Other long-term
liabilities
Accrued expenses and
other current liabilities
$ 4,066 $ 3,422
605
1,070
—
188
Total
$ 4,430 $ 3,138
$ 4,671 $ 4,680
These fair value measurements are all categorized within Level 2 of the fair value hierarchy. Refer to Note 18: Fair Value
Measures for additional information related to the categorization of these fair value measurements within the fair value
hierarchy.
The following tables present the effect of our derivative financial instruments on the consolidated statements of operations and
the consolidated statements of comprehensive income for the years ended December 31, 2022 and 2021:
Amount of Deferred Gain/(Loss)
Recognized in Other
Comprehensive (Loss)/Income
For the year ended December 31,
Derivatives designated as hedging instruments
Foreign currency forward contracts
Foreign currency forward contracts
$
$
2022
2021
39,173 $
11,982 $
32,698
(601)
Location of Net Gain/
(Loss) Reclassified
from Accumulated
Other Comprehensive
Loss into Net Income
Net revenue
Cost of revenue
Amount of Net Gain/(Loss)
Reclassified from Accumulated
Other Comprehensive Loss into
Net Income
For the year ended December 31,
2022
2021
$
$
46,183 $
6,543 $
(9,281)
9,707
Derivatives not designated as hedging
instruments
Commodity forward contracts
Foreign currency forward contracts
Credit risk related contingent features
Amount of (Loss)/Gain
Recognized in Net Income
For the year ended December 31,
2022
2021
$
$
(3,350) $
4,324 $
(2,967)
(7,553)
Location of (Loss)/Gain Recognized in Net Income
Other, net
Other, net
We have agreements with our derivative counterparties that contain a provision whereby if we default on our indebtedness and
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, 2022, the termination value of outstanding derivatives in a liability position, excluding any adjustment for
non-performance risk, was $14.8 million. As of December 31, 2022, 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.
106
20. Segment Reporting
We present financial information for two reportable segments, Performance Sensing and Sensing Solutions. The Performance
Sensing reportable segment consists of two operating segments, Automotive and HVOR, each of which meet the criteria for
aggregation in FASB ASC Topic 280, Segment Reporting. The Sensing Solutions reportable segment is also an operating
segment.
Our operating segments are businesses that we manage as components of an enterprise, for which separate financial information
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 amortization
of intangible assets, restructuring and other charges, net, certain costs associated with our strategic megatrend initiatives, and
certain corporate costs or credits not associated with the operations of the segment, including share-based compensation
expense and a portion of depreciation expense associated with assets recognized in connection with acquisitions. Corporate and
other costs excluded from an operating (and reportable) segment’s performance are separately stated below and also include
costs that are related to functional areas such as finance, IT, 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, operating income or other measures of
financial performance prepared in accordance with U.S. GAAP. The accounting policies of each of our operating and reportable
segments are materially consistent with those described in Note 2: Significant Accounting Policies.
The Performance Sensing segment serves the automotive and HVOR industries through the development and manufacture of
sensors, high-voltage solutions (i.e., electrical protection components), and other solutions that are used in mission-critical
systems and applications. Examples include those used in subsystems of automobiles, on-road trucks, and off-road equipment,
such as tire pressure monitoring, thermal management, electrical protection, regenerative braking, powertrain (engine/
transmission), exhaust management, and operator controls. These products are used in subsystems that, among other things,
improve operating performance and efficiency, contribute to environmentally sustainable and safe solutions, and provide data-
driven insight, connectivity, and prognostics to commercial fleet operators and asset managers.
For fleet transportation and logistics customers and end users, the Performance Sensing Segment provide hardware and services
that enable a variety of end-use applications, including vehicle tracking and on-board vehicle diagnostic data to monitor vehicle
health; the provision of vehicle data to enable usage-based insurance offerings; cargo capacity data for trailers that increase the
operational efficiency of fleets; video telematics offerings that provide event analysis and in-cab monitoring to prevent and
lower the cost of incidents; and visibility to where assets are located across the supply chain.
The Sensing Solutions segment primarily serves the industrial and aerospace industries through the development and
manufacture of a broad portfolio of application-specific sensor and electrical protection products used in a diverse range of
industrial markets, including the appliance, HVAC, water management, operator controls, charging infrastructure, renewable
energy generation, green hydrogen production, and microgrid applications and markets, as well as the aerospace market,
including commercial aircraft, defense, and aftermarket markets.
Some of the products and solutions the segment sells include pressure, temperature, and position sensors, motor and compressor
protectors, high-voltage contactors, solid state relays, bimetal electromechanical controls, power inverters, charge controllers,
battery management systems, operator controls, and power conversion systems. Sensing Solutions products perform many
functions, including prevention of damage from excess heat or electrical current, optimization of system performance, low-
power circuit control, renewable energy generation, and power conversion from direct current ("DC") power to alternating
current ("AC") power.
107
The following table presents net revenue and segment operating income for the reportable segments and other operating results
not allocated to the reportable segments for the years ended December 31, 2022, 2021, and 2020:
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 other charges, net
Operating income
Interest expense, net
Other, net
Income before taxes
For the year ended December 31,
2022
2021
2020
$
$
$
$
2,976,756 $
1,052,506
4,029,262 $
2,847,908 $
972,898
3,820,806 $
2,223,810
821,768
3,045,578
751,640 $
300,015
1,051,655
(294,429)
(153,787)
66,700
670,139
(178,819)
(94,618)
396,702 $
777,237 $
293,185
1,070,422
(288,111)
(134,129)
(14,942)
633,240
(179,291)
(40,032)
413,917 $
532,529
241,218
773,747
(273,367)
(129,549)
(33,094)
337,737
(171,757)
(339)
165,641
No customer exceeded 10% of our net revenue in any of the periods presented.
The following table presents net revenue by product category for the years ended December 31, 2022, 2021, and 2020:
Performance
Sensing
Sensing
Solutions
For the year ended December 31,
2022
2021
2020
Net revenue:
Sensors
Electrical protection
Other
Net revenue
X
X
X
X
X
X
$ 2,887,063 $ 2,952,485 $ 2,380,608
504,001
160,969
$ 4,029,262 $ 3,820,806 $ 3,045,578
710,483
431,716
635,141
233,180
__________________________
(1) Beginning in the year ended December 31, 2022, we adjusted our product categories to better reflect how we currently
view our products. Vehicle area networks and data collection devices and software, products used in our Sensata
INSIGHTS business, have been recast from the sensors product category to the other product category. As a result,
approximately $74.7 million of revenue in the year ended December 31, 2021 has been recast in the table above from the
sensors product category to other. There was no revenue related to these products in the year ended December 31, 2020.
The other product category included $173.3 million of revenue related to the Sensata INSIGHTS business in the year ended
December 31, 2022
The following table presents depreciation and amortization expense for our reportable segments for the years ended
December 31, 2022, 2021, and 2020:
Depreciation and amortization:
Performance Sensing
Sensing Solutions
Corporate and other (1)
Total depreciation and amortization
For the year ended December 31,
2022
2021
2020
$
$
97,063 $
16,380
167,528
280,971 $
91,591 $
16,334
151,163
259,088 $
91,522
16,564
147,143
255,229
__________________________
(1)
Included within corporate and other is depreciation and amortization expense associated with the fair value step-up
recognized in acquisitions and accelerated depreciation recognized 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
108
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 our reportable segments as of December 31, 2022 and 2021:
Assets:
Performance Sensing
Sensing Solutions
Corporate and other (1)
Total assets
As of December 31,
2022
2021
$
$
1,747,768 $
631,052
6,377,400
8,756,220 $
1,605,313
555,135
6,453,318
8,613,766
__________________________
(1) The following is included within corporate and other as of December 31, 2022 and 2021: goodwill of $3,911.2 million and
$3,502.1 million, respectively; other intangible assets, net of $999.7 million and $946.7 million, respectively; cash and cash
equivalents of $1,225.5 million and $1,709.0 million, respectively; and PP&E, net of $43.3 million and $41.8 million,
respectively. This treatment is consistent with the financial information reviewed by our chief operating decision maker.
The following table presents additions to PP&E and capitalized software for our reportable segments for the years ended
December 31, 2022, 2021, and 2020:
Additions to property, plant and equipment and capitalized software:
Performance Sensing
Sensing Solutions
Corporate and other
Total additions to property, plant and equipment and capitalized software
Geographic Area Information
For the year ended December 31,
2022
2021
2020
$
110,101 $
19,681
20,282
$
150,064 $
104,220 $
20,559
19,624
144,403 $
79,252
16,885
10,582
106,719
The following tables present net revenue by geographic area and by significant country for the years ended December 31, 2022,
2021, and 2020. In these tables, net revenue is aggregated according to the location of our subsidiaries.
Net revenue:
Americas
Europe
Asia and rest of world
Net revenue
Net revenue:
United States
China
The Netherlands
Korea
United Kingdom
All other
Net revenue
For the year ended December 31,
2022
2021
2020
1,705,222 $
1,045,031
1,279,009
4,029,262 $
1,450,658 $
1,003,204
1,366,944
3,820,806 $
1,197,846
816,287
1,031,445
3,045,578
For the year ended December 31,
2022
2021
2020
1,563,616 $
818,974
810,069
159,239
119,109
558,255
4,029,262 $
1,311,878 $
871,667
621,658
191,045
120,686
703,872
3,820,806 $
1,082,671
641,516
482,020
172,229
122,403
544,739
3,045,578
$
$
$
$
109
The following tables present PP&E, net, by geographic area and by significant country as of December 31, 2022 and 2021. In
these tables, PP&E, net is aggregated based on the location of our subsidiaries.
Property, plant and equipment, net:
Americas
Europe
Asia and rest of world
Property, plant and equipment, net
Property, plant and equipment, net:
United States
China
Mexico
Bulgaria
United Kingdom
Malaysia
All other
Property, plant and equipment, net
21. Acquisitions and Divestitures
Acquisitions
As of December 31,
2022
2021
283,189 $
168,271
389,359
840,819 $
264,901
180,524
375,508
820,933
As of December 31,
2022
2021
111,270 $
294,408
171,749
127,171
29,640
90,584
15,997
840,819 $
108,590
285,516
156,132
138,564
32,345
85,154
14,632
820,933
$
$
$
$
The following discussion relates to our acquisitions during the years ended December 31, 2022 and 2021. Refer to Note 11:
Goodwill and Other Intangible Assets, Net for additional discussion of our consolidated goodwill and other intangible assets,
net balances.
Xirgo
On April 1, 2021, we acquired all of the equity interests in Xirgo, a leading telematics and data insights provider across the fleet
transportation and logistics segments, headquartered in Camarillo, California, for an aggregate cash purchase price of
$401.7 million. The product offerings and technology of Xirgo will augment our existing portfolio in advancing our Insights/
IoT megatrend initiative, and greatly expands our ability to provide data insights to fleet transportation and logistics customers,
by serving telematics service providers, fleet management solution providers, and fleet operators themselves. Xirgo brings a
comprehensive suite of telematics and asset tracking devices, cloud-based data insight solutions, as well as emerging cargo
capacity and video sensing applications and data services. We are integrating Xirgo into our Performance Sensing reportable
segment. The allocation of the purchase price related to this acquisition was finalized in the fourth quarter of 2021.
Spear
On November 19, 2021, we acquired all of the equity interests in Spear Power Systems ("Spear"), a leader in electrification
solutions that supports our newly established Clean Energy Solutions business unit, for an aggregate purchase price of
$113.7 million, subject to certain post-closing items, including a contingent consideration arrangement whereby we may be
required to pay up to an additional $30.0 million to the selling shareholders. Using a present value technique, we estimated the
acquisition-date fair value of the contingent consideration arrangement to be $8.6 million, which is reflected in the aggregate
purchase price. In the year ended December 31, 2022, we evaluated updated financial forecasts and determined that the fair
value of the contingent consideration arrangement as of December 31, 2022 is zero. Accordingly, a gain of $8.6 million for the
year ended December 31, 2022 was recognized in earnings and presented in restructuring and other charges, net. We are
integrating Spear into the Sensing Solutions reportable segment.
110
Spear is headquartered in Grandview, Missouri, and develops next generation scalable lithium-ion battery storage systems for
demanding land, sea, and air applications. The acquisition of Spear advances Sensata’s Electrification portfolio and strategy
into new clean energy markets. Spear expands on Sensata’s acquisition of Lithium Balance in battery management systems and
GIGAVAC in high-voltage contactors and provides energy storage solutions for OEMs and system integrators in fast-growing
end markets that offer significant growth opportunities.
The allocation of the purchase price related to this acquisition was finalized in the fourth quarter of 2022. The following table
summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed:
Net working capital, excluding cash
Property, plant and equipment
Goodwill
Other intangible assets
Other assets
Deferred income tax liabilities
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
$
$
404
5,317
76,307
30,500
421
(3,287)
(525)
109,137
4,547
113,684
The goodwill recognized as a result of this acquisition represents future economic benefits expected to arise from synergies
from combining operations and the extension of existing customer relationships. This goodwill will not 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
Customer relationships
Completed technologies
Tradenames
Total definite-lived intangible assets acquired
Acquisition Date Fair
Value
Weighted-Average Lives
(years)
$
$
6,200
22,400
1,900
30,500
11
13
10
12
These definite-lived intangible assets were valued using the income approach. We primarily used the relief-from-royalty
method to value completed technologies and tradenames, and we used the multi-period excess earnings method to value
customer relationships. These valuation methods incorporate assumptions including expected discounted future net 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.
SmartWitness
On November 19, 2021, we acquired all of the equity interests of SmartWitness, an innovator of video telematics technology
for heavy- and light-duty fleets, for an aggregate cash purchase price of $205.5 million, including $204.2 million of cash paid at
closing, subject to certain post-closing items. In addition to the aggregate purchase price, we paid $8.6 million of cash at closing
related to an employee retention arrangement. We are integrating SmartWitness into the Performance Sensing reportable
segment.
SmartWitness is headquartered in Schaumburg, Illinois and expands the capabilities of Sensata INSIGHTS into high growth
video telematics applications, providing access to applications that will drive adoption of traditional and video telematics
solutions.
111
The allocation of the purchase price related to this acquisition was finalized in the fourth quarter of 2022. The following table
summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed:
Net working capital, excluding cash
Property, plant and equipment
Goodwill
Other intangible assets
Deferred income tax assets
Other assets
Deferred income tax liabilities
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
$
$
6,106
317
129,210
76,800
1,444
115
(17,920)
(100)
195,972
9,518
205,490
The goodwill recognized as a result of this acquisition represents future economic benefits expected to arise from synergies
from combining operations and the extension of existing customer relationships. This goodwill will not 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
Customer relationships
Completed technologies
Tradenames
Total definite-lived intangible assets acquired
Acquisition Date Fair
Value
Weighted-Average Lives
(years)
$
$
24,100
52,000
700
76,800
16
10
6
12
These definite-lived intangible assets were valued using the income approach. We primarily used the relief-from-royalty
method to value completed technologies and tradenames, and we used the multi-period excess earnings method to value
customer relationships. These valuation methods incorporate assumptions including expected discounted future net 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.
Elastic M2M
On February 11, 2022, we acquired all of the equity interests of Elastic M2M, Inc. ("Elastic M2M") for an aggregate cash
purchase price of $51.6 million, subject to certain post-closing items. In addition to the aggregate cash purchase price, the
previous shareholders of Elastic M2M are entitled to up to $30.0 million of additional acquisition-related incentive
compensation, pending the completion of certain technical milestones in fiscal year 2022 and achievement of financial targets
in fiscal years 2022 and 2023. In the twelve months ended December 31, 2022, we recognized $24.7 million of that acquisition-
related incentive compensation in restructuring and other charges, net. In the twelve months ended December 31, 2022, we paid
$15.0 million of this acquisition-related incentive compensation, which is reflected as an operating cash outflow on our
consolidated statement of cash flows.
Elastic M2M is an innovator of connected intelligence for operational assets across heavy-duty transport, warehouse, supply
chain and logistics, industrial, light-duty passenger car, and a variety of other industry segments. Elastic M2M primarily serves
telematics service providers and resellers, enabling them to leverage Elastic M2M’s cloud platform and analytics capabilities to
deliver sensor-based operational insights to their end users. This acquisition augments our cloud capabilities critical to
delivering actionable sensor-based insights, an increasingly important capability in this fast-growing industry segment. We are
integrating Elastic M2M into the Performance Sensing reportable segment.
112
The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets
acquired and liabilities assumed:
Net working capital, excluding cash
Goodwill
Other intangible assets
Deferred income tax liabilities
Fair value of net assets acquired, excluding cash and cash equivalents
Cash and cash equivalents
Fair value of net assets acquired
$
$
35
28,211
27,700
(5,925)
50,021
1,597
51,618
The allocation of purchase price of Elastic M2M is preliminary and is based on management’s judgments after evaluating
several factors, including preliminary valuation assessments of intangible assets. The final allocation of the purchase price to
the assets acquired will be completed when the final valuations are completed. The preliminary goodwill recognized as a result
of this acquisition represents future economic benefits expected to arise from synergies from combining operations and the
extension of existing customer relationships. The goodwill recognized in this acquisition will not be deductible for tax
purposes.
In connection with the preliminary 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 preliminary estimated
fair values, and weighted-average lives:
Acquired definite-lived intangible assets
Customer relationships
Completed technologies
Total definite-lived intangible assets acquired
Acquisition Date
Fair Value
Weighted-
Average Lives
(years)
$
$
17,500
10,200
27,700
13
10
12
The definite-lived intangible assets were valued using the income approach. We primarily used the relief-from-royalty method
to value completed technologies, and we used the multi-period excess earnings method to value customer relationships. These
valuation methods incorporate assumptions including expected discounted future net 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.
Dynapower
On July 12, 2022, we completed the acquisition of all of the equity interests of DP Acquisition Corp ("Dynapower"), a leader in
power conversion systems, including inverters, converters, and rectifiers for renewable energy generation, green hydrogen
production, electric vehicle charging stations, and microgrid applications, as well as industrial and defense applications, for an
aggregate cash purchase price of $577.5 million, subject to certain post-closing items. Dynapower also provides aftermarket
sales and service to maintain its equipment in the field. Dynapower is a foundational addition to our Clean Energy Solutions
strategy and will complement our recent acquisitions of GIGAVAC, Lithium Balance, and Spear. We are integrating
Dynapower into our Sensing Solutions reportable segment.
113
The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets
acquired and liabilities assumed:
Net working capital, excluding cash
Property, plant and equipment
Goodwill
Other intangible assets
Other assets
Deferred income tax liabilities
Other liabilities
Fair value of net assets acquired, excluding cash and cash equivalents
Cash and cash equivalents
Fair value of net assets acquired
$
$
13,365
1,846
418,379
164,400
1,656
(25,548)
(1,035)
573,063
4,410
577,473
The allocation of purchase price of Dynapower is preliminary and is based on management’s judgments after evaluating several
factors, including preliminary valuation assessments of intangible assets. We recorded certain measurement period adjustments
in the fourth quarter of 2022 and further adjustments may be required until the allocation of purchase price is final. The final
allocation of the purchase price to the assets acquired will be completed when the final valuations are completed. The
preliminary goodwill recognized as a result of this acquisition represents future economic benefits expected to arise from
synergies from combining operations and the extension of existing customer relationships. The goodwill recognized in this
acquisition will not be deductible for tax purposes.
In connection with the preliminary 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
Customer relationships
Backlog
Completed technologies
Tradenames
Total definite-lived intangible assets acquired
Acquisition Date Fair
Value
Weighted-Average Lives
(years)
$
$
37,000
7,100
86,100
34,200
164,400
13
2
12
18
13
The definite-lived intangible assets were valued using the income approach. We primarily used the relief-from-royalty method
to value completed technologies and tradenames, and we used the multi-period excess earnings method to value customer
relationships. These valuation methods incorporate assumptions including expected discounted future net 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.
114
Divestiture - Qinex Business
On May 27, 2022, we executed an asset purchase agreement (the "APA") whereby we agreed to sell the Qinex Business to LTI
Holdings, Inc. ("LTI") in exchange for consideration of approximately $219.0 million, subject to working capital and other
adjustments. Concurrent with the execution of the APA, the parties entered into a Contract Manufacturing Agreement ("CMA")
and a Transition Services Agreement ("TSA"), each for nominal consideration.
The CMA commenced at closing of the transaction ("Closing") and has a term of either six or nine months, depending on the
manufacturing site. LTI also has the option of extending each contract for an additional three months. The period from Closing
to the end of the CMA term (including extensions, if any) is referred to as the "Transition Period." The terms of the CMA
require that we provide manufacturing and distribution services for the Transition Period. The TSA commences at Closing and
has a term that varies depending on the nature of the support services, ranging from one month to the entirety of the Transition
Period. The terms of the TSA require that we provide various forms of commercial, operational, and back-office support to LTI.
Closing occurred in July 2022, at which time assets of approximately $70 million (including allocated goodwill of $45 million)
and liabilities of approximately $2 million transferred to LTI. Transferred assets and liabilities excluded inventories and
accounts payable, which will transfer to LTI at the end of the Transition Period. We received cash consideration of
$198.8 million at Closing, which is presented as an investing cash flow for the twelve months ended December 31, 2022. Cash
consideration received at Closing excludes amounts held in escrow until various milestones are met through the Transition
Period. We received an additional $5.0 million in August 2022 following fulfillment of a portion of our TSA obligations, which
is presented as an operating cash inflow.
In the twelve months ended December 31, 2022, we recognized a pre-tax gain of approximately $135.1 million and transaction-
related charges of approximately $8.2 million. The gain on sale and transaction-related charges are each presented in
restructuring and other charges, net in our consolidated statements of operations for the year ended December 31, 2022. Refer
to Note 5: Restructuring and Other Charges, Net for additional information.
The Qinex Business manufactures semiconductor burn-in test sockets and thermal control solutions and was formed through the
combination of Sensata’s semiconductor interconnect business with Wells-CTI in 2012. The Qinex Business was included in
our Sensing Solutions segment (and Industrial Solutions reporting unit). We allocated goodwill to the Qinex Business based on
its fair value relative to the total fair value of the Industrial Solutions reporting unit.
22. Subsequent Events
On February 6, 2023, we prepaid $250.0 million of principal on the outstanding Term Loan balance. As a result, we have
reflected $250.0 million of long-term debt related to the Term loan in current portion of long-term debt on our consolidated
balance sheet as of December 31, 2022. Refer to Note 14: Debt for additional information.
115
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
SENSATA TECHNOLOGIES HOLDING PLC
(Parent Company Only)
Balance Sheets
(In thousands)
Assets
Current assets:
Cash and cash equivalents
Intercompany receivables
Intercompany notes receivable from subsidiaries
Prepaid expenses and other current assets
Total current assets
Deferred income tax assets
Other non-current assets
Investment in subsidiaries
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable
Intercompany accounts payable to subsidiaries
Intercompany notes payable to subsidiaries
Accrued expenses and other current liabilities
Total current liabilities
Total liabilities
Total shareholders’ equity
Total liabilities and shareholders’ equity
As of December 31,
2022
2021
$
$
$
$
1,227 $
8,291
203,844
1,998
215,360
436
—
2,911,358
3,127,154 $
1,075 $
13,814
—
1,458
16,347
16,347
3,110,807
3,127,154 $
1,858
2,662
290,944
2,288
297,752
462
49
2,955,727
3,253,990
443
7,264
149,208
2,341
159,256
159,256
3,094,734
3,253,990
The accompanying notes are an integral part of these condensed financial statements.
116
SENSATA TECHNOLOGIES HOLDING PLC
(Parent Company Only)
Statements of Operations
(In thousands)
Net revenue
Operating costs and expenses:
Selling, general and administrative
Total operating costs and expenses
Loss from operations
Intercompany dividend income
Intercompany interest income/(expense), net
Other intercompany, net
Other, net
Net income/(loss) before income taxes and equity in net income of subsidiaries
Equity in net (loss)/income of subsidiaries
Benefit from/(provision for) income taxes
Net income
For the year ended December 31,
2022
2021
2020
$
— $
— $
—
15,489
15,489
(15,489)
400,000
140
859
141
385,651
(77,704)
2,738
310,685 $
13,687
13,687
(13,687)
200,000
(315)
—
(215)
185,783
175,663
2,134
363,580 $
12,477
12,477
(12,477)
—
(479)
—
115
(12,841)
182,733
(5,606)
164,286
$
The accompanying notes are an integral part of these condensed financial statements.
117
SENSATA TECHNOLOGIES HOLDING PLC
(Parent Company Only)
Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive income/(loss), net of tax:
Subsidiaries' other comprehensive income/(loss)
Other comprehensive income/(loss)
Comprehensive income
For the year ended December 31,
2022
2021
2020
$
310,685 $
363,580 $
164,286
3,296
3,296
313,981 $
29,975
29,975
393,555 $
(29,051)
(29,051)
135,235
$
The accompanying notes are an integral part of these condensed financial statements.
118
SENSATA TECHNOLOGIES HOLDING PLC
(Parent Company Only)
Statements of Cash Flows
(In thousands)
Net cash used in operating activities
Cash flows from investing activities:
Intercompany loans
Dividends received from subsidiary
Net cash provided by/(used in) investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options and issuance of ordinary shares
(Payments on)/proceeds from intercompany borrowings
Dividends paid
Payments to repurchase ordinary shares
Payments of employee restricted stock tax withholdings
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,
2022
2021
2020
$
(9,455) $
(15,959) $
(7,911)
—
400,000
400,000
(224,972)
200,000
(24,972)
22,803
(62,108)
(51,072)
(292,274)
(8,525)
(391,176)
(631)
1,858
1,227 $
26,290
72,726
—
(47,843)
(9,048)
42,125
1,194
664
1,858 $
—
—
—
15,457
30,966
—
(35,175)
(2,911)
8,337
426
238
664
$
The accompanying notes are an integral part of these condensed financial statements.
119
1. Basis of Presentation and Description of Business
Sensata Technologies Holding plc (Parent Company)—Schedule I—Condensed Financial Information of Sensata Technologies
Holding plc ("Sensata plc"), included in this Annual Report on Form 10-K (this "Report"), 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 plc and subsidiaries' audited consolidated
financial statements and accompanying notes thereto (the "Consolidated Financial Statements") are included elsewhere in this
Report.
Sensata plc conducts limited separate operations and acts primarily as a holding company. Sensata plc has no direct outstanding
debt obligations. However, Sensata Technologies B.V., an indirect, wholly-owned subsidiary of Sensata plc, is limited in its
ability to pay dividends or otherwise make distributions to its immediate parent company and, ultimately, to Sensata plc, 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 plc, refer to Note 14: Debt of the Consolidated Financial Statements included elsewhere in this Report.
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 plc, refer to Note 15: Commitments and
Contingencies of the Consolidated Financial Statements included elsewhere in this Report.
120
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
For the year ended December 31, 2022
Accounts receivable allowances
For the year ended December 31, 2021
Accounts receivable allowances
For the year ended December 31, 2020
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
$
$
$
17,003 $
8,531 $
(1,288) $
24,246
19,033 $
(813) $
(1,217) $
17,003
15,129 $
5,654 $
(1,750) $
19,033
121
ITEM 9.
FINANCIAL DISCLOSURE
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
None.
ITEM 9A.
CONTROLS AND PROCEDURES
The required certifications of our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer are included
as Exhibits 31.1, 31.2, and 31.3 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, Chief Financial Officer, and Chief Accounting Officer, we have
evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. 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 U.S. Securities and Exchange Commission'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, 2022, our Chief Executive Officer, Chief Financial Officer, and Chief
Accounting Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable
assurance level.
We excluded from our assessment of the effectiveness of internal control over financial reporting as of December 31, 2022, the
internal control over financial reporting for Elastic M2M, Inc. and DP Acquisition Corp. (Dynapower), which were acquired by
us on February 11, 2022 and July 12, 2022, respectively. These exclusions are consistent with guidance issued by the U.S.
Securities and Exchange Commission that an assessment of recently acquired businesses may be omitted from the scope of
management's report on internal control over financial reporting in the year of acquisition. Excluded from our assessment of the
effectiveness of internal control over financial reporting as of December 31, 2022 were total assets and net revenues of
approximately 0.7% and 1.3%, respectively, of our consolidated total assets and consolidated net revenues as of and for the year
ended December 31, 2022.
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, 2022 that materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
122
Management’s Report on Internal Control Over Financial Reporting
Management of Sensata Technologies Holding plc (the "Company") 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.
We excluded from our assessment of the effectiveness of internal control over financial reporting as of December 31, 2022, the
internal control over financial reporting for Elastic M2M, Inc. and DP Acquisition Corp. (Dynapower), which were acquired by
us on February 11, 2022 and July 12, 2022, respectively. These exclusions are consistent with guidance issued by the U.S.
Securities and Exchange Commission that an assessment of recently acquired businesses may be omitted from the scope of
management's report on internal control over financial reporting in the year of acquisition. Excluded from our assessment of the
effectiveness of internal control over financial reporting as of December 31, 2022 were total assets and net revenues of
approximately 0.7% and 1.3%, respectively, of our consolidated total assets and consolidated net revenues as of and for the year
ended December 31, 2022.
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, 2022. 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, Chief Financial Officer, and Chief
Accounting Officer, has concluded that, as of December 31, 2022, 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.
Swindon, United Kingdom
February 13, 2023
123
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Sensata Technologies Holding plc
Opinion on Internal Control over Financial Reporting
We have audited Sensata Technologies Holding plc’s internal control over financial reporting as of December 31, 2022, 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). In our opinion, Sensata Technologies Holding plc (the
Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022,
based on the COSO criteria. As indicated in the accompanying Management's Report on Internal Control Over Financial
Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not
include the internal controls of Elastic M2M, Inc. and DP Acquisition Corp. (Dynapower), which are included in the 2022
consolidated financial statements of the Company and in aggregate constituted 0.7% of total assets as of December 31, 2022
and 1.3% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not
include an evaluation of the internal control over financial reporting of Elastic M2M, Inc. and Dynapower.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, 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, 2022, and the related notes and financial statement schedules listed in the Index at Item 15(a)
(collectively referred to as the “consolidated financial statements”), and our report dated February 13, 2023 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’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 are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 13, 2023
124
ITEM 9B.
OTHER INFORMATION
None
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this Item 10 is incorporated herein by reference from the Definitive Proxy Statement of Sensata
Technologies Holding plc (the "Company"), to be filed with the U.S. Securities and Exchange Commission (the "SEC") within
120 days of the Company's fiscal year ended December 31, 2022.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by reference from the Company's Definitive Proxy Statement,
to be filed with the SEC within 120 days of the Company's fiscal year ended December 31, 2022.
ITEM 12.
RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
The information required by this Item 12 is incorporated herein by reference from the Company's Definitive Proxy Statement,
to be filed with the SEC within 120 days of the Company's fiscal year ended December 31, 2022.
ITEM 13.
INDEPENDENCE
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
The information required by this Item 13 is incorporated herein by reference from the Company's Definitive Proxy Statement,
to be filed with the SEC within 120 days of the Company's fiscal year ended December 31, 2022.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 is incorporated herein by reference from the Company's Definitive Proxy Statement,
to be filed with the SEC within 120 days of the Company's fiscal year ended December 31, 2022.
125
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
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
EXHIBIT INDEX
2.1
2.2
3.1
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
Common Draft Terms of the Cross-Border Legal Merger by and among Sensata Technologies Holding N.V.
and Sensata Technologies Holding plc dated October 26, 2017 (incorporated by reference to Exhibit 2.1 of
the Registrant's Current Report on Form 8-K filed on November 1, 2017).
Merger Proposal by the boards of directors of Sensata Technologies Holding N.V. and Sensata Technologies
Holding plc (incorporated by reference to Annex A to the registration statement on Form S-4/A
(Commission File No. 333-220735) filed by Sensata Technologies Holding plc on December 22, 2017).
Articles of Association of Sensata Technologies Holding plc (incorporated by reference to Exhibit 3.1 of the
Registrant's Current Report on Form 8-K filed on March 28, 2018).
Indenture, dated as of April 17, 2013, among Sensata Technologies B.V., the Guarantors named therein, and
The Bank of New York Mellon, as Trustee, together with all supplemental indentures relating thereto
entered into through February 10, 2022 (incorporated by reference to Exhibit 4.1 of the Registrant's Annual
Report on Form 10-K filed on February 10, 2022).
Form of 4.875% Senior Note due 2023 (included as Exhibit A to Exhibit 4.1).
Indenture, dated as of October 14, 2014, among Sensata Technologies B.V., the Guarantors named therein,
and The Bank of New York Mellon, as Trustee, together with all supplemental indentures relating thereto
entered into through February 13, 2023. *
Form of 5.625% Senior Note due 2024 (included as Exhibit A to Exhibit 4.3).
Indenture, dated as of March 26, 2015, among Sensata Technologies B.V., the Guarantors named therein,
and The Bank of New York Mellon, as Trustee, together with all supplemental indentures relating thereto
entered into through February 13, 2023. *
Form of 5.0% Senior Notes due 2025 (included as Exhibit A to Exhibit 4.5).
Indenture, dated as of September 20, 2019, among Sensata Technologies, Inc., the Guarantors named
therein, and The Bank of New York Mellon, as Trustee, together with all supplemental indentures relating
thereto entered into through February 13, 2023. *
Form of 4.375% Senior Notes due 2030 (included as Exhibit A to Exhibit 4.7).
Description of Sensata Technologies Holding plc Securities Registered Pursuant to Section 12 of the
Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.15 of the Registrant's Annual
Report on Form 10-K filed on February 11, 2020).
Indenture, dated as of August 17, 2020, among Sensata Technologies, Inc., the Guarantors named therein,
and The Bank of New York Mellon, as the Trustee, together with all supplemental indentures relating
thereto entered into through February 13, 2023. *
Form of 3.750% Senior Notes due 2031 (included as Exhibit A to Exhibit 4.10).
Indenture dated as of March 29, 2021 among Sensata Technologies B.V., the Guarantors named therein, and
The Bank of New York Mellon as Trustee, together with all supplemental indentures relating thereto entered
into through February 13, 2023. *
Form of 4.0% Senior Notes due 2029 (included as Exhibit A to Exhibit 4.12).
Indenture, dated as of August 29, 2022, among Sensata Technologies B.V., the Guarantors named therein,
and the Bank of New York Mellon, as Trustee, together with all supplemental indentures relating thereto
entered into through February 13, 2023. *
Form of 5.875% Senior Notes due 2030 (included as Exhibit A to Exhibit 4.14).
126
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
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, Commission File
Number 333-139739).
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).
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, Commission File No. 001-34652).†
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, Commission File No. 001-34652).
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, Commission File No. 001-34652).
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, Commission File No. 001-34652).†‡
127
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
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,
Commission File No. 001-34652).
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, Commission File No. 001-34652).
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).
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).
Amendment No. 8 to Credit Agreement, dated as of November 7, 2017, 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 14, 2017).
Sensata Technologies Holding plc First Amended and Restated 2010 Equity Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on March 28, 2018). †
Amendment No. 9 to Credit Agreement, dated as of March 27, 2019, 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 2, 2019, Commission File Number 001-34652).
Technical Amendment to Credit Agreement dated as of June 13, 2019, to the Credit Agreement dated as of
May 12, 2011, by and among Sensata Technologies B.V., Sensata Technologies Finance Company, LLC
and Morgan Stanley Senior Funding, Inc. as administrative agent on behalf of the lenders party to the Credit
Agreement (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
filed on July 30, 2019).
Amendment No. 10 to Credit Agreement and Amendment No. 1 to Domestic Guaranty and Foreign
Guaranty, dated as of September 20, 2019, by and among Sensata Technologies, Inc., Sensata Technologies
Intermediate Holding B.V., Sensata Technologies B.V., the other 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 September 26, 2019).
Third Amended and Restated Employment Agreement between Jeffrey Cote and Sensata Technologies, Inc.,
dated March 1, 2020 (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form
10-Q filed on April 29, 2020).†
Third Amended and Restated Employment Agreement between Martha Sullivan and Sensata Technologies,
Inc., dated March 1, 2020 (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on
Form 10-Q filed on April 29, 2020).†
Amendment to Martha Sullivan Award Agreements with Sensata Technologies Holding plc, dated February
29, 2020 (incorporated by reference to Exhibit 10.3 of the Registrant's Quarterly Report on Form 10-Q filed
on April 29, 2020).†
128
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
21.1
23.1
31.1
31.2
Amended and Restated Employment Agreement between Vineet Nargolwala and Sensata Technologies,
Inc., dated March 5, 2020 (incorporated by reference to Exhibit 10.5 of the Registrant's Quarterly Report on
Form 10-Q filed on April 29, 2020).†
Amended and Restated Employment Agreement between Hans Lidforss and Sensata Technologies, Inc.,
dated March 5, 2020 (incorporated by reference to Exhibit 10.6 of the Registrant's Quarterly Report on Form
10-Q filed on April 29, 2020).†
Form of Consent to Reduction in Salary April 1, 2020 through June 30, 2020 for Executive Officers
(incorporated by reference to Exhibit 10.7 of the Registrant's Quarterly Report on Form 10-Q filed on April
29, 2020).†
Employment Agreement between Lynne Caljouw and Sensata Technologies, Inc., dated June 15, 2020
(incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q filed on July
28, 2020).†
Securities Purchase Agreement, dated February 11, 2021, by and among Xirgo Technologies Intermediate
Holdings, LLC, Xirgo Holdings, Inc., the Persons, Sellers, and Option Holder Identified Herein, Sensata
Technologies, Inc., and the Seller Representative Identified Herein (incorporated by reference to Exhibit
10.42 of the Registrant’s Annual Report on Form 10-K filed on February 12, 2021).
Form of Award Agreement for Restricted Stock Units under the Sensata Technologies Holding plc First
Amended and Restated 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q filed on April 27, 2021).†
Form of Award Agreement for Performance Restricted Stock Units under the Sensata Technologies Holding
plc First Amended and Restated 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 of
the Registrant's Quarterly Report on Form 10-Q filed on April 27, 2021).†
Sensata Technologies Holding plc 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 of
the Registrant's Quarterly Report on Form 10-Q filed on July 27, 2021).†
Form of Award Agreement for Restricted Stock Units for Directors under the Sensata Technologies Holding
plc 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly
Report on Form 10-Q filed on July 27, 2021).†
Employment agreement between Juan Picon and Sensata Technologies, Inc., dated December 1, 2021
(incorporated by reference to Exhibit 10.41 of the Registrant's Annual Report on Form 10-K filed on
February 10, 2022). †
Stock Purchase Agreement between Dynapower Holdings, LLC and Sensata Technologies, Inc.
(incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q filed on April
26, 2022).
Form of Award Agreement for Restricted Stock Units for Named Executive Officers under the Sensata
Technologies Holding plc 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 of the
Registrant's Quarterly Report on Form 10-Q filed on April 26, 2022). †
Form of Award Agreement for Performance Restricted Stock Units for Named Executive Officers under the
Sensata Technologies Holding plc 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 of
the Registrant's Quarterly Report on Form 10-Q filed on April 26, 2022). †
Second Amended and Restated Employment Agreement between George Verras and Sensata Technologies,
Inc., dated May 1, 2022 (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on
Form 10-Q filed on August 1, 2022). †
Amendment No. 11 to Credit Agreement and Amendment No. 2 to Foreign Guaranty, dated as of June 23,
2022, by and among Sensata Technologies, Inc., Sensata Technologies Intermediate Holding B.V., the other
Guarantors party thereto, Morgan Stanley Senior Funding, Inc., as the Administrative Agent, an L/C Issuer
and the Swing Line Lender, and the Revolving Credit Lenders and other L/C Issuers party thereto
(incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed on June 29,
2022).
Amendment No. 12 to Credit Agreement, dated as of January 4, 2023, to the Credit Agreement, dated as of
May 12, 2011, by and among Sensata Technologies Inc., Sensata Technologies Intermediate Holding B.V.,
the subsidiary guarantors party thereto, Morgan Stanley Senior Funding, Inc. and the other lenders party
thereto. *
Subsidiaries of Sensata Technologies Holding plc.*
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.*
129
31.3
32.1
Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
Certification of Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer pursuant to
18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document. *
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document. *
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document. *
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document. *
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document. *
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
____________________
* Filed herewith.
†
‡ There have been non-material modifications to this contract since inception
Indicates management contract or compensatory plan, contract or arrangement.
130
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 PLC
/s/ JEFF COTE
Jeff Cote
By:
Its: Chief Executive Officer and President
Date: February 13, 2023
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
/s/ JEFF COTE
Jeff Cote
TITLE
DATE
Chief Executive Officer, President, and Director
February 13, 2023
(Principal Executive Officer)
/s/ PAUL VASINGTON
Executive Vice President and Chief Financial Officer
February 13, 2023
Paul Vasington
/s/ MARIA FREVE
Maria Freve
/s/ ANDREW TEICH
Andrew Teich
/s/ JOHN ABSMEIER
John Absmeier
/s/ DANIEL BLACK
Daniel Black
/s/ LORRAINE BOLSINGER
Lorraine Bolsinger
/s/ JAMES HEPPELMANN
James Heppelmann
/s/ CONSTANCE SKIDMORE
Constance Skidmore
/s/ STEVEN SONNENBERG
Steven Sonnenberg
/s/ MARTHA SULLIVAN
Martha Sullivan
/s/ STEPHEN ZIDE
Stephen Zide
/s/ JEFF COTE
Jeff Cote
(Principal Financial Officer)
Vice President and Chief Accounting Officer
February 13, 2023
(Principal Accounting Officer)
Chairman of the Board of Directors
February 13, 2023
Director
Director
Director
Director
Director
Director
Director
Director
February 13, 2023
February 13, 2023
February 13, 2023
February 13, 2023
February 13, 2023
February 13, 2023
February 13, 2023
February 13, 2023
Authorized Representative in the United States
February 13, 2023
131
[This page intentionally left blank]
Corporate Information
MANAGEMENT TEAM
Jeffrey J. Cote
Chief Executive Officer
and President
Lynne J. Caljouw
Executive Vice President and
Chief Administrative Officer
Paul S. Vasington
Executive Vice President and
Chief Financial Officer
George Verras
Executive Vice President,
Chief Technology Officer
Jacquie Boyer
Senior Vice President and
Chief Commercial Officer
Jing Chang
Senior Vice President, Asia,
Performance Sensing and
Sensing Solutions
Hans G. Lidforss
Senior Vice President and
Chief Strategy & Corporate
Development Officer
Jennifer Slater
Senior Vice President,
Performance Sensing Automotive
Brian Wilkie
Senior Vice President,
Sensing Solutions and HVOR
Kok Joon Wong
Senior Vice President,
Operational Excellence
David Stott
Vice President,
General Counsel
BOARD OF DIRECTORS
Andrew C. Teich 3,4,5
Chairman of the Board
Sensata Technologies,
Retired President and CEO
FLIR Systems
Jeffrey J. Cote
Chief Executive Officer and President
Sensata Technologies
John P. Absmeier 1,5
Chief Technology Officer
Woven Planet Holdings, Inc.
Daniel L. Black 1,2,4
Managing Partner
The Wicks Group
Lorraine A. Bolsinger 1,2,4
Retired Executive
General Electric Company
James E. Heppelmann 2,3,5
President and Chief Executive Officer
PTC, Inc.
Constance E. Skidmore 1,2,3
Retired Partner
PricewaterhouseCoopers
Steven A. Sonnenberg 3,5
Retired Executive
Emerson Electric Co.
Martha N. Sullivan 5
Retired CEO
Sensata Technologies
Stephen M. Zide 4
Former Senior Advisor
Bain Capital
STOCKHOLDER INFORMATION
Corporate Headquarters
Interface House
Interface Business Park
Bincknoll Lane
Royal Wootton Bassett
Swindon, Wiltshire SN4 8SY
United Kingdom
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: investors@sensata.com
Independent Auditors
Ernst & Young LLP
Boston, Massachusetts
Stock Listing
Sensata Technologies
Common stock is traded on the NYSE
under symbol “ST”
Transfer Agent
Computershare
PO Box 505000
Louisville, KY 40233-5000
Telephone: 866-644-4127
Web: www.computershare.com
The 2022 Annual Report, Form 10-K
and other investor information can be
viewed at www.sensata.com
1 Member of the Audit Committee
2 Member of the Compensation Committee
3 Member of the Nominating and Governance Committee
4 Member of the Finance Committee
5 Member of the Growth and Innovation Committee
sensata.com
sensata.com
Helping our customers and partners safely deliver a cleaner,
more efficient, electrified and connected world.
Helping our customers and partners safely deliver a cleaner,
more efficient, electrified and connected world.
CORPORATE HEADQUARTERS
CORPORATE HEADQUARTERS
U.S. HEADQUARTERS
U.S. HEADQUARTERS
Interface House, Interface Business Park
Interface House, Interface Business Park
Bincknoll Lane
Bincknoll Lane
Royal Wootton Bassett
Royal Wootton Bassett
Swindon, Wiltshire SN4 8SY
Swindon, Wiltshire SN4 8SY
United Kingdom
United Kingdom
Sensata Technologies
Sensata Technologies
529 Pleasant Street
529 Pleasant Street
Attleboro, MA 02703
Attleboro, MA 02703
Telephone: +1-508-236-3800
Telephone: +1-508-236-3800