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Item 7. Management’s Discussion and Analysis

2022-02-10 compared with 2021-02-12 · 470 added, 450 removed, 583 unchanged (61% of the section changed)

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The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, and liquidity and capital resources.

You should read the following discussion in conjunction with Item 1, "Business," Item 6, "Selected Financial Data," and our Financial Statements included elsewhere in this Report.

You should read the following discussion in conjunction with Item 1:

Business and our Financial Statements, each included elsewhere in this Report.

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements.

These forward-looking statements are subject to numerous risks and uncertainties including, but not limited to, the risks and uncertainties described in Item 1A, "Risk Factors," included elsewhere in this Report.

These forward-looking statements are subject to numerous risks and uncertainties including, but not limited to, the risks and uncertainties described in Item 1A:

Risk Factors included elsewhere in this Report.

Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Sensata Technologies Holding plc, the successor issuer to Sensata N.V.

and its wholly-owned subsidiaries, collectively referred to as the "Company," "Sensata," "we," "our," and "us," is a global industrial technology company that develops, manufactures, and sells sensors, electrical protection products, and other products that are used in mission-critical systems and applications that create valuable business insights for our customers and end users.

Original equipment manufacturers ("OEMs") are producing products that are safer, cleaner, more efficient, more electrified, and increasingly more connected.

Our sensors are used by our customers to translate a physical parameter, such as pressure, temperature, position, or location of an object, into electronic signals that our customers’ products and solutions can act upon.

Our electrical protection product portfolio is comprised of various sensors, controllers, receivers, and software, and include high-voltage contactors and other products embedded within systems to maximize their efficiency and protect them from excessive heat or current.

Our business strategy involves leveraging certain new and emerging technology trends, which complement our existing product offerings, to deliver products used in mission-critical systems and applications that create valuable business insights for our customers and end users.

Each of these trends, which we refer to as “megatrends,” is expected to significantly transform the industries in which we operate.

These megatrends are also creating greater secular demand for our products, resulting in growth that exceeds end-market production growth in many of the markets we serve, a defining characteristic of our company.

We refer to this as “market outgrowth,” which describes the impact of an increasing quantity and value of our products used in customer systems and applications, and is only loosely correlated to normal unit demand fluctuations in the markets we serve.

Refer to Item 1, "Business," included elsewhere in this Report for additional information related to our business strategy and megatrends.

Our customers are facing ever increasing mandates, due to regulation and consumer demand, to make their products cleaner, more efficient, and safer, while providing more comfort-related features.

Our sensors are being used in mission-critical systems and applications that are addressing these demands, including those that help:

industrial customers to make more efficient pumps and boilers;

automotive customers to meet the standards of emissions and pollution control legislation;

and fleet managers to proactively monitor the health of their vehicles, conduct proactive maintenance, optimize fleet operations, and enhance driver safety.

We believe regulatory requirements for safer vehicles, higher fuel efficiency, and lower emissions, such as the National Highway Traffic Safety Administration's Corporate Average Fuel Economy requirements in the U.S., "Euro 6d" requirements in Europe, "China National 6" requirements in China, and "Bharat Stage VI" requirements in India, as well as customer demand for operator productivity and convenience, drive the need for advancements in powertrain management, efficiency, safety, and operator controls.

These advancements lead to sensor growth rates that we expect to exceed underlying demand in many of our key end markets, which we expect will continue to offer us significant growth opportunities.

However, in our automotive business, we believe the medium- to long-term outlook for internal combustion engine powertrain products will evolve with the advent of more environmentally friendly vehicles that rely more heavily on Electrification and other adjacent technologies.

Refer to the Megatrends section of Item 1, "Business," for additional information on our Electrification megatrend initiative.

Accordingly, we are focusing on expanding our market share on electrified platforms, including both sensor and electrical protection products.

Many of the components and subsystems that we have historically developed and produced will play a significant role in this expansion, but we will also seek strategic partnerships and acquisitions to accelerate the growth and transformation of our product portfolio.

By entering into such relationships, we obtain access to new technologies and solutions, which we can leverage with our existing expertise to optimize and expand our product portfolio.

Beyond Electrification, we also recognize the potential market impact of autonomous vehicles and advanced driver-assistance systems, and are developing sensors to facilitate development of this market by manufacturers of vehicles (light passenger, heavy on and off-road) and material handling equipment.

The technology-driven, highly-customized, and integrated nature of our products requires customers to invest heavily in certification and qualification to ensure proper functioning of the systems in which our products are embedded.

We believe the capital commitment and time required for this process significantly increases the switching costs for our customers once a particular sensor has been designed and installed in a system.

As a result, our sensors are rarely substituted during a product lifecycle, which in the case of the traditional automotive market historically lasts five to seven years.

We focus on new applications that will help us secure new business, drive long-term growth, and provide an opportunity to define a leading application technology in collaboration with our customers.

Our strategies of leveraging core technology platforms and focusing on high-volume applications enable us to provide our customers with highly-customized products at a relatively low cost, as compared to the costs of the systems in which our products are embedded.

We have achieved our current cost position through a continuous process of migration and transformation to best-cost manufacturing locations, global best-cost sourcing, product design improvements, and ongoing productivity-enhancing initiatives.

The coronavirus ("COVID-19") pandemic has caused widespread disruptions to our Company, employees, customers, suppliers, and communities since the first quarter of 2020.

We recognized the global impact of the COVID-19 pandemic early, and took a wide range of actions across our organization, designed to benefit the health and safety of employees, while also enabling us to respond to customer needs and enhance our financial flexibility during the pandemic.

We are continuing to work with local, state, and federal governmental health agencies in many countries, implementing measures to help protect employees and minimize the spread of COVID-19 in our communities.

In the third and fourth quarters of 2020, the global economy continued to rebound following a period of commercial lockdowns and quarantines instituted by governments around the world in response to the spread of COVID-19 earlier in the year.

Our response to that rebound has enabled our revenue to grow sequentially in the second half of fiscal year 2020, as we continue to deliver strong market outgrowth.

For fiscal year 2020, we delivered 880 basis points of market outgrowth in our heavy vehicle and off-road ("HVOR") business and 690 basis points of market outgrowth in our automotive business.

We continue to monitor all of our end markets and customers to ensure that our resources are balanced against forecasts and prioritized against critical growth opportunities.

Due in part to large-scale shutdowns early in 2020 caused by the COVID-19 pandemic, 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.

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.

New Business Wins

During fiscal year 2020, we closed $465 million in new business wins ("NBOs"), including $180 million in Electrification wins, higher than our average over the past five years.

We define NBOs as incremental revenue to our current base of business that is expected to be recognized on average in the fifth year after entry into the agreement, when the program typically reaches its normal volume.

We have demonstrated progress against our megatrend initiatives, such as Electrification, and intend to continue these efforts to expand our markets and provide strong growth and differentiation for the future.

We continue to believe investments in these megatrends, including technology collaborations and partnerships with third parties to expand our technological capabilities, will further our end market diversification, increase our long-term growth rate and provide important competitive advantages as these trends transform our world.

In addition, we believe that the overall market environment may provide meaningful opportunities to further strengthen our portfolio through strategically important, value-creating acquisitions.

Financial Flexibility

We have taken multiple steps to enhance our financial flexibility.

In the second quarter, we implemented various cost reduction activities, including temporary salary reductions and furloughs, resulting in savings in the second quarter of approximately $21.8 million, including the impact of government subsidies.

These salary reductions and furloughs did not continue in the third or fourth quarters.

However, we have continued working to align our long-term operating costs with future expected demand levels, maintaining lower levels of discretionary spending and keeping production in certain facilities at a level necessary to be in line with end market demand.

In addition, we reduced our capital expenditures for the year and are carefully managing our working capital.

Also in the second quarter, we initiated the Q2 2020 Global Restructure Program, discussed in more detail below.

We believe that we are in a strong financial position today, having generated $559.8 million of operating cash flow in fiscal year 2020.

Additionally, in the third quarter of 2020, we took advantage of historically low interest rates in issuing $750.0 million aggregate principal amount of 3.75% senior notes due 2031 (the "3.75% Senior Notes") under an indenture dated as of August 17, 2020.

In addition, on February 3, 2021, we announced that we intended to redeem in full the outstanding balance on our $750.0 million aggregate principal amount of 6.25% senior notes due 2026 (the "6.25% Senior Notes") in March 2021.

Refer to Note 14, “Debt,” of our Financial Statements for additional information on this planned redemption.

In taking these actions, we are extending the maturity of our debt profile and lowering our cost of capital.

Q2 2020 Global Restructure Program

On June 30, 2020, in response to the potential long-term impact of the global financial and health crisis caused by the COVID-19 pandemic on our business, we committed to a plan to reorganize our business (the "Q2 2020 Global Restructure Program"), which consists of voluntary and involuntary reductions-in-force and certain site closures in order to align our cost structure to the demand levels that we anticipated in the coming quarters.

This program is expected to impact approximately 880 positions.

We have taken a large portion of the actions contemplated under the Q2 2020 Global Restructure Program, with the majority expected to be completed on or before June 30, 2021.

Over the life of the Q2 2020 Global Restructure Program, we expect to incur restructuring charges of between $31.0 million and $33.7 million related to reductions-in-force and between $8.0 million and $10.0 million related to site closures.

We expect to settle these charges with cash on hand.

In fiscal year 2020, we recognized $24.5 million of severance charges related to the Q2 2020 Global Restructure Program.

As of December 31, 2020, our severance liability related to the Q2 2020 Global Restructure Program was $10.8 million.

Refer to Note 5, "Restructuring and Other Charges, Net," of our Financial Statements, for additional information on the Q2 2020 Global Restructure Program.

We continue to realize savings related to the Q2 2020 Global Restructure Program and from ongoing cost reduction activities and spend controls.

Such savings represented approximately $13 million in fiscal year 2020.

We expect that the actions taken as a result of the Q2 2020 Global Restructure Program will result in annualized savings of personnel- and facilities-related costs of approximately $43 million by 2021.

Sensata continued to deliver mission-critical, highly engineered solutions to our customers in 2021.

As we look towards 2022 and beyond, we are confident in our ability to sustain total outgrowth in the markets we serve of 400 to 600 basis points per year.

We use the term "market outgrowth" to describe the impact of an increasing quantity and value of our products used in customer systems and applications, above normal market growth.

It is only loosely correlated to normal unit demand fluctuations in the markets we serve.

We believe we can deliver this end market outgrowth based on our high levels of new business awards and our large and expanding pipeline of new opportunities.

In fiscal year 2021, we continued to produce strong market outgrowth of 960 basis points, including 860 basis points and 1,930 basis points in our automotive and heavy vehicle and off-road ("HVOR") businesses, respectively.

We are also targeting adding 400 to 600 basis points of inorganic revenue growth annually through acquisitions.

We believe that the overall business environment provides opportunities to further strengthen our portfolio through strategically important, value-creating acquisitions and/or joint ventures.

We are also pursuing new technology collaborations and partnerships with third parties to expand our capabilities and accelerate our megatrend-driven growth potential.

We will continue to innovate on behalf of our customers, solving some of their most demanding engineering challenges.

We will also continue to provide differentiated, Electrification and Insights solutions to our broad array of customers.

Solving these mission-critical challenges enables Sensata to continue to deliver differentiated value for both our customers and shareholders while also increasing investments in our growth opportunities and our people.

We continue to invest in our megatrend growth initiatives that are enabling large and rapidly growing opportunities for Sensata across all our end markets.

We are working to become a leading and foundational player in electrification components and sub-systems across broad industrial, transportation, and stationary energy storage end-markets and to be a comprehensive solutions provider in select end-market segments.

We are making progress in Electrification and Insights, both organically through new business wins and inorganically through bolt-on acquisitions or joint ventures.

To better pursue clean energy components and system opportunities, in the third quarter of 2021 we reorganized our Sensing Solutions operating segment, moving the portion of our electrical protection product category that includes high-voltage contactors, inverters, and battery management systems from the industrial business unit to a new business unit, Clean Energy Solutions.

This business unit will focus largely on the industrial and stationary, commercial/industrial energy storage end-markets.

Applications include e-bikes, stationary charging infrastructure, battery-energy storage, and renewable energy applications.

With the acquisition of Spear Power Systems ("Spear") and Sendyne Corp ("Sendyne") as described in Item 1:

Business – Business Combinations included elsewhere in this Report, we are expanding our portfolio with energy storage systems and electrical sensing products to expand on existing and new end-markets and applications.

These acquisitions expand on our capabilities in battery management systems and high-voltage contactors introduced with the previous acquisitions of Lithium Balance and GIGAVAC, LLC ("GIGAVAC"), respectively.

With our Insights megatrend initiative, we are focusing on becoming the leader in delivering data-driven insight, connectivity, and prognostics to commercial fleet operators and asset managers, by providing solutions that increase overall productivity and operational efficiency.

This initiative addresses a large and fast-growing market opportunity to deliver data insights across heavy, medium, and light vehicle fleets;

supply chain and logistics including cargo, container, and warehouse segments;

and high-value stationary asset monitoring.

As discussed in Item 1:

Business – Business Combinations included elsewhere in this Report, we acquired Xirgo Technologies, LLC ("Xirgo") and SmartWitness Holdings, Inc.

("SmartWitness") in fiscal year 2021, expanding our capabilities to provide data insights to transportation and logistics customers through telematics, video telematics, asset tracking devices, and other cloud-based solutions.

We continue our journey on Sensata's long-standing mission to help create a cleaner, safer, and more connected world, not just for our customer's products but also through our own operations.

We're on our way to achieving the targets laid out in our first sustainability report, bolstering the long-term sustainability and success of the company for all of its stakeholders.

Refer to Item 1:

Business included elsewhere in this Report for detailed discussion of our business strategies, including those related to our key megatrend initiatives, and market drivers of our business.

Fiscal Year 2021 Markets and Financial Results

We analyze revenue in terms of inorganic revenue growth/decline (i.e.

changes in foreign currency exchange rate and acquisitions/divestitures) vs organic revenue growth/decline (market growth and market outgrowth).

Market results

We believe regulatory requirements for safer vehicles, higher fuel efficiency, and lower emissions, as well as customer demand for operator productivity and convenience, drive the need for advancements in powertrain management, efficiency, safety, and operator controls.

These advancements lead to sensor growth rates that we expect to exceed underlying production growth in many of our key end-markets, which we expect will continue to offer us significant growth opportunities.

In fiscal year 2021, global production of light vehicles increased 1.2% from fiscal year 2020, according to third-party data.

This increase from the significant decline in 2020 was tempered due to global supply constraints, including shortages of semiconductor components.

Global production in the HVOR markets we serve increased 24% from fiscal year 2020.

Our China on-road truck business saw significant market outgrowth from the adoption of NS6 emissions regulations, and we are also benefiting from a wave of electromechanical operator controls being installed in new off-road equipment.

In addition, we have continued to see recovery in the global industrial end-markets.

Market outgrowth

We continue to produce strong market outgrowth, above our previously-stated target ranges.

For the year ended December 31, 2021, we delivered 960 basis points of market outgrowth, including 860 basis points, 1,930 basis points, and 580 basis points in our automotive, HVOR, and Sensing Solutions businesses, respectively.

During fiscal year 2021, we closed $640 million in new business wins ("NBOs"), including $270 million in Electrification wins, in each case the highest we have ever closed.

We define NBOs as incremental revenue to our current base of business that is expected to be recognized on average in the fifth year after entry into the agreement, when programs typically reach their normal volume.

Consolidated net revenue for the year ended December 31, 2021 increased 25.5% compared to the year ended December 31, 2020.

Excluding an increase of 2.3% attributed to changes in foreign currency exchange rates and an increase of 2.5% due to the effect of acquisitions, consolidated net revenue increased 20.7% on an organic basis compared to the year ended December 31, 2020.

Automotive net revenue for the year ended December 31, 2021 increased 17.6% compared to the year ended December 31, 2020.

Excluding an increase of 2.5% attributed to changes in foreign currency exchange rates, automotive net revenue increased 15.1% on an organic basis compared to the year ended December 31, 2020, representing market outgrowth of 860 basis points, excluding the estimated effects of original equipment manufacturer ("OEM") efforts to replenish inventory channels.

This outgrowth was led by new product launches in powertrain and emissions, safety, and electrification-related applications and systems.

HVOR net revenue for the year ended December 31, 2021 increased 63.3% compared to the year ended December 31, 2020.

Excluding an increase of 2.1% attributed to changes in foreign currency exchange rates and an increase of 14.8% due to the effect of acquisitions, HVOR net revenue increased 46.4% on an organic basis compared to the year ended December 31, 2020, representing market outgrowth of 1,930 basis points, excluding the estimated effects of OEM efforts to replenish inventory channels.

Sensing Solutions net revenue for the year ended December 31, 2021 increased 18.4% compared to the year ended December 31, 2020.

Excluding an increase of 1.7% attributed to changes in foreign currency exchange rates and an increase of 0.3% due to the effect of acquisitions, Sensing Solutions net revenue increased 16.4% on an organic basis compared to the year

ended December 31, 2020, representing market outgrowth of 580 basis points.

This outgrowth was driven by new Electrification launches.

Operating Income

We continue to see elevated costs related to the global supply chain shortages, which are causing production delays on a vast and varied number of products across industries and geographies and increased procurement and logistics costs, which are contributing to a higher cost and inflationary environment that has impacted our margins in fiscal year.

Despite these elevated costs, which we are working to mitigate, operating income increased $295.5 million, or 87.5%, to $633.2 million (16.6% of net revenue) compared to $337.7 million (11.1% of net revenue) in fiscal year 2020.

This increase is the result of (1) improved gross margins, due mainly to higher organic sales volumes as well as the turnaround effect of the settlement of litigation brought by Wasica Finance GmbH ("Wasica") in 2020, partially offset by increased costs related to global supply chain shortages, and (2) lower restructuring costs.

These improvements were partially offset by (1) higher spend to support megatrend growth initiatives, (2) higher incentive compensation aligned to improved financial performance, and (3) the turnaround effect of temporary salary reductions and furloughs taken in the second quarter 2020.

We expect to see constraints on global production of light vehicles lifting slowly throughout the course of fiscal year 2022.

Refer to Results of Operations — Operating Costs and Expenses included elsewhere in this Item 7:

Management's Discussion and Analysis of Financial Condition and Results of Operations (this "MD&A") for additional discussion of our operating costs and expenses.

Net income increased $199.3 million in fiscal year 2021, to $363.6 million, compared to $164.3 million in fiscal year 2020.

This increase was primarily a result of higher operating income partially offset by higher taxes and the loss on redemption of the $750.0 million aggregate principal amount of 6.25% senior notes due 2026 (the "6.25% Senior Notes").

Forward-looking information

We expect to see constraints on global production of light vehicles lifting slowly throughout the course of fiscal year 2022.

We expect low single-digit end market growth across all our markets in fiscal year 2022, with automotive growth of approximately 7% and HVOR production approximately flat.

However, in 2021, our customers ordered over production to compensate for supply chain shortages.

We estimate this amounted to approximately $90 million of revenue over production in 2021 that will not repeat in fiscal year 2022.

Our revenue outgrowth to market will continue to be driven by ongoing efforts to improve energy efficiency, safety, and the environment.

We continue to invest in our megatrend initiatives both organically and inorganically, with the acquisitions of Lithium Balance, Xirgo, Spear, SmartWitness, and Sendyne, expanding not only our capabilities, but also our access to end-markets and product portfolios in these pivotal areas.

Refer to Item 1:

Business — Business Combinations included elsewhere in this Report for additional information related to these acquisitions.

We expect continued significant growth in these megatrend areas over the coming years, driven by Electrification trends, the infrastructure requirements to support Electrification, and the proliferation of Insights on stationary and mobile equipment.

We have sufficient cash to take advantage of strategic opportunities as they arise.

We generated $554.2 million of operating cash flow in fiscal year 2021, ending the year with $1.7 billion in cash.

Our ability to generate positive cash flows allows us to continue to pursue the acquisition of innovative businesses that will expand our presence in our targeted growth vectors.

In November 2021, we resumed our share repurchase program, which we had previously suspended on April 2, 2020, and we repurchased 0.8 million shares for approximately $47.8 million in fiscal year 2021.

On January 20, 2022, we announced that our Board of Directors had authorized a new ordinary share repurchase program of $500 million (the “January 2022 Program”), which replaces the $500.0 million program previously authorized by our Board of Directors in July 2019 (the "July 2019 Program").

Sensata’s shareholders have previously approved the forms of share repurchase agreements and the potential broker counterparties needed to execute the buyback program.

Refer to Liquidity and Capital Resources included elsewhere in this MD&A for additional information related to our share repurchase program.

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 full amount outstanding on the 6.25% Senior Notes.

Subsequently, on March 29, 2021, we issued the first $750.0 million of the $1.0 billion aggregate principal amount of 4.0% senior notes due 2029 (the "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.

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.

Refer to Note 14:

Debt of our Financial Statements included elsewhere in this Report for additional information related to these transactions and our overall debt.

We completed various acquisitions in 2021 in support of our key strategic priorities.

A summary of these acquisitions is included in the table below:

(In millions) Segment Purchase Price

Acquisition Date Performance Sensing Sensing Solutions Cash Estimated Contingency

Lithium Balance (1)

January 29, 2021 X $ 27.2 $ —

Xirgo April 1, 2021 X $ 401.7 $ —

November 19, 2021 X $ 105.8 $ 8.6

SmartWitness (2)

November 19, 2021 X $ 204.2 $ —

December 8, 2021 X $ 25.1 $ —

__________________________

(1) Step acquisition completed on the date indicated

(2) Purchase price accounting is preliminary

(3) Contingency estimated as of the date of acquisition, subject to change

Refer to Item 1:

Business – Business Combinations and Note 21:

Acquisitions of our Financial Statements, each included elsewhere in this Report, for additional information related to these acquisitions.

During fiscal year 2021, we experienced continued positive momentum from the business and economic growth that began in the second half of 2020.

We responded well to the rapid changes in many of our end-markets, demonstrating the strength, resiliency, and reliability of our business and organizational model, enabling us to capitalize on the recovery in end-market demand and deliver on customers’ orders.

We will continue to focus on delivering differentiated value for both our customers and shareholders, while also increasing investments in our growth opportunities and our people.

Selected Segment Information

We operate in, and report financial information for, two reportable segments:

Performance Sensing and Sensing Solutions.

We present financial information for two reportable segments, Performance Sensing and Sensing Solutions.

Set forth below is selected information for each of these segments for the periods presented.

Amounts and percentages in the tables below have been calculated based on unrounded numbers.

Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

Amounts and percentages in the tables below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

The following table presents net revenue by segment for the identified periods:

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2021 2020 2019

(Dollars in millions) Amount Percent of Total Amount Percent of Total Amount Percent of Total

($ in millions) Amount Percent of Total Amount Percent of Total Amount Percent of Total

Performance Sensing $ 2,847.9 74.5 % $ 2,223.8 73.0 % $ 2,546.0 73.8 %

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The following table presents segment operating income in U.S.

dollars ("USD") and as a percentage of segment net revenue for the identified periods (prior period information has been recast to reflect revised presentation as discussed in Note 20, "Segment Reporting," of our Financial Statements):

dollars ("USD") and as a percentage of segment net revenue for the identified periods:

For the year ended December 31,

2021 2020 2019

(Dollars in millions) Amount Percent of

($ in millions) Amount Percent of

Net Revenue Amount Percent of

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Total segment operating income $ 1,070.4 $ 773.7 $ 964.4

For a reconciliation of total segment operating income to consolidated operating income, refer to Note 20, "Segment Reporting," of our Financial Statements.

For a reconciliation of total segment operating income to consolidated operating income, refer to Note 20:

Segment Reporting of our Financial Statements included elsewhere in this Report.

Selected Geographic Information

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Asia and rest of world 45.7 % 42.5 % 35.8 % 33.9 % 29.6 %

Refer to Note 20, "Segment Reporting," of our Financial Statements for additional information related to our PP&E, net by selected geographic area as of December 31, 2020 and 2019 and net revenue by selected geographic area for the years ended December 31, 2020, 2019, and 2018.

Refer to Note 20:

Segment Reporting of our Financial Statements included elsewhere in this Report for additional information related to our PP&E, net balances by selected geographic area as of December 31, 2021 and 2020 and net revenue by selected geographic area for the years ended December 31, 2021, 2020, and 2019.

Net Revenue by End-Market

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Automotive 54.0 % 57.5 % 58.8 %

16.7 % 16.2 % 15.6 %

HVOR 21.7 % 16.7 % 16.2 %

Industrial 10.8 % 11.0 % 10.2 %

Heating, ventilation and air conditioning ("HVAC")

Appliance and HVAC (1)

6.4 % 6.2 % 5.8 %

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Other 3.6 % 4.1 % 3.9 %

__________________________

(1) Heating, ventilation and air conditioning

We are a significant supplier to multiple OEMs within many of these end-markets, thereby reducing customer concentration risk.

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The following discussion describes components of the consolidated statements of operations as well as factors that impact those components.

Refer to Note 2, "Significant Accounting Policies," of our Financial Statements, and Critical Accounting Policies and Estimates included elsewhere in this MD&A for additional information on the accounting policies and estimates made related to these components.

Refer to Note 2:

Significant Accounting Policies of our Financial Statements included elsewhere in this Report, and Critical Accounting Policies and Estimates included elsewhere in this MD&A for additional information related to the accounting policies and estimates made related to these components.

Refer to Results of Operations included elsewhere in this MD&A for discussion of the actual impact on our financial statements of these factors.

We generate revenue primarily from the sale of tangible products.

Because we derive a significant portion of our revenue

from sales into the automotive end market, conditions in the automotive industry can have a significant impact on the amount of revenue that we recognize.

Because we derive a significant portion of our revenue from sales into the automotive end-market, conditions in the automotive industry can have a significant impact on the amount of revenue that we recognize.

However, outside of the automotive industry, we sell our products to end-users in a wide range of industries, end-markets, and geographic regions.

As a result, the drivers of demand for these products vary considerably and are influenced by the conditions in these industries, end markets, or geographic regions.

Our overall net revenue is impacted by various factors, which we characterize as either "organic" or "inorganic." Organic factors are reflective of our ongoing operations.

Inorganic factors are either not reflective of our historical business or related to situations for which we have little to no control (e.g.

changes in foreign currency exchange rates).

As a result, the drivers of demand for these products vary considerably and are influenced by industry, market, or geographic conditions.

Our overall net revenue is impacted by various factors, which we characterize as either "organic" or "inorganic."

Our net revenue may be impacted by the following organic factors:

• fluctuations in overall economic activity within the geographic regions in which we operate;

• underlying growth in one or more of our core end markets, either worldwide or in particular geographies in which we operate;

• underlying growth in one or more of our end-markets, either worldwide or particular geographies in which we operate;

• the number of our products used within existing applications, or the development of new applications requiring these products, due to regulations or other factors;

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• our ability to successfully develop, launch, and sell new products and applications;

• the trend of the automotive market evolving from internal combustion engine powertrain products to more environmentally-friendly vehicles that rely more heavily on Electrification and other adjacent technologies.

Our net revenue may be impacted by the following inorganic factors:

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• acquisitions and divestitures.

While the factors described above may impact net revenue in each of our reportable segments, the impact of these factors on our reportable segments can differ.

For more information about revenue risks relating to our business, refer to Item 1A, "Risk Factors," included elsewhere in this Report.

While the factors described above may impact net revenue in each of our reportable segments, the magnitude of that impact can differ.

For more information about revenue risks relating to our business, refer to Item 1A:

Risk Factors included elsewhere in this Report.

Cost of revenue

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• Production Materials Costs.

We purchase much of the materials used in production on a global best-cost basis, but we are still impacted by global and local market conditions, including fluctuations in foreign currency exchange rates.

A portion of our production materials contains certain commodities, resins, and rare earth metals, and the cost of these materials may vary with underlying pricing.

However, we enter into forward contracts to economically hedge a portion of our exposure to the potential change in prices associated with certain of these commodities.

We source materials used in production on a global basis to ensure a highly-effective and efficient supply chain, but we are still impacted by local market conditions, including fluctuations in foreign currency exchange rates.

A portion of our production materials contains certain commodities, resins, and metals, and the cost of these materials may vary with underlying pricing and foreign currency exchange rates.

However, we enter into forward contracts to economically hedge a portion of our exposure to the potential change in prices and fluctuation of exchange rates associated with certain of these commodities.

The terms of these contracts fix the price at a future date for various notional amounts associated with these commodities.

Gains and losses recognized on these derivatives are recorded in other, net and are not included in cost of revenue.

Refer to Note 6, "Other, Net," of our Financial Statements for additional information.

Refer to Note 6:

Other, Net of our Financial Statements included elsewhere in this Report for additional information.

• Employee Costs.

Employee costs include wages and benefits for employees involved in our manufacturing operations and certain engineering activities, including variable incentive compensation.

Employee costs include wages and benefits, including variable incentive compensation, for employees involved in our manufacturing operations and certain customer service and engineering activities, including variable incentive compensation.

A significant portion of these costs can fluctuate on an aggregate basis in direct correlation with changes in production volumes.

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• Sustaining Engineering Activity Costs.

These costs relate to modifications of existing products for use by new and existing customers in familiar applications.

These costs relate to modifications of existing products for use by new and existing customers in familiar applications as well as improvements made to our manufacturing processes.

Our remaining cost of revenue primarily consists of:

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◦ maintenance and repair expenses;

◦ costs of quality assurance;

◦ operating supplies;

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• changes in the price of raw materials, including the impact of changes in costs to import such raw materials, such as tariffs;

• price reductions provided to our customers;

• changes in customer prices and surcharges;

• implementation of cost improvement measures aimed at increasing productivity, including reduction of fixed production costs, refinements in inventory management, design and process driven changes, and the coordination of procurement within each subsidiary and at the business level;

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Research and development expense

We develop products that address increasingly complex engineering and operating performance requirements to help our customers solve their most difficult challenges in the automotive, HVOR, industrial, and aerospace industries.

We believe that continued focused investment in research and development ("R&D") is critical to our future growth and maintaining our leadership positions in the markets we serve.

Our R&D efforts are directly related to timely development of new and enhanced products that are central to our business strategy.

We continuously develop our technologies to meet an evolving set of customer requirements and new product introductions.

We conduct such activities in areas that we believe will increase our

long-term revenue growth.

We continually develop our technologies to meet an evolving set of customer requirements and new product introductions.

We conduct such activities in areas that we believe will increase our long-term revenue growth.

Our development expense is typically associated with engineering core technology platforms to specific applications and engineering major upgrades that improve the functionality or reduce the cost of existing products.

In addition, we continually consider new technologies where we may have expertise for potential investment or acquisition.

An increasing portion of our R&D activities are being directed towards technologies and megatrends that we believe have the potential for significant future growth, but relate to products that are not currently within our core business or include new features and capabilities for existing products.

An increasing portion of our R&D activities are being directed towards technologies and megatrends that we believe have the potential for significant future growth, but that relate to products that are not currently within our core business or include new features and capabilities for existing products.

Expenses related to these activities are less likely to result in increased near-term revenue than our more mainstream development activities.

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expenses relating to our sales and marketing personnel can fluctuate due to prolonged trends in sales volume, while expenses relating to administrative personnel generally do not increase or decrease directly with changes in sales volume);

• price reductions provided to our customers;

• changes in customer prices and surcharges;

• changes in the mix of products we sell, as some products may require more customer support and sales effort than others;

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This indebtedness consists of a secured credit facility and senior unsecured notes.

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

Refer to Note 14:

Debt of our Financial Statements included elsewhere in this Report for additional information.

The credit agreement governing our secured credit facility (as amended, the "Credit Agreement") provides for senior secured credit facilities (the "Senior Secured Credit Facilities") consisting of a term loan facility (the "Term Loan"), the $420.0 million revolving credit facility (the "Revolving Credit Facility"), and incremental availability (the "Accordion") under which additional secured credit facilities could be issued under certain circumstances.

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However, the Term Loan and the Revolving Credit Facility accrue interest at variable interest rates, which drives some of the variability in interest expense, net.

Refer to Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," included elsewhere in this Report for more information regarding our exposure to potential changes in variable interest rates.

Refer to Item 7A:

Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this Report for more information regarding our exposure to potential changes in variable interest rates.

Interest income, which is netted against interest expense on the consolidated statements of operations, relates to interest earned on our cash and cash equivalent balances, and varies according to the balances in, and the interest rates provided by, these investments.

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Amounts recognized in other, net vary according to changes in foreign currency exchange rates, changes in the forward prices for the foreign currencies and commodities that we hedge, the number and magnitude of debt financing transactions we undertake, and the change in funded status of our pension and other post-retirement benefit plans.

Refer to Note 6, "Other, Net," of our Financial Statements for additional information related to the components of other, net.

Refer to Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," included elsewhere in this Report for additional information related to our exposure to potential changes in foreign currency exchange rates and commodity prices.

Refer to Note 14, "Debt," of our Financial Statements for additional information related to our debt financing transactions.

Provision for/(benefit from) income taxes

Refer to Note 6:

Other, Net of our Financial Statements included elsewhere in this Report for additional information related to the components of other, net.

Refer to Item 7A:

Quantitative and Qualitative Disclosures About Market Risk included elsewhere

in this Report for additional information related to our exposure to potential changes in foreign currency exchange rates and commodity prices.

Refer to Note 14:

Debt of our Financial Statements included elsewhere in this Report for additional information related to our debt financing transactions.

Provision for (or benefit from) income taxes

We are subject to income tax in the various jurisdictions in which we operate.

The provision for/(benefit from) income taxes consists of:

The provision for (or benefit from) income taxes consists of:

• current tax expense, which relates primarily to our profitable operations in non-U.S.

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• establishing or releasing a portion of the valuation allowance related to our gross deferred tax assets;

• foreign tax rate differential - we operate in locations outside the U.S., including Bermuda, Bulgaria, China, Malaysia, the Netherlands, South Korea, and the U.K., that historically have had statutory tax rates different than the U.S.

• foreign tax rate differential - we operate in locations outside the U.S., including Belgium, Bulgaria, China, Malaysia, Malta, the Netherlands, South Korea, and the U.K., that historically have had statutory tax rates different than the U.S.

statutory tax rate.

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This foreign tax rate differential can change from year to year based upon the jurisdictional mix of earnings and changes in current and future enacted tax rates, tax holidays, and favorable tax regimes available to certain of our foreign subsidiaries;

• changes in tax laws, including emerging Organization for Economic Co-operation and Development guidelines and European Commission challenges to sovereign European Union member states;

• changes in tax laws and rates, also Organization for Economic Co-operation and Development ("OECD") developments and European Commission ("EC") challenges to sovereign European Union member states;

• losses incurred in certain jurisdictions, which cannot be currently benefited, as it is not more likely than not that the associated deferred tax asset will be realized in the foreseeable future;

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• as a result of income tax audit settlements, final assessments, or lapse of applicable statutes of limitation, we may recognize an income tax expense or benefit including the reversal of previously accrued interest and penalties;

• in certain jurisdictions, we recognize withholding and other taxes on intercompany payments, including dividends.

Refer to Item 1, "Business," included elsewhere in this Report for discussion of our assessment of seasonality related to our business.

With the exception of the effects of fluctuations in foreign currency exchange rates, which are discussed elsewhere in this MD&A if material, we do not believe that inflation has had a material effect on our financial condition or results of operations in recent years.

• in certain jurisdictions, we recognize withholding and other taxes on intercompany payments, including dividends, and such taxes are deducted if they cannot be credited against the recipient's tax liability in its country of residence.

Refer to Item 1:

Business included elsewhere in this Report for discussion of our assessment of seasonality related to our business.

Legal Proceedings

Refer to Item 3, "Legal Proceedings," included elsewhere in this Report for discussion of legal proceedings related to our business.

Refer to Item 3:

Legal Proceedings included elsewhere in this Report for discussion of legal proceedings related to our business.

Results of Operations

Our discussion and analysis of results of operations are based upon our Financial Statements.

Our discussion and analysis of results of operations are based upon our Financial Statements included elsewhere in this Report.

The Financial Statements have been prepared in accordance with U.S.

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Actual results could differ from our estimates under different assumptions or conditions.

Our significant accounting policies and estimates are more fully described in Note 2, "Significant Accounting Policies," of our Financial Statements, and Critical Accounting Policies and Estimates included elsewhere in this MD&A.

Our significant accounting policies and estimates are more fully described in Note 2:

Significant Accounting Policies of our Financial Statements included elsewhere in this Report and Critical Accounting Policies and Estimates included elsewhere in this MD&A.

The table below presents our historical results of operations in millions of dollars and as a percentage of net revenue.

We have derived these results of operations from our Financial Statements.

Amounts and percentages in the table below have been calculated based on unrounded numbers.

Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

Amounts and percentages in the table below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

For the year ended December 31,

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Income before taxes 413.9 10.8 165.6 5.4 390.4 11.3

Provision for/(benefit from) income taxes 1.4 0.0 107.7 3.1 (72.6) (2.1)

Provision for income taxes 50.3 1.3 1.4 0.0 107.7 3.1

Net income $ 363.6 9.5 % $ 164.3 5.4 % $ 282.7 8.2 %

Net revenue - Overall

Net revenue declined 11.7% in fiscal year 2020 largely due to end-market contraction caused by the COVID-19 pandemic.

Excluding an increase of 0.2% attributed to changes in foreign currency exchange rates, net revenue in fiscal year 2020 declined 11.9% on an organic basis.

This represents a market outgrowth of 600 basis points.

Organic revenue growth (or decline), presented throughout this MD&A, is a financial measure not presented in accordance with U.S.

Refer to the section entitled Non-GAAP Financial Measures below for additional information related to our use of organic revenue growth (or decline).

Net revenue declined 2.0% in fiscal year 2019 primarily due to a somewhat weaker automotive end market.

Excluding a decline of 0.2% related to acquisitions and divestitures and a decline of 0.7% related to changes in foreign currency exchange rates, net revenue in fiscal year 2019 declined 1.1% on an organic basis.

Net revenue for the year ended December 31, 2021 increased 25.5% compared to the year ended December 31, 2020 largely due to improved market results and our continued outperformance relative to those markets.

Excluding an increase of 2.3% attributed to changes in foreign currency exchange rates and an increase of 2.5% due to the effect of acquisitions, net revenue increased 20.7% on an organic basis compared to the year ended December 31, 2020.

This represents market outgrowth of 960 basis points.

Organic revenue growth (or decline), discussed throughout this MD&A, is a financial measure not presented in accordance with U.S.

Refer to Non-GAAP Financial Measures included elsewhere in this MD&A for additional information related to our use of organic revenue growth (or decline).

Net revenue for the year ended December 31, 2020 declined 11.7% compared to the year ended December 31, 2019 largely due to end-market contraction caused by the COVID-19 pandemic.

Excluding an increase of 0.2% attributed to changes in foreign currency exchange rates, net revenue declined 11.9% on an organic basis compared to the year ended December 31, 2019.

This represents market outgrowth of 650 basis points.

Net Revenue - Performance Sensing

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fiscal year 2020

Performance Sensing net revenue declined 12.7% in fiscal year 2020, driven primarily by impacts from the COVID-19 pandemic.

Excluding an increase of 0.1% attributed to changes in foreign currency exchange rates, Performance Sensing net revenue declined 12.8% on an organic basis.

The overall net revenue decline in fiscal year 2020 was reduced in the second half of the year as OEM customers ramped production within their facilities through the half in an effort to replace production lost during shut-downs earlier in the year.

The Performance Sensing results in fiscal year 2020 represent market outgrowth of 770 basis points.

In addition, price reductions of 1.5%, primarily to automotive customers, contributed to the Performance Sensing organic revenue decline.

Net revenue in our automotive business declined 13.6% in fiscal year 2020, or 13.9% on an organic basis.

These results represented market outgrowth of 690 basis points compared to the combination of an automotive market that was down 18.5% and the impact of OEM customers working down inventory.

This market outgrowth continues to be led by new product

launches in emissions, electrification, and safety-related applications and systems.

A high level of automotive production in the fourth quarter resulted in customers using more inventory on hand to fill orders, negatively impacting fiscal year 2020 revenue.

However, as our customers restock inventory in 2021, we expect to recover much of that decline.

Global automotive production is expected to grow in fiscal year 2021, as the industry seeks to address low inventory levels at the end of 2020.

In addition, we expect market outgrowth in our automotive business to be in the range of 400 to 600 basis points for fiscal year 2021.

Net revenue in our HVOR business declined 9.2% in fiscal year 2020, on a reported and an organic basis.

Performance Sensing net revenue for the year ended December 31, 2021 increased 28.1% compared to the year ended December 31, 2020.

Excluding an increase of 2.4% attributed to changes in foreign currency exchange rates and an increase of 3.4% due to the effect of acquisitions, Performance Sensing net revenue increased 22.3% on an organic basis compared to the year ended December 31, 2020, representing market outgrowth of 1,170 basis points.

Price reductions, primarily to automotive customers, resulted in a 0.9% decrease in net revenue, and the impact of these price reductions is included in the 1,170 basis points of market outgrowth recognized by Performance Sensing.

Both the Automotive and HVOR operating segments contributed to these results as discussed below.

Automotive net revenue for the year ended December 31, 2021 increased 17.6% compared to the year ended December 31, 2020.

Excluding an increase of 2.5% attributed to changes in foreign currency exchange rates, automotive net revenue increased 15.1% on an organic basis compared to the year ended December 31, 2020.

Although automotive production was constrained due to global supply chain shortages, resulting in muted end-market growth of 1.2% for the year, we delivered organic revenue growth due to our continued outperformance relative to the automotive market, led by new product launches in powertrain and emissions, safety, and electrification-related applications and systems.

Excluding the estimated effects of OEM efforts to replenish inventory channels, automotive outgrew its end-markets by 860 basis points in the year ended December 31, 2021.

HVOR net revenue for the year ended December 31, 2021 increased 63.3% compared to the year ended December 31, 2020.

This organic revenue increase is primarily due to recovery of customer production combined with our continued outperformance relative to the HVOR markets.

Excluding the estimated effects of OEM efforts to replenish inventory channels, HVOR outgrew its end-markets by 1,930 basis points in the year ended December 31, 2021.

Fiscal year 2020 vs.

fiscal year 2019

Performance Sensing net revenue for the year ended December 31, 2020 declined 12.7% compared to the year ended December 31, 2019.

Excluding an increase of 0.1% attributed to changes in foreign currency exchange rates, Performance Sensing net revenue declined 12.8% on an organic basis compared to the year ended December 31, 2019, representing market outgrowth of 770 basis points.

Price reductions, primarily to automotive customers, resulted in a 1.5% decrease in net revenue, and the impact of these price reductions is included in the 770 basis points of market outgrowth recognized by Performance Sensing.

The organic revenue decline was driven primarily by impacts from the COVID-19 pandemic, which was mitigated in the second half of the year as OEM customers ramped production within their facilities through the half in an effort to replace production lost during shut-downs earlier in the year.

The Performance Sensing results in fiscal year 2020 represented

Automotive net revenue for the year ended December 31, 2020 declined 13.6% compared to the year ended December 31, 2019.

Excluding an increase of 0.3% attributed to changes in foreign currency exchange rates, Automotive net revenue declined 13.9% on an organic basis compared to the year ended December 31, 2019.

These results represented market outgrowth of 690 basis points compared to the combination of an automotive market that was down 18.5% and the impact of OEM customers working down inventories.

This market outgrowth continues to be led by new product launches in emissions, electrification, and safety-related applications and systems.

A high level of automotive production in the fourth quarter of 2020 resulted in customers using more inventory on hand to fill orders, negatively impacting fiscal year 2020 net revenue.

HVOR net revenue for the year ended December 31, 2020 declined 9.2% compared to the year ended December 31, 2019 on both a reported and an organic basis.

These results represented market outgrowth of 880 basis points compared to an HVOR market that was down 18.0%.

Our China on-road truck business continued to post better than expected growth as a result of the accelerated adoption of NS6 emissions regulations.

We expect market outgrowth in our HVOR business to be in the range of 600 to 800 basis points for fiscal year 2021.

Net Revenue - Sensing Solutions

Fiscal year 2021 vs.

fiscal year 2020

Performance Sensing net revenue declined 3.1% in fiscal year 2019.

Excluding a decline of 1.9% related to acquisitions and divestitures and a decline of 0.7% related to changes in foreign currency exchange rates, Performance Sensing net revenue declined 0.5% on an organic basis.

In addition, price reductions of 1.6%, primarily to automotive customers, contributed to the Performance Sensing organic revenue decline.

Net revenue in our automotive business declined 4.3% in fiscal year 2019, or 0.9% on an organic basis.

These results represented market outgrowth compared to an automotive market that was down 5.6%.

All of our major geographic markets contributed to this market outgrowth, but most notably China.

Net revenue in our HVOR business grew 1.6% in fiscal year 2019, or 0.9% on an organic basis.

These results represented market outgrowth compared to an HVOR market that was down 5.5%.

This market outgrowth was primarily related to our business in China as well as in the agriculture and on-road truck markets.

Net Revenue - Sensing Solutions

Sensing Solutions net revenue for the year ended December 31, 2021 increased 18.4% compared to the year ended December 31, 2020.

The increase in net revenue was driven by the continued recovery of global industrial end-markets, as well as new Electrification launches and HVAC market recovery.

Fiscal year 2020 vs.

fiscal year 2019

Sensing Solutions net revenue declined 9.2% in fiscal year 2020 on a reported and an organic basis.

Sensing Solutions net revenue for the year ended December 31, 2020 declined 9.2% compared to the year ended December 31, 2019 on both a reported and an organic basis.

This decrease was the result of year over year declines in the industrial, appliance and HVAC, and aerospace end-markets.

The global industrial and appliance and HVAC end-markets began recovering in the fourth quarter of 2020, which, in addition to supply chain restocking, reflected strong growth in HVAC and 5G applications.

The decline in the aerospace industry has continued throughout the year, reflecting reduced OEM production and significantly lower air traffic.

New product launches in the fourth quarter, primarily in the defense market, partially offset this decline.

Fiscal year 2019 vs.

fiscal year 2018

Sensing Solutions net revenue increased 1.2% in fiscal year 2019.

Excluding an increase of 4.6% related to acquisitions and divestitures and a decline of 0.7% related to changes in foreign currency exchange rates, Sensing Solutions net revenue declined 2.7% on an organic basis.

The organic revenue decline was primarily attributable to weakness in the industrial markets we serve.

This market weakness is consistent with trends in certain indicators of demand, such as global manufacturing Purchasing Managers' Index ("PMI") data, which is signaling continued demand contraction, consistent with slowing customer production and reductions in inventory.

Our industrial growth in China is particularly weak as exports out of China have further slowed as a result of tariffs and global trade actions.

The decline in the aerospace industry continued throughout fiscal year 2020, reflecting reduced OEM production and significantly lower air traffic.

New product launches in the fourth quarter of 2020, primarily in the defense market, partially offset this decline.

Operating costs and expenses

Operating costs and expenses for the years ended December 31, 2021, 2020, and 2019 are presented, in millions of dollars and as a percentage of revenue, in the following table.

Amounts and percentages in the table below have been calculated based on unrounded numbers.

Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

Amounts and percentages in the table below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

For the year ended December 31,

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Cost of revenue

Cost of revenue as a percentage of net revenue increased in fiscal year 2020 primarily as a result of (1) productivity headwinds from lower volume, the resulting lower than normal capacity, and increased costs related to the COVID-19 pandemic, (2) a $29.2 million loss related to a judgment against us in intellectual property litigation brought against Schrader by Wasica Finance GmbH ("Wasica") in the first quarter of 2020 (settled in the third quarter 2020), and (3) higher compensation to retain and incentivize critical employee talent, partially offset by (1) the impact of ongoing savings resulting from cost reduction activities taken in fiscal years 2019 and 2020, (2) the favorable effect of changes in foreign currency exchange rates, and (3) savings from temporary cost reductions in the second quarter of 2020 (including salary reductions and furloughs).

Refer to Note 15, "Commitments and Contingencies," of our Financial Statements for additional information regarding the intellectual property litigation with Wasica.

We expect that the actions taken as part of the Q2 2020 Global Restructure Program will result in improvements of our cost of revenue as a percentage of revenue in future quarters.

Refer to the Q2 2020 Global Restructure Program section earlier in this MD&A for a more detailed discussion of expected savings under the Q2 2020 Global Restructure Program.

However, we believe that the impact of a global microchip shortage that the entire industry is currently experiencing will adversely impact our operating costs in fiscal year 2021.

Cost of revenue as a percentage of net revenue increased in fiscal year 2019 primarily as a result of (1) organic revenue decline, (2) negative mix due to new product launches, (3) the impact of acquisitions and divestitures, and (4) increased tariff costs, partially offset by (1) the favorable effect of changes in foreign currency exchange rates and (2) lower variable compensation.

Cost of revenue as a percentage of net revenue decreased in fiscal year 2021 primarily as a result of (1) higher volume and the nonrecurrence of productivity headwinds from our manufacturing facilities running at lower than normal capacity in fiscal year 2020 and (2) the nonrecurrence of a $29.2 million loss from fiscal year 2020 in intellectual property litigation originally brought against August Cayman Company, Inc.

("Schrader") by Wasica.

These favorable impacts on cost of revenue as a percentage of revenue were partially offset by increased costs related to global supply chain shortages.

These unfavorable impacts were partially offset by (1) the impact of ongoing savings resulting from cost reduction activities taken in fiscal years 2019 and 2020, (2) the favorable effect of changes in foreign currency exchange rates, and (3) savings from temporary cost reductions in fiscal year 2020 (including salary reductions and furloughs).

Research and development expense

R&D expense increased in fiscal year 2021 primarily as a result of (1) higher spend to support megatrend growth initiatives, (2) incremental R&D expense related to acquired businesses, and (3) the unfavorable effect of changes in foreign currency exchange rates, partially offset by the impact on fiscal year 2021 of ongoing savings resulting from cost reduction activities taken in fiscal year 2020.

R&D expense related to megatrends in fiscal year 2021 was $48.0 million, an increase of $22.0 million from fiscal year 2020.

We currently expect approximately $60 million to $70 million in total spend related to megatrends in fiscal year 2022, the majority of which will be recorded as R&D expense.

R&D expense decreased in fiscal year 2020 primarily as a result of the impact of ongoing savings resulting from cost reduction activities taken in fiscal years 2019 and 2020, somewhat offset by increased R&D expense related to our megatrend initiatives.

R&D expense related to our megatrend initiatives was $26.1 million in fiscal year 2020, an increase of $6.8 million from fiscal year 2019.

We currently expect approximately $50 million to $55 million in total megatrend-related spend in 2021, the majority of which is expected to be in R&D.

R&D expense did not materially change in fiscal year 2019 compared to fiscal year 2018 as increased design and development effort to support new design wins and fund megatrends was offset by the favorable effect of changes in foreign currency exchange rates, primarily the Euro and British Pound Sterling.

Selling, general and administrative expense

SG&A expense increased in fiscal year 2020 primarily as a result of (1) higher compensation to retain and incentivize critical employee talent, (2) increased costs related to enhancements and improvements to our global operating processes to increase productivity, and (3) incremental SG&A related to acquired businesses, partially offset by (1) the impact of ongoing savings resulting from cost reduction activities taken in fiscal years 2019 and 2020 and (2) savings from temporary cost reductions in the second quarter of 2020 (including salary reductions and furloughs).

SG&A expense decreased in fiscal year 2019 primarily due to (1) lower variable compensation, (2) lower selling costs, (3) the divestiture of the Valves Business, (4) the favorable effect of changes in foreign currency exchange rates (primarily the Euro, Chinese Renminbi, and British Pound Sterling), and (5) lower costs related to our redomicile in the prior year, partially offset by additional SG&A expense related to GIGAVAC.

SG&A expense increased in fiscal year 2021 primarily as a result of (1) incremental SG&A expense related to acquired businesses, including related transaction costs, (2) higher incentive compensation aligned to improved financial performance, (3) increased selling expenses attributed to organic revenue growth, and (4) the unfavorable impact of changes in foreign currency exchange rates.

These increases were partially offset by the fiscal year 2020 completion of a project related to enhancements and improvements of our global operating processes to increase productivity and the resulting reduction in professional fees.

SG&A expense increased in fiscal year 2020 primarily as a result of (1) higher incentive compensation to retain and incentivize critical employee talent, (2) increased costs related to enhancements and improvements of our global operating processes to

increase productivity, and (3) incremental SG&A related to acquired businesses, partially offset by (1) the impact of ongoing savings resulting from cost reduction activities taken in fiscal years 2019 and 2020 and (2) savings from temporary cost reductions in fiscal year 2020 (including salary reductions and furloughs).

Amortization of intangible assets

Amortization expense decreased in fiscal year 2020 primarily as a result of the effect of the economic-benefit method of amortization.

Amortization expense increased in fiscal year 2021 primarily as a result of increased intangibles from recent acquisitions partially offset by the effect of the economic-benefit method of amortization as described in Note 2:

Significant Accounting Policies of our Financial Statements included elsewhere in this Report.

We expect amortization expense to be approximately $140.8 million in fiscal year 2022.

Refer to Note 11, "Goodwill and Other Intangible Assets, Net," of our Financial Statements for additional information regarding definite-lived intangible assets and the related amortization.

Amortization expense increased in fiscal year 2019 primarily due to the intangible assets acquired with GIGAVAC, partially offset by the effect of the economic-benefit method of amortization.

Refer to Note 11:

Goodwill and Other Intangible Assets, Net of our Financial Statements included elsewhere in this Report for additional information regarding definite-lived intangible assets and the related amortization.

Amortization expense decreased in fiscal year 2020 primarily as a result of the effect of the economic-benefit method of amortization.

Restructuring and other charges, net

Restructuring and other charges, net decreased in fiscal year 2021 primarily due to lower restructuring charges incurred as part of a plan commenced in fiscal year 2020 to reorganize our business in response to the potential long-term impact of the global financial and health crisis caused by the COVID-19 pandemic (the “Q2 2020 Global Restructure Program”).

Refer to Note 5:

Restructuring and Other Charges, Net of our Financial Statements included elsewhere in this Report for additional information related to the Q2 2020 Global Restructure Program.

Restructuring and other charges, net decreased in fiscal year 2020 primarily due to the nonrecurrence of certain charges incurred in fiscal year 2019 partially offset by charges incurred under the Q2 2020 Global Restructure Program.

The fiscal year 2019 charges that did not recur include (1) a $17.8 million loss related to the termination of a supply agreement in connection with the Metal Seal Precision, Ltd.

("Metal Seal") litigation, (2) $12.7 million of benefits provided under a voluntary retirement incentive program offered to a limited number of eligible employees in the U.S., and (3) $6.5 million of termination benefits provided under a one-time benefit arrangement related to the shutdown and relocation of an operating site in Germany.

Restructuring and other charges, net for the years ended December 31, 2021, 2020, and 2019 consisted of the following (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

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Facility and other exit costs 2.4 1.3 0.8

Gain on sale of Valves Business (3)

Restructuring and other charges, net $ 14.9 $ 33.1 $ 53.6

__________________________

(1) Refer to Q2 2020 Global Restructure Program section elsewhere in this MD&A for additional discussion related to the Q2 2020 Global Restructure Program.

(1) The Q2 2020 Global Restructure Program was completed in fiscal year 2021, with approximately 840 positions impacted.

Since inception of the Q2 2020 Global Restructure Program, we have recognized cumulative costs of $33.2 million, of which $28.4 million related to severance charges and $4.8 million related to facility and other exit costs.

(2) For each of the years ended December 31, 2021, 2020, and 2019, these charges include termination benefits provided in connection with workforce reductions of manufacturing, engineering, and administrative positions, including the elimination of certain positions related to site consolidations, net of reversals.

For the year ended December 31, 2020, these charges related to termination benefits arising from the shutdown and relocation of operating sites in Northern Ireland and Belgium.

For the year ended December 31, 2019, these charges included approximately $12.7 million of benefits provided under a voluntary retirement incentive program offered to a limited number of eligible employees in the U.S., and $6.5 million of termination benefits provided under a one-time benefit arrangement related to the shutdown and relocation of an operating site in Germany.

(3) In the year ended December 31, 2018, we completed the sale of the Valves Business.

The gain on this sale was recorded in restructuring and other charges, net.

For the year ended December 31, 2020, these charges also related to termination benefits arising from the shutdown and relocation of operating sites in Northern Ireland and Belgium.

For the year ended December 31, 2019, these charges also included approximately $12.7 million of benefits provided under a voluntary retirement incentive program offered to a limited number of eligible employees in the U.S., and $6.5 million of termination benefits provided under a one-time benefit arrangement related to the shutdown and relocation of an operating site in Germany.

(3) Represents charges that are not included in one of the other classifications.

In the year ended December 31, 2020, we settled intellectual property litigation brought against Schrader by Wasica and released $11.7 million of the related liability.

This release largely offset a charge of $12.1 million resulting from a prejudgment interest-related award granted by the court on behalf of Wasica in the three months ended June 30, 2020.

Refer to Note 15, "Commitments and Contingencies," of our Financial Statements for additional information related to this matter.

In the year ended December 31, 2019, we recognized a $17.8 million loss related to the termination of a supply agreement in connection with the Metal Seal Precision, Ltd.

("Metal Seal") litigation.

In the year ended December 31, 2018, we incurred $5.9 million of incremental direct costs in order to transact the sale of the Valves Business.

For each of the years ended December 31, 2020, 2019, and 2018, we recorded expense related to the deferred compensation arrangement that we entered into in connection with the acquisition of GIGAVAC in the year ended December 31, 2018.

In the year ended December 31, 2019, we recognized a $17.8 million loss related to the termination of a supply agreement in connection with the Metal Seal litigation.

Refer to Note 5:

Restructuring and Other Charges, Net of our Financial Statements included elsewhere in this Report for additional information related to our restructuring and other charges, net.

Operating income

In fiscal year 2021, operating income increased $295.5 million or 87.5%, to $633.2 million (16.6% of net revenue) compared to $337.7 million (11.1% of net revenue) in fiscal year 2020.

This increase was primarily driven by (1) improved gross margins, due mainly to higher organic sales volumes as well as the turnaround effect of the Wasica litigation settlement in fiscal year 2020, partially offset by increased costs related to global supply chain shortages, and (2) lower restructuring costs.

In fiscal year 2020, operating income decreased $219.1 million or 39.4%, to $337.7 million (11.1% of net revenue) compared to $556.9 million (16.1% of net revenue) in fiscal year 2019.

This decrease was primarily driven by:

• the impacts of the COVID-19 pandemic, most significantly lower revenues, productivity headwinds from our manufacturing facilities running at lower than normal capacity, and increased COVID-19 related costs;

(1) the impacts of the COVID-19 pandemic, most significantly lower revenues, productivity headwinds from our manufacturing facilities running at lower than normal capacity, and increased costs related to the COVID-19 pandemic;

(2) charges related to the intellectual property litigation brought against Schrader by Wasica, which was settled in the third quarter, including $29.2 million recognized in the first quarter of 2020;

(3) $24.5 million in severance charges recognized in fiscal year 2020 related to the Q2 2020 Global Restructure Program;

• higher compensation costs to retain and incentivize critical employee talent.

These drivers of reduced operating income were partially offset by:

• the non-recurrence of certain restructuring and other charges from fiscal year 2019 as discussed in Note 5, "Restructuring and Other Charges, Net," of our Financial Statements, including $17.8 million loss related to the termination of a supply agreement in connection with the Metal Seal litigation and charges related to benefits provided under a voluntary retirement incentive program;

and (4) higher compensation costs to retain and incentivize critical employee talent.

These drivers of reduced operating income in fiscal year 2020 were partially offset by:

(1) the non-recurrence of certain restructuring and other charges from fiscal year 2019 as discussed in Note 5:

Restructuring and Other Charges, Net of our Financial Statements included elsewhere in this Report, including $17.8 million loss related to the termination of a supply agreement in connection with the Metal Seal litigation and charges related to benefits provided under a voluntary retirement incentive program;

(2) cost savings of approximately $21.8 million realized in the second quarter of 2020 resulting from temporary salary reductions, furloughs, and government subsidies;

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(4) the favorable effect of changes in foreign currency exchange rates;

• lower intangible amortization expense due to the impacts of the economic-benefit method of amortization.

We expect that the actions taken as part of the Q2 2020 Global Restructure Program will result in savings that will be favorable to operating income in future quarters.

Refer to the Q2 2020 Global Restructure Program section earlier in this MD&A for a more detailed discussion of expected savings under the Q2 2020 Global Restructure Program.

However, we believe that the impact of a global microchip shortage that the entire automotive industry is currently experiencing will adversely impact out operating costs in fiscal year 2021.

In fiscal year 2019, operating income decreased $153.5 million or 21.6%, to $556.9 million (16.1% of net revenue) compared to $710.4 million (20.2% of net revenue) in fiscal year 2018.

This decrease was primarily due to (1) the divestiture of the Valves Business in the third quarter of 2018 (including the gain on sale), (2) net productivity headwinds partly due to the scaling up of new product launches, (3) $17.8 million loss related to the termination of a supply agreement in connection with the Metal Seal litigation, (4) higher severance charges, (5) the impact of increased tariffs, and (6) lower volume.

These drivers of reduced operating income were partially offset by (1) lower variable compensation, (2) lower selling expenses, (3) the favorable effect of changes in foreign currency exchange rates, and (4) the impact of the acquisition of GIGAVAC.

and (5) lower intangible amortization expense due to the impacts of the economic-benefit method of amortization.

Interest expense, net

Interest expense, net increased in fiscal year 2020 primarily due to (1) a full year of interest expense related to the $450.0 million aggregate principal amount of 4.375% senior notes due 2030 (the "4.375% Senior Notes"), which were issued in fiscal year 2019, (2) a partial year of interest expense related to the 3.75% Senior Notes, which was issued in 2020, (3) interest incurred on outstanding balances of the Revolving Credit Facility in fiscal year 2020, and (4) lower cash interest income due to declining interest rates.

Interest expense, net increased in fiscal year 2021 primarily as a result of (1) interest expense in fiscal year 2021 related to the issuance of the 4.0% Senior Notes, (2) additional interest expense in fiscal year 2021 related to the $750.0 million aggregate principal amount of 3.75% senior notes due 2031 (the "3.75% Senior Notes") as a result of their issuance in fiscal year 2020, partially offset by reduced interest as a result of the redemption of the 6.25% Senior Notes early in fiscal year 2021.

Refer to Overview—Debt Transactions elsewhere in this MD&A for additional information related to these transactions.

Interest expense, net increased in fiscal year 2020 primarily due to (1) a full year of interest expense related to the $450.0 million aggregate principal amount of 4.375% senior notes due 2030 (the "4.375% Senior Notes"), which were issued in fiscal year 2019, (2) a partial year of interest expense related to the 3.75% Senior Notes, which were issued in 2020, (3) interest incurred on outstanding balances of the Revolving Credit Facility in fiscal year 2020, and (4) lower cash interest income due to declining interest rates.

These increases were partially offset by lower interest expense on the Term Loan, which was partially repaid in fiscal year 2019 after issuance of the 4.375% Senior Notes.

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Given improving market conditions and strengthening financial markets, we decided to use a portion of the proceeds to repay $400.0 million of outstanding borrowings under the Revolving Credit Facility.

On February 3, 2021, we announced that we intended to redeem in full the outstanding balance on the 6.25% Senior Notes in March 2021.

The 6.25% Senior Notes represent approximately $46.9 million of interest expense annually.

We will redeem the notes at a premium of 103.125% of the aggregate principal amount of the notes outstanding, or approximately $23.4 million.

Accordingly, while we expect to see a reduction of interest expense in fiscal year 2021 as a result of this redemption, the reduction will be significantly larger in fiscal year 2022.

Interest expense, net increased in fiscal year 2019 primarily due to an increase in interest expense related to higher variable interest rates as well as the impact of the refinancing of a portion of our Term Loan (variable rate debt) through the issuance of the 4.375% Senior Notes (fixed rate debt).

The 4.375% Senior Notes accrued interest at a higher rate than the average rate of the Term Loan in fiscal year 2019.

Other, net for the years ended December 31, 2021, 2020, and 2019 consisted of the following (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

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(7.6) (6.8) 2.2

Gain/(loss) on commodity forward contracts (2)

(Loss)/gain on commodity forward contracts (2)

(3.0) 10.0 4.9

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(2) Relates to changes in the fair value of derivative financial instruments that are not designated as hedges.

Refer to Note 19, "Derivative Instruments and Hedging Activities," of our Financial Statements for additional information related to gains and losses related to our commodity and foreign currency exchange forward contracts.

Refer to Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," included elsewhere in this Report for an analysis of the sensitivity of other, net to changes in foreign currency exchange rates and commodity prices.

(3) Refer to Note 14, "Debt," of our Financial Statements for additional information related to our debt financing transactions.

Provision for/(benefit from) income taxes

The components of provision for/(benefit from) income taxes for the years ended December 31, 2020, 2019, and 2018 are described in more detail in the table below (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

Refer to Note 19:

Derivative Instruments and Hedging Activities of our Financial Statements included elsewhere in this Report for additional information related to gains and losses related to our commodity and foreign currency forward contracts.

Refer to Item 7A:

Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this Report for an analysis of the sensitivity of other, net to changes in foreign currency exchange rates and commodity prices.

(3) Refer to Note 14:

Debt of our Financial Statements included elsewhere in this Report for additional information related to our debt financing transactions.

Provision for income taxes

The components of provision for income taxes for the years ended December 31, 2021, 2020, and 2019 are described in more detail in the table below (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

For the year ended December 31,

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$ 86.9 $ 34.8 $ 82.0

Intangible property transfers (2)

Foreign tax rate differential (3)

(22.0) (19.1) (41.2)

Valuation allowances (2)

20.5 8.9 19.6

Withholding taxes not creditable 12.2 9.5 8.7

Change in tax laws or rates 11.2 5.1 (22.3)

Foreign tax rate differential (4)

(30.5) (22.0) (19.1)

Research and development incentives (3)

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Reserve for tax exposure (16.3) (0.2) 20.1

Withholding taxes not creditable 13.3 12.2 9.5

Change in tax laws or rates (7.1) 11.2 5.1

Intangible property transfers (5)

(5.4) 18.0 (1.1)

Provision for/(benefit from) income taxes $ 1.4 $ 107.7 $ (72.6)

Provision for income taxes $ 50.3 $ 1.4 $ 107.7

__________________________

(1) Represents the product of the applicable statutory tax rate and income before taxes, as reported in the consolidated statements of operations.

(2) In the fourth quarter of 2020, we completed the transfer of intangible property which resulted in a net $54.2 million deferred tax benefit.

(3) We operate in locations outside the U.S., including Bermuda, Bulgaria, China, Malaysia, the Netherlands, South Korea, and the U.K., that historically have had statutory tax rates different than the U.S.

statutory tax rate.

This can result in a foreign tax rate differential that may reflect a tax benefit or detriment.

This foreign tax rate differential can change from year to year based upon the jurisdictional mix of earnings and changes in current and future enacted tax rates.

Certain of our subsidiaries are currently eligible, or have been eligible, for tax exemptions or reduced tax rates in their respective jurisdictions.

(4) During the years ended December 31, 2020, 2019, and 2018, we established/(released) a portion of our valuation allowance and recognized a deferred tax expense/(benefit).

(2) During the years ended December 31, 2021, 2020, and 2019, we established an additional valuation allowance and recognized a deferred tax expense.

The valuation allowance as of December 31, 2021 and 2020 was $225.9 million and $202.1 million, respectively.

A significant portion of our valuation allowance is against interest carryforwards due to our assessment of our inability to utilize these carryforwards based on our forecasts of future taxable income.

The remaining valuation allowance primarily relates to foreign tax credit capital loss carryforwards, goodwill tax basis, and net operating losses in jurisdictions outside the U.S.

The remaining valuation allowance primarily relates to foreign tax credits, capital loss carryforwards, goodwill tax basis, and net operating losses in jurisdictions outside the U.S.

It is more likely than not that these attributes will not be utilized in the foreseeable future.

However, any future release of all or a portion of this valuation allowance resulting from a change in this assessment will impact our future provision for/(benefit from) income taxes.

(5) Certain income of our U.K.

subsidiaries is eligible for lower tax rates under the "patent box" regime, resulting in certain of our intellectual property income being taxed at a rate lower than the U.K.

statutory tax rate.

However, any future release of all or a portion of this valuation allowance resulting from a change in this assessment will impact our future provision for (or benefit from) income taxes.

(3) In China, we benefit from the R&D super deduction regime.

In fiscal year 2018, we substantially completed an assessment of our ability to claim an R&D credit in the U.S.

As a result of this assessment, we recognized a tax benefit of $10.0 million.

Prior to fiscal year 2018, the deferred tax asset related to these R&D credits would have been offset by the valuation allowance.

(6) Refer to Note 7, "Income Taxes," of our Financial Statements for additional information related to other components of our rate reconciliation.

In the U.K., certain of our subsidiaries are eligible for lower

tax rates under the "patent box" regime.

In the U.S., we benefit from the federal research and development credit.

(4) We operate in locations outside the U.S., including Belgium, Bulgaria, China, Malaysia, Malta, the Netherlands, South Korea, and the U.K., that historically have had statutory tax rates different than the U.S.

statutory tax rate.

This can result in a foreign tax rate differential that may reflect a tax benefit or detriment.

This foreign tax rate differential can change from year to year based upon the jurisdictional mix of earnings and changes in current and future enacted tax rates.

Certain of our subsidiaries are currently eligible, or have been eligible, for tax exemptions or reduced tax rates in their respective jurisdictions.

(5) In the fourth quarter of 2020, we completed the transfer of intangible property which resulted in a net $54.2 million deferred tax benefit.

(6) Refer to Note 7:

Income Taxes of our Financial Statements included elsewhere in this Report for additional information related to other components of our rate reconciliation.

We do not believe that there are any known trends related to the reconciling items noted above that are reasonably likely to result in our liquidity increasing or decreasing in any material way.

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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, and other financing obligations, or EBITDA, respectively, calculated in accordance with U.S.

The use of our non-GAAP financial measures has limitations.

They should be considered as supplemental in nature and are not intended to be considered in isolation from, or as an alternative to, reported net revenue growth (or decline), operating income, operating margin, net income, diluted EPS, operating cash flows, total debt, finance lease, and other financing obligations, or EBITDA, respectively, calculated in accordance with U.S.

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.

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GAAP, excluding certain non-GAAP adjustments which are described below.

Adjusted operating margin is calculated by dividing adjusted operating income by net revenue calculated in accordance with U.S.

Adjusted operating margin is calculated by dividing adjusted operating income, by net revenue determined in accordance with U.S.

We define adjusted net income as follows:

net income determined in accordance with U.S.

net income (or loss) determined in accordance with U.S.

GAAP, excluding certain non-GAAP adjustments which are described in Non-GAAP Adjustments below.

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Free cash flow

Free cash flow is defined as net cash provided by/(used in) operating activities less additions to PP&E and capitalized software.

Free cash flow is defined as net cash provided by operating activities less additions to PP&E and capitalized software.

We believe free cash flow is useful to management and investors as a measure of cash generated by business operations that will be used to repay scheduled debt maturities and can be used to, among other things, fund acquisitions, repurchase ordinary shares, and (or) accelerate the repayment of debt obligations.

Adjusted EBITDA

Adjusted EBITDA represents net income, determined in accordance with U.S.

GAAP, excluding interest expense, net, provision for/(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 transaction related, (3) deferred gain or loss on commodities and other derivative instruments, and (4) step-up inventory amortization.

Adjusted EBITDA is defined as net income (or loss), determined in accordance with U.S.

GAAP, excluding interest expense, net, provision for (or benefit from) income taxes, depreciation expense, amortization of intangible assets, and the following non-GAAP adjustments, if applicable:

(1) restructuring related and other, (2) financing and other transaction costs, (3) deferred loss or gain on derivative instruments, and (4) step-up inventory amortization.

Refer to Non-GAAP Adjustments below for additional discussion of these adjustments.

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These initiatives include, among other items, acquisitions, divestitures, restructurings of certain business, supply chain, or corporate activities, and various financing transactions.

We describe these adjustments in more detail below.

We describe these adjustments in more detail below, each of which is net of current tax impacts, as applicable.

• Restructuring related and other :

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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.

This adjustment is net of current tax impacts.

• 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.

There was no current tax effect related to this adjustment in any period presented.

includes losses or gains related to debt financing transactions, losses or gains related to the divestiture of a business, and costs incurred, including for legal, accounting, and other professional services, that are directly related to an acquisition, divestiture, or equity financing transaction.

• Deferred loss or gain on derivative instruments :

includes unrealized losses or gains on derivative instruments that do not qualify for hedge accounting as well as the impact of commodity prices on our raw material costs relative to the strike price on our commodity forward contracts.

There was no current tax effect related to this adjustment in any period presented.

• Step-up depreciation and amortization :

includes depreciation and amortization expense associated with the step-up in fair value of assets acquired in connection with a business combination (e.g., PP&E, definite-lived intangible assets, and inventory).

The current tax effect of step-up depreciation and amortization was not material, individually or in the aggregate, in any period presented.

• 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 U.S.

valuation allowance in connection with certain acquisitions and U.S.

tax law changes.

Other tax related items include certain adjustments to unrecognized tax positions and withholding tax on repatriation of foreign earnings.

Other tax related items include certain adjustments to unrecognized tax benefits and withholding tax on repatriation of foreign earnings.

• Amortization of debt issuance costs .

There was no current tax effect related to this adjustment in any period presented.

• Where applicable, the current tax effect of non-GAAP adjustments.

Our definition of adjusted net income excludes the deferred provision for/(benefit from) income taxes and other tax related items described above.

We adjust our results recorded in accordance with U.S.

GAAP by the amortization of debt issuance costs, which are deferred as a contra-liability against our long-term debt, net on the consolidated balance sheets and which are reflected in interest expense on the consolidated statements of operations.

• Where applicable, the current income tax effect of non-GAAP adjustments.

Our definition of adjusted net income excludes the deferred provision for (or benefit from) income taxes and other tax related items described above.

As we treat deferred income taxes as an adjustment to compute adjusted net income, the deferred income tax effect associated with the reconciling items presented below would not change adjusted net income for any period presented.

Non-GAAP reconciliations

The following tables provide reconciliations of certain financial measures calculated in accordance with U.S.

The following tables present reconciliations of certain financial measures calculated in accordance with U.S.

GAAP to the related non-GAAP financial measures for the periods presented.

Refer to Non-GAAP Adjustments section above for additional information 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.

Refer to Non-GAAP Adjustments section above for additional information related to these adjustments.

Amounts and percentages in the table below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

For the year ended December 31, 2021

(Dollars in millions, except per share amounts) Operating Income Operating Margin Net Income Diluted EPS

($ in millions, except per share amounts) Operating Income Operating Margin Net Income Diluted EPS

Reported (GAAP)

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Non-GAAP adjustments:

Restructuring related and other (c)

Restructuring related and other (d)

23.6 0.6 21.4 0.13

Financing and other transaction costs 8.2 0.3 6.4 0.04

Financing and other transaction costs (b)

13.2 0.3 41.0 0.26

Step-up depreciation and amortization 127.6 3.3 127.6 0.80

Deferred loss/(gain) on derivative instruments 3.1 0.1 (7.0) (0.04)

Deferred loss on derivative instruments 8.3 0.2 11.3 0.07

Amortization of debt issuance costs — — 6.9 0.04

Deferred taxes and other tax related — — (40.9) (0.26)

Deferred taxes and other tax related (c)

— — (4.9) (0.03)

Total adjustments 172.8 4.5 203.3 1.28

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For the year ended December 31, 2020

(Dollars in millions, except per share amounts) Operating Income Operating Margin Net Income Diluted EPS

($ in millions, except per share amounts) Operating Income Operating Margin Net Income Diluted EPS

Reported (GAAP)

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Non-GAAP adjustments:

Restructuring related and other (c)

Restructuring related and other (d)

87.4 2.9 93.8 0.59

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Step-up depreciation and amortization 125.7 4.1 125.7 0.79

139.6 4.0 139.6 0.86

Deferred gain on derivative instruments

(1.6) (0.0) (6.5) (0.04)

Deferred loss/(gain) on derivative instruments 3.1 0.1 (7.0) (0.04)

Amortization of debt issuance costs — — 6.9 0.04

Deferred taxes and other tax related — — 55.2 0.34

Deferred taxes and other tax related (a)

— — (40.9) (0.26)

Total adjustments 224.4 7.4 184.9 1.17

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For the year ended December 31, 2019

(Dollars in millions, except per share amounts) Operating Income Operating Margin Net Income Diluted EPS

($ in millions, except per share amounts) Operating Income Operating Margin Net Income Diluted EPS

Reported (GAAP)

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Non-GAAP adjustments:

Restructuring related and other (c)

25.4 0.7 28.0 0.17

Financing and other transaction costs (a)

Restructuring related and other (d)

61.9 1.8 62.2 0.38

Financing and other transaction costs 28.9 0.8 34.9 0.22

Step-up depreciation and amortization

Deferred loss on derivative instruments 2.0 0.1 12.5 0.07

Amortization of debt issuance costs — — 7.3 0.04

Deferred taxes and other tax related (b)

139.6 4.0 139.6 0.86

Deferred gain on derivative instruments

(1.6) (0.0) (6.5) (0.04)

Amortization of debt issuance costs — — 7.8 0.05

Deferred taxes and other tax related — — 55.2 0.34

Total adjustments 228.8 6.6 293.2 1.81

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__________________________

(a) Financing and other transaction costs in fiscal year 2018 primarily included a $64.4 million gain on the sale of the Valves Business and $5.9 million of related transaction costs.

(b) In fiscal year 2020, we completed the transfer of intangible property which resulted in a $54.2 million deferred tax benefit.

In fiscal year 2018, we recognized a deferred tax benefit of $144.1 million, which primarily included a $122.1 million deferred tax benefit related to the release of a portion of our U.S.

valuation allowance as discussed in Note 7, "Income Taxes," of our Financial Statements.

(c) The following table presents the components of our restructuring related and other non-GAAP adjustment to net income for fiscal years 2020, 2019, and 2018 (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

(a) In the fourth quarter of 2020, we completed the transfer of intangible property which resulted in a net $54.2 million deferred tax benefit.

(b) Includes a $30.1 million loss recognized in fiscal year 2021 related to the early redemption of the 6.25% Senior Notes.

The loss primarily reflects the payment of $23.4 million for the early redemption premium, with the remaining loss representing write-off of debt discounts and deferred financing costs.

The loss is presented in other, net in our consolidated statements of operations.

(c) Includes $10.9 million of current tax expense related to the repatriation of earnings from certain Asian subsidiaries to their parent company in the Netherlands.

The decision to repatriate these earnings was the result of our goal to reduce our balance sheet exposure and corresponding earnings volatility related to changes in foreign currency exchange rates as well as to fund our deployment of capital.

(d) The following table presents the components of our restructuring related and other non-GAAP adjustment to net income for fiscal years 2021, 2020, and 2019 (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

For the year ended December 31,

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8.2 30.8 16.0

Preacquisition legal matters (iii)

Pre-acquisition legal matters (iii)

Other — — 2.7

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We treat deferred taxes as a non-GAAP adjustment.

Accordingly, the tax effect of the restructuring related and other non-GAAP adjustment refers only to the current tax effect.

With respect to the year ended December 31, 2018, the current tax effect was not material, individually or in the aggregate.

Accordingly, the income tax effect of the restructuring related and other non-GAAP adjustment refers only to the current income tax effect.

Total presented is the non-GAAP adjustment to net income.

Certain portions of these adjustments are non-operating and are excluded from the non-GAAP adjustments to operating income.

The following table provides a reconciliation of net cash provided by operating activities in accordance with U.S.

The following table presents a reconciliation of net cash provided by operating activities calculated in accordance with U.S.

GAAP to free cash flow.

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Free cash flow $ 409.7 $ 453.1 $ 458.3

The following table provides a reconciliation of net income in accordance with U.S.

The following table presents a reconciliation of net income calculated in accordance with U.S.

GAAP to adjusted EBITDA.

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Interest expense, net 179.3 171.8 158.6

Provision for/(benefit from) income taxes 1.4 107.7 (72.6)

Provision for income taxes 50.3 1.4 107.7

Depreciation expense 125.0 125.7 115.9

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Financing and other transaction costs 41.0 6.4 34.9

Deferred (gain)/loss on derivative instruments (7.0) (6.5) 12.5

Step up inventory amortization — — 0.9

Deferred loss/(gain) on derivative instruments 11.3 (7.0) (6.5)

Adjusted EBITDA $ 928.3 $ 685.1 $ 900.1

The following table provides a reconciliation of total debt, finance lease, and other financing obligations in accordance with U.S.

The following table presents a reconciliation of total debt, finance lease, and other financing obligations calculated in accordance with U.S.

GAAP to net leverage ratio.

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Total debt, finance lease, and other financing obligations 4,248.3 3,998.9 3,255.6

Discount (9.6) (11.8) (15.2)

debt discount, net of premium (5.2) (9.6) (11.8)

deferred financing costs (26.7) (28.1) (24.5)

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Liquidity and Capital Resources

As of December 31, 2020 and 2019 we held cash and cash equivalents in the following regions:

As of December 31, 2021 and 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):

As of December 31,

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Other 65.5 120.2

Total $ 1,862.0 $ 774.1

Total cash and cash equivalents $ 1,709.0 $ 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.

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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.

On February 3, 2021, we announced that we intended to redeem in full the outstanding balance on the 6.25% Senior Notes in March 2021 at 103.125%.

The cash to be used to execute this redemption, or approximately $773.4 million (excluding fees), will be paid from cash on hand in the Netherlands.

The table below summarizes our primary sources and uses of cash for the years ended December 31, 2021, 2020, and 2019.

We have derived the summarized statements of cash flows from our Financial Statements.

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.

We have derived this summarized statement of cash flows from our Financial Statements included elsewhere in this Report.

Amounts in the table below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

For the year ended December 31,

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Financing activities 174.9 710.2 (366.5)

Net change $ 1,087.9 $ 44.3 $ (23.3)

Net change in cash and cash equivalents $ (153.0) $ 1,087.9 $ 44.3

Operating Activities

The decrease in cash provided by operating activities in fiscal year 2020 compared to fiscal year 2019 relates primarily to lower profitability, partially offset by reduced inventory and the timing of supplier payments and customer receipts.

The decrease in cash provided by operating activities in fiscal year 2019 compared to fiscal year 2018 relates primarily to lower operating profitability and the timing of supplier payments and customer receipts.

Net cash provided by operating activities decreased slightly in fiscal year 2021 compared to fiscal year 2020.

Net income adjusted for non-cash items increased significantly from fiscal year 2020, which was substantially offset by changes in working capital.

Refer to Results of Operations included elsewhere in this MD&A for discussion of the drivers of changes in net income from fiscal year 2020.

In fiscal year 2021, management of working capital resulted in a reduction of cash due to higher raw material purchases in order to maximize production flexibility given widespread parts shortages in our supply chain and higher accounts receivables as a result of higher revenue and timing of receipts from customers.

In addition, net cash provided by operating activities was reduced by cash paid at closing of certain acquisitions related to employee retention arrangements.

We have non-cancelable purchase agreements with various suppliers, primarily for services such as information technology support.

The terms of these agreements are fixed and determinable.

We have cash commitments under these agreements of $46.2 million and $16.5 million in fiscal years 2022 and 2023, respectively.

Refer to Note 15:

Commitments and Contingencies of our Financial Statements included elsewhere in this Report for additional information related to our non-cancelable purchase agreements.

The decrease in net cash provided by operating activities in fiscal year 2020 compared to fiscal year 2019 relates primarily to lower net income adjusted for non-cash items, partially offset by reduced inventories and the timing of supplier payments and customer receipts.

Investing Activities

Investing activities include cash flows related to additions to PP&E and capitalized software, the acquisition or divestiture of a business or assets, and the acquisition or sale of certain debt and equity securities.

The decrease in cash used in investing activities in fiscal year 2020 compared to fiscal year 2019 relates primarily to lower capital expenditures, partially offset by additional cash paid for acquisitions.

In fiscal year 2019, net cash used in investing activities decreased primarily due to lower cash used in acquisitions, as the GIGAVAC merger was completed in fiscal year 2018.

This was partially offset by the impact of the divestiture of the Valves Business, for which proceeds were received in fiscal year 2018, cash paid for the acquisition of assets from Metal Seal, and cash used to acquire debt and equity securities.

Investing activities primarily include the acquisition or divestiture of a business or assets, cash paid for additions to PP&E and capitalized software, and the acquisition or sale of certain debt and equity securities.

Net cash used in investing activities increased in fiscal year 2021 primarily due to cash paid for acquisitions.

One of our primary uses of cash on hand is to acquire businesses that will extend our market position within our key growth vectors.

In fiscal year 2021, we completed five acquisitions, Lithium Balance, Xirgo, Spear, SmartWitness, and Sendyne.

Refer to Item 1:

Business — Business Combinations and Note 21:

Acquisitions of our Financial Statements, each included elsewhere in this Report, for additional information.

In addition, we took advantage of strong operating cash flows to increase our capital expenditures in fiscal year 2021.

In fiscal year 2022, we anticipate additions to PP&E and capitalized software of approximately $165.0 million to $175.0 million, which we expect to be funded with cash flows from operations.

Financing Activities

In fiscal year 2021, net cash provided by financing activities decreased primarily due to the impact of debt financing transactions.

In fiscal year 2021, we issued $1.0 billion of 4.0% Senior Notes and redeemed the $750.0 million aggregate

principal amount outstanding on the 6.25% Senior Notes, representing net cash inflow of $218.8 million (including associated fees).

This compares to the issuance of $750.0 million aggregate principal amount of 3.75% Senior Notes in fiscal year 2020 and the borrowing and subsequent repayment of $400.0 million on the Revolving Credit Facility, which, including associated fees, provided net cash inflow of $732.8 million.

In fiscal year 2020 cash provided by financing activities was $710.2 million compared to cash used in financing activities of $366.5 million in fiscal year 2019.

This change was primarily driven by issuance of the 3.75% Senior Notes and lower volume of share repurchases.

On February 3, 2021, we announced we announced that we intended to redeem in full the outstanding balance on the 6.25% Senior Notes in March 2021 at 103.125%.

The cash to be used to execute this redemption, or approximately $773.4 million (excluding fees), will be presented in cash used in financing activities in the first quarter of 2021.

In fiscal year 2019, net cash used in financing activities decreased primarily due to a lower volume of ordinary share repurchases.

Indebtedness and Liquidity

The following table details our gross outstanding indebtedness as of December 31, 2020, and the associated interest expense for the year then ended:

The following table details our gross outstanding indebtedness as of December 31, 2021, and the associated interest expense for the year then ended (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

(In millions) Balance as of December 31, 2021 Interest Expense, net for the year ended December 31, 2021

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3.75% Senior Notes 750.0 28.1

Revolving Credit Facility — 2.1

4.0% Senior Notes 1,000.0 30.0

Finance lease and other financing obligations 28.8 2.5

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__________________________

(1) On February 3, 2021, we announced that we intended to redeem in full the outstanding balance on the 6.25% Senior Notes in March 2021.

As a result, these notes have been classified as current on our consolidated balance sheets as of December 31, 2020.

(2) Other interest expense, net includes interest income, amortization of debt issuance costs, and interest costs capitalized in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Subtopic 835-20, Capitalization of Interest .

(1) We redeemed the full outstanding balance on the 6.25% Senior Notes in March 2021.

(2) Other interest expense, net includes amortization of debt issuance costs and fees related to our unused balance on the Revolving Credit Facility, largely offset by interest income and interest costs capitalized in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Subtopic 835-20, Capitalization of Interest .

Debt Instruments

Refer to Note 14, "Debt," of our Financial Statements for information related to the terms of our debt instruments.

As of December 31, 2021, our debt instruments include the Term Loan, the $500.0 million aggregate principal amount of 4.875% senior notes due 2023 (the "4.875% Senior Notes"), the $400.0 million aggregate principal amount of 5.625% senior notes due 2024 (the "5.625% Senior Notes"), the $700.0 million aggregate principal amount of 5.0% senior notes due 2025 (the "5.0% Senior Notes"), the 4.375% Senior Notes due 2030, the 3.75% Senior Notes due 2031, and the 4.0% Senior Notes due 2029.

On March 5, 2021, we redeemed the $750.0 million amount outstanding on the 6.25% Senior Notes due 2026 at a redemption price equal to 103.125% of the aggregate principal amount of the outstanding 6.25% Senior Notes, plus accrued and unpaid interest to (but not including) the redemption date.

On March 29, 2021, we issued $750.0 million aggregate principal amount of the 4.0% Senior Notes at par.

On April 8, 2021, we issued an additional $250.0 million of the 4.0% Senior Notes, which were priced at 100.75%.

Refer to Note 14:

Debt of our Financial Statements included elsewhere in this Report for additional information related to the redemption of the 6.25% Senior Notes, the issuance of the 4.0% Senior Notes, and the terms of our other debt instruments held as of December 31, 2021.

The aggregate principal amount of each tranche of our Senior Notes is due in full at its maturity date.

The Term Loan must be repaid in full on or prior to its final maturity date.

Loans made pursuant to the Revolving Credit Facility must be repaid in full at its maturity date and can be repaid prior to then at par.

All letters of credit issued thereunder will terminate at the final

maturity of the Revolving Credit Facility unless cash collateralized prior to such time.

The following table presents the remaining mandatory principal repayments of long-term debt, in millions, excluding finance lease payments, other financing obligations, and discretionary repurchases of debt, in each of the years ended December 31, 2022 through 2026 and thereafter.

Amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

For the year ended December 31, Aggregate Maturities

Thereafter 2,200.0

Total long-term debt principal payments $ 4,251.5

Capital Resources

The Credit Agreement provides for the Senior Secured Credit Facilities consisting of the Term Loan, the Revolving Credit Facility, and the Accordion.

Our sources of liquidity include cash on hand, cash flows from operations, and available capacity under the Revolving Credit Facility.

In addition, the Senior Secured Credit Facilities provide for the Accordion, under which additional secured debt may be issued or the capacity of the Revolving Credit Facility may be increased.

As of December 31, 2021, there was $416.1 million available under the Revolving Credit Facility, net of $3.9 million of obligations in respect of outstanding letters of credit issued thereunder.

Outstanding letters of credit are issued primarily for the benefit of certain operating activities.

As of December 31, 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 December 31, 2021, availability under the Accordion was approximately $1.1 billion.

We believe, based on our current level of operations as reflected in our results of operations for the year ended December 31, 2020, and taking into consideration the restrictions and covenants included in the Credit Agreement and Senior Notes Indentures discussed below and in Note 14, "Debt," of our Financial Statements, and the redemption of the 6.25% Senior Notes as discussed below, that these sources of liquidity 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.

Our primary uses of cash on hand are to acquire businesses that will extend our market position within our key growth vectors of Electrification and Insights and, following the resumption of our share repurchase program in November 2021, repurchase our ordinary shares, which augments our existing capital deployment strategies and enables us to drive attractive returns on invested capital over the long-term.

We believe, based on our current level of operations for the year ended December 31, 2021, and taking into consideration the restrictions and covenants included in the Credit Agreement and Senior Notes Indentures discussed below and in Note 14:

Debt of our Financial Statements included elsewhere in this Report that these sources of liquidity will be sufficient to fund our operations, capital expenditures, ordinary share repurchases, and debt service for at least the next twelve months.

However, we cannot make assurances that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

Further, our highly-leveraged nature may limit our ability to procure additional financing in the future.

On April 1, 2020, in order to enhance our financial flexibility given the general uncertainty associated with the COVID-19 pandemic, we withdrew $400.0 million from the Revolving Credit Facility.

On August 17, 2020, we used a portion of the proceeds from the issuance and sale of the 3.75% Senior Notes to repay the balance outstanding on the Revolving Credit Facility.

As of December 31, 2020, we had $416.1 million available under the Revolving Credit Facility, net of $3.9 million of 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 December 31, 2020, no amounts had been drawn against these outstanding letters of credit.

On February 3, 2021, we announced that we intended to redeem in full the $750.0 million aggregate principal amount outstanding on our 6.25% Senior Notes due 2026 in March 2021.

This redemption will be paid with cash on hand.

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.

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All obligations under the Senior Secured Credit Facilities are unconditionally guaranteed by certain of our subsidiaries (the "Guarantors").

The collateral for such borrowings under the Senior Secured Credit Facilities consists of substantially all present and future property and assets of our indirect, wholly-owned subsidiary, Sensata Technologies B.V.

("STBV") and the Guarantors.

Our ability to raise additional financing, and our borrowing costs, may be impacted by short- and long-term debt ratings assigned by independent rating agencies, which are based, in significant part, on our performance as measured by certain credit metrics such as interest coverage and leverage ratios.

As of January 29, 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 negative outlook.

The Standard & Poor's outlook represents a decline from their outlook of "stable" as of December 31, 2019.

The change in outlook reflects the uncertainties in the markets caused by the COVID-19 pandemic.

Any future downgrades to STBV's credit ratings may increase our future borrowing costs, but will not reduce availability under the Credit Agreement.

The Credit Agreement and the Senior Notes Indentures contain restrictions and covenants (described in more detail in Note 14, "Debt," of our Financial Statements) that limit the ability of STBV and its subsidiaries to, among other things, incur subsequent indebtedness, sell assets, pay dividends, and make other restricted payments.

These restrictions and covenants, which are subject to important exceptions and qualifications set forth in the Credit Agreement and Senior Notes Indentures, were taken into consideration in establishing our share repurchase programs, and are evaluated periodically with respect to future potential funding.

We do not believe that these restrictions and covenants will prevent us from funding share repurchases under our share repurchase programs with available cash and cash flows from operations, should we decide to do so.

As of January 28, 2022, Moody’s Investors Service’s corporate credit rating for STBV was Ba2 with a stable outlook, and S&P’s corporate credit rating for STBV was BB+ with a stable outlook.

Any future downgrades to STBV's credit ratings may increase our future borrowing costs but will not reduce availability under

the Credit Agreement.

The Credit Agreement and the Senior Notes Indentures contain restrictions and covenants (described in more detail in Note 14:

Debt of our Financial Statements included elsewhere in this Report) that limit the ability of STBV and certain of its subsidiaries to, among other things, incur subsequent indebtedness, sell assets, pay dividends, and make other restricted payments.

These restrictions and covenants, which are subject to important exceptions and qualifications set forth in the Credit Agreement and Senior Notes Indentures, were taken into consideration when we established our share repurchase programs and will be evaluated periodically with respect to future potential funding of those program.

We do not believe that these restrictions and covenants will prevent us from funding share repurchases under our share repurchase programs with available cash and cash flows from operations.

As of December 31, 2021, we believe that we were in compliance with all the covenants and default provisions under the Credit Agreement and the Senior Notes Indentures.

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Under these programs, we may repurchase ordinary shares at such times and in amounts to be determined by our management, based on market conditions, legal requirements, and other corporate considerations, on the open market or in privately negotiated transactions, provided that such transactions were completed pursuant to an agreement and with a third party approved by our shareholders at the annual general meeting.

In July 2019, our Board of Directors authorized our current $500.0 million share repurchase program (the "July 2019 Program").

On April 2, 2020, we announced a temporary suspension of the July 2019 Program, which will continue to remain on hold until market conditions show greater improvement and stability.

On April 2, 2020, we announced a temporary suspension of the July 2019 Program, which we resumed in November 2021.

During the years ended December 31, 2021 and 2020, we repurchased approximately 0.8 million and 0.9 million ordinary shares, respectively, at a weighted-average price per share of $59.28 and $39.17, respectively, under the July 2019 Program.

As of December 31, 2021, approximately $254.5 million remained available under the July 2019 Program.

During the year ended December 31, 2020, we repurchased approximately 0.9 million ordinary shares at a weighted-average price of $39.17 per share under the July 2019 Program.

During the year ended December 31, 2019, we repurchased ordinary shares under the July 2019 Program and a $250.0 million share repurchase program authorized by our Board of Directors in October 2018 (the "October 2018 Program").

We repurchased approximately 7.2 million ordinary shares at a weighted-average price of $48.87 per share under these programs.

The October 2018 Program was terminated upon commencement of the July 2019 Program.

During the year ended December 31, 2018, we repurchased approximately 7.6 million ordinary shares at a weighted-average price of $52.75 per share under a $400.0 million share repurchase program authorized by our Board of Directors in May 2018.

Contractual Obligations and Commercial Commitments

The table below reflects our contractual obligations as of December 31, 2020.

On February 3, 2021, we announced that we intended to redeem in full the outstanding balance on the 6.25% Senior Notes in March 2021.

As a result of this announcement, the 6.25% Senior Notes have been classified within current liabilities on our consolidated balance sheet as of December 31, 2020.

The table below has been recast to reflect this classification.

Amounts we pay in future periods may vary from those reflected in the table.

Amounts in the table below have been calculated based on unrounded numbers.

Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

Payments Due by Period

(In millions) Total Less than One Year One to Three Years Three to Five Years More than

Debt obligations principal (1)

$ 4,006.1 $ 754.6 $ 509.3 $ 1,109.3 $ 1,632.9

Debt obligations interest (2)

919.3 187.8 275.9 205.2 250.4

Finance lease obligations principal (3)

30.3 2.1 3.1 3.8 21.3

Finance lease obligations interest (3)

19.2 2.5 4.6 4.0 8.2

Other financing obligations principal (4)

0.2 0.2 — — —

Operating lease obligations (5)

70.0 14.6 21.0 12.6 21.8

Non-cancelable purchase obligations (6)

63.2 41.4 21.4 0.3 0.2

Total contractual obligations (7)(8)

$ 5,108.3 $ 1,003.2 $ 835.3 $ 1,335.2 $ 1,934.8

__________________________________________

(1) With the exception of the 6.25% Senior Notes, as discussed above, represents the contractually required principal payments, in accordance with the required payment schedule, on our debt obligations in existence as of December 31, 2020.

The redemption of the $750.0 million aggregate principal amount of 6.25% Senior Notes is reflected as an outflow in fiscal year 2021.

(2) Represents the contractually required interest payments, in accordance with the required payment schedule, on our debt obligations in existence as of December 31, 2020.

Cash flows associated with the next interest payment to be made on our variable rate debt subsequent to December 31, 2020 were calculated using the interest rates in effect as of the latest interest rate reset date prior to December 31, 2020, plus the applicable spread.

Fiscal year 2021 outflow reflects cash outflow of $26.0 million related to interest on the 6.25% Senior Notes through March 5, 2021 and cash outflow of $23.4 million related to the 3.125% premium owed to the lenders as a result of the early redemption.

This schedule has also been adjusted to reflect the annualized full year cash interest savings of approximately $46.9 million per year through fiscal year 2025 and $23.6 million in fiscal year 2026 as a result of early redemption of the 6.25% Senior Notes.

(3) Represents the contractually required payments, in accordance with the required payment schedule, under our finance lease obligations in existence as of December 31, 2020.

No assumptions were made with respect to renewing these leases beyond their current terms.

(4) Represents the contractually required payments, in accordance with the required payment schedule, under our financing obligations in existence as of December 31, 2020.

No assumptions were made with respect to renewing these financing arrangements beyond their current terms.

(5) Represents the contractually required payments, in accordance with the required payment schedule, under our operating lease obligations in existence as of December 31, 2020.

No assumptions were made with respect to renewing these leases beyond their current terms.

(6) Represents the contractually required payments under our various purchase obligations in existence as of December 31, 2020.

No assumptions were made with respect to renewing the purchase obligations at the expiration date of their initial terms.

(7) Contractual obligations denominated in a foreign currency were calculated utilizing the USD to local currency exchange rates in effect as of December 31, 2020.

(8) This table does not include the contractual obligations associated with our pension and other post-retirement benefit plans.

As of December 31, 2020, we had recognized a net benefit liability of $51.5 million, representing the net unfunded benefit obligations of the defined benefit and retiree healthcare plans.

Refer to Note 13, "Pension and Other Post-Retirement Benefits," of our Financial Statements for additional information related to our pension and other post-retirement benefits, including expected benefit payments for the next 10 years.

This table also does not include $24.7 million of unrecognized tax benefits as of December 31, 2020, as we are unable to make reasonably reliable estimates of when cash settlement, if any, will occur with a tax authority, as the timing and the ultimate resolution of the examination is uncertain.

Refer to Note 7, "Income Taxes," of our Financial Statements for additional information related to our unrecognized tax benefits.

On January 20, 2022, we announced that our Board of Directors had authorized the January 2022 Program, which replaces the July 2019 Program.

Sensata’s shareholders have previously approved the forms of share repurchase agreements and the potential broker counterparties needed to execute the buyback program.

Critical Accounting Policies and Estimates

As discussed in Note 2, "Significant Accounting Policies," of our Financial Statements, which more fully describes our significant accounting policies, the preparation of consolidated financial statements in accordance with U.S.

As discussed in Note 2:

Significant Accounting Policies of our Financial Statements included elsewhere in this Report, which more fully describes our significant accounting policies, the preparation of consolidated financial statements in accordance with U.S.

GAAP requires us to exercise judgment in the process of applying our accounting policies.

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In determining the transaction price related to a contract, we determine whether the amount promised in a contract includes a variable amount (variable consideration).

Variable consideration may be specified in the customer purchase order, in another agreement that identifies terms and conditions of the transaction, or based on our customary practices.

Variable consideration may be specified in the customer purchase order, in another agreement that identifies terms and conditions of the transaction, or based on our

customary practices.

We have identified certain types of variable consideration that may be included in the transaction price related to our contracts, including sales returns (which generally include a right of return for defective or non-conforming product) and trade discounts (including retrospective volume discounts and early payment incentives).

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Instead these assets are evaluated for impairment on an annual basis, and whenever events or business conditions change that could indicate that the asset is impaired.

Our judgments regarding the existence of indicators of goodwill impairment are based on several factors, including the performance of the end markets served by our customers, as well as the actual financial performance of our reporting units and

their respective financial forecasts over the long-term.

Our judgments regarding the existence of indicators of goodwill impairment are based on several factors, including the performance of the end-markets served by our customers, as well as the actual financial performance of our reporting units and their respective financial forecasts over the long-term.

We evaluate goodwill and indefinite-lived intangible assets for impairment in the fourth quarter of each fiscal year, unless events occur which trigger the need for an earlier impairment review.

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We periodically review these reporting units to ensure that they continue to reflect the manner in which the business is operated.

Historically, we have identified six reporting units.

In the fourth quarter of 2020, in connection with our review of these reporting units, and consistent with our determination that our Performance Sensing operating segment was now two separate operating segments, we determined that our Performance Sensing reporting unit was now two separate reporting units, Automotive and HVOR.

Refer to Note 20, “Segment Reporting,” of our Financial Statements for additional information on this decision.

As of December 31, 2020, we had identified seven reporting units, Automotive, HVOR, Electrical Protection, Industrial Sensing, Aerospace, Power Management, and Interconnection.

In the third quarter of 2021, we reorganized our Sensing Solutions operating segment, which resulted in realignment of our reporting units.

As a result of this reorganization, our electrical protection product category that includes high-voltage contactors, inverters, and battery management systems was moved to a new reporting unit, Clean Energy Solutions.

The remaining portions of our Electrical Protection, Industrial Sensing, Power Management, and Interconnection reporting units were consolidated into a new reporting unit, Industrial Solutions.

This reorganization had no impact on our Aerospace reporting unit.

Accordingly, as of October 1, 2021, we had five reporting units, Automotive, HVOR, Industrial Solutions, Aerospace, and Clean Energy Solutions.

With the acquisition of SmartWitness in the fourth quarter of 2021, we formed Sensata Insights, a business unit organized under the HVOR operating segment, to drive growth of our smart and connected offerings to the transportation market, including both those developed organically and through the acquisition of Xirgo and SmartWitness.

We concluded that Sensata Insights was a separate reporting unit from HVOR.

Accordingly, as of December 31, 2021, we had six reporting units, Automotive, HVOR, Sensata Insights, Industrial Solutions, Aerospace, and Clean Energy Solutions.

We have concluded that these reorganizations have not impacted our reportable or operating segment evaluations.

We reassigned assets and liabilities, including goodwill, to these new reporting units as required by FASB ASC Topic 350.

This did not result in an impairment of the goodwill of either reporting unit.

Accordingly, we now have seven reporting units, Automotive, HVOR, Electrical Protection, Industrial Sensing, Aerospace, Power Management, and Interconnection.

We evaluated our goodwill and other indefinite-lived intangible assets for impairment before and after the formation of these reporting units and determined that they were not impaired.

Assignment of assets, liabilities, and goodwill to reporting units.

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If we elect not to use this option, or if we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we prepare a discounted cash flow analysis to determine whether the carrying value of the reporting unit exceeds its estimated fair value.

If the carrying value of a reporting unit exceeds its estimated fair value, we recognize an impairment of goodwill for the amount of this excess, in accordance with the guidance in FASB Accounting Standards Update ("ASU") No.

2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment , which we adopted as of January 1, 2020.

We evaluated the goodwill of each reporting unit for impairment as of October 1, 2021 using a combination of the quantitative and qualitative methods.

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For reporting units that were evaluated using the quantitative method, we estimated the fair values of our reporting units using the discounted cash flow method.

For this method, we prepared detailed annual projections of future cash flows for the reporting unit for the subsequent five fiscal years (the "Discrete Projection Period").

We estimated the value of the cash flows beyond the fifth fiscal year (the "Terminal Year") by applying a multiple to the projected Terminal Year EBITDA.

The cash flows from the Discrete Projection Period and the Terminal Year were discounted at an estimated weighted-average cost of capital ("WACC") appropriate for each reporting unit.

For this method, we prepared detailed annual projections of future net cash flows for the reporting unit for the subsequent five fiscal years (the "Discrete Projection Period").

We estimated the value of the net cash flows beyond the fifth fiscal year (the "Terminal Year") by applying a multiple to the projected Terminal Year EBITDA.

The net cash flows from the Discrete Projection Period and the Terminal Year were discounted at an estimated weighted-average cost of capital ("WACC") appropriate for each reporting unit.

The estimated WACC was derived, in part, from comparable companies appropriate to each reporting unit.

We believe that our procedures for estimating discounted future cash flows, including the Terminal Year valuation, were reasonable and consistent with accepted valuation practices.

We believe that our procedures for estimating discounted future net cash flows, including the Terminal Year valuation, were reasonable and consistent with accepted valuation practices.

The preparation of forecasts of revenue growth and profitability for use in the long-range forecasts, the selection of the discount rates, and the estimation of the multiples used in valuing the Terminal Year involve significant judgments.

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Changes to these assumptions could affect the estimated fair values of our reporting units calculated in prior years and could result in a goodwill impairment charge in a future period.

We believe that certain factors, such as a future recession, any material adverse conditions in the automotive industry and other industries in which we operate, and other factors identified in Item 1A, "Risk Factors," included elsewhere in this Report could cause us to revise our long-term projections and could reduce the multiples used to determine Terminal Year value.

Risk Factors included elsewhere in this Report could cause us to revise our long-term projections and could reduce the multiples used to determine Terminal Year value.

Such revisions could result in a goodwill impairment charge in the future.

We consider a combination of quantitative and qualitative factors to determine whether a reporting unit is at risk of failing 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.

Based on the results of this analysis, we do not consider any of our reporting units to be at risk of failing Step 1 of the goodwill impairment test.

Based on the results of this analysis, we do not consider any of our reporting units to be at risk of failing the goodwill impairment test.

Evaluation of other intangible assets for impairment

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We periodically re-evaluate the carrying values and estimated useful lives of long-lived assets whenever events or changes in circumstances indicate that the carrying values of these assets may not be recoverable.

We use estimates of undiscounted cash flows from long-lived assets to determine whether the carrying values of such assets are recoverable over the assets’ remaining useful lives.

We use estimates of undiscounted net cash flows from long-lived assets to determine whether the carrying values of such assets are recoverable over the assets’ remaining useful lives.

These estimates include assumptions about our future performance and the performance of the end-markets we serve.

If an asset is determined to be impaired, the impairment is the amount by which its carrying value exceeds its fair value.

These evaluations are performed at a level where discrete cash flows may be attributed to either an individual asset or a group of assets.

These evaluations are performed at a level where discrete net cash flows may be attributed to either an individual asset or a group of assets.

As part of the process of preparing our financial statements, we are required to estimate our provision for (or benefit from) income taxes in each of the jurisdictions in which we operate.

This involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes.

This involves estimating our actual current tax expense, including assessing the risks associated with tax audits, together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes.

These differences result in deferred tax assets and liabilities.

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Penalties and interest related to uncertain tax positions may be classified as either income taxes or another expense line item in the consolidated statements of operations.

We classify interest and penalties related to uncertain tax positions within the provision for/(benefit from) income taxes line of the consolidated statements of operations.

We classify interest and penalties related to uncertain tax positions within the provision for (or benefit from) income taxes line of the consolidated statements of operations.

We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized.

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The funded status of pension and other post-retirement benefit plans is measured as the difference between the fair value of plan assets and the benefit obligation at the measurement date.

Changes in the funded status of a pension or other post-retirement benefit plan are recognized in the year in which they occur by adjusting the recognized (net) liability or asset with an offsetting adjustment to either net income or other comprehensive income.

Changes in the funded status of a pension or other post-retirement

benefit plan are recognized in the year in which they occur by adjusting the recognized (net) liability or asset with an offsetting adjustment to either net income or other comprehensive income.

Our most difficult and subjective judgments and estimates relate to the valuation of our benefit obligations.

Benefit obligations represent the actuarial present value of all benefits attributed by the pension formula as of the measurement date to employee service rendered before that date and can be categorized as projected benefit obligations or accumulated benefit obligations.

The value of projected benefit obligations take into consideration various actuarial assumptions including future compensation levels and the probability of payment between the measurement date and the expected date of payment.

The value of projected benefit obligations takes into consideration various actuarial assumptions, including future compensation levels and the probability of payment between the measurement date and the expected date of payment.

Accumulated benefit obligations differ from projected benefit obligations only in that they include no assumptions about future compensation levels.

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These assumptions are reviewed annually.

Refer to Note 13, "Pension and Other Post-Retirement Benefits," of our Financial Statements for additional information related to the values determined for each of these assumptions in the last three fiscal years.

Refer to Note 13:

Pension and Other Post-Retirement Benefits of our Financial Statements included elsewhere in this Report for additional information related to the values determined for each of these assumptions in the last three fiscal years.

The discount rate reflects the current rate at which the pension and other post-retirement liabilities could be effectively settled, considering the timing of expected payments for plan participants.

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This assumption is dependent on the assumed expected term.

The dividend yield of 0% is based on our history of having never declared or paid any dividends on our ordinary shares as well as our current intention not to declare dividends in the foreseeable future.

Refer to Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities," included elsewhere in this Report for additional information related to limitations on our ability to pay dividends.

The dividend yield of 0% is based on our history of having never

declared or paid any dividends on our ordinary shares, as well as our intention, at the time of grant, of not declaring dividends in the foreseeable future.

Refer to Item 5:

Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities included elsewhere in this Report for additional information related to limitations on our ability to pay dividends.

Certain of our restricted securities include performance conditions that require us to estimate the probable outcome of the performance condition.

5 unchanged sentences

Material changes to any of these assumptions may have a significant effect on our valuation of stock options, and, ultimately, the share-based compensation expense recognized in the consolidated statements of operations.

Off-Balance Sheet Arrangements

From time to time, we execute contracts that require us to indemnify the other parties to the contracts.

These indemnification obligations generally arise in two contexts.

First, in connection with certain transactions, such as the divestiture of a business or the issuance of debt or equity securities, the agreement typically contains standard provisions requiring us to indemnify the purchaser against breaches by us of representations and warranties contained in the agreement.

These indemnities are generally subject to time and liability limitations.

Second, we enter into agreements in the ordinary course of business, such as customer contracts, that might contain indemnification provisions relating to product quality, intellectual property infringement, governmental regulations and employment related matters, and other typical indemnities.

In certain cases, indemnification obligations arise by law.

We believe that our indemnification obligations are consistent with other companies in the markets in which we compete.

Performance under any of these indemnification obligations would generally be triggered by a breach of the terms of the contract or by a third-party claim.

Historically, we have experienced only immaterial and irregular losses associated with these indemnifications.

Consequently, any future liabilities brought about by these indemnifications cannot reasonably be estimated or accrued.

Refer to Note 15, "Commitments and Contingencies," of our Financial Statements for additional information related to our off-balance sheet arrangements.

Recent Accounting Pronouncements

Recently issued accounting standards adopted in the current period:

In January 2017, the FASB issued ASU No.

2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment in order to simplify the subsequent measurement of goodwill.

This guidance changes the method by which an impairment of goodwill is calculated.

Under the previous guidance, goodwill impairment was calculated in two steps.

In Step 1, an entity would assess whether an impairment had occurred, either qualitatively or by comparing the estimated fair values of our reporting units to their respective carrying values, including goodwill.

If the results of Step 1 indicated an impairment had occurred, Step 2 would be performed, in which the implied value of goodwill of the reporting unit would be calculated and an impairment would be recognized for the difference between the implied value of goodwill and the recorded amount of goodwill.

Under FASB ASU No.

2017-04, while Step 1 of this process has not changed, Step 2 as described above has been eliminated, and impairment charges are recorded for the amount by which the carrying value of the reporting unit exceeds its estimated fair value.

2017-04 was effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

We adopted FASB ASU No.

2017-04 as of January 1, 2020.

This adoption did not have an impact on our financial statements as none of our reporting units were determined to have carrying values in excess of fair values during the year ended December 31, 2020.

Recently issued accounting standards to be adopted in a future period:

There are no recently issued accounting standards to be adopted in future periods that are expected to have a material impact on our consolidated financial position or results of operations.

Recently Issued Accounting Standards

In October 2021, the FASB issued Accounting Standards Update ("ASU") No.

2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers to improve the accounting for acquired revenue contracts with customers in a business combination.

The amendments in FASB ASU No.

2021-08 require that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with FASB ASC Topic 606 as if it had originated the contracts.

Previous guidance required an entity to recognize contract assets and contract liabilities at fair value as of the acquisition date.

The amendments in FASB ASU No.

2021-08 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted, including adoption in an interim period.

We have elected to early adopt FASB ASU No.

2021-08 in the fourth quarter of 2021, and in accordance with the requirements of FASB ASU No.

2021-08 related to early adoption in an interim period, we have applied its provisions retrospectively to all acquisitions completed on or after January 1, 2021 and will apply them prospectively to all future acquisitions.

There was no retrospective impact on our financial statements resulting from this adoption.

Any future impact will be dependent on facts and circumstances of future acquisitions.

There have been no other 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.

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 7. Management’s Discussion and Analysis