What changed in this filing

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Item 1A. Risk Factors

2022-02-10 compared with 2021-02-12 · 98 added, 114 removed, 305 unchanged (41% of the section changed)

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Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business, operations, liquidity, and financial condition.

Many of the risks listed below are, and will be, exacerbated by the COVID-19 pandemic and any worsening of the economic environment.

If actions taken by management to limit, monitor, or control enterprise risk exposures are not successful, our business and consolidated financial statements could be materially adversely affected.

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Any outbreaks of contagious diseases and other adverse public health developments in countries where we operate could have a material and adverse impact on our business, financial condition, liquidity, and results of operations.

For example, the COVID-19 pandemic has caused widespread disruptions to our business in fiscal year 2020.

During the first quarter of 2020, these disruptions were primarily limited to our manufacturing operations in China, portions of which were closed during the end of January and first half of February due to government mandates.

As the virus spread to the rest of the world beginning in March, all of our other operations outside of China also were impacted.

These impacts have continued to varying degrees throughout fiscal year 2020, as regions have had varying levels of success mitigating the impacts of the virus, resulting in varying degrees of reopening.

As of December 31, 2020, we were still experiencing disruptions, which include, depending on the specific location, partial shutdowns of our facilities as mandated by government decree, government actions limiting our ability to adjust certain costs, significant travel restrictions, “work-from-home” orders, limited availability of our workforce,

supplier constraints, supply-chain interruptions, logistics challenges and limitations, and reduced demand from certain customers.

In addition, in these challenging and dynamic circumstances, we are working to protect our employees, maintain business continuity and sustain our operations, including ensuring the safety and protection of our people who work in our plants and distribution centers across the world, many of whom support the manufacturing and delivery of products deemed part of the critical infrastructure or essential businesses by the applicable local or country governments.

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.

In addition, the COVID-19 pandemic increases the likelihood and potential severity of other risks discussed elsewhere in this Item 1A, "Risk Factors." These include, but are not limited to, the following:

• A protracted economic downturn could negatively affect the financial condition of the industries and customers we serve, which may result in an increase in bankruptcies or insolvencies, a delay in payments, and decreased sales.

• A scarcity of resources or other hardships caused by the COVID-19 pandemic may result in increased nationalism, protectionism and political tensions which may cause governments and/or other entities to take actions that may have a significant negative impact on the ability of us, our suppliers, and our customers to conduct business.

• The impact of the COVID-19 pandemic may cause us to further restructure our business or divest some of our businesses or product lines in the future, which may have a material adverse effect on our results of operations, financial condition, and cash flows.

• To mitigate the spread of COVID-19, we have transitioned a significant subset of our employee population to a remote work environment, which may exacerbate various cybersecurity risks to our business, including an increased demand for information technology ("IT") resources, an increased risk of phishing and other cybersecurity attacks, and an increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information.

• The COVID-19 pandemic has disrupted the supply chain, and we may experience increased difficulties in obtaining a consistent supply of materials at stable pricing levels.

• If the financial performance of our businesses were to decline significantly as a result of the COVID-19 pandemic, we could incur a material non-cash charge to our income statement for the impairment of goodwill and other intangible assets.

• The continued global spread of COVID-19 has led to disruption and volatility in the global capital markets, which may increase the cost of, and adversely impact access to, capital.

• If the financial performance of our businesses were to decline significantly for an extended period of time as a result of the COVID-19 pandemic, we may face challenges to comply with the covenants contained in our credit arrangements.

As has occurred with the COVID-19 pandemic, a global pandemic could cause significant disruption to the global economy, including in all of the regions in which we, our suppliers, distributors, business partners, and customers do business and in which our workforce is located.

A global pandemic and efforts to manage it, including those by governmental authorities, could have significant impacts on global markets, and could have a significant, negative impact on our sales and operating results.

Disruptions could include partial shutdowns of our facilities as mandated by government decree, government actions limiting our ability to adjust certain costs, significant travel restrictions, “work-from-home” orders, limited availability of our workforce, supplier constraints, supply chain interruptions, logistics challenges and limitations, and reduced demand from certain customers.

The COVID-19 pandemic has had, and could continue to have, these effects on the economy and our business.

As of December 31, 2021, we were still experiencing lingering disruptions of these types.

The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of the crisis, variant strains of the virus, vaccine availability and effectiveness, future government actions in response to the crisis and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable.

This unpredictability could limit our ability to respond to future developments quickly.

Additionally, the impacts described above and other impacts of a global pandemic, including the COVID-19 pandemic and responses to it, could substantially increase the risk to us from the other risks described in this Item 1A:

Risk Factors .

Our business is subject to numerous global risks, including regulatory, political, economic, governmental, and military concerns and instability.

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markets to continue to represent a significant portion of our total net revenue.

International sales and operations are subject to changes in local government regulations and policies, including those related to tariffs and trade barriers, investments, taxation, exchange controls, and repatriation of earnings.

International sales and operations are subject to changes in local government regulations and policies, including those related to tariffs and trade barriers, economic sanctions, investments, taxation, exchange controls, and repatriation of earnings.

As a result, we are exposed to numerous global, regional, and local risks that could decrease revenue and/or increase expenses, and therefore decrease our profitability.

Such risks may result from instability in economic or political conditions, inflation, recession, and/or actual or anticipated military or political conflicts, and include, without limitation:

trade regulations, including customs, import, and export matters, tariffs, trade barriers, and disputes;

local employment costs, regulations, and conditions;

trade regulations, including customs, import, and export matters, tariffs, trade barriers, trade disputes, and economic sanctions;

changes in local employment costs, laws, regulations, and conditions;

difficulties with, and costs for, protecting our intellectual property;

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natural disasters;

instability in economic or political conditions, inflation, recession, actual or anticipated military or political conflicts, and potential impact due to the upcoming withdrawal of the United Kingdom (the "U.K.") from the EU ("Brexit");

and instability in economic or political conditions;

actual or anticipated military or political conflicts;

and the impact of each of the foregoing on our business operations, manufacturing, and supply chain.

In addition, other risks are inherent in our non-U.S.

Other risks are inherent in our non-U.S.

operations, including the potential for changes in socio-economic conditions and/or monetary and fiscal policies, intellectual property protection difficulties and disputes, the settlement of legal disputes through certain foreign legal systems, the collection of receivables, exposure to possible expropriation or other government actions, unsettled political conditions, and possible terrorist attacks.

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operations and, therefore, on our business and results of operations.

Brexit was completed on January 31, 2020.

On December 24, 2020, the EU and the U.K.

reached an agreement on their future trading relationship, the Trade and Cooperation Agreement.

We are incorporated in the U.K., and we have significant operations and a substantial workforce therein and therefore enjoy certain benefits based on the U.K.’s membership in the EU.

The terms of the Trade and Cooperation Agreement, particularly those around financial laws and regulations, tax and free trade agreements, immigration laws, and employment laws, may impact our business and operations.

Additionally, there is a risk that other countries may decide to leave the EU.

Despite the progress made on reaching the Trade and Cooperation Agreement, there is still uncertainty surrounding Brexit, not only related to the potential affects of our business in the U.K.

and the EU, but also on global economic conditions and the stability of global financial markets, which in turn could have a material adverse effect on our business, financial condition, and results of operations.

In addition, a scarcity of resources or other hardships caused by a global pandemic may result in increased nationalism, protectionism and political tensions which may cause governments and/or other entities to take actions that may have a significant negative impact on the ability of us, our suppliers, and our customers to conduct business.

We have sizable operations in China, including two principal manufacturing sites.

Economic and political conditions in China have been and may continue to be volatile and uncertain, especially as the U.S.

and China continue to discuss and have differences in trade policies.

As discussed in the MD&A, increased tariff costs have increased our cost of revenue as a percentage of net revenue in fiscal year 2020.

and China continue to discuss and have differences in trade policies, and the U.S.

continues to add restrictions on exports of Controlled Items to China.

In addition, the legal and regulatory system in China is still developing and is subject to change.

Our operations and transactions with customers in China could continue to be adversely affected by increased tariffs and could be otherwise adversely affected by other changes to market conditions, changes to the regulatory environment, or interpretation of Chinese law.

Our operations and transactions with customers in China could continue to be adversely affected by increased tariffs and export restrictions and could be otherwise adversely affected by other changes to market conditions, changes to the regulatory environment, or interpretation of Chinese law.

Adverse conditions in the industries upon which we are dependent, including the automotive industry, have had, and may in the future have, adverse effects on our business.

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Sales in our automotive end-markets accounted for approximately 54% of our total net revenue in fiscal year 2021.

As discussed in the MD&A, demand in the automotive end market we serve has declined from the prior year.

Continued declines in demand such as discussed above, and other adverse developments like those we have seen in past years in the automotive industry, including but not limited to customer bankruptcies and increased demands on us for lower prices, could have adverse effects on our results of operations and could impact our liquidity and our ability to meet restrictive debt covenants.

In addition, these same conditions could

adversely impact certain of our vendors’ financial solvency, resulting in potential liabilities or additional costs to us to ensure uninterrupted supply to our customers.

Declines in demand such as experienced as a result of the COVID-19 pandemic and other adverse developments like those we have seen in past years in the automotive industry, including but not limited to customer bankruptcies and increased demands on us for lower prices, could have adverse effects on our results of operations and could impact our liquidity and our ability to meet restrictive debt covenants.

In addition, these same conditions could adversely impact certain of our vendors’ financial solvency, resulting in potential liabilities or additional costs to us to ensure uninterrupted supply to our customers.

We may incur material losses and costs as a result of product liability, warranty, and recall claims that may be brought against us.

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Accordingly, we could experience material warranty or product liability losses in the future and incur significant costs to defend these claims.

In addition, if any of our products are, or are alleged to be, defective, we may be required to participate in a recall of the underlying end product, particularly if the defect or the alleged defect relates to product safety.

Depending on the terms under which we supply products, an OEM may hold us responsible for some or all of the repair or replacement costs of these products under warranty when the product supplied did not perform as represented.

The impact of the current global supply chain shortages includes various factors that could impact our actual or perceived liability due to quality issues, whether at a supplier or customer.

Shortages of materials at our suppliers or customers could cause them to work longer production hours to meet demand, resulting in fatigue on manufacturing workers, delays in planned maintenance, and other factors that could impact the actual or perceived quality of our products.

In addition, customers may be forced to assemble parts into the end product in an order not anticipated by design, or to assemble parts in a location without proper environmental controls (e.g.

a parking lot), increasing the potential that our part fails through no fault of our own.

While we would defend ourselves from warranty claims in these circumstances, there is no guarantee that we would prevail.

As we continue to develop products containing complex information technology (“IT”) systems designed to support today’s increasingly connected vehicles, these systems result in potential increases to our risks in product safety, regulatory compliance, product liability, warranty, and recall claims.

In addition, the warranty period for certain electric vehicle components are generally eight to ten years, which increases our risk for warranty claims over the life of a product.

In addition, a product recall could generate substantial negative publicity about our business and interfere with our manufacturing plans and product delivery obligations as we seek to repair affected products.

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In addition, some of our customers may have the right to discontinue a program or replace us with another supplier under certain circumstances.

As a result, products for which we are currently incurring development expenses may not be manufactured by our customers at all, or may be manufactured in smaller amounts than currently anticipated.

As a result, products for which we are currently incurring development expenses may not be manufactured by our customers at all, or they may be manufactured in smaller amounts than currently anticipated.

Therefore, our anticipated future revenue from products relating to existing customer awards or product development relationships may not result in firm orders from customers for the originally contracted amount.

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Increasing costs for, or limitations on the supply of or access to, manufactured components and raw materials may adversely affect our business and results of operations.

We use a broad range of manufactured components, subassemblies, and raw materials in the manufacture of our products in both our Performance Sensing and Sensing Solutions segments, including those containing certain commodities, resins, and rare earth metals, which may experience significant volatility in their price and availability due to, among other things, new laws or regulations, including the impact of tariffs, trade barriers, and disputes, and global economic or political events including government actions, labor strikes, suppliers' allocations to other purchasers, interruptions in production by suppliers, changes in foreign currency exchange rates, and prevailing price levels.

semiconductors, resins, and metals), which may experience significant volatility in their price and availability due to, among other things, new laws or regulations, including the impact of tariffs, trade barriers, trade disputes, export restrictions, economic sanctions, and global economic or political events including government actions, labor strikes, suppliers' allocations to other purchasers, interruptions in production by suppliers, changes in foreign currency exchange rates, and prevailing price levels.

It is generally difficult to pass increased prices for manufactured components and raw materials through to our customers in the form of price increases.

Therefore, a significant increase in the price or a decrease in the availability of these items could materially increase our operating costs and materially and adversely affect our business and results of operations.

We have entered into hedge arrangements for certain metals used in

our products in an attempt to minimize commodity pricing volatility and may continue to do so from time to time in the future.

However, the impact of the current global supply chain shortages, including production delays on a vast and varied number of products across industries and geographies and increased procurement and logistics costs, are unprecedented.

Accordingly, we are actively working with our customers to share the inflationary burden of these factors.

In addition, where possible, we are working to adjust our long-term supply agreements, strengthen our relationships with our suppliers, increase inventory on hand, increase visibility into long-term supply and demand, and accelerate the use of alternate materials to increase supply chain visibility.

Despite these efforts, as discussed in the MD&A, these shortages have impacted our margins in fiscal year 2021, and we believe that these impacts will continue throughout fiscal year 2022.

If the impacts of these shortages are more severe than we currently expect, it could result in further deterioration of our results, potentially for a longer period than currently anticipated.

In addition, the impact of the current global supply chain shortages on one or more of our key suppliers could adversely impact our profitability.

We have entered into hedge arrangements for certain metals used in our products in an attempt to minimize commodity pricing volatility and may continue to do so from time to time in the future.

Such hedges might not be economically successful.

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Accordingly, the change in fair value of these hedges is recognized in earnings immediately, which could cause volatility in our results of operations from quarter to quarter.

The automotive industry supply chain is currently facing a global shortage of semiconductors, the technology used to make microchips, resulting in paused production on certain vehicles and increased costs to procure microchips.

As discussed in the MD&A, we believe this shortage will have an adverse impact on our operating costs in fiscal year 2021.

If the impacts of this shortage are more severe than we expect, it could result in further deterioration of our results, potentially for a longer period than currently anticipated.

In connection with the implementation of our corporate strategies, we face risks associated with the acquisition of businesses, the integration of acquired businesses, and the growth and development of these businesses.

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The availability of debt to finance future acquisitions may be restricted, and our ability to make future acquisitions may be limited.

Refer to separate risk factor for additional information on risks related to our level of indebtedness.

Refer to separate risk factor for additional information related to risks regarding our level of indebtedness.

In addition, many of the businesses that we acquire and develop will likely have significantly smaller scales of operations prior to the implementation of our growth strategy.

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A material labor disruption or work stoppage at one or more of our manufacturing or business facilities could have a material adverse effect on our business.

In addition, work stoppages occur relatively frequently in the industries in which many of our customers operate, such as the automotive industry.

If one or more of our larger customers were to experience a material

work stoppage for any reason, that customer may halt or limit the purchase of our products.

In addition, work stoppages occur relatively frequently in the industries in which many of our customers operate, such as the transportation industry.

If one or more of our larger customers were to experience a material work stoppage for any reason, that customer may halt or limit the purchase of our products.

This could cause us to reduce production levels or shut down production facilities relating to those products, which could have a material adverse effect on our business, results of operations, and/or financial condition.

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A significant element of our competitive strategy is to design and manufacture high-quality products that meet the needs of our customers at a commercially competitive price, particularly in markets where low-cost, country-based suppliers, primarily in China with respect to the Sensing Solutions segment, have entered the markets or increased their per-unit sales in these markets by delivering products at low cost to local OEMs.

In addition, certain of our competitors in the automotive sensor market are influenced or controlled by major OEMs or suppliers, thereby limiting our access to these customers.

In addition, certain of our competitors in the transportation sensor market are influenced or controlled by major OEMs or suppliers, thereby limiting our access to these customers.

Many of our customers also rely on us as their sole source of supply for many of the products that we have historically sold to them.

These customers may choose to develop relationships with additional suppliers or elect to produce some or all of these products internally, primarily to reduce risk of delivery interruptions or as a means of extracting more value from us.

Certain of our customers currently have, or may develop in the future, the capability to internally produce the products that we sell to them and may compete with us with respect to those and other products and with respect to other customers.

Many of our customers, including automotive manufacturers and other industrial and commercial OEMs, demand annual price reductions.

Certain of our tier customers currently have, or may develop in the future, the capability to internally produce the products that we sell to them and may compete with us with respect to those and other products and with respect to other customers.

Many of our customers, including transportation manufacturers and other industrial and commercial OEMs, demand annual price reductions.

If we are not able to offset continued price reductions through improved operating efficiencies and reduced expenditures, these price reductions may have a material adverse effect on our results of operations and cash flows.

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As a result, we may find it difficult to enter into agreements with such customers on terms that are commercially reasonable to us.

Security breaches and other disruptions to our IT infrastructure could interfere with our operations, compromise confidential information, and expose us to liability, which could materially adversely impact our business and reputation.

Security breaches and other disruptions to our IT infrastructure could interfere with our operations, compromise confidential information, and expose us to liability, which could have a material adverse impact our business and reputation.

In the ordinary course of business, we rely on IT networks and systems, some of which are managed by third parties, to process, transmit, and store electronic information, and to manage or support a variety of business processes and activities.

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Despite our cybersecurity measures (including employee and third-party training, monitoring of networks and systems, maintenance of backup and protective systems, and maintenance of cybersecurity insurance), our IT networks and infrastructure may still be vulnerable to damage, disruptions, or shutdowns due to attacks by hackers, breaches, employee error or malfeasance, power outages, computer viruses, malware and ransomware, telecommunication or utility failures, systems failures, natural disasters, or other catastrophic events.

We also face the challenge of supporting our older systems and

implementing necessary upgrades.

We also face the challenge of supporting our older systems and implementing necessary upgrades.

Moreover, as we continue to develop products containing complex IT systems designed to support today’s increasingly connected vehicles, these systems also could be susceptible to similar interruptions, including the possibility of unauthorized access.

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These types of incidents affecting us or our third-party vendors could result in intellectual property or other confidential information being lost or stolen, including client, employee, or company data.

Any such events could result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to our reputation, which could materially adversely affect our business.

Any such events could result in legal claims or proceedings, liability or penalties under privacy laws and/or export control laws, disruption in operations, and damage to our reputation, which could materially adversely affect our business.

Further, to the extent that any disruption or security breach results in a loss of, or damage to, our data, or an inappropriate disclosure of confidential information, it could cause significant damage to our reputation, affect our relationships with our customers, lead to claims against us, and ultimately harm our business, financial condition, and/or results of operations.

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Changes to data protection laws, new customer requirements, and changes to international data transfer rules could impose new burdens.

New developments in smart vehicles changes our risk profile as Sensata creates new classes of personal data with its products and insights.

One of our significant responsibilities is to maintain the security and privacy of our employees’ and customers’ confidential and proprietary information.

We maintain policies, procedures, and technological safeguards designed to protect the security and privacy of this information and regularly review compliance changes in the states where Sensata operates.

Nevertheless, we cannot eliminate the risk of human error, employee or vendor malfeasance, or cyber-attacks that could result in improper access to or disclosure or transfer of confidential, personal, or proprietary information by Sensata or our supply chain.

Such access transfers could harm our reputation and subject us to liability under our contracts and the laws and regulations that protect personal data, resulting in increased costs, loss of revenue, and loss of customers.

Such access transfers could harm our reputation and subject us to liability under our contracts and the laws and regulations that protect personal and export-controlled data, resulting in increased costs, loss of revenue, and loss of customers.

The release of confidential information could also lead to litigation or other proceedings against us by affected individuals, business partners, or by regulators, and the outcome of such proceedings, which could include penalties or fines, could have a significant negative impact on our business.

In many jurisdictions we are subject to laws and regulations relating to the use of this information.

These are becoming increasingly complex and can conflict across the jurisdictions in which we operate.

These laws and regulations are changing rapidly, are becoming increasingly complex, and can conflict across the jurisdictions in which we operate.

Our failure to adhere to processes in response to changing regulatory requirements could result in legal liability, significant regulator penalties and fines, or impair our reputation in the marketplace.

The technological capabilities we are developing in our Smart & Connected initiative bring new risks to our company.

The technological capabilities we are developing in the Sensata Insights business bring new risks to our company.

Laws and regulations for smart vehicles are expected to continue to evolve in numerous jurisdictions globally, which could affect our product portfolio and operations.

Further, managing and securing personal data that our products, as well as our partners’ products, gather is a new and evolving risk for us.

Further, managing and securing personal and customer data that our products, as well as our partners’ products, gather is a new and evolving risk for us.

We must also prepare and adjust for rapid design philosophies associated with building these new solutions.

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We, therefore, face exposure to adverse movements in exchange rates of currencies other than the USD, which may change over time and could affect our financial results and cash flows.

For financial reporting purposes, we, and each of

our subsidiaries, operate under a USD functional currency because of the significant influence of the USD on our operations.

For financial reporting purposes, we, and most of our subsidiaries, operate under a USD functional currency because of the significant influence of the USD on our operations.

In certain instances, we enter into transactions that are denominated in a currency other than the USD.

At the date that such transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction is measured and recorded in USD using the exchange rate in effect at that date.

At each balance sheet date, recognized monetary balances denominated in a currency other than the USD are adjusted to USD using the exchange rate at the balance sheet date, with gains or losses recognized in other, net in the consolidated statements of operations.

At the date that such transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction is measured and

recorded in USD using the exchange rate in effect at that date.

At each balance sheet date, recorded monetary balances denominated in a currency other than the USD are adjusted to USD using the exchange rate at the balance sheet date, with gains or losses recognized in other, net in the consolidated statements of operations.

During times of a weakening USD, our revenue recognized in currencies other than the USD may increase because the non-U.S.

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As of December 31, 2021, we had $4,280.2 million of gross outstanding indebtedness, including various tranches of senior notes (the “Senior Notes”).

Refer to Note 14, "Debt," of our Financial Statements for additional information related to our outstanding indebtedness.

Refer to Note 14:

Debt of our Financial Statements included elsewhere in this Report for additional information related to our outstanding indebtedness.

Our substantial indebtedness could have important consequences.

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If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity investments, or reducing or delaying capital expenditures, strategic acquisitions, investments, and alliances, any of which could have a material adverse effect on our operations.

Additionally, we may not be able to effect such actions, if necessary, on commercially reasonable terms, or at all.

Additionally, we may not be able to complete such actions, if necessary, on commercially reasonable terms, or at all.

If we experience an event of default under any of our debt instruments that is not cured or waived, the holders of the defaulted debt could cause all amounts outstanding with respect to the debt to become due and payable immediately, which, in turn, would result in cross-defaults under our other debt instruments.

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Changes in government trade policies, including the imposition of tariffs, may have a material impact on our results of operations.

We evaluate all trade policies that impact us, and adjust our operational strategies to mitigate the impact of these policies.

However, trade policies, including quotas, duties, tariffs, taxes or other similar restrictions upon the import or export of our products, are subject to change, and we cannot ensure that any mitigation strategies employed will remain available in the future

or that we will be able to offset tariff-related costs or maintain competitive pricing of our products.

The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the global economy, which in turn could have a material adverse effect on our business, operating results and financial condition.

Existing free trade laws and regulations, such as the United States-Mexico-Canada Agreement, provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements.

Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture products, such as China and Mexico, could have a material adverse effect on our business and financial results.

As discussed in the MD&A, increased tariff costs have increased our cost of revenue as a percentage of net revenue in fiscal year 2020.

We evaluate all trade policies that impact us, and we adjust our operational strategies to mitigate the impact of these policies.

However, trade policies, including quotas, duties, tariffs, taxes, or other restrictions on the import or export of our products, are subject to change, and we cannot ensure that any mitigation strategies employed will remain available in the future or that we will be able to offset tariff-related costs or maintain competitive pricing of our products.

The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the

potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the global economy, which in turn could have a material adverse effect on our business, operating results and financial condition.

Existing duty reduction and deferral programs, such as free-trade agreements, duty drawback, and inward processing relief, provide beneficial impacts to our duties and tariffs for qualifying imports and exports, subject to compliance with each program’s unique requirements.

Changes in laws or policies governing the terms of these duty reduction and deferral programs could have a material adverse effect on our business and financial results.

In addition, most of our facilities in Mexico operate under the Mexican Maquiladora program.

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Impairment of goodwill and other identifiable intangible assets may result from, among other things, deterioration in our performance, adverse market conditions, adverse changes in laws or regulations, significant unexpected or planned changes in the use of assets, and a variety of other factors.

We consider a combination of quantitative and qualitative factors to determine whether a reporting unit is at risk of failing Step 1 of the goodwill impairment test, including:

We consider a combination of quantitative and qualitative factors to determine whether a reporting unit is at risk of failing the goodwill impairment test, including:

the timing of our most recent quantitative impairment tests and the relative amount by which a reporting unit’s fair value exceeded its then carrying value, the inputs and assumptions underlying our valuation models and the sensitivity of our fair value measurements to those inputs and assumptions, the impact that adverse economic or market conditions may have on the degree of uncertainty inherent in our long-term operating forecasts, and changes in the carrying value of a reporting unit’s net assets from the time of our most recent goodwill impairment test.

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Should certain assumptions used in the development of the fair value of our reporting units change, we may be required to recognize goodwill or other intangible asset impairments.

Refer to Note 11, "Goodwill and Other Intangible Assets, Net," of our Financial Statements for additional information related to our goodwill and other identifiable intangible assets.

Refer to Critical Accounting Policies and Estimates , included in the MD&A for additional information related to the assumptions used in the development of the fair value of our reporting units.

Refer to Note 11:

Goodwill and Other Intangible Assets, Net of our Financial Statements included elsewhere in this Report for additional information related to our goodwill and other identifiable intangible assets.

Refer to Critical Accounting Policies and Estimates , in the MD&A included elsewhere in this Report for additional information related to the assumptions used in the development of the fair value of our reporting units.

Our global effective tax rate is subject to a variety of different factors that could create volatility in that tax rate, expose us to greater than anticipated tax liabilities, or cause us to adjust previously recognized tax assets and liabilities.

We are subject to income taxes in the U.K., China, Mexico, the U.S., and many other jurisdictions.

We are subject to income taxes in the United Kingdom (the "U.K."), China, Mexico, the U.S., and many other jurisdictions.

As a result, our global effective tax rate from period to period can be affected by many factors, including changes in tax legislation, changes in tax rates and tax laws, our jurisdictional mix of earnings, the use of global funding structures, the tax characteristics of our income, the effects on our revenues and costs of complying with transfer pricing requirements under differing laws of various countries, consequences of acquisitions and dispositions of businesses and business segments, the generation of sufficient future taxable income to realize our deferred tax assets, and the taxation of subsidiary income in the jurisdiction of its parent company regardless of whether or not distributed.

Significant judgment is required in determining our worldwide provision for (or benefit from) income taxes, and our determination of the amount of our tax liability is always subject to review by applicable tax authorities.

Refer to Note 7, "Income Taxes," of our Financial Statements for additional information related to our accounting for income taxes.

Refer to Note 7:

Income Taxes of our Financial Statements included elsewhere in this Report for additional information related to our accounting for income taxes.

We cannot provide any assurances as to what our tax rate will be in any period because of, among other things, uncertainty regarding the nature and extent of our business activities in any particular jurisdiction in the future and the tax laws of such jurisdictions, as well as changes in U.S.

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government as a result of seating of a new administration, which could increase our tax liabilities.

Our actual global tax rate may vary from our expectation and that variance may be material.

We continuously monitor all global regulatory developments and consider alternatives to limit their detrimental impacts.

Our actual global

tax rate may vary from our expectation and that variance may be material.

We continually monitor all global regulatory developments and consider alternatives to limit their detrimental impacts.

However, not all unfavorable developments can be moderated, and we may consequently experience adverse effects on our effective tax rate and cash flows.

Therefore, we cannot provide any assurances as to what our tax rate will be in any future period.

For example, the European Commission (“EC”) has been conducting investigations of state aid and have focused on whether EU sovereign country laws or rulings provide favorable treatment to taxpayers conflicting with its interpretation of EU law.

For example, the European Commission (the "EC") has been conducting investigations of state aid and have focused on whether EU sovereign country laws or rulings provide favorable treatment to taxpayers conflicting with its interpretation of EU law.

EC findings may have retroactive effect and can cause increases in tax liabilities where we considered ourselves in full compliance with local legislation.

Furthermore, the Organization for Economic Co-operation and Development (“OECD”), representing a number of jurisdictions where we conduct business, is recommending changes to long-accepted tax principles applied by most multinational corporations.

As currently drafted, OECD guidelines would precipitate incremental future tax liabilities to Sensata.

However, the OECD guidelines’ timing and impact to us remains unclear.

We continue to monitor developments and shall react accordingly.

We could be subject to future audits conducted by these foreign and domestic tax authorities, and the resolution of such audits could impact our tax rate in future periods, as would any reclassification or other changes (such as those in applicable accounting rules) that increases the amounts we have provided for income taxes in our consolidated financial statements.

Furthermore, on October 8, 2021, the Organization for Economic Co-operation and Development (the "OECD") announced most of its member jurisdictions agreed to the OECD’s Inclusive Framework of the Base Erosion and Profit Shifting project, which establishes global minimum tax rules.

These rules are expected to be reflected in local country laws where we do business effective in calendar 2023.

The precise impact of these laws is not yet known, and we cannot provide assurances that Sensata can mitigate any increases in tax liabilities under these new rules.

We continue to monitor developments and will react accordingly.

We could be subject to future audits conducted by both foreign and domestic tax authorities, and the resolution of such audits could impact our tax rate in future periods, as would any reclassification or other changes (such as those in applicable accounting rules) that increases the amounts we have provided for income taxes in our consolidated financial statements.

There can be no assurance that we would be successful in attempting to mitigate the adverse impacts resulting from any changes in law, audits, and other matters.

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We are a holding company and, therefore, may not be able to receive dividends or other payments in needed amounts from our subsidiaries.

We are organized as a holding company, a legal entity separate and distinct from our operating entities.

We are organized as a holding company, a legal entity that is separate and distinct from our operating entities.

As a holding company without significant operations of its own, our principal assets are the shares of capital stock of our subsidiaries.

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Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations, financial condition, and/or cash flows.

Export of our products is subject to various export control regulations and may require a license from the U.S.

Department of State, the U.S.

Department of Commerce, or the U.S.

Department of the Treasury.

Any failure to comply with such regulations could result in governmental enforcement actions, fines, penalties, or other remedies, which could have a material adverse effect on our business, results of operations, and financial condition.

Certain of our products require us to comply with the U.S.

Export Administration Regulations, ITAR, and the sanctions, regulations, and embargoes administered by the Office of Foreign Assets Control ("OFAC").

Our products that have military

applications are on the munitions list of ITAR and require an individual validated license in order to be exported to certain jurisdictions.

These restrictions also apply to technical data for design, development, production, use, repair, and maintenance of such ITAR-controlled products.

The export of ITAR-controlled products or technical data requires an individual validated license from the U.S.

State Department’s Directorate of Defense Trade Controls.

We also export products that are subject to other export regulations.

Any changes in these export regulations may further restrict the export of our products, and we may cease to be able to procure export licenses for our products under existing regulations.

This area remains fluid in terms of regulatory developments.

Should we need an export license under existing regulations, the length of time required by the licensing process can vary, potentially delaying the shipment of products and the recognition of the corresponding revenue.

We have no control over the time it takes to process an export license.

Any restriction on the export of a significant product line or a significant amount of our products could cause a significant reduction in revenue.

We have discovered in the past, and may discover in the future, deficiencies in our OFAC and ITAR compliance programs.

Although we continue to enhance these compliance programs, we cannot assure you that any such enhancements will ensure that we are in compliance with applicable laws and regulations at all times, or that applicable authorities will not raise compliance concerns or perform audits to confirm our compliance with applicable laws and regulations.

Any failure by us to comply with applicable laws and regulations could result in governmental enforcement actions, fines or penalties, criminal and/or civil proceedings, or other remedies, any of which could have a material adverse effect on our business, results of operations, and/or financial condition.

Export of our products is subject to various export control regulations and may require a license for export.

Any failure to comply with such regulations could result in governmental enforcement actions, fines, penalties, loss of export privileges, or other remedies, which could have a material adverse effect on our business, results of operations, and financial condition.

We are subject to compliance with laws and regulations controlling the import and export of goods, services, software, and technical data.

Certain of our products are subject to export regulations of the various jurisdictions in which we operate (“Controlled Items”).

The export of many such Controlled Items requires a license from the applicable government agency.

Licensing decisions are made based on type of product, its destination, end use, end user, the parties involved in the transaction,

national security, and foreign policy.

As a result, export license approvals are not guaranteed.

We have a trade compliance team and other systems in place to apply for licenses and otherwise comply with import and export regulations.

Any failure to maintain compliance with such regulations could limit our ability to import or export raw material and finished goods.

These laws and regulations are subject to change, and any such change may limit or exclude existing or future business opportunities, require us to change technology, or incur expenditures to comply with such laws and regulations.

We have discovered in the past, and may discover in the future, deficiencies in our trade compliance program.

Although we continue to enhance our trade compliance program, we cannot guarantee that any such enhancements will ensure full compliance with applicable laws and regulations at all times, or that applicable authorities will not raise compliance concerns or perform audits to confirm our compliance with applicable laws and regulations.

Any failure by us to comply with applicable laws and regulations could result in governmental enforcement actions, fines, penalties, criminal and/or civil proceedings, or other remedies, any of which could have a material adverse effect on our business, results of operations, and/or financial condition.

Changes in existing environmental or safety laws, regulations, and programs could reduce demand for our products, which could cause our revenue to decline.

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Such an exclusion of preemptive rights may be for a maximum period of up to five years as specified in the articles of association or relevant shareholder resolution.

We currently only have authorization to issue shares under our equity

plan excluding preemptive rights until our next annual general meeting.

We currently only have authorization to issue shares under our equity plan excluding preemptive rights until our next annual general meeting.

This authorization and exclusion needs to be renewed by our shareholders periodically and we intend to renew the authorization and exclusion at each annual general meeting.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors