Sensata Technologies Holding plc 10-Q

Item 1. Financial Statements. SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Balance Sheets (In thousands, except per share amounts) (unaudited) March 31, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 1,893,926 $ 1,861,980 Accounts receivable, net of allowances of $ 18,891 and $ 19,033 as of March 31, 2021 and December 31, 2020, respectively 641,161 576,647 Inventories 468,446 451,005 Prepaid expenses and other current assets 102,592 90,340 Total current assets 3,106,125 2,979,972 Property, plant and equipment, net 796,419 803,825 Goodwill 3,124,939 3,111,349 Other intangible assets, net of accumulated amortization of $ 2,176,498 and $ 2,145,634 as of March 31, 2021 and December 31, 2020, respectively 676,072 691,549 Deferred income tax assets 80,023 84,785 Other assets 161,614 172,722 Total assets $ 7,945,192 $ 7,844,202 Liabilities and shareholders’ equity Current liabilities: Current portion of long-term debt, finance lease and other financing obligations $ 9,678 $ 757,205 Accounts payable 431,084 393,907 Income taxes payable 21,498 19,215 Accrued expenses and other current liabilities 311,261 324,830 Total current liabilities 773,521 1,495,157 Deferred income tax liabilities 262,673 259,857 Pension and other post-retirement benefit obligations 43,074 48,002 Finance lease and other financing obligations, less current portion 27,605 27,931 Long-term debt, net 3,961,397 3,213,747 Other long-term liabilities 86,279 94,022 Total liabilities 5,154,549 5,138,716 Commitments and contingencies (Note 12) Shareholders’ equity: Ordinary shares, € 0.01 nominal value per share, 177,069 shares authorized, and 173,533 and 173,266 shares issued as of March 31, 2021 and December 31, 2020, respectively 2,223 2,220 Treasury shares, at cost, 15,631 shares as of March 31, 2021 and December 31, 2020 ( 784,596 ) ( 784,596 ) Additional paid-in capital 1,775,320 1,759,668 Retained earnings 1,831,241 1,777,729 Accumulated other comprehensive loss ( 33,545 ) ( 49,535 ) Total shareholders’ equity 2,790,643 2,705,486 Total liabilities and shareholders’ equity $ 7,945,192 $ 7,844,202 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (unaudited) For the three months ended March 31, 2021 March 31, 2020 Net revenue $ 942,528 $ 774,269 Operating costs and expenses: Cost of revenue 635,349 566,406 Research and development 35,956 34,453 Selling, general and administrative 77,123 77,221 Amortization of intangible assets 32,064 33,092 Restructuring and other charges, net 4,582 4,498 Total operating costs and expenses 785,074 715,670 Operating income 157,454 58,599 Interest expense, net ( 44,043 ) ( 39,403 ) Other, net ( 39,397 ) ( 12,281 ) Income before taxes 74,014 6,915 Provision for/(benefit from) income taxes 20,281 ( 1,516 ) Net income $ 53,733 $ 8,431 Basic net income per share $ 0.34 $ 0.05 Diluted net income per share $ 0.34 $ 0.05 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Statements of Comprehensive Income/(Loss) (In thousands) (unaudited) For the three months ended March 31, 2021 March 31, 2020 Net income $ 53,733 $ 8,431 Other comprehensive income/(loss): Cash flow hedges 14,278 ( 19,334 ) Defined benefit and retiree healthcare plans 1,712 3,342 Other comprehensive income/(loss) 15,990 ( 15,992 ) Comprehensive income/(loss) $ 69,723 $ ( 7,561 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Statements of Cash Flows (In thousands) (unaudited) For the three months ended March 31, 2021 March 31, 2020 Cash flows from operating activities: Net income $ 53,733 $ 8,431 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 31,197 34,679 Amortization of debt issuance costs 1,711 1,631 Share-based compensation 5,099 6,084 Loss on debt financing 30,066 — Amortization of intangible assets 32,064 33,092 Deferred income taxes 130 ( 4,100 ) Loss on litigation judgment — 29,200 Unrealized loss on derivative instruments and other 8,797 11,040 Changes in operating assets and liabilities, net of the effects of acquisitions: Accounts receivable, net ( 62,198 ) 21,458 Inventories ( 16,857 ) ( 7,596 ) Prepaid expenses and other current assets ( 4,971 ) 5,625 Accounts payable and accrued expenses 26,409 ( 19,962 ) Income taxes payable 2,283 ( 15,844 ) Other ( 2,952 ) ( 5,194 ) Net cash provided by operating activities 104,511 98,544 Cash flows from investing activities: Acquisitions, net of cash received ( 20,406 ) — Additions to property, plant and equipment and capitalized software ( 27,172 ) ( 29,547 ) Investment in debt and equity securities ( 1,799 ) ( 5,217 ) Other 340 1,928 Net cash used in investing activities ( 49,037 ) ( 32,836 ) Cash flows from financing activities: Proceeds from exercise of stock options and issuance of ordinary shares 10,556 709 Payment of employee restricted stock tax withholdings ( 221 ) ( 15 ) Proceeds from borrowings on debt 750,000 — Payments on debt ( 752,753 ) ( 2,375 ) Payments to repurchase ordinary shares — ( 35,175 ) Payments of debt financing costs ( 31,110 ) — Net cash used in financing activities ( 23,528 ) ( 36,856 ) Net change in cash and cash equivalents 31,946 28,852 Cash and cash equivalents, beginning of period 1,861,980 774,119 Cash and cash equivalents, end of period $ 1,893,926 $ 802,971 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Statements of Changes in Shareholders' Equity (In thousands) (unaudited) Ordinary Shares Treasury Shares Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Number Amount Number Amount 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 — — ( 4 ) ( 221 ) — — — ( 221 ) Stock options exercised 259 3 — — 10,553 — — 10,556 Vesting of restricted securities 12 — — — — — — — Retirement of ordinary shares ( 4 ) — 4 221 — ( 221 ) — — Share-based compensation — — — — 5,099 — — 5,099 Net income — — — — — 53,733 — 53,733 Other comprehensive income — — — — — — 15,990 15,990 Balance as of March 31, 2021 173,533 $ 2,223 ( 15,631 ) $ ( 784,596 ) $ 1,775,320 $ 1,831,241 $ ( 33,545 ) $ 2,790,643 Ordinary Shares Treasury Shares Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Number Amount Number Amount 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 — — — ( 15 ) — — — ( 15 ) Stock options exercised 34 — — — 709 — — 709 Vesting of restricted securities 1 — — — — — — — Repurchase of ordinary shares — — ( 898 ) ( 35,175 ) — — — ( 35,175 ) Retirement of ordinary shares — — — 15 — ( 15 ) — — Share-based compensation — — — — 6,084 — — 6,084 Net income — — — — — 8,431 — 8,431 Other comprehensive loss — — — — — — ( 15,992 ) ( 15,992 ) Balance as of March 31, 2020 172,596 $ 2,212 ( 15,631 ) $ ( 784,596 ) $ 1,731,884 $ 1,624,773 $ ( 36,476 ) $ 2,537,797 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements reflect the financial position, results of operations, comprehensive income/(loss), cash flows, and changes in shareholders' equity of Sensata Technologies Holding plc, a public limited company incorporated under the laws of England and Wales, and its wholly-owned subsidiaries, collectively referred to as the "Company," "Sensata," "we," "our," or "us." The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q. Accordingly, these interim financial statements do not include all of the information and note disclosures required by U.S. GAAP for complete financial statements. The accompanying financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the interim period results. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Annual Report"). All U.S. dollar ("USD") and share amounts presented, except per share amounts, are stated in thousands, unless otherwise indicated. Certain reclassifications have been made to prior periods to conform to current period presentation. 2. New Accounting Standards There are 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 The following table presents net revenue disaggregated by segment and end market for the three months ended March 31, 2021 and 2020: For the three months ended March 31, 2021 For the three months ended March 31, 2020 Performance Sensing Sensing Solutions Total Performance Sensing Sensing Solutions Total Automotive $ 536,713 $ 11,500 $ 548,213 $ 437,703 $ 8,236 $ 445,939 HVOR (1) 177,799 — 177,799 130,986 — 130,986 Industrial — 90,475 90,475 — 80,599 80,599 Appliance and HVAC (2) — 59,916 59,916 — 45,396 45,396 Aerospace — 32,677 32,677 — 42,124 42,124 Other — 33,448 33,448 — 29,225 29,225 Total $ 714,512 $ 228,016 $ 942,528 $ 568,689 $ 205,580 $ 774,269 ________________________ (1) Heavy vehicle and off-road (2) Heating, ventilation and air conditioning 4. Share-Based Payment Plans The following table presents the components of non-cash compensation expense related to our equity awards for the three months ended March 31, 2021 and 2020: For the three months ended March 31, 2021 March 31, 2020 Stock options $ 460 $ 2,489 Restricted securities 4,639 3,595 Share-based compensation expense $ 5,099 $ 6,084 8 Table of Contents 5. Restructuring and Other Charges, Net On June 30, 2020, in response to the potential long-term impact of the global financial and health crisis caused by the coronavirus ("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 demand levels that we anticipate in the coming quarters. We have taken a large portion of the actions contemplated under the Q2 2020 Global Restructure Program, with the majority of the remaining actions expected to be completed on or before June 30, 2021. Over the life of the Q2 2020 Global Restructure Program, the reductions-in-force, which are subject to the laws and regulations of the countries in which the actions are planned, are expected to impact approximately 880 positions, for which we expect to incur severance charges of between $ 31.0 million and $ 33.7 million. In addition, over the life of the Q2 2020 Global Restructure Program, we expect to incur between $ 6.0 million and $ 8.0 million related to site closures. We expect to settle these charges with cash on hand. We expect these restructuring charges to impact our business segments and corporate functions as follows: Reductions-in-Force Site Closures (Dollars in millions) Positions Minimum Maximum Minimum Maximum Performance Sensing 180 $ 10.7 $ 11.6 $ 3.0 $ 4.0 Sensing Solutions 286 8.9 9.6 3.0 4.0 Corporate and other (1) 414 11.4 12.5 — — Total 880 $ 31.0 $ 33.7 $ 6.0 $ 8.0 ___________________________________ (1) The majority of these positions relate to engineering and manufacturing operations, which are allocated to corporate and other. However, these restructuring actions will benefit the results of Performance Sensing and Sensing Solutions as well. Charges recognized in the three months ended March 31, 2021 resulting from the Q2 2020 Global Restructure Program are presented by impacted segment below. Approximately $ 0.8 million of these charges relate to site closures in Sensing Solutions. However, as noted in Note 17: Segment Reporting , restructuring and other charges, net are excluded from segment operating income. For the three months ended March 31, 2021 Performance Sensing $ 296 Sensing Solutions 1,528 Restructuring and other charges $ 1,824 The following table presents the components of restructuring and other charges, net for the three months ended March 31, 2021 and 2020: For the three months ended March 31, 2021 March 31, 2020 Q2 2020 Global Restructure Program charges $ 1,824 $ — Other restructuring charges Severance costs, net (1) 186 3,897 Facility and other exit costs 666 — Other 1,906 601 Restructuring and other charges, net $ 4,582 $ 4,498 ___________________________________ (1) Severance costs, net for the three months ended March 31, 2020 were primarily related to termination benefits arising from the shutdown and relocation of an operating site in Northern Ireland. 9 Table of Contents The following table presents a rollforward of the severance portion of our restructuring obligations for the three months ended March 31, 2021. Q2 2020 Global Restructure Program Other Total Balance at December 31, 2020 $ 10,842 $ 4,037 $ 14,879 Charges, net of reversals 1,073 186 1,259 Payments ( 3,054 ) ( 519 ) ( 3,573 ) Foreign currency remeasurement ( 207 ) ( 17 ) ( 224 ) Balance at March 31, 2021 $ 8,654 $ 3,687 $ 12,341 The severance liability as of March 31, 2021 was entirely recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheet. 6. Other, Net The following table presents the components of other, net for the three months ended March 31, 2021 and 2020: For the three months ended March 31, 2021 March 31, 2020 Currency remeasurement (loss)/gain on net monetary assets $ ( 1,477 ) $ 1,553 Loss on foreign currency forward contracts ( 958 ) ( 3,781 ) Loss on commodity forward contracts ( 1,153 ) ( 5,575 ) Loss on debt refinancing ( 30,066 ) — Net periodic benefit cost, excluding service cost ( 2,410 ) ( 4,381 ) Other ( 3,333 ) ( 97 ) Other, net $ ( 39,397 ) $ ( 12,281 ) 7. Income Taxes The following table presents the provision for/(benefit from) income taxes for the three months ended March 31, 2021 and 2020: For the three months ended March 31, 2021 March 31, 2020 Provision for/(benefit from) income taxes $ 20,281 $ ( 1,516 ) The increase in total tax from the prior period was predominantly related to the overall increase in income before taxes as impacted by the mix of profits in the various jurisdictions in which we operate. In response to the global financial and health crisis caused by COVID-19, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") on March 27, 2020. Federal limitations on interest deductions were reduced in connection with this legislation, and we recorded a deferred tax benefit of $ 7.5 million in the three months ended March 31, 2020, as we were able to utilize additional interest expense that was previously subject to a valuation allowance. The provision for/(benefit from) income taxes consists of (1) current tax expense, which relates primarily to our profitable operations in non-U.S. tax jurisdictions and withholding taxes related to management fees, royalties, and the repatriation of foreign earnings; and (2) deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to (a) the step-up in fair value of fixed and intangible assets acquired in connection with business combination transactions, (b) changes in net operating loss carryforwards, (c) changes in tax rates, and (d) changes in our assessment of the realizability of our deferred tax assets. 10 Table of Contents 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 three months ended March 31, 2021 and 2020 the weighted-average ordinary shares outstanding used to calculate basic and diluted net income per share were as follows: For the three months ended March 31, 2021 March 31, 2020 Basic weighted-average ordinary shares outstanding 157,764 157,599 Dilutive effect of stock options 708 334 Dilutive effect of unvested restricted securities 758 452 Diluted weighted-average ordinary shares outstanding 159,230 158,385 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. These potential ordinary shares were as follows: For the three months ended March 31, 2021 March 31, 2020 Anti-dilutive shares excluded 6 1,385 Contingently issuable shares excluded 950 596 9. Inventories The following table presents the components of inventories as of March 31, 2021 and December 31, 2020: March 31, 2021 December 31, 2020 Finished goods $ 152,729 $ 170,488 Work-in-process 96,730 87,006 Raw materials 218,987 193,511 Inventories $ 468,446 $ 451,005 10. Pension and Other Post-Retirement Benefits The components of net periodic benefit cost/(credit) associated with our defined benefit and retiree healthcare plans for the three months ended March 31, 2021 and 2020 were as follows: U.S. Plans Non-U.S. Plans Defined Benefit Retiree Healthcare Defined Benefit Total 2021 2020 2021 2020 2021 2020 2021 2020 Service cost $ — $ — $ 2 $ 2 $ 978 $ 769 $ 980 $ 771 Interest cost 120 267 21 37 404 315 545 619 Expected return on plan assets ( 226 ) ( 433 ) — — ( 178 ) ( 174 ) ( 404 ) ( 607 ) Amortization of net loss 401 295 — 10 459 236 860 541 Amortization of prior service (credit)/cost — — ( 159 ) ( 196 ) 3 2 ( 156 ) ( 194 ) Loss on settlement 1,565 4,022 — — — — 1,565 4,022 Net periodic benefit cost/(credit) $ 1,860 $ 4,151 $ ( 136 ) $ ( 147 ) $ 1,666 $ 1,148 $ 3,390 $ 5,152 Components of net periodic benefit cost/(credit) other than service cost are presented in other, net in the condensed consolidated statements of operations. Refer to Note 6: Other, Net . 11 Table of Contents 11. Debt Our long-term debt, finance lease, and other financing obligations as of March 31, 2021 and December 31, 2020 consisted of the following: Maturity Date March 31, 2021 December 31, 2020 Term Loan September 20, 2026 $ 454,938 $ 456,096 4.875 % Senior Notes October 15, 2023 500,000 500,000 5.625 % Senior Notes November 1, 2024 400,000 400,000 5.0 % Senior Notes October 1, 2025 700,000 700,000 6.25 % Senior Notes February 15, 2026 — 750,000 4.375 % Senior Notes February 15, 2030 450,000 450,000 3.75 % Senior Notes February 15, 2031 750,000 750,000 4.0 % Senior Notes April 15, 2029 750,000 — Other 2,605 — Less: discount ( 8,416 ) ( 9,605 ) Less: deferred financing costs ( 30,495 ) ( 28,114 ) Less: current portion ( 7,235 ) ( 754,630 ) Long-term debt, net $ 3,961,397 $ 3,213,747 Finance lease and other financing obligations $ 30,048 $ 30,506 Less: current portion ( 2,443 ) ( 2,575 ) Finance lease and other financing obligations, less current portion $ 27,605 $ 27,931 Revolving Credit Facility As of March 31, 2021, we had $ 416.1 million available under our $ 420.0 million revolving credit facility (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 March 31, 2021, no amounts had been drawn against these outstanding letters of credit. 6.25 % Senior Notes redemption On February 3, 2021, we announced that we intended to redeem in full the $ 750.0 million aggregate principal amount outstanding on our 6.25 % senior notes due 2026 (the "6.25% Senior Notes"). On February 15, 2021, the “make-whole” premium with respect to the 6.25% Senior Notes expired. Accordingly, we reflected the 6.25% Senior Notes as a current liability on our consolidated balance sheet as of December 31, 2020. We redeemed the 6.25% Senior Notes on March 5, 2021 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 the $ 23.4 million premium and $ 2.6 million accrued interest. 4.0 % Senior Notes On March 29, 2021, our indirect, wholly-owned subsidiary, Sensata Technologies B.V. ("STBV"), completed the issuance and sale of $ 750.0 million aggregate principal amount of 4.0 % senior notes due 2029 (the " 4.0 % Senior Notes"). The 4.0 % Senior Notes were 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"). The 4.0% Senior Notes Indenture contains covenants that limit the ability of STBV and its subsidiaries to, among other things: incur liens; engage in sale and leaseback transactions; with respect to any subsidiary of STBV, incur indebtedness without such subsidiary’s guaranteeing the 4.0 % Senior Notes; or consolidate, merge with, or sell, assign, convey, transfer, lease, or otherwise dispose of all or substantially all of their properties or assets to, another person. These covenants are subject to important exceptions and qualifications set forth in the 4.0% Senior Notes Indenture. 12 Table of Contents The 4.0 % Senior Notes bear interest at 4.0 % per year and mature on April 15, 2029. Interest is payable semi-annually on April 15 and October 15 of each year, commencing on October 15, 2021. The 4.0 % 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 STBV's wholly-owned subsidiary Sensata Technologies, Inc. ("STI") and the issuer or a guarantor under our existing senior notes as follows: STBV's 4.875 % Senior Notes due 2023, 5.625 % Senior Notes due 2024, and 5.0 % Senior Notes due 2025; and STI's 4.375 % Senior Notes due 2030 and 3.75 % Senior Notes due 2031. At any time, and from time to time, prior to April 15, 2024, STBV may redeem the 4.0 % Senior Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount of the 4.0 % 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 April 15, 2024, STBV may 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, Price 2024 102.000 % 2025 101.000 % 2026 and thereafter 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. Upon the occurrence of certain changes in control, each holder of the 4.0 % Senior Notes will have the right to require STBV to repurchase the 4.0 % Senior Notes at 101 % of their principal amount plus accrued and unpaid interest, if any, up to but excluding the date of repurchase. Upon changes in certain tax laws or treaties, or any change in the official application, administration, or interpretation thereof, STBV may, at its option, redeem the 4.0 % 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, up to but excluding the redemption date, premium, if any, and all Additional Amounts (as defined in the 4.0% Senior Notes Indenture), if any, then due and which will become due on the date of redemption. 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 (the “Additional Notes”). The Additional Notes 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 Additional Notes are consolidated and form a single class with the $ 750.0 million aggregate principal amount of 4.0 % Senior Notes issued by STBV on March 29, 2021 (the “Initial Notes”). The Additional Notes have the same terms as the Initial Notes, other than with respect to the date of issuance and the issue price. We intend to use the net proceeds from the issuance and sale of the 4.0 % Senior Notes and the Additional Notes for general corporate purposes, which may include working capital, capital expenditures, the acquisition of other companies, businesses, or assets, strategic investments, the refinancing or repayment of debt, and share repurchases. Accounting for Debt Financing Transactions We account for our debt financing transactions as disclosed in Note 2: Significant Accounting Policies of the audited consolidated financial statements and notes thereto included in our 2020 Annual Report. In connection with the redemption of the 6.25% Senior Notes, we recorded a loss of $ 30.1 million, which included $ 23.4 million in premiums paid, with the remaining loss representing write-off of debt discounts and deferred financing costs. 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 condensed consolidated balance sheets. Accrued Interest Accrued interest associated with our outstanding debt is included as a component of accrued expenses and other current liabilities in the condensed consolidated balance sheets. As of March 31, 2021 and December 31, 2020, accrued interest totaled $ 44.8 million and $ 53.6 million, respectively. 13 Table of Contents 12. Commitments and Contingencies 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. 13. Shareholders' Equity 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 at any time. We currently have an authorized $ 500.0 million share repurchase program under which approximately $ 302.3 million remained available as of March 31, 2021. On April 2, 2020, we announced a temporary suspension of this share repurchase program, which will continue to remain on hold until market conditions show greater improvement and stability. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss for the three months ended March 31, 2021 were as follows: Cash Flow Hedges Defined Benefit and Retiree Healthcare Plans Accumulated Other Comprehensive Loss Balance at December 31, 2020 $ ( 6,733 ) $ ( 42,802 ) $ ( 49,535 ) Other comprehensive loss before reclassifications, net of tax 11,530 — 11,530 Reclassifications from accumulated other comprehensive loss, net of tax 2,748 1,712 4,460 Other comprehensive income 14,278 1,712 15,990 Balance at March 31, 2021 $ 7,545 $ ( 41,090 ) $ ( 33,545 ) The amounts reclassified from accumulated other comprehensive loss for the three months ended March 31, 2021 and 2020 were as follows: For the three months ended March 31, Affected Line in Condensed Consolidated Statements of Operations Component 2021 2020 Derivative instruments designated and qualifying as cash flow hedges: Foreign currency forward contracts $ 4,407 $ ( 6,623 ) Net revenue (1) Foreign currency forward contracts ( 743 ) ( 1,768 ) Cost of revenue (1) Total, before taxes 3,664 ( 8,391 ) Income before taxes Income tax effect ( 916 ) 2,098 Provision for/(benefit from) income taxes Total, net of taxes $ 2,748 $ ( 6,293 ) Net income Defined benefit and retiree healthcare plans $ 2,269 $ 4,369 Other, net (2) Income tax effect ( 557 ) ( 1,027 ) Provision for/(benefit from) income taxes Total, net of taxes $ 1,712 $ 3,342 Net income __________________________ (1) Refer to Note 15: Derivative Instruments and Hedging Activities for additional information on amounts to be reclassified from accumulated other comprehensive loss in future periods. (2) Refer to Note 10: Pension and Other Post-Retirement Benefits for additional information on net periodic benefit cost/(credit). 14 Table of Contents 14. Fair Value Measures Measured on a Recurring Basis The fair values of our assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 are shown in the below table. All fair value measures presented are categorized in Level 2 of the fair value hierarchy. March 31, 2021 December 31, 2020 Assets Foreign currency forward contracts $ 17,568 $ 16,163 Commodity forward contracts 6,596 8,902 Total $ 24,164 $ 25,065 Liabilities Foreign currency forward contracts $ 7,614 $ 24,660 Commodity forward contracts 1,750 310 Total $ 9,364 $ 24,970 Refer to Note 15: Derivative Instruments and Hedging Activities for additional information related to our forward contracts. Measured on a Nonrecurring Basis We evaluated our goodwill and other indefinite-lived intangible assets for impairment as of October 1, 2020 and determined that they were not impaired. During the three months March 31, 2021, no events or changes in circumstances occurred that would have triggered the need for an additional impairment review of these assets. Financial Instruments Not Recorded at Fair Value The following table presents the carrying values and fair values of financial instruments not recorded at fair value in the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020. All fair value measures presented are categorized in Level 2 of the fair value hierarchy. March 31, 2021 December 31, 2020 Carrying Value (1) Fair Value Carrying Value (1) Fair Value Liabilities Term Loan $ 454,938 $ 454,938 $ 456,096 $ 454,955 4.875 % Senior Notes $ 500,000 $ 533,750 $ 500,000 $ 538,750 5.625 % Senior Notes $ 400,000 $ 441,000 $ 400,000 $ 448,000 5.0 % Senior Notes $ 700,000 $ 770,000 $ 700,000 $ 777,000 6.25 % Senior Notes $ — $ — $ 750,000 $ 778,125 4.375 % Senior Notes $ 450,000 $ 469,125 $ 450,000 $ 487,125 3.75 % Senior Notes $ 750,000 $ 736,875 $ 750,000 $ 776,250 4.0 % Senior Notes $ 750,000 $ 761,250 $ — $ — ___________________________________ (1) Excluding any related debt discounts and deferred financing costs. Cash and cash equivalents are carried at cost, which approximates fair value because of their short-term nature. 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 Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 321, Investments - Equity Securities . 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. 15 Table of Contents 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 condensed consolidated balance sheets. March 31, 2021 December 31, 2020 Quanergy Systems, Inc. $ 50,000 $ 50,000 Other 15,000 15,000 Total $ 65,000 $ 65,000 15. Derivative Instruments and Hedging Activities Hedges of Foreign Currency Risk For the three months ended March 31, 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 March 31, 2021, we estimated that $ 6.7 million of net gains will be reclassified from accumulated other comprehensive loss to earnings during the twelve-month period ending March 31, 2022. As of March 31, 2021, 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) 15.0 EUR March 29, 2021 April 30, 2021 Euro ("EUR") to USD 1.18 USD Not designated 320.3 EUR Various from May 2019 to March 2021 Various from April 2021 to March 2023 EUR to USD 1.18 USD Cash flow hedge 667.0 CNY March 29, 2021 April 30, 2021 USD to Chinese Renminbi ("CNY") 6.58 CNY Not designated 781.2 CNY Various from November 2020 to January 2021 Various from April to December 2021 USD to CNY 6.64 CNY Cash flow hedge 917.0 JPY March 29, 2021 April 30, 2021 USD to Japanese Yen ("JPY") 109.68 JPY Not designated 19,433.3 KRW Various from May 2019 to March 2021 Various from April 2021 to February 2023 USD to Korean Won ("KRW") 1,151.96 KRW Cash flow hedge 23.0 MYR March 29, 2021 April 30, 2021 USD to Malaysian Ringgit ("MYR") 4.13 MYR Not designated 449.0 MXN March 29, 2021 April 30, 2021 USD to Mexican Peso ("MXN") 20.81 MXN Not designated 2,998.8 MXN Various from May 2019 to March 2021 Various from April 2021 to March 2023 USD to MXN 22.57 MXN Cash flow hedge 5.5 GBP March 29, 2021 April 30, 2021 British Pound Sterling ("GBP") to USD 1.38 USD Not Designated 51.0 GBP Various from May 2019 to March 2021 Various from April 2021 to March 2023 GBP to USD 1.31 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 economic value, and they are not used for trading or speculative purposes. Hedges of Commodity Risk As of March 31, 2021, we had the following outstanding commodity forward contracts, none of which were designated for hedge accounting treatment in accordance with FASB ASC Topic 815, Derivatives and Hedging : Commodity Notional Remaining Contracted Periods Weighted-Average Strike Price Per Unit Silver 695,250 troy oz. April 2021 - February 2023 $ 22.22 Gold 7,160 troy oz. April 2021 - February 2023 $ 1,784.90 Nickel 153,661 pounds April 2021 - February 2023 $ 7.06 Aluminum 2,115,667 pounds April 2021 - February 2023 $ 0.88 Copper 1,689,875 pounds April 2021 - February 2023 $ 3.06 Platinum 7,289 troy oz. April 2021 - February 2023 $ 965.83 Palladium 774 troy oz. April 2021 - February 2023 $ 2,086.90 16 Table of Contents Financial Instrument Presentation The following table presents the fair values of our derivative financial instruments and their classification in the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020: Asset Derivatives Liability Derivatives Balance Sheet Location March 31, 2021 December 31, 2020 Balance Sheet Location March 31, 2021 December 31, 2020 Derivatives designated as hedging instruments Foreign currency forward contracts Prepaid expenses and other current assets $ 13,616 $ 11,281 Accrued expenses and other current liabilities $ 6,767 $ 18,834 Foreign currency forward contracts Other assets 3,558 4,728 Other long-term liabilities 742 5,182 Total $ 17,174 $ 16,009 $ 7,509 $ 24,016 Derivatives not designated as hedging instruments Commodity forward contracts Prepaid expenses and other current assets $ 5,830 $ 7,598 Accrued expenses and other current liabilities $ 939 $ 149 Commodity forward contracts Other assets 766 1,304 Other long-term liabilities 811 161 Foreign currency forward contracts Prepaid expenses and other current assets 394 154 Accrued expenses and other current liabilities 105 644 Total $ 6,990 $ 9,056 $ 1,855 $ 954 These fair value measurements were all categorized within Level 2 of the fair value hierarchy. The following tables present the effect of our derivative financial instruments on the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income/(loss) for the three months ended March 31, 2021 and 2020: Derivatives designated as hedging instruments Amount of Deferred Gain/(Loss) Recognized in Other Comprehensive Income/(Loss) Location of Net (Loss)/Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income Amount of Net (Loss)/Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income 2021 2020 2021 2020 Foreign currency forward contracts $ 18,799 $ 12,544 Net revenue $ ( 4,407 ) $ 6,623 Foreign currency forward contracts $ ( 3,425 ) $ ( 29,630 ) Cost of revenue $ 743 $ 1,768 Derivatives not designated as hedging instruments Amount of Loss Recognized in Net Income Location of Loss Recognized in Net Income 2021 2020 Commodity forward contracts $ ( 1,153 ) $ ( 5,575 ) Other, net Foreign currency forward contracts $ ( 958 ) $ ( 3,781 ) Other, net Credit Risk Related Contingent Features 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 March 31, 2021, the termination value of outstanding derivatives in a liability position, excluding any adjustment for non-performance risk, was $ 9.4 million. As of March 31, 2021, we had no t 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. 16. Acquisitions On February 11, 2021, we entered into a securities purchase agreement (the "SPA") to acquire all of the outstanding equity interests of Xirgo Technologies, LLC ("Xirgo"), which is a leading provider of telematics and data insight, headquartered in Camarillo, California. The product offerings and technology of Xirgo will augment our existing portfolio in advancing our Smart & Connected megatrend initiative. We expect to integrate Xirgo into our Performance Sensing reportable segment. The transaction contemplated by the SPA closed on April 1, 2021 for an aggregate purchase price of $ 400.0 million of cash consideration, subject to certain post-closing items. Due to recent closing of this acquisition, the initial accounting for this 17 Table of Contents acquisition is incomplete and we are not able to provide the disclosures otherwise required by FASB ASC Topic 805, Business Combinations. 17. Segment Reporting In the three months ended June 30, 2020, we altered the way we measure segment operating income in order to align with a change to the performance measures provided to and used by our chief operating decision maker for purposes of assessing performance and deciding how to allocate resources to each segment. Whereas research and development ("R&D") and selling, general and administrative ("SG&A") expenses related to our megatrend initiatives were historically allocated to our operating segments, beginning in the second quarter of 2020 these amounts are presented within corporate and other. Prior period information has been recast to reflect this revised presentation. We operate in, and report financial information for, the following two reportable segments: Performance Sensing and Sensing Solutions. In the fourth quarter of 2020, we divided the Performance Sensing reportable segment (which was previously also an operating segment) into two operating segments, Automotive and HVOR, each of which meet the criteria for aggregation in FASB ASC Topic 280, Reportable Segments. No change was made to the composition of the Sensing Solutions reportable segment, which remains an operating segment. None of the preceding changes resulted in any impact on the overall composition of our reportable segments and prior periods were not required to be recast for this change. 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 recorded in connection with acquisitions. Corporate and other costs excluded from an operating segment’s performance are separately stated below and also include costs that are related to functional areas, such as finance, information technology, legal, and human resources. We believe that segment operating income, as defined above, is an appropriate measure for evaluating the operating performance of our segments. However, this measure should be considered in addition to, and not as a substitute for, or superior to, operating income or other measures of financial performance prepared in accordance with U.S. GAAP. The accounting policies of each of our reporting segments are materially consistent with those in the summary of significant accounting policies as described in Note 2: Significant Accounting Policies of the audited consolidated financial statements and notes thereto included in our 2020 Annual Report. 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 three months ended March 31, 2021 and 2020 (recast to reflect realignment of performance measures in the second quarter of 2020 as discussed above): For the three months ended March 31, 2021 March 31, 2020 Net revenue: Performance Sensing $ 714,512 $ 568,689 Sensing Solutions 228,016 205,580 Total net revenue $ 942,528 $ 774,269 Segment operating income (as defined above): Performance Sensing $ 195,844 $ 135,046 Sensing Solutions 66,894 56,529 Total segment operating income 262,738 191,575 Corporate and other ( 68,638 ) ( 95,386 ) Amortization of intangible assets ( 32,064 ) ( 33,092 ) Restructuring and other charges, net ( 4,582 ) ( 4,498 ) Operating income 157,454 58,599 Interest expense, net ( 44,043 ) ( 39,403 ) Other, net ( 39,397 ) ( 12,281 ) Income before taxes $ 74,014 $ 6,915 18 Table of Contents Cautionary Statements Concerning Forward-Looking Statements This Quarterly Report on Form 10-Q, including any documents incorporated by reference herein, includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These forward-looking statements also relate to our future prospects, developments, and business strategies. These forward-looking statements may be identified by terminology such as "may," "will," "could," "should," "expect," "anticipate," "believe," "estimate," "predict," "project," "forecast," "continue," "intend," "plan," and similar terms or phrases, or the negative of such terminology, including references to assumptions. However, these terms are not the exclusive means of identifying such statements. Forward-looking statements contained herein, or in other statements made by us, are made based on management’s expectations and beliefs concerning future events impacting us. These statements are subject to uncertainties and other important factors relating to our operations and business environment, all of which are difficult to predict, and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in, or suggested by, such forward-looking statements are reasonable, we can give no assurances that any of the events anticipated by these forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. We believe that the following important factors, among others (including those described in Item 1A: Risk Factors , included in our 2020 Annual Report), could affect our future performance and the liquidity and value of our securities and cause our actual results to differ materially from those expressed or implied by forward-looking statements made by us or on our behalf: • Future risks and existing uncertainties associated with the COVID-19 pandemic, which continues to have a significant adverse impact on our business and operations including: (i) full or partial shutdowns of our facilities as mandated by government decrees, (ii) limited ability to adjust certain costs due to government actions, (iii) significant travel restrictions and “work-from-home” orders limiting the availability of our workforce, (iv) supplier constraints and supply-chain interruptions, (v) logistics challenges and limitations, (vi) reduced demand from certain customers, (vii) uncertainties associated with a protracted economic slowdown that could negatively affect the financial condition of our customers and suppliers, and (viii) uncertainties and volatility in the global capital markets; • instability and changes in the global markets, including regulatory, political, economic, governmental, and military matters, such as the recent exit of the United Kingdom (the "U.K.") from the European Union (the "EU"); • adverse conditions or competition in the industries upon which we are dependent, including the automotive industry; • losses and costs as a result of intellectual property, product liability, warranty, and recall claims; • market acceptance of new product introductions and product innovations; • inability to realize all of the revenue or achieve anticipated gross margins from products subject to existing purchase orders for which we are currently engaged in development; • supplier interruption or non-performance, limiting our access to manufactured components or raw materials; • risks related to the acquisition or disposition of businesses, or the restructuring of our business; • labor disruptions or increased labor costs; • competitive pressure from customers that could require us to reduce prices or result in reduced demand; • security breaches, cyber theft of our intellectual property, and other disruptions to our information technology infrastructure, or improper disclosure of confidential, personal, or proprietary data; • our ability to attract and retain key senior management and qualified technical, sales, and other personnel; • foreign currency risks, changes in socioeconomic conditions, or changes to monetary and fiscal policies; • our level of indebtedness, or our inability to meet debt service obligations or comply with the covenants contained in the credit agreement and senior notes indentures; • changes to current policies, such as trade tariffs, by various governments worldwide; • risks related to the potential for goodwill impairment; • the impact of challenges by taxing authorities of our historical and future tax positions or our allocation of taxable income among our subsidiaries, unfavorable developments in taxation sentiments in countries where we do business, and challenges to the sovereign taxation regimes of EU member states by the European Commission and the Organization for Economic Co-operation and Development; • changes to, or inability to comply with, various regulations, including tax laws, import/export regulations, anti-bribery laws, environmental, health, and safety laws, and other governmental regulations; and 19 Table of Contents • risks related to our domicile in the U.K. In addition, 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, 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. All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements contained in this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise forward-looking statements that may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. We urge readers to review carefully the risk factors described in our 2020 Annual Report and in the other documents that we file with the U.S. Securities and Exchange Commission (the "SEC"). You can read these documents at www.sec.gov or on our website at www.sensata.com .