Sensata Technologies Holding plc 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2020 Annual Report, filed with the SEC on February 12, 2021, and the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Overview The COVID-19 pandemic caused widespread disruptions to our company, employees, customers, suppliers, and communities in fiscal year 2020. In the first quarter of 2020, these disruptions were primarily limited to our manufacturing operations in China. In the second quarter of 2020, we experienced the full scope and impact of disruptions related to the COVID-19 pandemic globally. These disruptions included, depending on the specific location, full or partial shutdowns of our facilities as mandated by government decrees, limited ability to adjust certain costs due to government actions, significant travel restrictions and “work-from-home” orders limiting the availability of our workforce, supplier constraints and material supply-chain interruptions, logistics challenges and limitations, and reduced demand from certain customers. Reduced demand, in addition to elevated logistics costs, government mandates, and actions to safeguard our employees, contributed to lower margins in the second quarter of 2020. We acted early in the pandemic to reduce our cost structure while continuing to invest in megatrends that are shaping our end markets that we believe will enable us to deliver long-term sustainable growth. As a result, we have continued to capitalize on rapidly improving markets and supported our customers as they have returned to higher levels of production late in 2020 and during the first half of 2021. 2021 interim results The economic recovery we experienced during the second half of 2020 continued through the first half of 2021. Improved market results, combined with our response to increased demand, drove net revenue growth of 72.2% and 43.3% in the three and six months ended June 30, 2021, respectively, compared to the three and six months ended June 30, 2020. This represented 1,140 basis points and 940 basis points, respectively, of market outgrowth. 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. It is only loosely correlated to normal unit demand fluctuations in the markets we serve. In the three months ended June 30, 2021, Performance Sensing net revenue increased 92.6% and Sensing Solutions net revenue increased 31.1% from the three months ended June 30, 2020. In the six months ended June 30, 2021, Performance Sensing net revenue increased 52.7% and Sensing Solutions net revenue increased 20.6% from the six months ended June 30, 2020. Our automotive and HVOR businesses delivered market outgrowth of 990 basis points and 2,850 basis points, respectively, in the three months ended June 30, 2021 and market outgrowth of 940 basis points and 1,840 basis points, respectively, in the six months ended June 30, 2021. Refer to Results of Operations—Net Revenue included elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") for additional discussion. In the three months ended June 30, 2021, operating income/(loss) increased $166.6 million to $164.8 million, compared to $(1.9) million in the three months ended June 30, 2020. In the six months ended June 30, 2021, operating income increased $265.5 million to $322.2 million, compared to $56.7 million in the six months ended June 30, 2020. These improved results were due in large part to increased revenues, improved gross margins, and lower restructuring charges, partially offset by elevated costs related to the global semiconductor chip shortage, higher spend to support megatrend growth initiatives, and 23 Table of Contents increased incentive compensation aligned to improved financial performance. Refer to Results of Operations—Operating costs and expenses included elsewhere in this MD&A for additional discussion of our improved operating costs and expenses. In the three months ended June 30, 2021, net income/(loss) increased $155.5 million to $112.9 million, compared to $(42.5) million in the three months ended June 30, 2020. In the six months ended June 30, 2021, net income/(loss) increased $200.8 million to $166.6 million, compared to $(34.1) million in the six months ended June 30, 2020. This increase was primarily a result of improved operating results, partially offset by higher taxes as discussed at Results of Operations—Provision for/(benefit from) income taxes and, for the six month period, by the loss on redemption of the 6.25% Senior Notes as discussed at Results of Operations—Other, net. Forward-looking information For the full year 2021, while a degree of market uncertainty remains, in particular with respect to the impact of the industry-wide semiconductor shortage, we are anticipating a continuation of improved and stable economic and business conditions. We are also anticipating a return to normal seasonality, which includes sequentially lower revenue in the third quarter as compared to the second quarter and sequentially flat revenue in the fourth quarter as compared to the third quarter. We continue to expect to deliver industry-leading margins for our shareholders, while also increasing investments in our growth opportunities and our people. Our targeted market outgrowth for the automotive business is 400-600 basis points. Our targeted market outgrowth for the HVOR business is 600-800 basis points. For the past three and a half years, on average, we have delivered market outgrowth in our automotive and HVOR businesses of 615 basis points and 950 basis points, respectively, at or above the top of those ranges. Automotive production is expected to rebound sharply this year from last year, but at a pace slightly lower than expected in April given production slowdowns caused by the global semiconductor shortage. Global automotive production for the full year 2021 is now expected to grow 9% from the prior year, according to third party forecasts. While low inventory levels at our automotive customers, especially in North America, will lead to growth in 2021, we expect production slowdowns attributed to the global semiconductor chip shortage to continue for the remainder of the year. One headwind affecting our outlook for the second half of 2021 is the expected impact from the global semiconductor shortage facing the automotive supply chain, as well as other sectors, due in part to large-scale shutdowns early in 2020 caused by the COVID-19 pandemic. Semiconductors are the technology used to make microchips, and this shortage has resulted in paused production on certain vehicles and increased costs to procure microchips. This shortage has impacted our margins in the first half of 2021, and we believe it will continue to have an adverse impact on our operating costs in the remainder of fiscal year 2021. Megatrends We continue to demonstrate progress in our megatrend initiatives as we increase our investments to pursue these large, fast-growing markets driven by secular trends. We intend to expand our solutions for these areas organically as well as through acquisitions and third party collaborations. We see numerous opportunities to utilize our strong financial position, engineering capabilities, supply chain, and customer relationships to meaningfully enlarge our addressable markets. Our automotive addressable market is large today and growing rapidly. Applications in internal combustion vehicles make up most of our current automotive addressable market, which is expected to continue to grow over the next 10 years, even with the shift in type of vehicles produced. In addition, while the Electrification applications that we serve represent a smaller market today, these applications are expected to grow very rapidly until they become an even larger opportunity for us than internal combustion engines by 2030. As a result, we’re expecting a doubling of our automotive addressable market by 2030. The rapid introduction of new electric vehicles provides a healthy tailwind for our revenue growth. Our content in electric vehicles represents a 20% uplift in content value as compared to internal combustion vehicles of a similar class. This content uplift is derived from the broad array of our sensors and other components that we design into battery electric vehicles, in many cases using the same underlying technology product families that we use in internal combustion vehicles. Additionally, certain sensors carry over directly from internal combustion vehicles, such as brake pressure and tire pressure sensors. We also build additional sensors or devices unique to electric vehicles, such as contactors and electric motor position sensors. We are broadening and deepening our product portfolio to support this expanding segment. In the first quarter, we completed the acquisition of Lithium Balance to add battery management systems to our product capabilities. In addition, we achieved a meaningful milestone in our Electrification megatrend initiative when we agreed to a joint venture with Churod Electronics ("Churod") on April 8, 2021. This joint venture extends our electrical protection capabilities to mass-market electric vehicles and other electrified equipment worldwide and expands our contactor capabilities in the automotive market to vehicles that have shorter ranges and longer charging times, which are more common in Asia. This enables us to offer 24 Table of Contents a broader electrification solution set for electric vehicle manufacturers globally. The joint venture will provide medium-voltage contactors to transportation original equipment manufacturers ("OEMs") in China, and we will sell the product line to customers elsewhere in the world. Churod will contribute access to its ceramic, high-levitation contactor intellectual property. These contactors are optimized for medium-voltage applications in the 150 amp to 400 amp range common in mass-market vehicles. They will also dedicate engineering resources and contribute manufacturing equipment to the joint venture. Sensata will contribute $9.5 million and will dedicate application engineers and salespeople. We expect this joint venture to close in the third quarter of 2021. Our Electrification megatrend initiative not only represents a market opportunity in electric vehicles, but also electrified heavy vehicles and the charging infrastructure necessary to support this ecosystem. We see additional opportunities in industrial and grid applications, some of which are more nascent today. Sensata is already a leading provider of high-voltage protection on electric vehicles and charging infrastructure and we seek to be the partner of choice for heavy vehicle and industrial OEMs transitioning to electrified solutions as well. We also intend to participate in other areas of the evolving market that enable Electrification to become more widespread. In support of our Insights megatrend initiative, on April 1, 2021, we acquired Xirgo, a leading telematics and data insights provider for fleet management across the transportation and logistics segments. Refer to the section Sensata Insights below for additional information. We believe that the overall market environment may continue to provide opportunities to further strengthen our portfolio through strategically important, value-creating acquisitions and/or joint ventures. In addition, we are pursuing new technology collaborations and partnerships with third parties to expand our capabilities and accelerate our megatrend growth. Sensata Insights On April 1, 2021, we completed the acquisition of Xirgo, headquartered in Camarillo, California, for $409 million. This acquisition represents a meaningful milestone in our Insights megatrend initiative, greatly expanding our ability to provide data insights to transportation and logistics customers, as well as adding a new customer base for these solutions. Xirgo brings a comprehensive suite of telematics and asset tracking devices, cloud-based data insight solutions, as well as emerging sensing applications and data services. This acquisition is consistent with our strategy to move beyond serving vehicle OEMs and engage with the broader transportation and logistics ecosystem. Xirgo is complementary to, and meaningfully extends, our organic Insights solutions for commercial fleet managers, adding cargo, container, and light-vehicle fleet management to our heavy vehicle OEM and fleet focus. We are branding these offerings, which serve our Insights megatrend initiative, as Sensata Insights. Refer to Note 16: Acquisitions of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information in the acquisition of Xirgo. The Insights initiative is expected to generate more than $100 million in annualized revenue in 2021 and grow in excess of 20% per year over the next several years. We already have committed orders for 100% of the revenue we expect the Insights initiative to generate for the remainder of 2021. Liquidity We have sufficient cash to take advantage of strategic opportunities as they arise. At December 31, 2020, we had cash and cash equivalents of $1,862.0 million. In the six months ended June 30, 2021, we generated operating cash flows of $267.9 million, ending the quarter on June 30, 2021 with cash and cash equivalents of $1,861.8 million. In the first quarter of 2021, we used the flexibility provided by our large cash balance to lower our cost of capital and extend our debt maturity by redeeming the 6.25% Senior Notes and issuing the 4.0% Senior Notes. Refer to Overview—Debt Transactions below for additional discussion of these transactions. On April 1, 2021, we used $401.5 million, net of $7.1 million of cash received, to acquire Xirgo, which will help advance our Insights initiative. Refer to Overview—Sensata Insights above for additional discussion of this acquisition. In addition, on April 8, 2021, we took advantage of continued favorability in the capital markets and issued an additional $250.0 million of 4.0% Senior Notes, priced at 100.75%. Debt Transactions On March 5, 2021, we redeemed the $750.0 million aggregate principal amount outstanding on the 6.25% Senior Notes. The redemption was at a price of 103.125% of principal, resulting in additional payment of $23.4 million upon redemption. We recorded a loss of $30.1 million as a result of this transaction, consisting primarily of the premium payment and write-off of deferred financing costs. Subsequently, on March 29, 2021, we issued $750.0 million aggregate principal amount of 4.0% Senior Notes, at par, and on April 8, 2021, we issued an additional $250.0 million of 4.0% Senior Notes at a price of 100.75%. The combined effect of these transactions was to extend the average maturity of our debt profile and lower our total cost of fixed debt. Refer to Note 11: Debt of our condensed consolidated financial statements, included elsewhere in this Quarterly 25 Table of Contents Report on Form 10-Q, for additional information on these transactions and our overall debt. Proceeds from the 4.0% Senior Notes will be used for general corporate purposes, to fund future acquisitions and our capital deployment strategy, and for future debt repayments. Q2 2020 Global Restructure Program On June 30, 2020, in response to the potential long-term impact of the COVID-19 pandemic on our business, we commenced the Q2 2020 Global Restructure Program, consisting of voluntary and involuntary reductions-in-force and certain site closures, in order to align our cost structure to the then anticipated future demand outlook. We have completed a majority of the actions contemplated under the Q2 2020 Global Restructure Program as of June 30, 2021. Including charges of $5.7 million in the first half of 2021, we have recognized charges of $30.1 million since inception of the Q2 2020 Global Restructure Program, of which $27.4 million have been severance charges and $2.7 million have been facility exit costs. As of June 30, 2021, our severance liability related to the Q2 2020 Global Restructure Program was $9.4 million, which is presented in accrued expenses and other current liabilities of our condensed consolidated balance sheets. We expect to settle these charges with cash on hand. Reductions in force under the Q2 2020 Global Restructure Program have impacted approximately 560 positions as of June 30, 2021. When the remaining contemplated reduction-in-force actions are completed, which is expected in the third quarter of 2021, the total reductions in force are expected to be approximately 840 positions, reflecting total severance charges of between $27.0 million and $29.0 million. In addition, we expect total facility and exit costs incurred over the life of the Q2 2020 Global Restructure Program to be between $6.0 million and $8.0 million. We expect to settle these charges with cash on hand. Results of Operations The table below presents our historical results of operations, in millions of dollars and as a percentage of net revenue, for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020. We have derived the results of operations from the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 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 three months ended For the six months ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 Amount Margin* Amount Margin* Amount Margin* Amount Margin* Net revenue: Performance Sensing $ 741.9 74.7 % $ 385.2 66.8 % $ 1,456.4 75.3 % $ 953.9 70.6 % Sensing Solutions 250.8 25.3 191.3 33.2 478.8 24.7 396.9 29.4 Net revenue 992.7 100.0 576.5 100.0 1,935.2 100.0 1,350.8 100.0 Operating costs and expenses 827.9 83.4 578.4 100.3 1,613.0 83.3 % 1,294.0 95.8 % Operating income/(loss) 164.8 16.6 (1.9) (0.3) 322.2 16.7 56.7 4.2 Interest expense, net (45.2) (4.6) (40.8) (7.1) (89.3) (4.6) (80.2) (5.9) Other, net 1.0 0.1 1.6 0.3 (38.4) (2.0) (10.7) (0.8) Income/(loss) before taxes 120.6 12.1 (41.1) (7.1) 194.6 10.1 (34.2) (2.5) Provision for/(benefit from) income taxes 7.6 0.8 1.4 0.2 27.9 1.4 (0.1) (0.0) Net income/(loss) $ 112.9 11.4 % $ (42.5) (7.4) % $ 166.6 8.6 % $ (34.1) (2.5) % __________________________ * Represents the amount presented divided by total net revenue. Net Revenue Net revenue for the three months ended June 30, 2021 increased 72.2% compared to the three months ended June 30, 2020 largely due to improved market results and our continued outperformance relative to those markets. Excluding an increase of 4.9% attributed to changes in foreign currency exchange rates and an increase of 4.4% due to the acquisition of Xirgo, net revenue for the three months ended June 30, 2021 increased 62.9% on an organic basis. This organic revenue increase represents market outgrowth of 1,140 basis points. We are continuing to monitor all of our end markets and customers to ensure that our resources are balanced against forecasts and prioritized against critical growth opportunities. Organic revenue growth (or decline), discussed throughout this MD&A, is a financial measure not presented in accordance with U.S. GAAP. Refer to 26 Table of Contents the section entitled Non-GAAP Financial Measures below for additional information related to our use of organic revenue growth (or decline). Net revenue for the six months ended June 30, 2021 increased 43.3% compared to the six months ended June 30, 2020 largely due to improved market results and our continued outperformance relative to those markets. Excluding an increase of 3.8% attributed to changes in foreign currency exchange rates and an increase of 1.9% due to the effect of the acquisition of Xirgo, net revenue for the six months ended June 30, 2021 increased 37.6% on an organic basis. This organic revenue increase represents a market outgrowth of 940 basis points. Performance Sensing Performance Sensing net revenue for the three months ended June 30, 2021 increased 92.6% compared to the three months ended June 30, 2020. Excluding an increase of 5.8% attributed to changes in foreign currency exchange rates and an increase of 6.6% due to the effect of the acquisition of Xirgo, Performance Sensing net revenue for the three months ended June 30, 2021 increased 80.2% on an organic basis. Both Automotive and HVOR contributed to these results as discussed below. Automotive net revenue for the three months ended June 30, 2021 grew 80.9% compared to the three months ended June 30, 2020. Excluding growth of 6.0% attributed to changes in foreign currency exchange rates, automotive net revenue for the three months ended June 30, 2021 grew 74.9% on an organic basis. Although automotive production was lower than expected, due to the semiconductor chip shortage, it increased significantly from the abnormally low levels experienced in the second quarter of 2020, which contributed to the organic growth. Further, amid the significant production increases, we continued to outperform the automotive end market, delivering 990 basis points of market outgrowth. Lastly, OEM efforts to replenish inventory channels also partly contributed to our organic revenue growth in the quarter. HVOR net revenue for the three months ended June 30, 2021 grew 126.4% compared to the three months ended June 30, 2020. Excluding growth of 5.0% attributed to changes in foreign currency exchange rates and growth of 25.7% related to the acquisition of Xirgo, HVOR net revenue for the three months ended June 30, 2021 grew 95.7% on an organic basis. Similar to automotive, HVOR market production improved significantly from the prior year period despite being adversely impacted by the semiconductor chip shortage. In addition, HVOR delivered 2,850 basis points of market outgrowth in the quarter, demonstrating the continued ability to outperform end markets, due in part to growth in China related to adoption of the NS6 emissions as well as a wave of electromechanical operator controls being installed in new off-road equipment. Performance Sensing net revenue for the six months ended June 30, 2021 increased 52.7% compared to the six months ended June 30, 2020. Excluding an increase of 4.3% attributed to changes in foreign currency exchange rates and an increase of 2.7% due to the effect of the acquisition of Xirgo, Performance Sensing net revenue for the six months ended June 30, 2021 increased 45.7% on an organic basis. Both Automotive and HVOR contributed to these results as discussed below. Automotive net revenue for the six months ended June 30, 2021 grew 45.7% compared to the the six months ended June 30, 2020. Excluding growth of 4.4% attributed to changes in foreign currency exchange rates, automotive net revenue for the six months ended June 30, 2021 grew 41.3% on an organic basis. This organic revenue increase is primarily due to recovery of customer production combined with our continued outperformance relative to the automotive market, which was led by continued new product launches in powertrain and emissions, safety, and electrification-related applications and systems. Excluding the effects of OEM efforts to replenish inventory channels, Automotive outgrew its end markets by 940 basis points in the six months ended June 30, 2021. HVOR net revenue for the six months ended June 30, 2021 grew 74.7% compared to the six months ended June 30, 2020. Excluding growth of 3.8% attributed to changes in foreign currency exchange rates and growth of 11.1% due to the effect of the acquisition of Xirgo, HVOR net revenue for the six months ended June 30, 2021 grew 59.8% 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 continued to achieve better than expected growth, primarily from the adoption of NS6 emissions regulations as well as the benefit from a wave of electromechanical operator controls being installed in new off-road equipment. Excluding the effects of OEM efforts to replenish inventory channels, HVOR outgrew its end markets by 1,840 basis points in the six months ended June 30, 2021. Sensing Solutions Sensing Solutions net revenue for the three months ended June 30, 2021 increased 31.1% compared to the three months ended June 30, 2020. Excluding growth of 3.1% attributed to changes in foreign currency exchange rates, Sensing Solutions net revenue for the three months ended June 30, 2021 grew 28.0% on an organic basis. The increase in net revenue was driven by continued growth in industrial markets (particularly HVAC), new electrification launches, and supply chain restocking. 27 Table of Contents Sensing Solutions net revenue for the six months ended June 30, 2021 increased 20.6% compared to the six months ended June 30, 2020. Excluding growth of 2.6% attributed to changes in foreign currency exchange rates, Sensing Solutions net revenue for the six months ended June 30, 2021 grew 18.0% on an organic basis. The increase in net revenue was mainly driven by continued growth in industrial markets (particularly HVAC), new electrification launches, and supply chain restocking, partially offset by aerospace market weakness in the first quarter of 2021. Operating costs and expenses Operating costs and expenses for the three and six months ended June 30, 2021 and 2020 are presented, in millions of dollars and as a percentage of net 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 three months ended For the six months ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 Amount Margin* Amount Margin* Amount Margin* Amount Margin* Operating costs and expenses: Cost of revenue $ 658.3 66.3 % $ 412.4 71.5 % $ 1,293.6 66.8 % $ 978.8 72.5 % Research and development 42.9 4.3 30.2 5.2 78.9 4.1 64.7 4.8 Selling, general and administrative 86.8 8.7 64.7 11.2 163.9 8.5 142.0 10.5 Amortization of intangible assets 34.9 3.5 32.7 5.7 66.9 3.5 65.8 4.9 Restructuring and other charges, net 5.0 0.5 38.2 6.6 9.6 0.5 42.7 3.2 Total operating costs and expenses $ 827.9 83.4 % $ 578.4 100.3 % $ 1,613.0 83.3 % $ 1,294.0 95.8 % __________________________ * Represents the amount presented divided by total net revenue. Cost of revenue For the three months ended June 30, 2021, cost of revenue as a percentage of net revenue decreased from the three months ended June 30, 2020, primarily as a result of improvement of various factors that drove cost of revenue as a percentage of revenue up in the second quarter of 2021 (primarily related to the COVID-19 pandemic) such as volume declines and productivity headwinds from our manufacturing facilities running at lower than normal capacity. These favorable impacts on cost of revenue as a percentage of revenue were partially offset by (1) the impacts of the microchip shortage, (2) the turnaround of the positive impact in the second quarter of 2020 of temporary salary and furlough cost savings implemented in the second quarter of 2020 in response to the COVID-19 pandemic, and (3) the unfavorable effect of changes in foreign currency exchange rates. For the six months ended June 30, 2021, cost of revenue as a percentage of net revenue decreased from the six months ended June 30, 2020, primarily as a result of (1) improvement of various factors that drove cost of revenue as a percentage of revenue up in the first half of 2020 (primarily related to the COVID-19 pandemic) such as volume declines and productivity headwinds from our manufacturing facilities running at lower than normal capacity and (2) the impact in the first half of 2021 of ongoing savings resulting from cost reduction activities taken in fiscal year 2020. In addition, the first half of 2020 included a $29.2 million loss related to a judgment against us in intellectual property litigation with Wasica, which we settled in the third quarter of 2020. These favorable impacts on cost of revenue as a percentage of revenue were partially offset by (1) the impacts of the microchip shortage, (2) the turnaround of the positive impact in the first half of 2020 of temporary salary and furlough cost savings implemented in the second quarter of 2020 in response to the COVID-19 pandemic, and (3) the unfavorable effect of changes in foreign currency exchange rates. Research and development expense For the three months ended June 30, 2021, research and development ("R&D") expense increased $12.7 million (41.9%) from the three months ended June 30, 2020, primarily as a result of (1) increased investments in our megatrend initiatives and (2) the unfavorable effect of changes in foreign currency exchange rates. For the six months ended June 30, 2021, R&D expense increased $14.2 million (21.9%) from the six months ended June 30, 2020, primarily as a result of (1) increased investments in our megatrend initiatives and (2) the unfavorable effect of changes in foreign currency exchange rates. 28 Table of Contents Megatrend investments during the three and six months ended June 30, 2021 were $13.8 million and $26.2 million, respectively, an increase of $7.1 million and $13.0 million, respectively, from the three and six months ended June 30, 2020. We currently expect approximately $50 million to $55 million in megatrend-related spend in 2021 to design and develop differentiated sensor-rich and data insight solutions to enter new markets, develop new business models, and design new product categories in the fast-growing and transformational megatrend vectors of Electrification and Sensata Insights solutions. Selling, general and administrative expense For the three months ended June 30, 2021, selling, general and administrative ("SG&A") expense increased $22.1 million to $86.8 million (8.7% of revenue) from $64.7 million (11.2% of revenue) in the three months ended June 30, 2020. The increase in SG&A expense is primarily a result of (1) higher incentive compensation aligned to improved financial performance, (2) incremental SG&A expense related to acquired businesses, including related transaction costs, (3) increased selling expenses attributed to organic revenue growth, (4) the unfavorable impact of changes in foreign currency exchange rates, and (5) the turnaround impact of cost savings actions taken in the second quarter of 2020, including temporary salary reductions and furloughs, partially offset by (1) the impact on the second quarter of 2021 of ongoing savings resulting from cost reduction activities taken in fiscal year 2020 and (2) the 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. For the six months ended June 30, 2021, SG&A expense increased $22.0 million to $163.9 million (8.5% of revenue) from $142.0 million (10.5% of revenue) in the six months ended June 30, 2020. The increase in SG&A expense is primarily a result of (1) higher incentive compensation aligned to improved financial performance, (2) incremental SG&A expense related to acquired businesses, including related transaction costs, (3) the unfavorable impact of changes in foreign currency exchange rates, (4) increased selling expenses attributed to organic revenue growth, and (5) the turnaround impact of cost savings actions taken in the second quarter of 2020, including temporary salary reductions and furloughs, and savings from repositioning actions, partially offset by (1) the impact on the second quarter of 2021 of ongoing savings resulting from cost reduction activities taken in fiscal year 2020 and (2) the 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. Amortization of intangible assets For the three and six months ended June 30, 2021, amortization expense increased 6.5% and 1.6%, respectively, from the three and six months ended June 30, 2020 primarily due to increased intangibles from recent acquisitions partially offset by the effect of the economic benefit amortization method. Restructuring and other charges, net For the three and six months ended June 30, 2021, restructuring and other charges, net decreased $33.2 million (86.8%) and $33.1 million (77.5%) from the three and six months ended June 30, 2020. In the three and six months ended June 30, 2021, we incurred $3.8 million and $5.7 million in charges, respectively, related to the Q2 2020 Global Restructure Program, declines of $20.3 million and $18.5 million, respectively, from the prior periods. Refer to Overview—Q2 2020 Global Restructure Program elsewhere in this MD&A for additional discussion on this program. The remaining decrease in restructuring and other charges, net, relates to a $12.1 million charge recorded in the second quarter of 2020 resulting from a prejudgment interest-related award granted by the court on behalf of Wasica in intellectual property litigation. Refer to Note 5: Restructuring and Other Charges, Net of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information on our restructuring and other charges, net. Operating income/(loss) In the three months ended June 30, 2021, operating income/(loss) increased $166.6 million to $164.8 million (16.6% of net revenue) compared to $(1.9) million ((0.3%) of net revenue) in the three months ended June 30, 2020. The increase was primarily due to higher volume, improved gross margins, and lower restructuring costs. These improvements were partially offset by increases in other operating costs and expenses, driven primarily by elevated costs related to the semiconductor chip shortage, higher incentive compensation aligned to improved financial performance, increased megatrend spending, and the turnaround effect of temporary salary reductions and furloughs taken in the second quarter 2020. In the six months ended June 30, 2021, operating income increased $265.5 million to $322.2 million (16.7% of net revenue) compared to $56.7 million (4.2% of net revenue) in the six months ended June 30, 2020. The increase was primarily due to higher volume, improved gross margins, and lower restructuring costs. These improvements were partially offset by elevated costs related to the semiconductor chip shortage, higher incentive compensation aligned to improved financial performance, increased megatrend spending, and the turnaround effect of temporary salary reductions and furloughs taken in the second quarter 2020. 29 Table of Contents We expect that the microchip shortage will increase our operating costs in the third quarter of 2021, compared to the third quarter of 2020. If the impacts of this shortage are more severe than we expect, it could result in deterioration of our results, potentially for a longer period than currently anticipated. Interest expense, net For the three months ended June 30, 2021, interest expense, net increased $4.4 million (10.8%) from the three months ended June 30, 2020, primarily as a result of (1) interest expense on the 4.0% Senior Notes, which were issued on March 29, 2021 and April 8, 2021 and (2) interest expense on the 3.75% Senior Notes, which were issued on August 17, 2020, partially offset by the reduced interest expense related to our March 5, 2021 redemption of the 6.25% Senior Notes. For the six months ended June 30, 2021, interest expense, net increased $9.0 million (11.3%) from the six months ended June 30, 2020, primarily as a result of (1) interest expense on the 3.75% Senior Notes and (2) interest expense on the 4.0% Senior Notes, partially offset by the reduced interest impact of our redemption of the 6.25% Senior Notes. Refer to Overview—Debt Transactions elsewhere in this MD&A for additional information related to these transactions. Other, net Other, net primarily includes currency remeasurement gains and losses on net monetary assets, gains and losses on foreign currency and commodity forward contracts not designated as hedging instruments, losses related to debt refinancing, and the portion of our net periodic benefit cost excluding service cost. In the three months ended June 30, 2021, other, net represented a net gain of $1.0 million, a decrease of $0.6 million compared to $1.6 million in the three months ended June 30, 2020. In the six months ended June 30, 2021, other, net represented a net loss of $38.4 million, an increase of $27.7 million compared to a net loss of $10.7 million in the six months ended June 30, 2020. The increase in net loss for the six months ended June 30, 2021 was driven primarily by the loss of $30.1 million recorded in the first quarter of 2021 related to the redemption of the 6.25% Senior Notes. Refer to Overview—Debt Transactions included elsewhere in this MD&A for additional information related to the redemption of the 6.25% Senior Notes. Refer to Note 6: Other, Net of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for more detailed information on amounts included in other, net. Provision for/(benefit from) income taxes For the three months ended June 30, 2021, provision for income taxes increased $6.2 million from the three months ended June 30, 2020, predominantly related to the overall increase in income before tax as impacted by the mix of profits in the various jurisdictions in which we operate. For the six months ended June 30, 2021, the provision for/(benefit from) income taxes increased $28.0 million from the six months ended June 30, 2020, predominantly related to the overall increase in income before tax as impacted by the mix of profits in the various jurisdictions in which we operate, as well as the nonrecurrence of the benefit recorded in the first quarter of 2020 as a result of the enactment of the CARES Act, which was enacted by the U.S. federal government on March 27, 2020 in response to the global financial and health crisis caused by the COVID-19 pandemic. In connection with this legislation, federal limitations on interest deductions were reduced and we recorded a deferred tax benefit of $7.5 million in the six months ended June 30, 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 tax jurisdictions with limited or no net operating loss carryforwards 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) book versus tax basis in intangible assets, (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. 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, 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 have 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, segment operating margin, total debt, finance lease, 30 Table of Contents 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, 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 (or loss), adjusted operating margin, adjusted net income (or loss), and adjusted EPS We define adjusted operating income (or loss) as operating income (or loss) 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 (or loss) by net revenue calculated in accordance with U.S. GAAP. We define adjusted net income (or loss) 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 (or loss) by the number of diluted weighted-average ordinary shares outstanding in the period. Management uses adjusted operating income (or loss), adjusted operating margin, adjusted net income (or loss), 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/(used in) operating activities less additions to property, plant and equipment 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 EBITDA Adjusted EBITDA represents 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 31 Table of Contents 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. Restructuring related and other does not, however, include charges related to the integration of acquired businesses, including such charges that are recognized as restructuring and other charges, net in the consolidated statements of operations. • Financing and other transaction costs : includes losses or gains related to debt financing transactions, losses or gains related to the divestiture of a business, losses or gains related to the termination of a long-term unfavorable supply agreement, 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. • 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., property, plant and equipment, definite-lived intangible assets, and inventory). • 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 positions 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 our consolidated statements of operations. • Where applicable, the current tax effect of non-GAAP adjustments. Our definition of adjusted net income (or loss) 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 (or loss), the deferred income tax effect associated with the reconciling items presented below would not change adjusted net income for any period presented. 32 Table of Contents Non-GAAP reconciliations The following tables provide 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 on these adjustments. Amounts and percentages have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding. For the three months ended June 30, 2021 For the three months ended June 30, 2020 (Dollars in millions, except per share amounts) Operating Income Operating Margin Net Income Diluted EPS Operating (Loss)/Income Operating Margin Net (Loss)/Income Diluted EPS Reported (GAAP) $ 164.8 16.6 % $ 112.9 $ 0.71 $ (1.9) (0.3) % $ (42.5) $ (0.27) Non-GAAP adjustments: Restructuring related and other 5.7 0.6 6.9 0.04 40.8 7.1 33.6 0.21 Financing and other transaction costs 2.5 0.3 1.3 0.01 3.6 0.6 3.6 0.02 Step-up depreciation and amortization 33.7 3.4 33.7 0.21 31.9 5.5 31.9 0.20 Deferred loss/(gain) on derivative instruments 2.6 0.3 1.1 0.01 0.5 0.1 (4.9) (0.03) Amortization of debt issuance costs — — 1.7 0.01 — — 1.6 0.01 Deferred taxes and other tax related — — (6.2) (0.04) — — 4.4 0.03 Total adjustments 44.6 4.5 38.4 0.24 76.9 13.3 70.2 0.45 Adjusted (non-GAAP) $ 209.3 21.1 % $ 151.4 $ 0.95 $ 75.0 13.0 % $ 27.7 $ 0.18 For the six months ended June 30, 2021 For the six months ended June 30, 2020 (Dollars in millions, except per share amounts) Operating Income Operating Margin Net Income Diluted EPS Operating Income Operating Margin Net (Loss)/Income Diluted EPS Reported (GAAP) $ 322.2 16.7 % $ 166.6 $ 1.05 $ 56.7 4.2 % $ (34.1) $ (0.22) Non-GAAP adjustments: Restructuring related and other 10.3 0.5 14.2 0.09 84.6 6.3 71.8 0.45 Financing and other transaction costs 7.1 0.4 34.1 0.21 5.4 0.4 5.4 0.03 Step-up depreciation and amortization 63.4 3.3 63.4 0.40 64.2 4.8 64.2 0.41 Deferred gain on derivative instruments 4.4 0.2 3.3 0.02 0.8 0.1 1.0 0.01 Amortization of debt issuance costs — — 3.4 0.02 — — 3.3 0.02 Deferred taxes and other tax related — — 3.9 0.02 — — (0.5) 0.00 Total adjustments 85.2 4.4 122.3 0.77 154.9 11.5 145.0 0.92 Adjusted (non-GAAP) $ 407.4 21.1 % $ 289.0 $ 1.81 $ 211.7 15.7 % $ 110.9 $ 0.70 The following table provides a reconciliation of net cash provided by operating activities in accordance with U.S. GAAP to free cash flow. For the six months ended June 30, (in millions) 2021 2020 Net cash provided by operating activities $ 267.9 $ 170.3 Additions to property, plant and equipment and capitalized software (63.6) (56.7) Free cash flow $ 204.4 $ 113.6 33 Table of Contents The following table provides a reconciliation of net income/(loss) in accordance with U.S. GAAP to Adjusted EBITDA. For the three months ended June 30 For the six months ended June 30 (in millions) LTM 2021 2020 2021 2020 Net income/(loss) $ 365.0 $ 112.9 $ (42.5) $ 166.6 $ (34.1) Interest expense, net 180.8 45.2 40.8 89.3 80.2 Provision for/(benefit from) income taxes 29.3 7.6 1.4 27.9 (0.1) Depreciation expense 123.2 31.6 30.6 62.8 65.3 Amortization of intangible assets 130.6 34.9 32.7 66.9 65.8 EBITDA 829.1 232.3 63.1 413.6 177.1 Non-GAAP Adjustments Restructuring related and other 22.2 7.0 42.7 14.4 85.3 Financing and other transaction costs 38.6 1.7 3.6 37.6 5.4 Deferred (gain)/loss on derivative instruments (3.5) 1.4 (4.9) 4.4 1.0 Adjusted EBITDA $ 886.4 $ 242.4 $ 104.5 $ 470.0 $ 268.7 The following table provides a reconciliation of total debt, finance lease, and other financing obligations in accordance with U.S. GAAP to net leverage ratio. (in millions) June 30, 2021 December 31, 2020 Current portion of long-term debt, finance lease and other financing obligations $ 7.3 $ 757.2 Finance lease and other financing obligations, less current portion 27.2 27.9 Long-term debt, net 4,213.8 3,213.7 Total debt, finance lease, and other financing obligations 4,248.3 3,998.9 Less: discount (6.1) (9.6) Less: deferred financing costs (29.2) (28.1) Total gross indebtedness 4,283.7 4,036.6 Less: cash and cash equivalents 1,861.8 1,862.0 Net Debt $ 2,421.9 $ 2,174.6 Adjusted EBITDA (LTM) $ 886.4 $ 685.1 Net leverage ratio 2.7 3.2 Liquidity and Capital Resources As of June 30, 2021 and December 31, 2020, 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) June 30, 2021 December 31, 2020 United Kingdom $ 26.4 $ 25.3 United States 33.2 17.2 The Netherlands 1,516.6 1,514.1 China 231.9 185.2 Other 53.7 120.2 Total $ 1,861.8 $ 1,862.0 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. 34 Table of Contents Cash Flows: The table below summarizes our primary sources and uses of cash for the six months ended June 30, 2021 and 2020. We have derived this summarized statements of cash flows from the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 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. For the six months ended (In millions) June 30, 2021 June 30, 2020 Net cash provided by/(used in): Operating activities: Net income/(loss) adjusted for non-cash items $ 347.0 $ 160.7 Changes in operating assets and liabilities, net (79.1) 9.6 Operating activities 267.9 170.3 Investing activities (489.1) (60.5) Financing activities 221.0 359.1 Net change $ (0.2) $ 468.8 Operating activities. Net cash provided by operating activities increased in the six months ended June 30, 2021 primarily due to higher net income adjusted for non-cash items, partially offset by the impact of changes in working capital. Changes in working capital in the six months ended June 30, 2021 were primarily driven by higher accounts receivable balances reflecting higher revenue in the second quarter of 2021 compared to the second quarter of 2020. In addition, during the six months ended June 30, 2021, we built raw material and work-in process inventory to address higher demand compared to the prior year. These changes were partially offset by increased accounts payable and accrued expenses, in part related to our increased cost of revenue and inventory. Investing activities. Net cash used in investing activities increased in the six months ended June 30, 2021 primarily due to $422.0 million cash paid for the acquisitions of Lithium Balance and Xirgo. In fiscal year 2021, we anticipate capital expenditures of approximately $160.0 million to $170.0 million, which we expect to be funded from cash on hand. Financing activities . In the six months ended June 30, 2021, net cash provided by financing activities decreased primarily due to the impact of debt financing transactions. In the six months ended June 30, 2021 we issued $1.0 billion of 4.0% Senior Notes compared to a drawdown of $400.0 million on the Revolving Credit Facility in the six months ended June 30, 2020. In addition, in the six months ended June 30, 2021, we redeemed the $750.0 million aggregate principal amount outstanding on the 6.25% Senior Notes. Further, we did not repurchase any ordinary shares in the six months ended June 30, 2021, compared to ordinary share repurchases of $35.2 million in the first half of 2020. This decline is the result of our temporary suspension of share repurchases on April 2, 2020. Refer to Capital Resources — Share repurchase programs for additional discussion. We will resume the share repurchase program when market conditions are favorable to do so. This decline related to share repurchases was partially offset by a $23.4 million premium paid on the redemption of the 6.25% Senior Notes, and $9.6 million of costs paid in connection with the issuance of the 4.0% Senior Notes. Indebtedness and Liquidity As of June 30, 2021, we had $4.3 billion in gross indebtedness, which includes finance lease and other financing obligations and excluded debt discounts and deferred financing costs. In the first quarter of 2021, we redeemed our 6.25% Senior Notes and issued the 4.0% Senior Notes, reducing our cost of capital and extending the maturity profile of our debt. Refer to Overview — Debt Transactions included elsewhere in this MD&A for additional discussion of these transactions. Capital Resources Senior Secured Credit Facilities 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 Revolving Credit Facility, and incremental availability (the "Accordion") under which additional secured credit facilities could be issued under certain circumstances. Sources of liquidity Our sources of liquidity include cash on hand, cash flows from operations, and available capacity under the Revolving Credit Facility. As of June 30, 2021, we had $416.1 million available under the Revolving Credit Facility, net of $3.9 million of 35 Table of Contents obligations related to outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of June 30, 2021, 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 June 30, 2021, availability under the Accordion was approximately $1.0 billion. We believe, based on our current level of operations and taking into consideration the restrictions and covenants included in the Credit Agreement and Senior Notes Indentures, that the sources of liquidity described above will be sufficient to fund our operations, capital expenditures, ordinary share repurchases (if and when resumed), 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. 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 July 23, 2021, 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. Restrictions and Covenants 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 six months ended June 30, 2021. The Credit Agreement and the Senior Notes Indentures contain restrictions and covenants that limit the ability of our wholly-owned subsidiary, STBV, and certain of its subsidiaries to, among other things, incur subsequent indebtedness, sell assets, pay dividends, and make other restricted payments. For a full discussion of these restrictions and covenants, refer to Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources," included in our 2020 Annual Report. 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 programs. As of June 30, 2021, we believe we were in compliance with all covenants and default provisions under our credit arrangements. Share repurchase programs 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 June 30, 2021. On April 2, 2020, we announced a temporary suspension of this share repurchase program, which will remain on hold until we determine that market conditions warrant continuation of the program. Recently Issued Accounting Pronouncements 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. Critical Accounting Policies and Estimates For a discussion of the critical accounting policies that require the use of significant judgments and estimates by management, refer to Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" included in our 2020 Annual Report. 36 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk. No significant changes to our market risk have occurred since December 31, 2020. For a discussion of market risks affecting us, refer to Part II, Item 7A—"Quantitative and Qualitative Disclosures About Market Risk" included in our 2020 Annual Report.