Sensata Technologies Holding plc 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 1. Financial Statements The following audited consolidated financial statements of Sensata Technologies Holding plc are included in this Annual Report on Form 10-K: Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 66 Consolidated Balance Sheets 69 Consolidated Statements of Operations 70 Consolidated Statements of Comprehensive Income 71 Consolidated Statements of Cash Flows 72 Consolidated Statements of Changes in Shareholders' Equity 73 Notes to Consolidated Financial Statements 74 2. Financial Statement Schedules The following schedules are included elsewhere in this Annual Report on Form 10-K: Schedule I — Condensed Financial Information of the Registrant 126 Schedule II — Valuation and Qualifying Accounts 131 Schedules other than those listed above have been omitted since the required information is not present, or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the audited consolidated financial statements or the notes thereto. 65 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Sensata Technologies Holding plc Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Sensata Technologies Holding plc (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, cash flows and changes in shareholders’ equity for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 10, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of goodwill Description of the Matter As of December 31, 2021, the Company’s goodwill balance was $3.5 billion. The Company’s goodwill is initially assigned to its reporting units as of the acquisition date. As discussed in Note 2 of the consolidated financial statements, goodwill is tested for impairment at the reporting unit level. The Company evaluated goodwill for impairment as of October 1, 2021. The Company used a combination of the quantitative and qualitative methods to assess their reporting units for impairment. Auditing management’s goodwill impairment analysis for the reporting units for which the quantitative method was utilized was complex and judgmental due to the estimation required in determining the fair value of the reporting units. In particular, the fair value estimates included significant assumptions such as the long-range forecasts, the selection of the discount rates, and the estimation of the multiples or long-term growth rates used in valuing the terminal year which are affected by expectations about future market or economic conditions. 66 Table of Contents How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s quantitative goodwill impairment review process. For example, we tested controls over management’s review of the data used in their valuation models and reviewed significant assumptions discussed above used in determining the reporting unit fair values. To test the estimated fair value of the Company’s reporting units, with the assistance of our valuation professionals, our audit procedures included, among others, assessing fair value methodologies and testing the significant assumptions discussed above. We compared the significant assumptions used by management to current industry and economic trends, the Company’s historical trends with consideration given to changes in the Company’s business, customer base or product mix and other relevant factors. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. We also evaluated the reconciliation of the estimated aggregate fair value of the reporting units to the Company’s market capitalization. Income taxes – uncertain tax positions Description of the Matter As discussed in Note 7, at December 31, 2021, the Company had approximately $223.8 million of unrecognized tax benefits associated with uncertain tax positions. Uncertainty in a tax position may arise as tax laws are subject to interpretation. The Company uses significant judgment in (1) determining whether a tax position’s technical merits are more-likely-than-not to be sustained and (2) measuring the amount of tax benefit that qualifies for recognition. Auditing the recognition and measurement of tax positions related to uncertain tax positions involved significant auditor judgment and use of tax professionals with specialized skills and knowledge because both the recognition and measurement of the tax positions are complex, highly judgmental and based on interpretations of tax laws and legal rulings. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to identify and record the reserve for uncertain tax positions. For example, we tested controls over management’s evaluation of the technical merits of tax positions and identification of uncertain tax positions and the controls to measure the benefit of those tax positions, including management’s review of the inputs and calculations of unrecognized tax benefits resulting from uncertain tax positions. To test the amounts recorded as uncertain tax positions we involved our tax professionals to evaluate the technical merits of the Company’s income tax positions. Our procedures included, among others, evaluating income tax technical analysis or other third-party advice obtained by the Company and inspecting correspondence, assessments and settlements from the relevant tax authorities. We also applied our knowledge and experience with the application of federal, foreign and state income tax laws to evaluate the Company’s accounting for those tax positions. We analyzed the Company’s assumptions and data used to determine the amount of tax benefit to recognize and tested the accuracy of the calculations. We also evaluated the Company’s income tax disclosures included in Note 7 in relation to these matters. Accounting for Acquisitions – Valuation of Identified Intangibles Description of the Matter As described in Note 21 to the consolidated financial statements, the Company completed several acquisitions during 2021. The most significant of these were (1) the acquisition of Xirgo Technologies, LLC (Xirgo) for an aggregate cash purchase price of $401.7 million, and (2) the acquisition of SmartWitness Holdings, Inc. (SmartWitness) for an aggregate cash purchase price of $204.2 million. These transactions are accounted for as business combinations. With respect to SmartWitness, the allocation of purchase price is preliminary and is subject to revision as the final valuations are completed. 67 Table of Contents Auditing the Company's accounting for its acquisitions of Xirgo and SmartWitness was complex due to the significant estimation required by management in determining the fair value of identifiable intangible assets, which on a combined basis principally consisted of customer relationship and completed technology intangible assets of $222.6 million and $96.2 million, respectively. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business. The Company used the income approach to measure the customer relationship and completed technology intangible assets. The significant assumptions used to estimate the fair value of these intangible assets included the expected discounted future net cash flows generated by each asset. These significant assumptions are forward looking and could be affected by future economic and market conditions. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's process for valuing intangible assets acquired in business combinations. For example, we tested controls over the appropriateness of the valuation model, assumptions management used as well as controls over the completeness and accuracy of the data underlying the valuation of the customer relationship and completed technology intangible assets. To test the estimated fair value of the customer relationship and completed technology intangible assets, our audit procedures included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data supporting the significant assumptions and estimates used by the Company in the valuations. We tested significant assumptions through a combination of procedures, as applicable for each assumption, including comparing them to current and forecasted industry trends, as well as to the historical results of the acquired businesses and other guideline companies within the same industry. With the assistance of our valuation specialists, we evaluated the methodology used by the Company and significant assumptions included in the fair value estimates. /s/ Ernst & Young LLP We have served as the Company's auditor since 2005. Boston, Massachusetts February 10, 2022 68 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Consolidated Balance Sheets (In thousands, except per share amounts) As of December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 1,708,955 $ 1,861,980 Accounts receivable, net of allowances of $ 17,003 and $ 19,033 as of December 31, 2021 and 2020, respectively 653,438 576,647 Inventories 588,231 451,005 Prepaid expenses and other current assets 126,370 90,340 Total current assets 3,076,994 2,979,972 Property, plant and equipment, net 820,933 803,825 Goodwill 3,502,063 3,111,349 Other intangible assets, net 946,731 691,549 Deferred income tax assets 105,028 84,785 Other assets 162,017 172,722 Total assets $ 8,613,766 $ 7,844,202 Liabilities and shareholders' equity Current liabilities: Current portion of long-term debt, finance lease and other financing obligations $ 6,833 $ 757,205 Accounts payable 459,093 393,907 Income taxes payable 26,517 19,215 Accrued expenses and other current liabilities 343,816 324,830 Total current liabilities 836,259 1,495,157 Deferred income tax liabilities 339,273 259,857 Pension and other post-retirement benefit obligations 38,758 48,002 Finance lease and other financing obligations, less current portion 26,564 27,931 Long-term debt, net 4,214,946 3,213,747 Other long-term liabilities 63,232 94,022 Total liabilities 5,519,032 5,138,716 Commitments and contingencies (Note 15) Shareholders' equity: Ordinary shares, € 0.01 nominal value per share, 177,069 shares authorized and 174,287 and 173,266 shares issued as of December 31, 2021 and 2020, respectively 2,232 2,220 Treasury shares, at cost, 16,438 and 15,631 shares as of December 31, 2021 and 2020, respectively ( 832,439 ) ( 784,596 ) Additional paid-in capital 1,812,244 1,759,668 Retained earnings 2,132,257 1,777,729 Accumulated other comprehensive loss ( 19,560 ) ( 49,535 ) Total shareholders' equity 3,094,734 2,705,486 Total liabilities and shareholders' equity $ 8,613,766 $ 7,844,202 The accompanying notes are an integral part of these financial statements. 69 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Consolidated Statements of Operations (In thousands, except per share amounts) For the year ended December 31, 2021 2020 2019 Net revenue $ 3,820,806 $ 3,045,578 $ 3,450,631 Operating costs and expenses: Cost of revenue 2,542,434 2,119,044 2,267,433 Research and development 159,072 131,429 148,425 Selling, general and administrative 336,989 294,725 281,442 Amortization of intangible assets 134,129 129,549 142,886 Restructuring and other charges, net 14,942 33,094 53,560 Total operating costs and expenses 3,187,566 2,707,841 2,893,746 Operating income 633,240 337,737 556,885 Interest expense, net ( 179,291 ) ( 171,757 ) ( 158,554 ) Other, net ( 40,032 ) ( 339 ) ( 7,908 ) Income before taxes 413,917 165,641 390,423 Provision for income taxes 50,337 1,355 107,709 Net income 363,580 164,286 282,714 Basic net income per share $ 2.30 $ 1.04 $ 1.76 Diluted net income per share $ 2.28 $ 1.04 $ 1.75 The accompanying notes are an integral part of these financial statements. 70 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Consolidated Statements of Comprehensive Income (In thousands) For the year ended December 31, 2021 2020 2019 Net income $ 363,580 $ 164,286 $ 282,714 Other comprehensive income/(loss), net of tax: Cash flow hedges 23,564 ( 23,279 ) 7,362 Defined benefit and retiree healthcare plans 6,411 ( 5,772 ) ( 1,668 ) Other comprehensive income/(loss) 29,975 ( 29,051 ) 5,694 Comprehensive income 393,555 135,235 288,408 The accompanying notes are an integral part of these financial statements. 71 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Consolidated Statements of Cash Flows (In thousands) For the year ended December 31, 2021 2020 2019 Cash flows from operating activities: Net income $ 363,580 $ 164,286 $ 282,714 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 124,959 125,680 115,862 Amortization of debt issuance costs 6,858 6,854 7,804 Share-based compensation 25,663 19,125 18,757 Loss on debt financing 30,066 — 4,364 Amortization of intangible assets 134,129 129,549 142,886 Deferred income taxes ( 5,270 ) ( 44,900 ) 27,623 Acquisition-related deferred compensation payments ( 15,630 ) — — Unrealized loss on derivative instruments and other 13,837 4,709 30,292 Changes in operating assets and liabilities, net of the effects of acquisitions: Accounts receivable, net ( 48,106 ) ( 16,668 ) 26,605 Inventories ( 119,961 ) 58,390 ( 10,924 ) Prepaid expenses and other current assets 6,624 36,431 10,073 Accounts payable and accrued expenses 35,333 90,479 ( 34,563 ) Income taxes payable 8,602 ( 16,019 ) 2,308 Other ( 6,533 ) 1,859 ( 4,239 ) Net cash provided by operating activities 554,151 559,775 619,562 Cash flows from investing activities: Acquisitions, net of cash received ( 736,077 ) ( 64,432 ) ( 32,465 ) Additions to property, plant and equipment and capitalized software ( 144,403 ) ( 106,719 ) ( 161,259 ) Investment in debt and equity securities ( 5,533 ) ( 22,963 ) ( 9,950 ) Other 3,919 12,022 ( 5,103 ) Net cash used in investing activities ( 882,094 ) ( 182,092 ) ( 208,777 ) Cash flows from financing activities: Proceeds from exercise of stock options and issuance of ordinary shares 26,290 15,457 15,150 Payment of employee restricted stock tax withholdings ( 9,048 ) ( 2,911 ) ( 6,990 ) Proceeds from borrowings on debt 1,001,875 1,150,000 450,000 Payments on debt ( 763,263 ) ( 408,914 ) ( 464,605 ) Payments to repurchase ordinary shares ( 47,843 ) ( 35,175 ) ( 350,004 ) Payments of debt financing costs ( 33,093 ) ( 8,279 ) ( 10,050 ) Net cash provided by/(used in) financing activities 174,918 710,178 ( 366,499 ) Net change in cash and cash equivalents ( 153,025 ) 1,087,861 44,286 Cash and cash equivalents, beginning of year 1,861,980 774,119 729,833 Cash and cash equivalents, end of year $ 1,708,955 $ 1,861,980 $ 774,119 Supplemental cash flow items: Cash paid for interest $ 188,857 $ 164,494 $ 169,543 Cash paid for income taxes $ 66,642 $ 65,823 $ 61,031 The accompanying notes are an integral part of these financial statements. 72 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Consolidated Statements of Changes in Shareholders' Equity (In thousands) Ordinary Shares Treasury Shares Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity Number Amount Number Amount Balance as of December 31, 2018 171,719 $ 2,203 ( 7,571 ) $ ( 399,417 ) $ 1,691,190 $ 1,340,636 $ ( 26,178 ) $ 2,608,434 Surrender of shares for tax withholding — — ( 149 ) ( 6,990 ) — — — ( 6,990 ) Stock options exercised 537 6 — — 15,144 — — 15,150 Vesting of restricted securities 454 5 — — — ( 5 ) — — Repurchase of ordinary shares — — ( 7,162 ) ( 350,004 ) — — — ( 350,004 ) Retirement of ordinary shares ( 149 ) ( 2 ) 149 6,990 — ( 6,988 ) — — Share-based compensation — — — — 18,757 — — 18,757 Net income — — — — — 282,714 — 282,714 Other comprehensive income — — — — — — 5,694 5,694 Balance as of December 31, 2019 172,561 2,212 ( 14,733 ) ( 749,421 ) 1,725,091 1,616,357 ( 20,484 ) 2,573,755 Surrender of shares for tax withholding — — ( 96 ) ( 2,911 ) — — — ( 2,911 ) Stock options exercised 452 5 — — 15,452 — — 15,457 Vesting of restricted securities 349 4 — — — ( 4 ) — — Repurchase of ordinary shares — — ( 898 ) ( 35,175 ) — — — ( 35,175 ) Retirement of ordinary shares ( 96 ) ( 1 ) 96 2,911 — ( 2,910 ) — — Share-based compensation — — — — 19,125 — — 19,125 Net income — — — — — 164,286 — 164,286 Other comprehensive loss — — — — — — ( 29,051 ) ( 29,051 ) Balance as of December 31, 2020 173,266 2,220 ( 15,631 ) ( 784,596 ) 1,759,668 1,777,729 ( 49,535 ) 2,705,486 Surrender of shares for tax withholding — — ( 155 ) ( 9,048 ) — — — ( 9,048 ) Stock options exercised 707 8 — — 26,913 — — 26,921 Vesting of restricted securities 469 6 — — — ( 6 ) — — Repurchase of ordinary shares — — ( 807 ) ( 47,843 ) — — — ( 47,843 ) Retirement of ordinary shares ( 155 ) ( 2 ) 155 9,048 — ( 9,046 ) — — Share-based compensation — — — — 25,663 — — 25,663 Net income — — — — — 363,580 — 363,580 Other comprehensive income — — — — — — 29,975 29,975 Balance as of December 31, 2021 174,287 $ 2,232 ( 16,438 ) $ ( 832,439 ) $ 1,812,244 $ 2,132,257 $ ( 19,560 ) $ 3,094,734 The accompanying notes are an integral part of these financial statements. 73 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Business Description and Basis of Presentation Description of Business The accompanying audited consolidated financial statements reflect the financial position, results of operations, comprehensive income, cash flows, and changes in shareholders' equity of Sensata Technologies Holding plc ("Sensata plc"), a public limited company incorporated under the laws of England and Wales, and its consolidated subsidiaries, collectively referred to as the "Company," "Sensata," "we," "our," and "us." We are a global industrial technology company that develops, manufactures, and sells sensors, electrical protection components, and other products that are used in mission-critical systems and applications that create valuable business insights for our customers and end users. Our sensors are used by our customers to translate a physical parameter, such as pressure, temperature, position, or location of an object, into electronic signals that our customers’ products and solutions can act upon. These actionable insights lead to products that are safer, cleaner, more efficient, more electrified, and increasingly more connected. Our electrical protection component portfolio is comprised of various switches, fuses, battery management systems, inverters, energy storage systems, controllers, and software, and includes high-voltage contactors and other products embedded within systems to maximize their efficiency and performance and ensure safety. Sensata plc conducts its operations through subsidiary companies that operate business and product development centers primarily in Belgium, Bulgaria, China, Denmark, India, Japan, Lithuania, the Netherlands, South Korea, the United Kingdom (the "U.K."), and the United States (the "U.S."); and manufacturing operations primarily in Bulgaria, China, Malaysia, Mexico, the U.K., and the U.S. We present financial information for two reportable segments, Performance Sensing and Sensing Solutions. Refer to Note 20: Segment Reporting for additional information related to each of our segments. Basis of Presentation The accompanying audited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and present separately our financial position, results of operations, comprehensive income, cash flows, and changes in shareholders’ equity. All intercompany balances and transactions have been eliminated. All U.S. dollar ("USD") and share amounts presented, except per share amounts, are stated in thousands, unless otherwise indicated . 2. Significant Accounting Policies Use of Estimates The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to exercise our judgment in the process of applying our accounting policies. It also requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingencies at the date of the financial statements, and the reported amounts of net revenue and expense during the reporting periods. Estimates are used when accounting for certain items such as allowance for doubtful accounts and sales returns, inventory obsolescence, asset impairments (including goodwill and other intangible assets), contingencies, the value of certain equity awards and the measurement of share-based compensation, the determination of accrued expenses, certain asset valuations, accounting for income taxes, the useful lives of plant and equipment, measurement of our post-retirement benefit obligations, and with respect to business combinations, valuation of contingent consideration, and the identification, valuation, and determination of useful lives of acquired identifiable intangible assets. The accounting estimates used in the preparation of the consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained, and as the operating environment changes. Actual results could differ from those estimates. Revenue Recognition We recognize revenue to depict the transfer of promised goods to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods. In order to achieve this, we use the five-step model outlined in 74 Table of Contents Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers . This five-step model requires us to identify the contract with the customer, identify the performance obligation(s) in the contract, determine the transaction price, allocate the transaction price to the performance obligation(s), and recognize revenue when (or as) we satisfy the performance obligation(s). The vast majority of our contracts (as defined in FASB ASC Topic 606) are customer purchase orders that require us to transfer specified quantities of tangible products to our customers. These performance obligations are generally satisfied within a short period of time. Amounts billed to our customers for shipping and handling after control has transferred are recognized as revenue and the related costs that we incur are presented in cost of revenue. In determining the transaction price, we evaluate whether the consideration promised in the contract includes a variable amount and, if applicable, we include in the transaction price some or all of an amount of variable consideration only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration may be explicitly stated in the contract or implied based on our customary practices. Examples of variable consideration present in our contracts include rights of return, in the case of a defective or non-conforming product, and trade discounts, including early payment discounts and retrospective volume discounts. Such variable consideration has not historically been material in relation to our net revenue. Our contract terms generally require the customer to make payment shortly (that is, less than one year) after the shipment date. In such instances, we do not consider the effects of a significant financing component in determining the transaction price. Lastly, we exclude from our determination of the transaction price value-added tax and other similar taxes. Our performance obligations are satisfied, and revenue is recognized, when control of the product is transferred to the customer. The transfer of control generally occurs at the point in time the product is shipped from our warehouse or, less often, at the point in time it is received by the customer, depending on the specific terms of the arrangement. Many of our products are designed and engineered to meet customer specifications. These activities, and the testing of our products to determine compliance with those specifications, occur prior to any revenue being recognized. Products are then manufactured and sold to customers. However, in certain cases, pre-production activities are a performance obligation in a customer purchase order, and revenue is recognized when the performance obligation is satisfied. Customer arrangements do not involve post-installation or post-sale testing and acceptance. Our standard terms of sale provide our customers with a warranty against faulty workmanship and the use of defective materials, which is not considered a distinct performance obligation in accordance with FASB ASC Topic 606. Depending on the product, we generally provide such warranties for a period of three years after the date we ship the product to our original equipment manufacturer ("OEM") customers or for a period of twelve months after the date the customer resells our product to the end consumer, whichever comes first. Our liability associated with this warranty is, at our option, to repair the product, replace the product, or provide the customer with a credit. We do not offer separately priced extended warranty or product maintenance contracts. We also sell products to customers under negotiated agreements or where we have accepted the customer’s terms of purchase. In these instances, we may provide additional warranties for longer durations, consistent with differing end-market practices, and where our liability is not limited. In addition, many sales take place in situations where commercial or civil codes, or other laws, would imply various warranties and restrict limitations on liability. Refer to Note 3: Revenue Recognition for additional information related to the net revenue recognized in the consolidated statements of operations. Share-Based Compensation We measure at fair value any new or modified share-based compensation arrangements with employees, such as stock options and restricted securities, and recognize as compensation expense that fair value over the requisite service period in accordance with FASB ASC Topic 718, Compensation—Stock Compensation . Share-based compensation expense is generally recognized as a component of selling, general and administrative ("SG&A") expense, which is consistent with where the related employee costs are presented, however, such costs, or a portion thereof, may be capitalized provided certain criteria are met. Share-based awards may be subject to either cliff vesting (i.e., the entire award vests on a particular date) or graded vesting (i.e., portions of the award vest at different points in time). In accordance with FASB ASC Topic 718, compensation expense associated with share-based awards subject to cliff vesting must be recognized on a straight-line basis. For awards without performance conditions that are subject to graded vesting, companies have the option to recognize compensation expense either on a straight-line or accelerated basis. We have elected to recognize compensation expense for these awards on a straight-line 75 Table of Contents basis. However, awards that are subject to both graded vesting and performance conditions must be expensed on an accelerated basis. We estimate the fair value of options on the grant date using the Black-Scholes-Merton option-pricing model. Key inputs and assumptions used in this model are as follows: • The fair value of the underlying ordinary shares. This is determined as the closing price of our ordinary shares on the New York Stock Exchange (the "NYSE") on the grant date. • The expected term. This is determined based upon our own historical average term of exercised and outstanding options. • Expected volatility. We consider our own historical volatility as well as our implied volatility in estimating expected volatility for stock options. Implied volatility provides a forward-looking indication and may offer insight into expected volatility. • Risk-free interest rate. The risk-free interest rate is based on the yield for a U.S. Treasury security having a maturity similar to the expected term of the related option grant. • Expected dividend yield. 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. Restricted securities are valued using the closing price of our ordinary shares on the NYSE on the grant date. Certain of our restricted securities include performance conditions that require us to estimate the probable outcome of the performance condition. Compensation expense is recognized if it is probable that the performance condition will be achieved. We elect to recognize share-based compensation expense net of estimated forfeitures as permitted by FASB ASC Topic 718. Accordingly, we only recognize compensation expense for those awards expected to vest over the requisite service period. Compensation expense recognized for each award ultimately reflects the number of units that actually vest. Refer to Note 4: Share-Based Payment Plans for additional information related to share-based compensation. Financial Instruments Our material financial instruments include derivative instruments, debt instruments, equity investments, and trade accounts receivable. Derivative financial instruments We account for our derivative financial instruments in accordance with FASB ASC Topic 820, Fair Value Measurement and FASB ASC Topic 815, Derivatives and Hedging . In accordance with FASB ASC Topic 815, we recognize all derivatives on the balance sheet at fair value. The fair value of our derivative financial instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected net cash flows of each instrument. These analyses utilize observable market-based inputs, including foreign currency exchange rates and commodity forward curves, and reflect the contractual terms of these instruments, including the period to maturity. Derivative instruments that are designated and qualify as hedges of the exposure to changes in the fair value of an asset, liability, or commitment, and that are attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments that are designated and qualify as hedges of the exposure to variability in expected future cash flows are considered cash flow hedges. Derivative instruments may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Currently, all of our derivative instruments that are designated as accounting hedges are cash flow hedges. We also hold derivative instruments that are not designated as accounting hedges. The accounting for changes in the fair value of our cash flow hedges depends on whether we have elected to designate the derivative as a hedging instrument for accounting purposes and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. In accordance with FASB ASC Topic 815, both the effective and ineffective portions of changes in the fair value of derivatives designated and qualifying as cash flow hedges are recognized in accumulated other comprehensive loss and are subsequently reclassified into earnings in the period in which the hedged forecasted transaction affects earnings. Changes in the fair value of derivative instruments that are not designated as accounting hedges are recognized immediately in other, net. Refer to Note 16: Shareholders' Equity and Note 19: Derivative Instruments and Hedging Activities for additional information related to the reclassification of amounts from accumulated other comprehensive loss into earnings. 76 Table of Contents We present the cash flows arising from our derivative financial instruments in a manner consistent with the presentation of cash flows that relate to the underlying hedged items. We incorporate credit valuation adjustments to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of non-performance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. We do not offset the fair value amounts recognized for derivative instruments against fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral. We maintain derivative instruments with major financial institutions of investment grade credit rating and monitor the amount of credit exposure to any one issuer. We believe there are no significant concentrations of risk associated with our derivative instruments. Refer to Note 19: Derivative Instruments and Hedging Activities for additional information related to our derivative instruments. Debt Instruments A premium or discount on a debt instrument is recognized on the balance sheet as an adjustment to the carrying value of the debt liability. In general, amounts paid to creditors are considered a reduction in the proceeds received from the issuance of the debt and are accounted for as a component of the premium or discount on the issuance, not as an issuance cost. Direct and incremental costs associated with the issuance of debt instruments such as legal fees, printing costs, and underwriters' fees, among others, paid to parties other than creditors, are also reported and presented as a reduction of debt on the consolidated balance sheets. Debt issuance costs and premiums or discounts are amortized over the term of the respective financing arrangement using the effective interest method. Amortization of these amounts is included as a component of interest expense, net in the consolidated statements of operations. In accounting for debt financing transactions, we apply the provisions of FASB ASC Subtopic 470-50, Modifications and Extinguishments . Our evaluation of the accounting under FASB ASC Subtopic 470-50 is done on a creditor by creditor basis in order to determine if the terms of the debt are substantially different and, as a result, whether to apply modification or extinguishment accounting. In the event that an individual holder of existing debt did not invest in new debt, we apply extinguishment accounting. Borrowings associated with individual holders of new debt that are not holders of existing debt are accounted for as new issuances. Refer to Note 14: Debt for additional information related to our debt instruments and transactions. Equity Investments We measure equity investments (other than those accounted for under the equity method, those that result in consolidation of the investee, and certain other investments) either at fair value, with changes to fair value recognized in net income, or in certain instances, by use of a measurement alternative prescribed in FASB ASC Topic 321, Investments - Equity Securities . Under the measurement alternative, such investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Refer to Note 18: Fair Value Measures for additional information related to our measurement of financial instruments, including equity investments. Trade accounts receivable Trade accounts receivable are recognized at invoiced amounts and do not bear interest. Trade accounts receivable are reduced by an allowance for losses on receivables. Concentrations of risk with respect to trade accounts receivable are generally limited due to the large number of customers in various industries and their dispersion across several geographic areas. Although we do not foresee that credit risk associated with these receivables will deviate from historical experience, repayment is dependent upon the financial stability of these individual customers. We estimate an allowance for credit losses on trade accounts receivable at an amount that represents our estimated expected credit losses over the lifetime of our receivables. Our contract terms generally require the customer to make payment shortly after (that is, less than one year) the shipment date. Our largest customer accounted for approximately 6 % of our net revenue for the year ended December 31, 2021. 77 Table of Contents Allowance for Losses on Receivables The allowance for losses on receivables is used to present accounts receivable, net at an amount that represents our estimate of the related transaction price recognized as revenue in accordance with FASB ASC Topic 606. The allowance represents an estimate of expected credit losses over the lifetime of our receivables, even if the loss is considered remote, and reflects expected recoveries of amounts previously written-off. We estimate the allowance on the basis of specifically identified receivables that are evaluated individually for impairment and a statistical analysis of the remaining receivables determined by reference to past default experience. We consider the need to adjust historical information to reflect the extent to which we expect current conditions and reasonable forecasts to differ from the conditions that existed for the historical period considered. Customers are generally not required to provide collateral for purchases. The allowance for losses on receivables also includes an allowance for sales returns (variable consideration). Management judgments are used to determine when to charge off uncollectible trade accounts receivable. We base these judgments on the age of the receivable, credit quality of the customer, current economic conditions, and other factors that may affect a customer’s ability and intent to pay. Losses on receivables have not historically been significant. Goodwill and Other Intangible Assets Businesses acquired are recognized at their fair value on the date of acquisition, with the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed recognized as goodwill. Intangible assets acquired may include either definite-lived or indefinite-lived intangible assets, or both. In accordance with the guidance in FASB ASC Topic 350, Intangibles—Goodwill and Other , goodwill and intangible assets determined to have an indefinite useful life are not amortized. Instead these assets are evaluated for impairment on an annual basis and whenever events or business conditions change that could indicate that the asset is impaired. We evaluate goodwill and indefinite-lived intangible assets for impairment in the fourth quarter of each fiscal year, unless events occur which trigger the need for an earlier impairment review. Goodwill Our reporting units have been identified based on the definitions and guidance provided in FASB ASC Topic 350. Identification of reporting units includes an analysis of the components that comprise each of our operating segments, which considers, among other things, the manner in which we operate our business and the availability of discrete financial information. Components of an operating segment are aggregated to form one reporting unit if the components have similar economic characteristics. We periodically review these reporting units to ensure that they continue to reflect the manner in which the business is operated. Some assets and liabilities relate to the operations of multiple reporting units. We allocate these assets and liabilities to the related reporting units based on methods that we believe are reasonable and supportable. We apply that allocation method on a consistent basis from year to year. Other assets and liabilities, such as debt, cash and cash equivalents, and property, plant and equipment, net ("PP&E") associated with our corporate offices, are viewed as being corporate in nature. Accordingly, we do not assign these assets and liabilities to our reporting units. In the event we reorganize our business, we reassign the assets (including goodwill) and liabilities among the affected reporting units using a reasonable and supportable methodology. As businesses are acquired, we assign assets acquired (including goodwill) and liabilities assumed to a new or existing reporting unit as of the date of the acquisition. In the event a disposal group meets the definition of a business, goodwill is allocated to the disposal group based on the relative fair value of the disposal group to the retained portion of the related reporting unit. We have the option to first assess qualitative factors to determine whether a quantitative analysis must be performed. The objective of a qualitative analysis is to assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. We make this assessment based on macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and other relevant factors as applicable. If we elect not to use this option, or if we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we prepare a discounted cash flow analysis to determine whether the carrying value of reporting unit exceeds its estimated fair value. If the carrying value of a reporting unit exceeds its estimated fair value, we recognize an impairment of goodwill for the amount of this excess, in accordance with the guidance in FASB ASC Topic 350. 78 Table of Contents Indefinite-lived intangible assets Similar to goodwill, we perform an annual impairment review of our indefinite-lived intangible assets in the fourth quarter of each fiscal year, unless events occur that trigger the need for an earlier impairment review. We have the option to first assess qualitative factors in determining whether it is more likely than not that an indefinite-lived intangible asset is impaired. If we elect not to use this option, or we determine that it is more likely than not that the asset is impaired, we perform a quantitative impairment analysis in which we estimate the fair value of the indefinite-lived intangible asset and compare that amount to its carrying value. In this analysis, we estimate the fair value by using the relief-from-royalty method, in which we make assumptions about future conditions impacting the fair value of our indefinite-lived intangible assets, including projected growth rates, cost of capital, effective tax rates, and royalty rates. Impairment, if any, is based on the excess of the carrying value over the fair value of these assets. Definite-lived intangible assets Acquisition-related definite-lived intangible assets are amortized on an economic-benefit basis according to the useful lives of the assets, or on a straight-line basis if a pattern of economic benefits cannot be reliably determined. Capitalized software and capitalized software licenses are presented on the consolidated balance sheets as intangible assets. Capitalized software licenses are amortized on a straight-line basis over the lesser of the term of the license or the estimated useful life of the software. Capitalized software is amortized on a straight-line basis over its estimated useful life. Reviews are regularly performed to determine whether facts or circumstances exist that indicate that the carrying values of our definite-lived intangible assets are impaired. If we determine that such facts or circumstances exist, we estimate the recoverability of these assets by comparing the projected undiscounted net cash flows associated with these assets to their respective carrying values. If the sum of the projected undiscounted net cash flows is less than the carrying value of an asset, the impairment charge is measured as the excess of the carrying value over the fair value of that asset. We determine fair value by using the appropriate income approach valuation methodology, depending on the nature of the definite-lived intangible asset. Refer to Note 11: Goodwill and Other Intangible Assets, Net for additional information related to our goodwill and other intangible assets. Income Taxes We estimate our provision for (or benefit from) income taxes in each of the jurisdictions in which we operate. The provision for (or benefit from) income taxes includes both our current and deferred tax expense. Our deferred tax expense is measured using the asset and liability method, under which deferred income taxes are recognized to reflect the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts at each balance sheet date, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to reverse or settle. The effect on deferred tax assets and liabilities of a change in statutory tax rates is recognized in the consolidated statements of operations as an adjustment to income tax expense in the period that includes the enactment date. In measuring our deferred tax assets, we consider all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for all or some portion of the deferred tax assets. If it is determined that it is more likely than not that future tax benefits associated with a deferred tax asset will not be realized, a valuation allowance is provided. As a result, we maintain valuation allowances against the deferred tax assets in jurisdictions that have incurred losses in recent periods and in which it is more likely than not that such deferred tax assets will not be utilized in the foreseeable future. In accordance with FASB ASC Topic 740, Income Taxes , we record uncertain tax positions on the basis of a two-step process. First, we determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position. Second, for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the relevant tax authority. Significant judgment is required in evaluating whether our tax positions meet this two-step process. The more-likely-than-not recognition threshold must be met in each reporting period to support continued recognition of any tax benefits claimed, both in the current year, as well as any year which remains open for review by the relevant tax authority at the balance sheet date. Penalties and interest related to uncertain tax positions may be classified as either income taxes or another expense line item in the consolidated statements of operations. We classify interest and penalties related to uncertain tax positions within the provision for (or benefit from) income taxes line of the consolidated statements of operations. Refer to Note 7: Income Taxes for additional information related to our income taxes. 79 Table of Contents Pension and Other Post-Retirement Benefits We sponsor various pension and other post-retirement benefit plans covering our current and former employees in several countries. The funded status of pension and other post-retirement benefit plans, recognized on our consolidated balance sheets as an asset, current liability, or long-term liability, is measured as the difference between the fair value of plan assets and the benefit obligation at the measurement date. In general, the measurement date coincides with our fiscal year end, however, certain significant events, such as (1) plan amendments, (2) business combinations, (3) settlements or curtailments, or (4) plan mergers, may trigger the need for an interim measurement of both the plan assets and 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. The value of benefit obligations takes into consideration various financial assumptions, including assumed discount rate and the rate of increase in healthcare costs, and demographic assumptions, including compensation rate increases, retirement patterns, employee turnover rates, and mortality rates. We review these assumptions annually. Our review of demographic assumptions includes analyzing historical patterns and/or referencing industry standard tables, combined with our expectations around future compensation and staffing strategies. The difference between these assumptions and our actual experience results in the recognition of an actuarial gain or loss. Actuarial gains and losses are recorded directly to other comprehensive income or loss. If the total net actuarial gain or loss included in accumulated other comprehensive loss exceeds a threshold of 10% of the greater of the projected benefit obligation or the market related value of plan assets, it is subject to amortization and recorded as a component of net periodic benefit cost over the average remaining service lives of the employees participating in the pension or post-retirement benefit plan. 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. It is used to discount the estimated future obligations of the plans to the present value of the liability reflected in the financial statements. In estimating this rate in countries that have a market of high-quality, fixed-income investments, we consider rates of return on these investments included in various bond indices, adjusted to eliminate the effects of call provisions and differences in the timing and amounts of cash outflows related to the bonds. In other countries where a market of high-quality, fixed-income investments does not exist, we estimate the discount rate using government bond yields or long-term inflation rates. The expected return on plan assets reflects the average rate of earnings expected on the funds invested to provide for the benefits included in the projected benefit obligation. To determine the expected return on plan assets, we use the fair value of plan assets and consider the historical returns earned by similarly invested assets, the rates of return expected on plan assets in the future, and our investment strategy and asset mix with respect to the plans’ funds. Changes to benefit obligations may also be initiated by a settlement or curtailment. A settlement of a defined benefit obligation is an irrevocable transaction that relieves us (or the plan) of primary responsibility for the defined benefit obligation and eliminates significant risks related to the obligation and the assets used to carry out the settlement. The settlement of all or more than a minor portion of the pension obligation constitutes an event that requires recognition of all or part of the net actuarial gains or losses deferred in accumulated other comprehensive loss. Our policy is to apply settlement accounting to the extent our year-to date settlements for a given plan exceed the sum of our forecasted full year service cost and interest cost for that particular plan. A curtailment is an event that significantly reduces the expected years of service of active employees or eliminates for a significant number of employees the accrual of defined benefits for some or all of their future service. The curtailment accounting provisions are applied on a plan-by-plan basis. The total gain or loss resulting from a curtailment is the sum of two distinct elements: (1) prior service cost write-off and (2) curtailment gain or loss. Our policy is that a curtailment event represents one for which we expect a 10% (or greater) reduction in future years of service or an elimination of the accrual of defined benefits for some or all of the future services of 10% (or greater) of the plan's participants. Contributions made to pension and other post-retirement benefit plans are presented as a component of operating cash flows within the consolidated statements of cash flows. We present the service cost component of net periodic benefit cost in the cost of revenue, research and development ("R&D"), and SG&A expense line items, and we present the non–service components of net periodic benefit cost in other, net. Refer to Note 13: Pension and Other Post-Retirement Benefits for additional information related to our pension and other post-retirement benefit plans. 80 Table of Contents Inventories Inventories are stated at the lower of cost or estimated net realizable value. The cost of raw materials, work-in-process, and finished goods is determined based on a first-in, first-out basis and includes material, labor, and applicable manufacturing overhead. We conduct quarterly inventory reviews for salability and obsolescence, and inventories considered unlikely to be sold are adjusted to net realizable value. Refer to Note 9: Inventories for additional information related to our inventory balances. Property, Plant and Equipment and Other Capitalized Costs PP&E is stated at cost, and in the case of plant and equipment, is depreciated on a straight-line basis over its estimated economic useful life. The depreciable lives of plant and equipment are as follows: Buildings and improvements 2 – 40 years Machinery and equipment 2 – 15 years Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease term or the estimated economic useful lives of the improvements. Amortization of leasehold improvements is included in depreciation expense. Assets held under finance leases are recognized at the lower of the present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. Depreciation expense associated with finance leases is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease, unless ownership is transferred by the end of the lease or there is a bargain purchase option, in which case the asset is depreciated, normally on a straight-line basis, over the useful life that would be assigned if the asset were owned. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major improvements that increase asset values and extend useful lives are capitalized. Refer to Note 10: Property, Plant and Equipment, Net for additional information related to our PP&E balances. Leases We account for leases in accordance with the guidance in FASB ASC Topic 842, Leases . We enter into lease agreements for many of our facilities around the world. We occupy leased facilities with initial terms ranging up to 20 years. Our lease agreements frequently include options to renew for additional periods or to purchase the leased assets and generally require that we pay taxes, insurance, and maintenance costs. Depending on the specific terms of the leases, our obligations are in two forms: finance leases and operating leases. For both forms of leases, we recognize a related lease liability and right-of-use asset on our consolidated balance sheets. Our lease liabilities are initially measured at the present value of the lease payments not yet paid, discounted using our incremental borrowing rate for a period that is comparable to the remaining lease term. We use our incremental borrowing rate, adjusted for collateralization, because the discount rate implicit in our leases are generally not readily determinable. For finance leases, the consolidated statements of operations include separate recognition of interest on the lease liability and amortization of the right-of-use asset. For operating leases, the consolidated statements of operations include a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis. Net cash flows from operating activities include (1) interest on finance lease liabilities and (2) payments arising from operating leases. Net cash flows from financing activities include repayments of the principal portion of finance lease liabilities. We also lease certain vehicles and equipment, which generally have a term of one year or less. We have elected to account for leases with a term of one year or less (short-term leases) using a method similar to the operating lease model under FASB ASC Topic 840, Leases (i.e. they are not recorded on the consolidated balance sheets) as permitted by FASB ASC Topic 842. Refer to Note 17: Leases for additional information related to amounts recognized in the consolidated financial statements related to our leases. 81 Table of Contents Foreign Currency We derive a significant portion of our net revenue from markets outside of the U.S. For financial reporting purposes, the functional currency of almost all of our subsidiaries is the USD because of the significant influence of the USD on our operations. In certain instances, we enter into transactions that are denominated in a currency other than the USD. At the date that such transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction is measured and recorded in USD using the exchange rate in effect at that date. At each balance sheet date, recorded monetary balances denominated in a currency other than USD are adjusted to USD using the exchange rate at the balance sheet date, with gains or losses recognized in other, net in the consolidated statements of operations. The impact of currency translation adjustment for subsidiaries with a functional currency other than USD is not material. Cash and Cash Equivalents Cash comprises cash on hand. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of change in value, and have original maturities of three months or less. Recently issued accounting standards: 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. 3. Revenue Recognition We recognize revenue to depict the transfer of promised goods to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods. The vast majority of our revenue is derived from the sale of tangible products whereby control of the product transfers to the customer at a point in time, we recognize revenue at a point in time, and the underlying contract is a purchase order that establishes a firm purchase commitment for a short period of time. Our standard terms of sale provide our customers with a warranty against faulty workmanship and the use of defective materials. We do not offer separately priced extended warranty or product maintenance contracts. Refer to Note 2: Significant Accounting Policies for additional information. We have elected to apply certain practical expedients that allow for more limited disclosures than those that would otherwise be required by FASB ASC Topic 606, including (1) the disclosure of transaction price allocated to the remaining unsatisfied performance obligations at the end of the period and (2) an explanation of when we expect to recognize the related revenue. 82 Table of Contents We believe that our end-markets are the categories that best depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The following table presents net revenue disaggregated by segment and end-market for the years ended December 31, 2021, 2020, and 2019: Performance Sensing Sensing Solutions Total For the year ended December 31, For the year ended December 31, For the year ended December 31, 2021 2020 2019 2021 2020 2019 2021 2020 2019 Net revenue: Automotive $ 2,018,056 $ 1,715,749 $ 1,986,537 $ 44,351 $ 35,621 $ 42,446 $ 2,062,407 $ 1,751,370 $ 2,028,983 HVOR (1) 829,852 508,061 559,479 — — — 829,852 508,061 559,479 Industrial — — — 413,885 336,506 351,942 413,885 336,506 351,942 Appliance and HVAC (2) — — — 243,938 189,782 201,745 243,938 189,782 201,745 Aerospace — — — 134,735 136,167 176,505 134,735 136,167 176,505 Other — — — 135,989 123,692 131,977 135,989 123,692 131,977 Net revenue $ 2,847,908 $ 2,223,810 $ 2,546,016 $ 972,898 $ 821,768 $ 904,615 $ 3,820,806 $ 3,045,578 $ 3,450,631 __________________________ (1) Heavy vehicle and off-road (2) Heating, ventilation and air conditioning In addition, refer to Note 20: Segment Reporting for a presentation of net revenue disaggregated by product category and geographic region. Contract Assets and Liabilities Accounts receivable represent our only contract asset. Contract liabilities, whereby we receive payment from customers related to our promise to satisfy performance obligations in the future, are not material. 4. Share-Based Payment Plans At our Annual General Meeting held on May 27, 2021, our shareholders approved the Sensata Technologies Holding plc 2021 Equity Incentive Plan (the "2021 Equity Plan"), which replaced the Sensata Technologies Holding plc First Amended and Restated 2010 Equity Incentive Plan (the "2010 Equity Plan"). The 2021 Equity Plan is substantially similar to the 2010 Equity Plan with some updates based on changes in law and current practices. The purpose of the 2021 Equity Plan is to promote the long-term growth, profitability, and interests of the Company and its shareholders by aiding us in attracting and retaining employees, officers, consultants, advisors, and non-employee directors capable of assuring our future success. All awards granted subsequent to this approval were made under the 2021 Equity Plan. The 2010 Equity Plan was terminated as to the grant of any additional awards, but prior awards remain outstanding in accordance with their terms. As of December 31, 2021, there were 5.7 million ordinary shares authorized and available for grants of awards under the 2021 Equity Plan. Refer to Note 2: Significant Accounting Policies for additional information related to our share-based compensation accounting policies. Share-Based Compensation Awards We grant option, restricted stock unit ("RSU"), and performance-based restricted stock unit ("PRSU") awards. Awards prior to May 27, 2021 were granted under the 2010 Equity Plan. Awards subsequent to May 27, 2021 were granted under the 2021 Equity Plan. For option and RSU awards, vesting is typically subject only to service conditions. For PRSU awards, vesting is also subject to service conditions, however the number of awarded units that ultimately vest also depends on the attainment of certain predefined performance criteria. Our awards include continued vesting provisions for retirement-eligible employees. Throughout this Annual Report on Form 10-K, RSU and PRSU awards are often referred to collectively as "restricted securities." 83 Table of Contents Options A summary of stock option activity for the years ended December 31, 2021, 2020, and 2019 is presented in the table below (amounts have been calculated based on unrounded shares, accordingly, certain amounts may not appear to recalculate due to the effect of rounding): Number of Options (thousands) Weighted-Average Exercise Price Per Option Weighted-Average Remaining Contractual Term (years) Aggregate Intrinsic Value Balance as of December 31, 2018 3,702 $ 38.89 5.3 $ 27,846 Granted 382 $ 46.92 Forfeited or expired ( 83 ) $ 48.92 Exercised ( 537 ) $ 28.21 $ 11,690 Balance as of December 31, 2019 3,464 $ 41.19 5.0 $ 44,696 Forfeited or expired ( 155 ) $ 48.30 Exercised ( 452 ) $ 34.22 $ 5,117 Balance as of December 31, 2020 2,857 $ 41.90 4.4 $ 31,955 Forfeited or expired ( 15 ) $ 49.93 Exercised ( 707 ) $ 38.07 $ 14,264 Balance as of December 31, 2021 2,135 $ 43.11 3.9 $ 39,660 Options vested and exercisable as of December 31, 2021 1,941 $ 42.61 3.6 $ 37,037 Vested and expected to vest as of December 31, 2021 2,121 $ 43.08 3.9 $ 39,481 A summary of the status of our unvested options as of December 31, 2021 and of the changes during the year then ended is presented in the table below (amounts have been calculated based on unrounded shares, accordingly, certain amounts may not appear to recalculate due to the effect of rounding): Number of Options (thousands) Weighted-Average Grant-Date Fair Value Balance as of December 31, 2020 412 $ 15.22 Vested during the year ( 203 ) $ 12.17 Forfeited during the year ( 15 ) $ 15.01 Balance as of December 31, 2021 194 $ 18.40 The fair value of stock options that vested during the years ended December 31, 2021, 2020, and 2019 was $ 2.5 million, $ 4.4 million, and $ 7.8 million, respectively. Option awards granted to employees generally vest 25 % per year over four years from the grant date. We recognize compensation expense for options on a straight-line basis over the requisite service period, which is generally the same as the vesting period. The options generally expire ten years from the date of grant. For options granted prior to April 2019, except as otherwise provided in specific option award agreements, if a participant ceases to be employed by us, options not yet vested generally expire and are forfeited at the termination date, and options that are fully vested generally expire 90 days after termination of the participant’s employment. Exclusions to the general policy for terminated employees include termination for cause (in which case the options expire on the participant’s termination date) and termination due to death or disability (in which case any unvested options shall immediately vest and expire one year after the participant’s termination date). For options granted in or after April 2019, the same terms apply, except that in the event of termination due to a qualified retirement, options not yet vested will continue to vest and will expire ten years from the grant date. 84 Table of Contents We did no t grant any options in the years ended December 31, 2021 or 2020. The weighted-average grant-date fair value per option granted during the year ended December 31, 2019 was $ 13.90 . The fair value of options was estimated on the date of grant using the Black-Scholes-Merton option-pricing model. The weighted-average key assumptions used in estimating the grant-date fair value of options for the year ended December 31, 2019 were as follows: For the year ended December 31, 2019 Expected dividend yield 0.00 % Expected volatility 25.00 % Risk-free interest rate 2.35 % Expected term (years) 6.0 Fair value per share of underlying ordinary shares $ 46.92 Restricted Securities Starting in April 2020, we grant RSU awards that vest ratably over three years and PRSU awards that cliff vest three years after the grant date. Previously, we granted RSU and PRSU awards each of which cliff vested three years after the grant date. In the event of a qualifying termination, any unvested restricted securities that would have otherwise vested within the next six months vest in full on the termination date, and in the event of termination by reason of a covered retirement, any unvested restricted securities remain outstanding on the termination date and subject to continued vesting. For PRSU awards, the number of units that ultimately vest depends on the extent to which certain performance criteria, described in the table below, are met. A summary of restricted securities granted in the years ended December 31, 2021, 2020, and 2019 is presented below: Percentage Range of Units That May Vest (1) 0.0 % to 150.0 % 0.0 % to 172.5 % 0.0 % to 200.0 % (Awards in thousands) RSU Awards Granted Weighted-Average Grant-Date Fair Value PRSU Awards Granted Weighted-Average Grant-Date Fair Value PRSU Awards Granted Weighted-Average Grant-Date Fair Value PRSU Awards Granted Weighted-Average Grant-Date Fair Value 2021 413 $ 58.29 170 $ 58.56 — $ — 76 $ 57.04 2020 806 $ 29.06 — $ — 401 $ 28.22 — $ — 2019 298 $ 47.73 76 $ 46.92 138 $ 46.92 — $ — __________________________ (1) Represents the percentage range of PRSU award units granted that may vest according to the terms of the awards. The amounts presented within this table do not reflect our current assessment of the probable outcome of vesting based on the achievement or expected achievement of performance conditions. Compensation expense for the year ended December 31, 2021 reflects our estimate of the probable outcome of the performance conditions associated with the PRSU awards granted in the years ended December 31, 2021, 2020, and 2019. 85 Table of Contents A summary of activity related to outstanding restricted securities for the years ended December 31, 2021, 2020, and 2019 is presented in the table below (amounts have been calculated based on unrounded shares, accordingly, certain amounts may not appear to recalculate due to the effect of rounding): Restricted Securities (thousands) Weighted-Average Grant-Date Fair Value Balance as of December 31, 2018 1,119 $ 44.66 Granted (1) 555 $ 46.73 Forfeited ( 115 ) $ 47.07 Vested ( 454 ) $ 39.62 Balance as of December 31, 2019 1,105 $ 47.51 Granted 1,207 $ 28.78 Forfeited ( 284 ) $ 37.89 Vested ( 349 ) $ 43.54 Balance as of December 31, 2020 1,679 $ 36.49 Granted 659 $ 58.21 Forfeited ( 348 ) $ 41.00 Vested ( 469 ) $ 38.36 Balance as of December 31, 2021 1,521 $ 43.31 __________________________ (1) Includes 43 thousand PRSU awards granted due to greater than 100% vesting. Aggregate intrinsic value information for restricted securities as of December 31, 2021, 2020, and 2019 is presented below: As of December 31, 2021 2020 2019 Outstanding $ 93,830 $ 88,534 $ 59,526 Expected to vest $ 69,798 $ 58,675 $ 34,717 The weighted-average remaining periods over which the restrictions will lapse as of December 31, 2021, 2020, and 2019 are as follows: As of December 31, 2021 2020 2019 Outstanding 1.0 1.1 1.1 Expected to vest 1.0 1.1 1.0 The expected to vest restricted securities are calculated based on the application of a forfeiture rate assumption to all outstanding restricted securities as well as our assessment of the probability of meeting the required performance conditions that pertain to the PRSU awards. Share-Based Compensation Expense The table below presents non-cash compensation expense related to our equity awards, which is recognized within SG&A expense in the consolidated statements of operations, for the years ended December 31, 2021, 2020, and 2019: For the year ended December 31, 2021 2020 2019 Stock options $ 1,389 $ 2,868 $ 6,552 Restricted securities 24,274 16,257 12,205 Share-based compensation expense $ 25,663 $ 19,125 $ 18,757 In the years ended December 31, 2021, 2020, and 2019, we recognized $ 3.2 million, $ 2.5 million, and $ 3.2 million, respectively, of income tax benefit associated with share-based compensation expense. 86 Table of Contents The table below presents unrecognized compensation expense at December 31, 2021 for each class of award and the remaining expected term for this expense to be recognized: Unrecognized Compensation Expense Expected Recognition (years) Options $ 3,507 0.4 Restricted securities 28,039 1.3 Total unrecognized compensation expense $ 31,546 5. Restructuring and Other Charges, Net On June 30, 2020, in response to the potential long-term impact of the global financial and health crisis caused by the COVID-19 pandemic on our business, we committed to a plan to reorganize our business (the “Q2 2020 Global Restructure Program”) consisting of voluntary and involuntary reductions-in-force and certain site closures. The Q2 2020 Global Restructure Program was commenced in order to align our cost structure to the then anticipated future demand outlook. We have completed all actions contemplated thereunder, with approximately 840 positions impacted. 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. As of December 31, 2021, we have a liability of approximately $ 3.9 million related to actions taken under this plan. We expect to settle these remaining liabilities with cash on hand. Charges recognized in the years ended December 31, 2021 and 2020 resulting from the Q2 2020 Global Restructure Program are presented by impacted segment below. However, as discussed in Note 20: Segment Reporting , restructuring and other charges, net are excluded from segment operating income. For the year ended December 31, 2021 2020 Performance Sensing (1) $ 2,584 9,073 Sensing Solutions (2) 5,898 6,445 Corporate and other ( 1,362 ) 8,940 Q2 2020 Global Restructure Program, net $ 7,120 $ 24,458 __________________________ (1) Approximately $ 1.2 million of these charges for the year ended December 31, 2021 relate to site closures. There were no site closures related to Performance Sensing in the year ended December 31, 2020. (2) Approximately $ 3.8 million and $ 0.6 million of these charges for the years ended December 31, 2021 and 2020, respectively, relate to site closures. The following table presents the components of restructuring and other charges, net for the years ended December 31, 2021, 2020, and 2019: For the year ended December 31, 2021 2020 2019 Q2 2020 Global Restructure Program, net $ 7,120 $ 24,458 $ — Other restructuring charges Severance costs, net (1) 4,504 3,042 29,240 Facility and other exit costs 2,433 1,323 808 Other (2) 885 4,271 23,512 Restructuring and other charges, net $ 14,942 $ 33,094 $ 53,560 __________________________ (1) Includes 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. The year ended December 31, 2020 primarily related to termination benefits arising from the shutdown and relocation of operating sites in Northern Ireland and Belgium. The year ended December 31, 2019 also included $ 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. 87 Table of Contents (2) 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 Finance GmbH ("Wasica") and released $ 11.7 million of the related liability, which is presented in restructuring and other charges, net. This release largely offset a charge of $ 12.1 million resulting from a prejudgment interest-related award granted by the court on behalf of Wasica in fiscal year 2020. 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 litigation related to Metal Seal Precision, Ltd. The following table presents a rollforward of the severance portion of our restructuring obligations for the years ended December 31, 2021 and 2020: Q2 Plan Other Total Balance as of December 31, 2019 $ — $ 14,779 $ 14,779 Charges, net of reversals 23,824 3,042 26,866 Payments ( 13,853 ) ( 13,969 ) ( 27,822 ) Foreign currency remeasurement 871 185 1,056 Balance as of December 31, 2020 10,842 4,037 14,879 Charges, net of reversals 2,181 4,504 6,685 Payments ( 8,993 ) ( 5,145 ) ( 14,138 ) Foreign currency remeasurement ( 177 ) ( 16 ) ( 193 ) Balance as of December 31, 2021 $ 3,853 $ 3,380 $ 7,233 The severance liability as of December 31, 2021 and 2020 was entirely recorded in accrued expenses and other current liabilities on our consolidated balance sheets. Refer to Note 12: Accrued Expenses and Other Current Liabilities . 6. Other, Net The following table presents the components of other, net for the years ended December 31, 2021, 2020, and 2019: For the year ended December 31, 2021 2020 2019 Currency remeasurement gain/(loss) on net monetary assets (1) $ 3,449 $ 10,833 $ ( 6,802 ) (Loss)/gain on foreign currency forward contracts (2) ( 7,553 ) ( 6,762 ) 2,225 (Loss)/gain on commodity forward contracts (2) ( 2,967 ) 10,027 4,888 Loss on debt financing (3) ( 30,066 ) — ( 4,364 ) Net periodic benefit cost, excluding service cost (4) ( 7,528 ) ( 9,980 ) ( 3,186 ) Other 4,633 ( 4,457 ) ( 669 ) Other, net $ ( 40,032 ) $ ( 339 ) $ ( 7,908 ) __________________________ (1) Relates to the remeasurement of non-USD denominated net monetary assets and liabilities into USD. Refer to Note 2: Significant Accounting Policies — Foreign Currency for additional information. (2) Relates to changes in the fair value of derivative financial instruments not designated as cash flow hedges. Refer to Note 19: Derivative Instruments and Hedging Activities for additional information related to gains and losses on our commodity and foreign currency forward contracts. (3) Refer to Note 14: Debt for additional information related to our debt financing transactions. (4) Refer to Note 13: Pension and Other Post-Retirement Benefits for additional information on net periodic benefit cost included in other, net. 7. Income Taxes Effective April 27, 2006 (inception), and concurrent with the completion of the acquisition of the Sensors & Controls business ("S&C") of Texas Instruments Incorporated ("TI") (the "2006 Acquisition"), we commenced filing tax returns in the Netherlands as a stand-alone entity. On March 28, 2018, the Company reincorporated its headquarters in the U.K. We file income tax returns in the countries in which our subsidiaries are incorporated and/or operate, including Belgium, Bulgaria, China, France, Germany, Japan, Malaysia, Malta, Mexico, the Netherlands, South Korea, the U.S., and the U.K. The 2006 Acquisition purchase accounting and the related debt and equity capitalization of the various subsidiaries of the consolidated company, and the realignment of the functions performed and risks assumed by the various subsidiaries, are of significant 88 Table of Contents consequence to the determination of future book and taxable income of the respective subsidiaries and Sensata as a whole. Refer to Note 2: Significant Accounting Policies for detailed discussion of the accounting policies related to income taxes. Income before taxes Income before taxes for the years ended December 31, 2021, 2020, and 2019 was categorized by jurisdiction as follows: U.S. Non-U.S. Total 2021 $ 39,947 $ 373,970 $ 413,917 2020 $ ( 80,856 ) $ 246,497 $ 165,641 2019 $ 13,183 $ 377,240 $ 390,423 Provision for income taxes Provision for income taxes for the years ended December 31, 2021, 2020, and 2019 comprised provisions for (or benefits from) income tax by jurisdiction as follows: U.S. Federal Non-U.S. U.S. State Total 2021 Current $ 1,005 $ 54,401 $ 201 $ 55,607 Deferred 6,261 ( 12,747 ) 1,216 ( 5,270 ) Total $ 7,266 $ 41,654 $ 1,417 $ 50,337 2020 Current $ ( 2,624 ) $ 48,572 $ 307 $ 46,255 Deferred ( 14,776 ) ( 34,252 ) 4,128 ( 44,900 ) Total $ ( 17,400 ) $ 14,320 $ 4,435 $ 1,355 2019 Current $ 5,643 $ 73,947 $ 496 $ 80,086 Deferred 9,687 17,339 597 27,623 Total $ 15,330 $ 91,286 $ 1,093 $ 107,709 Effective tax rate reconciliation The principal reconciling items from income tax computed at the U.S. statutory tax rate for the years ended December 31, 2021, 2020, and 2019 were as follows: For the year ended December 31, 2021 2020 2019 Tax computed at statutory rate of 21% $ 86,923 $ 34,785 $ 81,989 Foreign tax rate differential ( 30,485 ) ( 21,994 ) ( 19,107 ) Valuation allowances 20,512 8,869 19,640 Reserve for tax exposure ( 16,330 ) ( 171 ) 20,079 Withholding taxes not creditable 13,259 12,198 9,509 Research and development incentives ( 11,067 ) ( 7,408 ) ( 8,410 ) Change in tax laws or rates ( 7,070 ) 11,229 5,121 Unrealized foreign currency exchange (gains)/losses, net ( 6,137 ) 2,650 ( 43 ) U.S. state taxes, net of federal benefit 1,119 3,504 863 Intangible property transfers — ( 54,188 ) — Nontaxable items and other ( 387 ) 11,881 ( 1,932 ) Provision for income taxes $ 50,337 $ 1,355 $ 107,709 89 Table of Contents Foreign tax rate differential We operate in locations outside the U.S., including Belgium, Bulgaria, China, Malaysia, Malta, the Netherlands, South Korea, and the U.K., that historically have had statutory tax rates different than the U.S. statutory tax rate. This can result in a foreign tax rate differential that may reflect a tax benefit or detriment. This foreign tax rate differential can change from year to year based upon the jurisdictional mix of earnings and changes in current and future enacted tax rates. Certain of our subsidiaries are currently eligible, or have been eligible, for tax exemptions or reduced tax rates in their respective jurisdictions. From 2019 through 2021, a subsidiary in Changzhou, China was eligible for a reduced corporate income tax rate of 15 %. The impact on current tax expense of the tax holidays and exemptions is included in the foreign tax rate differential disclosure, reconciling the statutory rate to our effective rate. The remeasurement of the deferred tax assets and liabilities is included in the change in tax laws or rates line. Withholding taxes not creditable Withholding taxes may apply to intercompany interest, royalty, management fees, and certain payments to third parties. Such taxes are deducted if they cannot be credited against the recipient’s tax liability in its country of residence. Additional consideration has been given to the withholding taxes associated with unremitted earnings and the recipient's ability to obtain a tax credit for such taxes. Earnings are not considered to be indefinitely reinvested in the jurisdictions in which they were earned. In certain jurisdictions we recognize a deferred tax liability on withholding and other taxes on intercompany payments including dividends. Research and development incentives Certain income of our U.K. subsidiaries is eligible for lower tax rates under the "patent box" regime, resulting in certain of our intellectual property income being taxed at a rate lower than the U.K. statutory tax rate. Qualified investments are eligible for a bonus deduction under China’s R&D super deduction regime. In the U.S., we benefit from R&D credit incentives. Intangible property transfers The decrease in our effective tax rate for the year ended December 31, 2020, was primarily due to a net $ 54.2 million deferred tax benefit in the fourth quarter of 2020 related to intangible property transfers. Deferred income tax assets and liabilities The primary components of deferred income tax assets and liabilities as of December 31, 2021 and 2020 were as follows: As of December 31, 2021 2020 Deferred tax assets: Net operating loss, interest expense, and other carryforwards $ 393,724 $ 342,689 Prepaid and accrued expenses 55,794 67,221 Intangible assets and goodwill 87,830 110,382 Pension liability and other 11,278 14,241 Property, plant and equipment 16,290 13,789 Share-based compensation 8,421 9,609 Inventories and related reserves 10,767 9,329 Unrealized exchange loss 805 3,182 Total deferred tax assets 584,909 570,442 Valuation allowance ( 225,919 ) ( 202,101 ) Net deferred tax asset 358,990 368,341 Deferred tax liabilities: Intangible assets and goodwill ( 493,787 ) ( 480,082 ) Tax on undistributed earnings of subsidiaries ( 68,384 ) ( 35,254 ) Operating lease right of use assets ( 9,360 ) ( 11,324 ) Property, plant and equipment ( 14,506 ) ( 16,110 ) Unrealized exchange gain ( 7,198 ) ( 643 ) Total deferred tax liabilities ( 593,235 ) ( 543,413 ) Net deferred tax liability $ ( 234,245 ) $ ( 175,072 ) 90 Table of Contents Valuation allowance and net operating loss carryforwards We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In measuring our deferred tax assets, we consider all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for all or some portion of the deferred tax assets. Significant judgment is required in considering the relative impact of the negative and positive evidence, and weight given to each category of evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary, and the more difficult it is to support a conclusion that a valuation allowance is not needed. Additionally, we utilize the "more likely than not" criteria established in FASB ASC Topic 740 to determine whether the future tax benefit from the deferred tax assets should be recognized. As a result, we have established valuation allowances on the deferred tax assets in jurisdictions that have incurred net operating losses and in which it is more likely than not that such losses will not be utilized in the foreseeable future. As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regard to future realization of deferred tax assets. Our interest expense carryforwards in certain jurisdictions are subject to limitations. We consider these limitations in our assessment of positive and negative evidence. Our assessment of these limitations has resulted in the conclusion that a portion of our interest carryforwards are subject to a valuation allowance. For tax purposes, certain goodwill and indefinite-lived intangible assets are generally amortizable over 6 to 15 years. For book purposes, goodwill and indefinite-lived intangible assets are not amortized but are tested for impairment annually. The tax amortization of goodwill and indefinite-lived intangible assets will result in a taxable temporary difference, which will not reverse unless the related book goodwill or indefinite-lived intangible asset is impaired or written off. This liability may not be used to support deductible temporary differences, such as net operating loss carryforwards, which may expire within a definite period. The total valuation allowance increased $ 23.8 million and $ 55.3 million in the years ended December 31, 2021 and 2020, respectively. As a result of changes in interest limitation rules in the Netherlands that became effective in 2021, we recorded a valuation allowance against our interest carryforwards in this jurisdiction in the year ended December 31, 2021. In connection with our 2020 intangible property transfer, we recorded a valuation allowance of $ 43.2 million in the year ended December 31, 2020. Subsequently reported tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 2021 will be allocated to income tax benefit recognized in the consolidated statements of operations. As of December 31, 2021, we have U.S. federal net operating loss carryforwards of $ 986.7 million, of which $ 411.5 million will expire from 2028 to 2037, and $ 575.2 million do not expire. We have state net operating loss carryforwards with limited and unlimited lives. Our limited life state net operating losses will expire beginning in 2022. As of December 31, 2021, we have suspended interest expense carryforwards of $ 365.4 million, which have an unlimited life. We also have net operating loss carryforwards in foreign jurisdictions of $ 291.0 million, which will begin to expire in 2022. Unrecognized tax benefits A reconciliation of the amount of unrecognized tax benefits is as follows: For the year ended December 31, 2021 2020 2019 Balance at beginning of year $ 201,410 $ 117,591 $ 89,609 Increases related to current year tax positions 3,574 46,329 17,378 Increases related to prior year tax positions 37,869 43,082 15,356 Increases related to business combinations 1,370 — 450 Decreases related to settlements with tax authorities ( 11,015 ) ( 5,183 ) ( 3,515 ) Decreases related to prior year tax positions ( 8,363 ) ( 1,294 ) ( 1,773 ) Decreases related to lapse of applicable statute of limitations ( 483 ) ( 452 ) ( 87 ) Changes related to foreign currency exchange rates ( 571 ) 1,337 173 Balance at end of year $ 223,791 $ 201,410 $ 117,591 91 Table of Contents We recognize interest and penalties related to unrecognized tax benefits in the consolidated statements of operations and the consolidated balance sheets. The table that follows presents the expense/(income) related to such interest and penalties recognized in the consolidated statements of operations during the years ended December 31, 2021, 2020, and 2019, and the amount of interest and penalties recorded on the consolidated balance sheets as of December 31, 2021 and 2020: Statements of Operations Balance Sheets For the year ended December 31, As of December 31, (In millions) 2021 2020 2019 2021 2020 Interest $ ( 0.1 ) $ 0.4 $ 0.9 $ 1.6 $ 1.7 Penalties $ 0.0 $ 0.2 $ ( 0.1 ) $ 0.4 $ 0.4 At December 31, 2021, we anticipate that the liability for unrecognized tax benefits could decrease by up to $ 44.3 million within the next twelve months due to the expiration of certain statutes of limitation or the settlement of examinations or issues with tax authorities. The amount of unrecognized tax benefits as of December 31, 2021 that if recognized would impact our effective tax rate is $ 173.8 million. Our major tax jurisdictions include Belgium, Bulgaria, China, France, Germany, Japan, Malaysia, Mexico, the Netherlands, South Korea, the U.K., and the U.S. These jurisdictions generally remain open to examination by the relevant tax authority for the tax years 2006 through 2021. Indemnifications We have various indemnification provisions in place with parties including TI, Honeywell, William Blair, Tomkins Limited, and Custom Sensors & Technologies Ltd. These provisions provide for the reimbursement of future tax liabilities paid by us that relate to the pre-acquisition periods of the acquired businesses including S&C, First Technology Automotive and Special Products, Airpax Holdings, Inc., August Cayman Company, Inc. ("Schrader"), CST, GIGAVAC, LLC ("GIGAVAC"), Xirgo Technologies Intermediate Holdings, LLC, and SmartWitness Holdings, Inc. ("SmartWitness"). 8. Net Income per Share Basic and diluted net income per share are calculated by dividing net income by the number of basic and diluted weighted-average ordinary shares outstanding during the period. For the years ended December 31, 2021, 2020, and 2019, the weighted-average ordinary shares outstanding used to calculate basic and diluted net income per share were as follows: For the year ended December 31, (In thousands) 2021 2020 2019 Basic weighted-average ordinary shares outstanding 158,166 157,373 160,946 Dilutive effect of stock options 640 275 600 Dilutive effect of unvested restricted securities 564 486 422 Diluted weighted-average ordinary shares outstanding 159,370 158,134 161,968 Net income and net income per share are presented in the consolidated statements of operations. Certain potential ordinary shares were excluded from our calculation of diluted weighted-average ordinary shares outstanding because either they would have had an anti-dilutive effect on net income per share or they related to equity awards that were contingently issuable for which the contingency had not been satisfied. Refer to Note 4: Share-Based Payment Plans for additional information related to our equity awards. These potential ordinary shares are as follows: For the year ended December 31, (In thousands) 2021 2020 2019 Anti-dilutive shares excluded 6 1,575 1,170 Contingently issuable shares excluded 1,029 995 641 92 Table of Contents 9. Inventories The following table presents the components of inventories as of December 31, 2021 and 2020: As of December 31, 2021 2020 Finished goods $ 201,424 $ 170,488 Work-in-process 101,558 87,006 Raw materials 285,249 193,511 Inventories $ 588,231 $ 451,005 Refer to Note 2: Significant Accounting Policies for a discussion of our accounting policies related to inventories. 10. Property, Plant and Equipment, Net PP&E, net as of December 31, 2021 and 2020 consisted of the following: As of December 31, 2021 2020 Land $ 17,972 $ 17,880 Buildings and improvements 285,113 273,899 Machinery and equipment 1,534,166 1,428,793 Total property, plant and equipment 1,837,251 1,720,572 Accumulated depreciation ( 1,016,318 ) ( 916,747 ) Property, plant and equipment, net $ 820,933 $ 803,825 Depreciation expense for PP&E, including amortization of leasehold improvements and depreciation of assets under finance leases, totaled $ 125.0 million, $ 125.7 million, and $ 115.9 million for the years ended December 31, 2021, 2020, and 2019, respectively. PP&E, net as of December 31, 2021 and 2020 included the following assets under finance leases: As of December 31, 2021 2020 Assets under finance leases in property, plant and equipment $ 49,714 $ 49,714 Accumulated depreciation ( 27,821 ) ( 26,107 ) Assets under finance leases in property, plant and equipment, net $ 21,893 $ 23,607 Refer to Note 2: Significant Accounting Policies for a discussion of our accounting policies related to PP&E, net. 11. Goodwill and Other Intangible Assets, Net The following table outlines the changes in net goodwill by segment for the years ended December 31, 2021 and 2020. Performance Sensing Sensing Solutions Total Balance as of December 31, 2019 $ 2,172,020 $ 921,578 $ 3,093,598 Acquisition 17,751 — 17,751 Balance as of December 31, 2020 2,189,771 921,578 3,111,349 Acquisitions 290,827 99,887 390,714 Balance as of December 31, 2021 $ 2,480,598 $ 1,021,465 $ 3,502,063 At each of December 31, 2021, 2020, and 2019, accumulated goodwill impairment related to Performance Sensing and Sensing Solutions was $ 0.0 million and $ 18.5 million, respectively. Refer to Note 21: Acquisitions for additional information related to goodwill added as a result of acquisitions. 93 Table of Contents Goodwill attributed to acquisitions reflects our allocation of purchase price to the estimated fair value of certain assets acquired and liabilities assumed. Net assets acquired are comprised of tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. We apply estimates and assumptions to determine the fair value of the intangible assets and of any contingent consideration obligations. Critical estimates in valuing purchased technology, customer relationships, and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets. In addition, we estimate the economic lives of these identified intangible assets and these lives are used to calculate amortization expense. Goodwill has been included in our segments based on a methodology using anticipated future earnings of the components of business. We own the Klixon ® and Airpax ® tradenames, which are indefinite-lived intangible assets as they have each been in continuous use for over 65 years and we have no plans to discontinue using either of them. We have recorded $ 59.1 million and $ 9.4 million, respectively, on our consolidated balance sheets related to these tradenames. In addition, in the year ended December 31, 2020, we recognized indefinite-lived intangible assets of $ 6.9 million related to in-process research & development acquired in a fiscal year 2020 business combination transaction. Effective July 1, 2021, we reorganized our Sensing Solutions operating segment, which resulted in realignment of our reporting units. As a result of this reorganization, our electrical protection product category that includes high-voltage contactors, inverters, 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 Technologies, LLC ("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 concluded that these reorganizations have not impacted our reportable or operating segment evaluations. We reassigned assets and liabilities, including goodwill, to these new reporting units as required by FASB ASC Topic 350. We evaluated our goodwill and other indefinite-lived intangible assets for impairment before and after the reorganization and formation of these reporting units and determined that they were not impaired. Refer to Note 21: Acquisitions for additional information on these acquisitions. We evaluated our goodwill and other indefinite-lived intangible assets for impairment as of October 1, 2021 using a combination of the quantitative and qualitative methods. Under the qualitative method, we assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value based on various factors, including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance, and other relevant factors as applicable. If the results of the qualitative analysis indicate that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, no further analysis is prepared. Otherwise, we perform a quantitative analysis under which a discounted cash flow analysis is prepared to determine whether the fair value of the reporting unit is less than its carrying value. Based on these analyses, we have determined that as of October 1, 2021 the fair value of each of our reporting units and indefinite-lived intangible assets exceeded their carrying values. We consider a combination of quantitative and qualitative factors to determine whether a reporting unit is at risk of failing the goodwill impairment test, including: the timing of our most recent quantitative impairment tests and the relative amount by which a reporting unit’s fair value exceeded its then carrying value, the inputs and assumptions underlying our valuation models and the sensitivity of our fair value measurements to those inputs and assumptions, the impact that adverse economic or market conditions may have on the degree of uncertainty inherent in our long-term operating forecasts, and changes in the carrying value of a reporting unit’s net assets from the time of our most recent goodwill impairment test. 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. 94 Table of Contents The following tables outline the components of definite-lived intangible assets as of December 31, 2021 and 2020. Definite-lived intangible assets acquired in our business combinations completed in the fourth quarter of 2021 are included in the table as of December 31, 2021 but are preliminary and are subject to change. Refer to Note 21: Acquisitions for details on these definite-lived intangible assets. As of December 31, 2021 Weighted- Average Life (years) Gross Carrying Amount Accumulated Amortization Accumulated Impairment Net Carrying Value Completed technologies 14 $ 917,929 $ ( 626,490 ) $ ( 2,430 ) $ 289,009 Customer relationships 12 2,095,735 ( 1,575,902 ) ( 12,144 ) 507,689 Tradenames 19 77,484 ( 23,544 ) — 53,940 Capitalized software and other (1) 7 72,180 ( 51,457 ) — 20,723 Total 12 $ 3,163,328 $ ( 2,277,393 ) $ ( 14,574 ) $ 871,361 As of December 31, 2020 Weighted- Average Life (years) Gross Carrying Amount Accumulated Amortization Accumulated Impairment Net Carrying Value Completed technologies 14 $ 781,508 $ ( 578,178 ) $ ( 2,430 ) $ 200,900 Customer relationships 11 1,858,998 ( 1,501,960 ) ( 12,144 ) 344,894 Tradenames 21 66,654 ( 19,816 ) — 46,838 Capitalized software and other (1) 7 69,227 ( 45,680 ) — 23,547 Total 12 $ 2,776,387 $ ( 2,145,634 ) $ ( 14,574 ) $ 616,179 __________________________ (1) During the years ended December 31, 2021 and 2020, we wrote-off approximately $ 2.4 million and $ 0.1 million, respectively, of fully-amortized capitalized software that was not in use. The following table outlines amortization of definite-lived intangible assets for the years ended December 31, 2021, 2020, and 2019: For the year ended December 31, 2021 2020 2019 Acquisition-related definite-lived intangible assets $ 125,982 $ 122,915 $ 136,087 Capitalized software 8,147 6,634 6,799 Amortization of intangible assets $ 134,129 $ 129,549 $ 142,886 The table below presents estimated amortization of definite-lived intangible assets for each of the next five years: For the year ended December 31, 2022 $ 140,802 2023 $ 132,562 2024 $ 115,577 2025 $ 87,967 2026 $ 73,359 95 Table of Contents 12. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities as of December 31, 2021 and 2020 consisted of the following: As of December 31, 2021 2020 Accrued compensation and benefits $ 98,839 $ 85,140 Accrued interest 45,123 53,630 Current portion of operating lease liabilities 11,035 11,389 Accrued severance 7,233 14,879 Foreign currency and commodity forward contracts 5,591 19,627 Current portion of pension and post-retirement benefit obligations 2,554 3,498 Other accrued expenses and current liabilities 173,441 136,667 Accrued expenses and other current liabilities $ 343,816 $ 324,830 13. Pension and Other Post-Retirement Benefits We provide various pension and other post-retirement benefit plans for current and former employees, including defined benefit, defined contribution, and retiree healthcare benefit plans. Refer to Note 2: Significant Accounting Policies for a detailed discussion of our accounting policies related to our pension and other post-retirement benefit plans. U.S. Benefit Plans The principal retirement plans in the U.S. include a qualified defined benefit pension plan and a defined contribution plan. In addition, we provide post-retirement medical coverage and non-qualified benefits to certain employees. Defined Benefit Pension Plans The benefits under the qualified defined benefit pension plan are determined using a formula based upon years of service and the highest five consecutive years of compensation. TI closed the qualified defined benefit pension plan to participants hired after November 1997. In addition, participants eligible to retire under the TI plan as of April 26, 2006 were given the option of continuing to participate in the qualified defined benefit pension plan or retiring under the qualified defined benefit pension plan and thereafter participating in an enhanced defined contribution plan. We intend to contribute amounts to the qualified defined benefit pension plan in order to meet the minimum funding requirements of federal laws and regulations, plus such additional amounts as we deem appropriate. During the year ended December 31, 2021, we contributed $ 3.0 million to the qualified defined benefit pension plan. We do not expect to contribute to the qualified defined benefit pension plan in fiscal year 2022. We also sponsor a non-qualified defined benefit pension plan, which is closed to new participants and is unfunded. Effective January 31, 2012, we froze the defined benefit pension plans and eliminated future benefit accruals. Defined Contribution Plan We have one defined contribution plan for U.S. employees, which provides for an employer matching contribution of up to 4 % of the employee's annual eligible earnings. The aggregate expense related to the defined contribution plan was $ 5.3 million, $ 4.3 million, and $ 5.5 million for the years ended December 31, 2021, 2020, and 2019, respectively. Retiree Healthcare Benefit Plan We offer access to group medical coverage during retirement to some of our U.S. employees. We make contributions toward the cost of those retiree medical benefits for certain retirees. The contribution rates are based upon varying factors, the most important of which are an employee’s date of hire, date of retirement, years of service, and eligibility for Medicare benefits. The balance of the cost is borne by the participants in the plan. For the year ended December 31, 2021, we did not and do not expect to, receive any amount of Medicare Part D Federal subsidy. Our projected benefit obligation as of December 31, 2021 and 2020 did not include an assumption for a Federal subsidy. 96 Table of Contents Non-U.S. Benefit Plans Retirement coverage for non-U.S. employees is provided through separate defined benefit and defined contribution plans. Retirement benefits are generally based on an employee’s years of service and compensation. Funding requirements are determined on an individual country and plan basis and are subject to local country practices and market circumstances. We do not expect to contribute to the non-U.S. defined benefit plans during 2022. Impact on Financial Statements The components of net periodic benefit cost/(credit) associated with our defined benefit and retiree healthcare plans for the years ended December 31, 2021, 2020, and 2019 were as follows: For the year ended December 31, 2021 2020 2019 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans Defined Benefit Retiree Healthcare Defined Benefit Defined Benefit Retiree Healthcare Defined Benefit Defined Benefit Retiree Healthcare Defined Benefit Service cost $ — $ 6 $ 4,064 $ — $ 10 $ 3,522 $ — $ 7 $ 2,836 Interest cost 544 77 1,602 762 155 1,466 1,483 203 1,344 Expected return on plan assets ( 887 ) — ( 708 ) ( 1,339 ) — ( 712 ) ( 1,694 ) — ( 702 ) Amortization of net loss/(gain) 1,314 ( 111 ) 1,851 1,184 16 1,204 946 — 766 Amortization of net prior service (credit)/cost — ( 636 ) 9 — ( 1,029 ) 5 — ( 1,306 ) 9 Settlement loss 4,894 — 202 5,026 — 2,712 565 — 1,572 Curtailment (gain)/loss — — ( 623 ) — 530 — — — — Net periodic benefit cost/(credit) $ 5,865 $ ( 664 ) $ 6,397 $ 5,633 $ ( 318 ) $ 8,197 $ 1,300 $ ( 1,096 ) $ 5,825 Components of net periodic benefit cost/(credit) other than service cost are presented in other, net in the consolidated statements of operations. Refer to Note 6: Other, Net . 97 Table of Contents The following table outlines the rollforward of the benefit obligation and plan assets for the defined benefit and retiree healthcare benefit plans for the years ended December 31, 2021 and 2020: For the year ended December 31, 2021 2020 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans Defined Benefit Retiree Healthcare Defined Benefit Defined Benefit Retiree Healthcare Defined Benefit Change in benefit obligation: Beginning balance $ 36,268 $ 5,047 $ 88,312 $ 45,548 $ 5,588 $ 74,172 Service cost — 6 4,064 — 10 3,522 Interest cost 544 77 1,602 762 155 1,466 Plan participants’ contributions — 655 43 — 696 35 Actuarial loss/(gain) 1,595 ( 863 ) 431 7,526 ( 1,213 ) 13,006 Curtailment (gain)/loss — — ( 1,368 ) — 530 — Benefits paid ( 15,990 ) ( 960 ) ( 3,517 ) ( 17,568 ) ( 719 ) ( 8,507 ) Foreign currency remeasurement — — ( 7,435 ) — — 4,618 Ending balance $ 22,417 $ 3,962 $ 82,132 $ 36,268 $ 5,047 $ 88,312 Change in plan assets: Beginning balance $ 29,654 $ — $ 48,473 $ 44,870 $ — $ 43,906 Actual return on plan assets 403 — 2,232 2,333 — 2,071 Employer contributions 7,084 305 3,572 19 23 7,714 Plan participants’ contributions — 655 43 — 696 35 Benefits paid ( 15,990 ) ( 960 ) ( 3,517 ) ( 17,568 ) ( 719 ) ( 8,507 ) Foreign currency remeasurement — — ( 4,755 ) — — 3,254 Ending balance $ 21,151 $ — $ 46,048 $ 29,654 $ — $ 48,473 Funded status at end of year $ ( 1,266 ) $ ( 3,962 ) $ ( 36,084 ) $ ( 6,614 ) $ ( 5,047 ) $ ( 39,839 ) Accumulated benefit obligation at end of year $ 22,417 NA $ 72,796 $ 36,268 NA $ 77,886 The following table outlines the funded status amounts recognized in the consolidated balance sheets as of December 31, 2021 and 2020: As of December 31, 2021 2020 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans Defined Benefit Retiree Healthcare Defined Benefit Defined Benefit Retiree Healthcare Defined Benefit Noncurrent assets $ — $ — $ — $ — $ — $ — Current liabilities ( 139 ) ( 509 ) ( 1,906 ) ( 1,091 ) ( 586 ) ( 1,821 ) Noncurrent liabilities ( 1,127 ) ( 3,453 ) ( 34,178 ) ( 5,523 ) ( 4,461 ) ( 38,018 ) Funded status $ ( 1,266 ) $ ( 3,962 ) $ ( 36,084 ) $ ( 6,614 ) $ ( 5,047 ) $ ( 39,839 ) 98 Table of Contents Balances recognized within accumulated other comprehensive loss that have not been recognized as components of net periodic benefit cost/(credit), net of tax, as of December 31, 2021, 2020, and 2019 are as follows: As of December 31, 2021 2020 2019 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans Defined Benefit Retiree Healthcare Defined Benefit Defined Benefit Retiree Healthcare Defined Benefit Defined Benefit Retiree Healthcare Defined Benefit Net prior service cost/(credit) $ — $ 1,583 $ ( 31 ) $ — $ 1,094 $ ( 20 ) $ — $ 306 $ ( 16 ) Net loss/(gain) $ 15,853 $ ( 709 ) $ 19,695 $ 19,026 $ ( 131 ) $ 22,833 $ 18,780 $ 809 $ 17,151 Information for plans with an accumulated benefit obligation in excess of plan assets as of December 31, 2021 and 2020 is as follows: As of December 31, 2021 2020 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans Projected benefit obligation $ 22,417 $ 82,132 $ 36,268 $ 88,312 Accumulated benefit obligation $ 22,417 $ 72,796 $ 36,268 $ 77,886 Plan assets $ 21,151 $ 46,048 $ 29,654 $ 48,473 Information for plans with a projected benefit obligation in excess of plan assets as of December 31, 2021 and 2020 is as follows: As of December 31, 2021 2020 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans Projected benefit obligation $ 26,379 $ 82,132 $ 41,315 $ 88,312 Plan assets $ 21,151 $ 46,048 $ 29,654 $ 48,473 Other changes in plan assets and benefit obligations, net of tax, recognized in other comprehensive income/(loss) for the years ended December 31, 2021, 2020, and 2019 are as follows: For the year ended December 31, 2021 2020 2019 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans Defined Benefit Retiree Healthcare Defined Benefit Defined Benefit Retiree Healthcare Defined Benefit Defined Benefit Retiree Healthcare Defined Benefit Net loss/(gain) $ 1,598 $ ( 663 ) $ ( 905 ) $ 4,997 $ ( 928 ) $ 8,425 $ ( 824 ) $ ( 71 ) $ 4,365 Amortization of net (loss)/gain ( 1,010 ) 85 ( 1,337 ) ( 906 ) ( 12 ) ( 839 ) ( 723 ) — ( 539 ) Amortization of net prior service credit/(cost) — 489 ( 7 ) — 562 ( 4 ) — 998 ( 6 ) Settlement effect ( 3,761 ) — ( 155 ) ( 3,845 ) — ( 1,904 ) ( 432 ) — ( 1,100 ) Curtailment effect — — ( 745 ) — 226 — — — — Total in other comprehensive (income)/loss $ ( 3,173 ) $ ( 89 ) $ ( 3,149 ) $ 246 $ ( 152 ) $ 5,678 $ ( 1,979 ) $ 927 $ 2,720 99 Table of Contents Assumptions and Investment Policies Weighted-average assumptions used to calculate the projected benefit obligations of our defined benefit and retiree healthcare benefit plans as of December 31, 2021 and 2020 are as follows : As of December 31, 2021 2020 Defined Benefit Retiree Healthcare Defined Benefit Retiree Healthcare U.S. assumed discount rate 2.30 % 2.40 % 1.65 % 1.80 % Non-U.S. assumed discount rate 2.21 % NA 1.97 % NA Non-U.S. average long-term pay progression 2.96 % NA 2.93 % NA Weighted-average assumptions used to calculate the net periodic benefit cost of our defined benefit and retiree healthcare benefit plans for the years ended December 31, 2021, 2020, and 2019 are as follows: For the year ended December 31, 2021 2020 2019 Defined Benefit Retiree Healthcare Defined Benefit Retiree Healthcare Defined Benefit Retiree Healthcare U.S. assumed discount rate 2.04 % 1.80 % 2.60 % 2.80 % 3.79 % 3.90 % Non-U.S. assumed discount rate 4.52 % NA 5.53 % NA 5.76 % NA U.S. average long-term rate of return on plan assets 4.00 % NA 4.29 % NA 4.53 % NA Non-U.S. average long-term rate of return on plan assets 1.52 % NA 1.61 % NA 1.77 % NA Non-U.S. average long-term pay progression 4.50 % NA 4.83 % NA 4.43 % NA Assumed healthcare cost trend rates for the U.S. retiree healthcare benefit plan as of December 31, 2021, 2020, and 2019 are as follows: As of December 31, 2021 2020 2019 Assumed healthcare trend rate for next year: Attributed to less than age 65 5.80 % 6.00 % 6.30 % Attributed to age 65 or greater 5.90 % 6.30 % 6.70 % Ultimate trend rate 4.50 % 4.50 % 4.50 % Year in which ultimate trend rate is reached: Attributed to less than age 65 2038 2038 2038 Attributed to age 65 or greater 2038 2038 2038 The table below outlines the benefits expected to be paid to participants in each of the following years, taking into consideration expected future service, as appropriate. The majority of the payments will be paid from plan assets and not company assets. Expected Benefit Payments For the year ended December 31, U.S. Defined Benefit U.S. Retiree Healthcare Non-U.S. Defined Benefit 2022 $ 5,524 $ 508 $ 3,715 2023 $ 3,514 $ 433 $ 3,516 2024 $ 2,058 $ 399 $ 3,468 2025 $ 2,382 $ 376 $ 3,960 2026 $ 1,360 $ 345 $ 4,290 2027 - 2031 $ 5,397 $ 1,183 $ 24,998 100 Table of Contents Plan Assets We hold assets for our defined benefit plans in the U.S., Japan, the Netherlands, and Belgium. Information about the assets for each of these plans is detailed below. Refer to Note 18: Fair Value Measures for additional information related to the level s of the fair value hierarchy in accordance with FASB ASC Topic 820. U.S. Plan Assets Our target asset allocation for the U.S. defined benefit plan is 83 % fixed income and 17 % equity securities. To arrive at the targeted asset allocation, we and our investment adviser reviewed market opportunities using historical data, as well as the actuarial valuation for the plan, to ensure that the levels of acceptable return and risk are well-defined and monitored. The following table presents information about the plan’s target and actual asset allocation, as of December 31, 2021: Target Allocation Actual Allocation as of December 31, 2021 U.S. large cap equity 7 % 11 % U.S. small / mid cap equity 2 % 3 % Globally managed volatility fund 3 % 3 % International (non-U.S.) equity 4 % 5 % Fixed income (U.S. investment grade) 68 % 71 % High-yield fixed income 2 % 2 % International (non-U.S.) fixed income 1 % 1 % Money market funds 13 % 4 % The portfolio is monitored for automatic rebalancing on a monthly basis. The following table presents information about the plan assets measured at fair value as of December 31, 2021 and 2020: As of December 31, 2021 2020 U.S. large cap equity $ 2,245 $ 2,548 U.S. small / mid cap equity 627 706 Global managed volatility fund 715 826 International (non-U.S.) equity 1,051 1,362 Total equity mutual funds 4,638 5,442 Fixed income (U.S. investment grade) 15,090 20,801 High-yield fixed income 479 594 International (non-U.S.) fixed income 201 277 Total fixed income mutual funds 15,770 21,672 Money market funds 743 2,540 Total plan assets $ 21,151 $ 29,654 All fair value measures presented above are categorized in Level 1 of the fair value hierarchy. Investments in mutual funds are based on the publicly-quoted final net asset values on the last business day of the year. Permitted asset classes include U.S. and non-U.S. equity, U.S. and non-U.S. fixed income, cash, and cash equivalents. Fixed income includes both investment grade and non-investment grade. Permitted investment vehicles include mutual funds, individual securities, derivatives, and long-duration fixed income securities. While investments in individual securities, derivatives, long-duration fixed income securities, cash, and cash equivalents are permitted, the plan did not hold these types of investments as of December 31, 2021 and 2020. Prohibited investments include direct investments in real estate, commodities, unregistered securities, uncovered options, currency exchange contracts, and natural resources (such as timber, oil, and gas). 101 Table of Contents Japan Plan Assets The target asset allocation of the Japan defined benefit plan is 50 % fixed income securities, cash, and cash equivalents and 50 % equity securities, with allowance for a 40 % deviation in either direction. We, along with the trustee of the plan's assets, minimize investment risk by thoroughly assessing potential investments based on indicators of historical returns and current credit ratings. Additionally, investments are diversified by type and geography. The following table presents information about the plan’s target asset allocation, as well as the actual allocation, as of December 31, 2021: Target Allocation Actual Allocation as of December 31, 2021 Fixed income securities, cash, and cash equivalents 10 %- 90 % 64 % Equity securities 10 %- 90 % 36 % The following table presents information about the plan assets measured at fair value as of December 31, 2021 and 2020: As of December 31, 2021 2020 U.S. equity $ 3,477 $ 2,736 International (non-U.S.) equity 8,220 6,724 Total equity securities 11,697 9,460 U.S. fixed income 2,616 3,091 International (non-U.S.) fixed income 8,803 11,142 Total fixed income securities 11,419 14,233 Cash and cash equivalents 9,782 9,793 Total plan assets $ 32,898 $ 33,486 As of December 31, 2021 and 2020 , all fair value measures presented above are categorized in Level 1 of the fair value hierarchy, with the exception of U.S. fixed income securities of $ 0.3 million as of December 31, 2020 , which are categorized as Level 2. The fair values of equity and fixed income securities are based on publicly-quoted closing stock and bond values on the last business day of the year. Permitted asset classes include equity securities that are traded on the official stock exchange(s) of the respective countries, fixed income securities with certain credit ratings, cash, and cash equivalents. The Netherlands Plan Assets The assets of the Netherlands defined benefit plan are insurance policies. The contributions we make to the plan are used to purchase insurance policies that provide for specific benefit payments to plan participants. The benefit formula is determined independently by us. Upon retirement of an individual plan participant, the insurance contracts purchased are converted to provide specific benefits for the participant. The contributions paid by us are commingled with contributions paid to the insurance provider by other employers for investment purposes and to reduce plan administration costs. However, this defined benefit plan is not considered a multi-employer plan. The following table presents information about the plan assets measured at fair value as of December 31, 2021 and 2020: As of December 31, 2021 2020 Insurance policies $ 11,208 $ 12,905 All fair value measures presented above are categorized in Level 3 of the fair value hierarchy. 102 Table of Contents The following table presents a rollforward of these assets for the years ended December 31, 2021 and 2020: Insurance Policies Balance as of December 31, 2019 $ 10,472 Actual return on plan assets still held at reporting date 1,373 Purchases, sales, settlements, and exchange rate changes 1,060 Balance as of December 31, 2020 12,905 Actual return on plan assets still held at reporting date ( 618 ) Purchases, sales, settlements, and exchange rate changes ( 1,079 ) Balance as of December 31, 2021 $ 11,208 The fair values of the insurance contracts are measured based on the future benefit payments that would be made by the insurance company to vested plan participants if we were to switch to another insurance company without actually surrendering our policy. In this case, the insurance company would guarantee to pay the vested benefits at retirement accrued under the plan based on current salaries and service to date (i.e., with no allowance for future salary increases or pension increases). The cash flows of the future benefit payments are discounted using the same discount rate that is applied to value the related defined benefit plan liability. Belgium Plan Assets The assets of the Belgium defined benefit plan are insurance policies. As of December 31, 2021 and 2020 the fair values of these assets were $ 1.6 million and $ 1.5 million, respectively. These fair value measurements are categorized in Level 3 of the fair value hierarchy. 14. Debt Our long-term debt, net and finance lease and other financing obligations as of December 31, 2021 and 2020 consisted of the following: As of December 31, Maturity Date 2021 2020 Term Loan September 20, 2026 $ 451,465 $ 456,096 4.875 % Senior Notes October 15, 2023 500,000 500,000 5.625 % Senior Notes November 1, 2024 400,000 400,000 5.0 % Senior Notes October 1, 2025 700,000 700,000 6.25 % Senior Notes (1) NA (1) — 750,000 4.375 % Senior Notes February 15, 2030 450,000 450,000 3.75 % Senior Notes February 15, 2031 750,000 750,000 4.0 % Senior Notes April 15, 2029 1,000,000 — Less: debt discount, net of premium ( 5,207 ) ( 9,605 ) Less: deferred financing costs ( 26,682 ) ( 28,114 ) Less: current portion ( 4,630 ) ( 754,630 ) Long-term debt, net $ 4,214,946 $ 3,213,747 Finance lease and other financing obligations $ 28,767 $ 30,506 Less: current portion ( 2,203 ) ( 2,575 ) Finance lease and other financing obligations, less current portion $ 26,564 $ 27,931 __________________________ (1) On February 3, 2021, we announced that we intended to redeem in full the aggregate principal amount outstanding on our $ 750.0 million 6.25 % senior notes due 2026 (the " 6.25 % Senior Notes") in March 2021. As a result, these notes were classified in current portion of debt on our consolidated balance sheet as of December 31, 2020. There were no outstanding borrowings on our $ 420.0 million revolving credit facility (the "Revolving Credit Facility") as of December 31, 2021 and 2020. 103 Table of Contents Secured Credit Facility 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 Revolving Credit Facility, and incremental availability under which additional secured credit facilities could be issued under certain circumstances. All obligations under the Senior Secured Credit Facilities are unconditionally guaranteed by certain of our subsidiaries and secured by substantially all present and future property and assets of STBV and its guarantor subsidiaries. The Credit Agreement provides that, if our senior secured net leverage ratio exceeds a specified level, we are required to use a portion of our excess cash flow, as defined in the Credit Agreement, generated by operating, investing, or financing activities to prepay the outstanding borrowings under the Senior Secured Credit Facilities. The Credit Agreement also requires mandatory prepayments of the outstanding borrowings under the Senior Secured Credit Facilities upon certain asset dispositions and casualty events, in each case subject to certain reinvestment rights, and the incurrence of certain indebtedness (excluding any permitted indebtedness). These provisions were not triggered during the year ended December 31, 2021. Term Loan The principal amount of the Term Loan amortizes in equal quarterly installments in an aggregate annual amount equal to 1.0 % of the aggregate principal amount of the Term Loan upon completion of the tenth amendment of the Credit Agreement entered into on September 20, 2019 (the "Tenth Amendment,") with the balance due at maturity. In accordance with the terms of the Credit Agreement, the Term Loan may, at our option, be maintained from time to time as a Base Rate loan or a Eurodollar Rate loan (each as defined in the Credit Agreement), with each representing a different determination of interest rates. The interest rate margins for the Term Loan are fixed at, and as of December 31, 2021 were, 0.75 % and 1.75 % for Base Rate loans and Eurodollar Rate loans, respectively, subject to floors of 1.00 % and 0.00 % for Base Rate loans and Eurodollar Rate loans, respectively. As of December 31, 2021, we maintained the Term Loan as a Eurodollar Rate loan, which accrued interest at 1.87 %. Revolving Credit Facility In accordance with the terms of the Credit Agreement, borrowings under the Revolving Credit Facility may, at our option, be maintained from time to time as Base Rate loans, Eurodollar Rate loans, or EURIBOR loans (each as defined in the Credit Agreement), with each representing a different determination of interest rates. The interest rate margins and letter of credit fees under the Revolving Credit Facility are as follows (each depending on our senior secured net leverage ratio): (i) the interest rate margin for Base Rate loans range from 0.00 % to 0.50 %; (ii) the interest rate margin for Eurodollar Rate and EURIBOR loans range from 1.00 % to 1.50 %; and (iii) the letter of credit fees range from 0.875 % to 1.375 %. We are required to pay to our revolving credit lenders, on a quarterly basis, a commitment fee on the unused portion of the Revolving Credit Facility. The commitment fee ranges from 0.125 % to 0.250 %, depending on our senior secured net leverage ratios. As of December 31, 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 Revolving Credit Facility may be borrowed, repaid, and re-borrowed to fund our working capital needs and for other general corporate purposes. Fiscal Year 2021 transactions 6.25% Senior Notes Redemption On February 3, 2021, we announced that we intended to redeem in full the $ 750.0 million aggregate principal amount outstanding on our 6.25 % Senior Notes due 2026 in March 2021. On February 15, 2021, the “make-whole” premium with respect to the 6.25 % Senior Notes expired. Accordingly, we reflected the 6.25 % Senior Notes as a current liability on our consolidated balance sheet as of December 31, 2020. We redeemed the 6.25 % Senior Notes on March 5, 2021 in accordance with the terms of the indenture under which the 6.25 % Senior Notes were issued and the terms of the notice of redemption at a redemption price equal to 103.125 % of the aggregate principal amount of the outstanding 6.25 % Senior Notes, plus accrued and unpaid interest to (but not including) the redemption 104 Table of Contents date. In addition to the $ 750.0 million aggregate principal amount outstanding, at redemption we paid a premium of $ 23.4 million and accrued interest of $ 2.6 million. 4.0% Senior Notes On March 29, 2021, our indirect, wholly-owned subsidiary, Sensata Technologies B.V. ("STBV"), completed the issuance and sale of $ 750.0 million aggregate principal amount of 4.0 % senior notes due 2029 (the " 4.0 % Senior Notes"). The 4.0 % Senior Notes were issued under an indenture dated as of March 29, 2021 among STBV, as issuer, The Bank of New York Mellon, as trustee (the "Trustee"), and our guarantor subsidiaries (the "Guarantors") named therein (the " 4.0 % Senior Notes Indenture"). The 4.0 % Senior Notes bear interest at 4.0 % per year and mature on April 15, 2029. Interest is payable semi-annually on April 15 and October 15 of each year, commencing on October 15, 2021. The 4.0 % Senior Notes are guaranteed by each of STBV's wholly-owned subsidiaries that is a borrower or guarantor under the Senior Secured Credit Facilities of STBV's wholly-owned subsidiary Sensata Technologies, Inc. ("STI") and the issuer or a guarantor under our existing senior notes as follows: STBV's $ 500.0 million aggregate principal amount of 4.875 % senior notes due 2023 (the “4.875% Senior Notes”), $ 400.0 million aggregate principal amount of 5.625 % senior notes due 2024 (the "5.625% Senior Notes"), and $ 700.0 million aggregate principal amount of 5.0 % senior notes due 2025 (the "5.0% Senior Notes"); and STI's $ 450.0 million aggregate principal amount of 4.375 % senior notes due 2030 (the “4.375% Senior Notes”) and $ 750.0 million aggregate principal amount of 3.75 % senior notes due 2031 (the “3.75% Senior Notes”). On April 8, 2021, STBV completed the issuance and sale of an additional $ 250.0 million in aggregate principal amount of 4.0% Senior Notes (the “Additional Notes”). The Additional Notes were priced at 100.75 % and were issued pursuant to the 4.0% Senior Notes Indenture, as supplemented by the First Supplemental Indenture, dated as of April 8, 2021, among STBV, the Guarantors, and the Trustee. The Additional Notes are consolidated and form a single class with the $ 750.0 million aggregate principal amount of 4.0% Senior Notes issued by STBV on March 29, 2021 (the “Initial Notes”). The Additional Notes have the same terms as the Initial Notes, other than with respect to the date of issuance and the issue price. We intend to use the net proceeds from the issuance and sale of the 4.0% Senior Notes and the Additional Notes for general corporate purposes, which may include working capital, capital expenditures, the acquisition of other companies, businesses, or assets, strategic investments, the refinancing or repayment of debt, and share repurchases. Fiscal year 2020 transactions 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 repaid these borrowings using a portion of the proceeds from issuance of $ 750.0 million aggregate principal amount of the 3.75% Senior Notes issued by STI. Senior Notes We have various tranches of senior notes outstanding as of December 31, 2021. Information regarding these senior notes (together, the "Senior Notes") is included in the following table. The Senior Notes were issued under indentures (the "Senior Notes Indentures") among the issuers listed in the table below, The Bank of New York Mellon, as trustee, and our guarantor subsidiaries named in the respective Senior Notes Indentures. 4.875% Senior Notes 5.625% Senior Notes 5.0% Senior Notes 4.375% Senior Notes 3.750% Senior Notes 4.0% Senior Notes Aggregate principal amount $ 500,000 $ 400,000 $ 700,000 $ 450,000 $ 750,000 $ 1,000,000 Interest rate 4.875 % 5.625 % 5.000 % 4.375 % 3.750 % 4.000 % Issue price 100.000 % 100.000 % 100.000 % 100.000 % 100.000 % Various (1) Issuer STBV STBV STBV STI STI STBV Issue date April 2013 October 2014 March 2015 September 2019 August 2020 Various (1) Interest due April 15 May 1 April 1 February 15 February 15 April 15 Interest due October 15 November 1 October 1 August 15 August 15 October 15 __________________________ (1) On March 29, 2021, we issued $ 750.0 million of 4.0 % Senior Notes that were priced at 100.00 %. On April 8, 2021, we issued $ 250.0 million of 4.0 % Senior Notes that were priced at 100.75 %. 105 Table of Contents Redemption Except as described below with respect to the 3.75% Senior Notes, the 4.375% Senior Notes, and the 4.0% Senior Notes, at any time, and from time to time, we may optionally redeem the Senior Notes, in whole or in part, at a price equal to 100 % of the principal amount of the notes redeemed, plus accrued and unpaid interest, if any, up to, but excluding, the date of redemption, plus a "make-whole" premium set forth in the relevant Senior Notes Indenture. The "make-whole" premium will not be payable with respect to any such redemption of the 4.375% Senior Notes on or after November 15, 2029. The "make-whole" premium will not be payable with respect to any such redemption of the 3.75% Senior Notes on or after February 15, 2026; on or after such date, we may optionally redeem the 3.75% Senior Notes, in whole or in part, at the following prices (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, up to but excluding the redemption date: Period beginning February 15, Price 2026 101.875 % 2027 100.938 % 2028 and thereafter 100.000 % The "make-whole" premium will not be payable with respect to any such redemption of the 4.0% Senior Notes on or after April 15, 2024; on or after such date, we may optionally redeem the 4.0% Senior Notes, in whole or in part, at the following prices (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, up to but excluding the redemption date: Period beginning April 15, Price 2024 102.000 % 2025 101.000 % 2026 and thereafter 100.000 % In addition, at any time prior to April 15, 2024, STBV may redeem up to 40 % of the principal amount of the outstanding 4.0% Senior Notes (including additional 4.0% Senior Notes, if any, that may be issued after March 29, 2021) with the net cash proceeds of certain equity offerings at a redemption price (expressed as a percentage of principal amount) of 104.00 %, plus accrued and unpaid interest, if any, up to but excluding the redemption date, provided that at least 60 % of the aggregate principal amount of the 4.0% Senior Notes (including additional 4.0% Senior Notes, if any) remains outstanding immediately after each such redemption. Upon the occurrence of certain specific change in control events, we will be required to offer to repurchase the notes at 101 % of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase. If changes in certain tax laws or treaties, or any change in the official application, administration, or interpretation thereof, of any relevant taxing jurisdiction become effective that would impose withholding taxes or other deductions on the payments of any of the Senior Notes or the guarantees thereof, we may, at our option, redeem the relevant Senior Notes in whole but not in part, at a redemption price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, premium, if any, and all additional amounts (as described in the relevant Senior Notes Indenture), if any, then due and which will become due on the date of redemption. Guarantees The obligations of the issuers of the Senior Notes are guaranteed by STBV and all of its subsidiaries (excluding the company that is the issuer of the relevant Senior Notes) that guarantee the obligations of STI under the Credit Agreement (after giving effect to the Guarantees Release pursuant to the Tenth Amendment). The Released Guarantors are not guarantors of the 3.75% Senior Notes or the 4.375% Senior Notes, and upon consummation of the Tenth Amendment, the guarantees of the Released Guarantors with respect to the other Senior Notes were released. Events of Default The Senior Notes Indentures provide for events of default that include, among others, nonpayment of principal or interest when due, breach of covenants or other provisions in the relevant Senior Notes Indenture, defaults in payment of certain other indebtedness, certain events of bankruptcy or insolvency, failure to pay certain judgments, and the cessation of the full force and effect of the guarantees of significant subsidiaries. Generally, if an event of default occurs, the trustee or the holders of at 106 Table of Contents least 25 % in principal amount of the then outstanding Senior Notes issued under the relevant Senior Notes Indenture may declare the principal of, and accrued but unpaid interest on, all of the relevant Senior Notes to be due and payable immediately. All provisions regarding remedies in an event of default are subject to the relevant Senior Notes Indenture. Restrictions and Covenants As of December 31, 2021, STBV and all of its subsidiaries were subject to certain restrictive covenants under the Credit Agreement and the Senior Notes Indentures. Under certain circumstances, STBV is permitted to designate a subsidiary as "unrestricted" for purposes of the Credit Agreement, in which case the restrictive covenants thereunder will not apply to that subsidiary; the Senior Notes Indentures do not contain such a permission. STBV has not designated any subsidiaries as unrestricted. The net assets of STBV subject to these restrictions totaled $ 3.0 billion at December 31, 2021. Credit Agreement The Credit Agreement contains non-financial restrictive covenants (subject to important exceptions and qualifications set forth in the Credit Agreement) that limit our ability to, among other things: • incur indebtedness or liens, prepay subordinated debt, or amend the terms of our subordinated debt; • make loans and investments (including acquisitions) or sell assets; • change our business or accounting policies, merge, consolidate, dissolve or liquidate, or amend the terms of our organizational documents; • enter into affiliate transactions; • pay dividends and make other restricted payments; or • enter into certain burdensome contractual obligations. In addition, under the Credit Agreement, STBV and its subsidiaries are required to maintain a senior secured net leverage ratio not to exceed 5.0 :1.0 at the conclusion of certain periods when outstanding loans and letters of credit that are not cash collateralized for the full face amount thereof exceed 20 % of the commitments under the Revolving Credit Facility. Senior Notes Indentures The Senior Notes Indentures contain restrictive covenants (subject to important exceptions and qualifications set forth in the Senior Notes Indentures) that limit the ability of STBV and its subsidiaries to, among other things: • incur liens; • incur or guarantee indebtedness without guaranteeing the Senior Notes; • engage in sale and leaseback transactions; or • effect mergers or consolidations, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of the assets of STBV and its subsidiaries. Certain of these covenants will be suspended if the Senior Notes are assigned an investment grade rating by Standard & Poor's Rating Services or Moody's Investors Service, Inc. and provided no default has occurred and is continuing at such time. The suspended covenants will be reinstated if the Senior Notes are no longer assigned an investment grade rating by either rating agency or an event of default has occurred and is continuing at such time. As of December 31, 2021, none of the Senior Notes were assigned an investment grade rating by either rating agency. Restrictions on Payment of Dividends STBV's subsidiaries are generally not restricted in their ability to pay dividends or otherwise distribute funds to STBV, except for restrictions imposed under applicable corporate law. STBV, however, is limited in its ability to pay dividends or otherwise make distributions to its immediate parent company and, ultimately, to Sensata plc, under the Credit Agreement. Specifically, the Credit Agreement prohibits STBV from paying 107 Table of Contents dividends or making distributions to its parent companies except for purposes that include, but are not limited to, the following: • customary and reasonable operating expenses, legal and accounting fees and expenses, and overhead of such parent companies incurred in the ordinary course of business, provided that such amounts, in the aggregate, do not exceed $ 20.0 million in any fiscal year; • dividends and other distributions in an aggregate amount not to exceed $ 200.0 million plus certain amounts, including the retained portion of excess cash flow, but only insofar as no default or event of default exists and the senior secured net leverage ratio is less than 2.0 :1.0 calculated on a pro forma basis; • so long as no default or an event of default exists, dividends and other distributions in an aggregate amount not to exceed $ 50.0 million in any calendar year (with the unused portion in any year being carried over to succeeding years) plus unlimited additional amounts but only insofar as the senior secured net leverage ratio is less than 2.5 :1.0 calculated on a pro forma basis; and • other dividends and other distributions in an aggregate amount not to exceed $ 150.0 million, so long as no default or event of default exists. The Senior Notes Indentures generally allow STBV to pay dividends and make other distributions to its parent companies. Compliance with Financial and Non-Financial Covenants We were in compliance with all of the financial and non–financial covenants and default provisions associated with our indebtedness as of December 31, 2021 and for the fiscal year then ended. Accounting for Debt Financing Transactions In the year ended December 31, 2021, in connection with the early redemption of the 6.25% Senior Notes, we recognized a loss of $ 30.1 million, which primarily reflects payment of $ 23.4 million for the early redemption premium, with the remaining loss representing write-off of debt discounts and deferred financing costs. In addition, in connection with the issuance of the 4.0% Senior Notes, we recognized $ 9.6 million of deferred financing costs, which are presented as a reduction of long-term debt on our consolidated balance sheets and $ 1.7 million of issuance premiums, which are presented as an addition to long-term debt on our consolidated balance sheets. In the year ended December 31, 2020, in connection with the entry into the 3.75% Senior Notes, we incurred $ 8.4 million of related third-party costs, which are presented as a reduction of long-term debt on our consolidated balance sheets. In the year ended December 31, 2019, in connection with the entry into the Ninth Amendment, we incurred $ 2.4 million of creditor fees and related third-party costs, which are presented as a reduction of long-term debt on our consolidated balance sheets. In the year ended December 31, 2019, in connection with of the issuance of the 4.375% Senior Notes, the entry into the Tenth Amendment, and the subsequent partial repayment of the Term Loan, we recognized a loss of $ 4.4 million, presented in the other, net line of our consolidated statements of operations, as well as $ 5.0 million of deferred financing costs, which are presented as a reduction of long-term debt on our consolidated balance sheets. Refer to Note 2: Significant Accounting Policies for additional information related to our accounting policies regarding debt financing transactions. Finance Lease and Other Financing Obligations Refer to Note 17: Leases for additional information related to our finance leases. Debt Maturities The aggregate principal amount of each tranche of our Senior Notes is due in full at its maturity date. The Term Loan must be repaid in full on or prior to its final maturity date. Loans made pursuant to the Revolving Credit Facility must be repaid in full at its maturity date and can be repaid prior to then at par. All letters of credit issued thereunder will terminate at the final maturity of the Revolving Credit Facility unless cash collateralized prior to such time. 108 Table of Contents The following table presents the remaining mandatory principal repayments of long-term debt, excluding finance lease payments, other financing obligations, and discretionary repurchases of debt, in each of the years ended December 31, 2022 through 2026 and thereafter. For the year ended December 31, Aggregate Maturities 2022 $ 4,630 2023 504,630 2024 404,630 2025 704,631 2026 432,944 Thereafter 2,200,000 Total long-term debt principal payments $ 4,251,465 15. Commitments and Contingencies Non-cancelable purchase agreements exist with various suppliers, primarily for services such as information technology ("IT") support. The terms of these agreements are fixed and determinable. As of December 31, 2021, we had the following purchase commitments, presented by expected payment dates: For the year ending December 31, 2022 $ 46,233 2023 16,505 2024 1,473 2025 181 2026 124 Thereafter 96 Total purchase commitments $ 64,612 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. Indemnifications Provided as Part of Contracts and Agreements We are party to the following types of agreements pursuant to which we may be obligated to indemnify a third party with respect to certain matters. Officers and Directors: Our articles of association provide for indemnification of directors and officers by us to the fullest extent permitted by applicable law, as it now exists or may hereinafter be amended (but, in the case of an amendment, only to the extent such amendment permits broader indemnification rights than permitted prior thereto), against any and all liabilities, including all expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit, or proceeding, provided he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, and, with respect to any criminal action or 109 Table of Contents proceeding, had no reasonable cause to believe his or her conduct was unlawful or outside of his or her mandate. The articles do not provide a limit to the maximum future payments, if any, under the indemnification. No indemnification is provided for in respect of any claim, issue, or matter as to which such person has been adjudged to be liable for gross negligence or willful misconduct in the performance of his or her duty on our behalf. In addition, we have a liability insurance policy that insures directors and officers against the cost of defense, settlement, or payment of claims and judgments under some circumstances. Certain indemnification payments may not be covered under our directors’ and officers’ insurance coverage. Initial Purchasers of Senior Notes : Pursuant to the terms of the purchase agreements entered into in connection with our private placement senior note offerings, we are obligated to indemnify the initial purchasers of the Senior Notes against certain liabilities caused by any untrue statement or alleged untrue statement of a material fact in various documents relied upon by such initial purchasers, or to contribute to payments the initial purchasers may be required to make in respect thereof. The purchase agreements do not provide a limit to the maximum future payments, if any, under these indemnifications. Intellectual Property and Product Liability Indemnification: We routinely sell products with a limited intellectual property and product liability indemnification included in the terms of sale. Historically, we have had only immaterial and irregular losses associated with these indemnifications. Consequently, any future liabilities resulting from these indemnifications cannot reasonably be estimated or accrued. Product Warranty Liabilities Refer to Note 2: Significant Accounting Policies — Revenue Recognition for additional information related to the warranties we provide to customers. In the event a warranty claim based on defective materials exists, we may be able to recover some of the cost of the claim from the vendor from whom the materials were purchased. Our ability to recover some of the costs will depend on the terms and conditions to which we agreed when the materials were purchased. When a warranty claim is made, the only collateral available to us is the return of the inventory from the customer making the warranty claim. Historically, when customers make a warranty claim, we either replace the product or provide the customer with a credit. We generally do not rework the returned product. Our policy is to accrue for warranty claims when a loss is both probable and estimable. This is accomplished by accruing for estimated returns and estimated costs to replace the product at the time the related revenue is recognized. Liabilities for warranty claims have historically not been material. In some instances, customers may make claims for costs they incurred or other damages related to a claim. Environmental Remediation Liabilities Our operations and facilities are subject to U.S. and non-U.S. laws and regulations governing the protection of the environment and our employees, including those governing air emissions, chemical usage, water discharges, the management and disposal of hazardous substances and wastes, and the cleanup of contaminated sites. We could incur substantial costs, including cleanup costs, fines, civil or criminal sanctions, or third-party property damage or personal injury claims, in the event of violations or liabilities under these laws and regulations, or non-compliance with the environmental permits required at our facilities. Potentially significant expenditures could be required in order to comply with environmental laws that may be adopted or imposed in the future. We are, however, not aware of any threatened or pending material environmental investigations, lawsuits, or claims involving us or our operations. Legal Proceedings and Claims We are regularly involved in a number of claims and litigation matters that arise in the ordinary course of business. Although it is not feasible to predict the outcome of these matters, based upon our experience and current information known to us, we do not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on our results of operations, financial position, and/or cash flows. We account for litigation and claims losses in accordance with FASB ASC Topic 450, Contingencies . Under FASB ASC Topic 450, loss contingency provisions are recognized for probable and estimable losses at our best estimate of a loss or, when a best estimate cannot be made, at our estimate of the minimum loss. These estimates are often developed prior to knowing the amount of the ultimate loss, require the application of considerable judgment, and are refined each accounting period as additional information becomes known. Accordingly, we are often initially unable to develop a best estimate of loss and therefore the minimum amount, which could be an immaterial amount, is recognized. As information becomes known, either the minimum loss amount is increased, or a best estimate can be made, generally resulting in additional loss provisions. A best 110 Table of Contents estimate amount may be changed to a lower amount when events result in an expectation of a more favorable outcome than previously expected. Pending Litigation and Claims: There are no material pending litigation or claims outstanding as of December 31, 2021. 16. Shareholders' Equity Treasury Shares From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or terminated by our Board of Directors at any time. Under these programs, we may repurchase ordinary shares at such times and in amounts to be determined by our management, based on market conditions, legal requirements, and other corporate considerations, on the open market or in privately negotiated transactions, provided that such transactions were completed pursuant to an agreement and with a third party approved by our shareholders at the annual general meeting. The authorized amount of our various share repurchase programs may be modified or terminated by our Board of Directors at any time. Ordinary shares repurchased by us are recognized, measured at cost, and presented as treasury shares on our consolidated balance sheets, resulting in a reduction of shareholders' equity. In July 2019 our Board of Directors authorized a $ 500.0 million share repurchase program (the "July 2019 Program"). On April 2, 2020, we announced a temporary suspension of the July 2019 Program. At the time of this announcement, approximately $ 302.3 million remained available under this program. We resumed repurchasing shares under the July 2019 Program in November 2021, and for the year ended December 31, 2021, we repurchased approximately 0.8 million shares for $ 47.8 million (an average price per share of $ 59.28 ). As of December 31, 2021, approximately $ 254.5 million remained available under the July 2019 Program. On January 20, 2022, we announced that our Board of Directors had authorized a new ordinary share repurchase program of $ 500.0 million (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. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss for the years ended December 31, 2021, 2020, and 2019 were as follows: Cash Flow Hedges Defined Benefit and Retiree Healthcare Plans Accumulated Other Comprehensive Loss Balance as of December 31, 2018 9,184 ( 35,362 ) ( 26,178 ) Pre-tax current period change 9,816 ( 2,198 ) 7,618 Income tax effect ( 2,454 ) 530 ( 1,924 ) Balance as of December 31, 2019 16,546 ( 37,030 ) ( 20,484 ) Pre-tax current period change ( 31,114 ) ( 7,848 ) ( 38,962 ) Income tax effect 7,835 2,076 9,911 Balance as of December 31, 2020 ( 6,733 ) ( 42,802 ) ( 49,535 ) Pre-tax current period change 31,671 8,145 39,816 Income tax effect ( 8,107 ) ( 1,734 ) ( 9,841 ) Balance as of December 31, 2021 $ 16,831 $ ( 36,391 ) $ ( 19,560 ) 111 Table of Contents The details of the components of other comprehensive income/(loss), net of tax, for the years ended December 31, 2021, 2020, and 2019 are as follows: For the year ended December 31, 2021 2020 2019 Cash Flow Hedges Defined Benefit and Retiree Healthcare Plans Total Cash Flow Hedges Defined Benefit and Retiree Healthcare Plans Total Cash Flow Hedges Defined Benefit and Retiree Healthcare Plans Total Other comprehensive income/(loss) before reclassifications $ 23,883 $ ( 30 ) $ 23,853 $ ( 17,738 ) $ ( 12,494 ) $ ( 30,232 ) $ 28,795 $ ( 3,470 ) $ 25,325 Amounts reclassified from accumulated other comprehensive loss ( 319 ) 6,441 6,122 ( 5,541 ) 6,722 1,181 ( 21,433 ) 1,802 ( 19,631 ) Other comprehensive income/(loss) $ 23,564 $ 6,411 $ 29,975 $ ( 23,279 ) $ ( 5,772 ) $ ( 29,051 ) $ 7,362 $ ( 1,668 ) $ 5,694 The amounts reclassified from accumulated other comprehensive loss for the years ended December 31, 2021, 2020, and 2019 were as follows: Amount of Loss/(Gain) Reclassified from Accumulated Other Comprehensive Loss For the year ended December 31, Affected Line in Consolidated Statements of Operations 2021 2020 2019 Derivative instruments designated and qualifying as cash flow hedges: Foreign currency forward contracts $ 9,281 $ ( 10,785 ) $ ( 26,180 ) Net revenue (1) Foreign currency forward contracts ( 9,707 ) 3,397 ( 2,397 ) Cost of revenue (1) Total, before taxes ( 426 ) ( 7,388 ) ( 28,577 ) Income before taxes Income tax effect 107 1,847 7,144 Provision for income taxes Total, net of taxes $ ( 319 ) $ ( 5,541 ) $ ( 21,433 ) Net income Defined benefit and retiree healthcare plans $ 8,268 $ 9,118 $ 2,552 Other, net (2) Total, before taxes 8,268 9,118 2,552 Income before taxes Income tax effect ( 1,827 ) ( 2,396 ) ( 750 ) Provision for income taxes Total, net of taxes $ 6,441 $ 6,722 $ 1,802 Net income __________________________ (1) Refer to Note 19: Derivative Instruments and Hedging Activities for additional information related to amounts to be reclassified from accumulated other comprehensive loss in future periods. (2) Refer to Note 13: Pension and Other Post-Retirement Benefits for additional information related to net periodic benefit cost. 112 Table of Contents 17. Leases The table below shows right-of-use asset and lease liability amounts and the financial statement line item in which those amounts are presented: December 31, 2021 December 31, 2020 Operating lease right-of-use assets: Other assets $ 44,118 $ 49,980 Total operating lease right-of-use assets $ 44,118 $ 49,980 Operating lease liabilities: Accrued expenses and other current liabilities $ 11,035 $ 11,389 Other long-term liabilities 35,741 43,307 Total operating lease liabilities $ 46,776 $ 54,696 Finance lease right-of-use assets: Property, plant and equipment, at cost $ 49,714 $ 49,714 Accumulated depreciation ( 27,821 ) ( 26,107 ) Property, plant and equipment, net $ 21,893 $ 23,607 Finance lease liabilities: Current portion of long-term debt, finance lease and other financing obligations $ 2,203 $ 2,403 Finance lease and other financing obligations, less current portion 26,564 27,931 Total finance lease liabilities $ 28,767 $ 30,334 The table below presents the lease liabilities arising from obtaining right-of-use assets in the years ended December 31, 2021 and 2020: For the year ended December 31, 2021 2020 Operating leases $ 1,684 $ 3,232 Finance leases $ — $ — The table below presents our total lease cost for the years ended December 31, 2021, 2020, and 2019 (short-term lease cost was not material for the years ended December 31, 2021, 2020, and 2019): For the year ended December 31, 2021 2020 2019 Operating lease cost $ 15,529 $ 16,658 $ 16,124 Finance lease cost: Amortization of right-of-use assets $ 1,714 $ 1,794 $ 1,808 Interest on lease liabilities 2,477 2,565 2,695 Total finance lease cost $ 4,191 $ 4,359 $ 4,503 The table below presents the cash paid related to our operating and finance leases for the years ended December 31, 2021, 2020, and 2019: For the year ended December 31, 2021 2020 2019 Operating cash outflow related to operating leases $ 15,173 $ 16,489 $ 15,911 Operating cash outflow related to finance leases $ 2,372 $ 2,262 $ 2,731 Financing cash outflow related to finance leases $ 1,806 $ 944 $ 1,933 113 Table of Contents The table below presents the weighted-average remaining lease term of our operating and finance leases (in years) as of December 31, 2021: 2021 Operating leases 7.2 Finance leases 11.1 The table below presents our weighted-average discount rate as of December 31, 2021: 2021 Operating leases 5.6 % Finance leases 8.6 % The table below presents a maturity analysis of the obligations related to our operating lease liabilities and finance lease liabilities in effect as of December 31, 2021: Operating Leases Finance Leases Year ending December 31, 2022 $ 13,607 $ 4,290 2023 10,111 3,836 2024 8,587 3,896 2025 5,643 3,956 2026 3,316 4,286 Thereafter 17,313 25,253 Total undiscounted cash flows related to lease liabilities 58,577 45,517 Less imputed interest ( 11,801 ) ( 16,750 ) Total lease liabilities $ 46,776 $ 28,767 18. Fair Value Measures Our assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with FASB ASC Topic 820. The levels of the fair value hierarchy are described below: • Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to access at the measurement date. • Level 2 inputs utilize inputs, other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. • Level 3 inputs are unobservable inputs for the asset or liability, allowing for situations where there is little, if any, market activity for the asset or liability. 114 Table of Contents Measured on a Recurring Basis The fair values of our assets and liabilities measured at fair value on a recurring basis as of as of December 31, 2021 and 2020 are shown in the below table. All fair value measures presented are categorized in Level 2 of the fair value hierarchy. As of December 31, 2021 2020 Assets measured at fair value: Foreign currency forward contracts 25,112 16,163 Commodity forward contracts 2,979 8,902 Total assets measured at fair value 28,091 25,065 Liabilities measured at fair value: Foreign currency forward contracts 3,073 24,660 Commodity forward contracts 4,492 310 Total liabilities measured at fair value 7,565 24,970 Refer to Note 2: Significant Accounting Policies for additional information related to the methods used to estimate the fair value of our financial instruments and Note 19: Derivative Instruments and Hedging Activities for additional information related to the inputs used to determine these fair value measurements and the nature of the risks that these derivative instruments are intended to mitigate. Although we have determined that the majority of the inputs used to value our derivative instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to appropriately reflect both our own non-performance risk and the respective counterparties' non-performance risk in the fair value measurement. As of December 31, 2021 and 2020, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivatives in their entirety are classified in Level 2 in the fair value hierarchy. Measured on a Nonrecurring Basis Effective July 1, 2021, we reorganized our Sensing Solutions operating segment, which resulted in realignment of our reporting units. As a result of this reorganization, our electrical protection product category that includes high voltage contactors, inverters, 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. We evaluated our goodwill and other indefinite-lived intangible assets for impairment before and after the reorganization and determined that they were not impaired. We evaluated our goodwill and other indefinite-lived intangible assets for impairment as of October 1, 2021. Based on these analyses, we determined that they were not impaired. 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 concluded that these reorganizations have not impacted our reportable or operating segment evaluations. We reassigned assets and liabilities, including goodwill, to these new reporting units as required by FASB ASC Topic 350. We evaluated our goodwill and other indefinite-lived intangible assets for impairment before and after the reorganization and formation of these reporting units and determined that they were not impaired. Refer to Note 21: Acquisitions for additional information related to these acquisitions. As of December 31, 2021, no events or changes in circumstances occurred that would have triggered the need for an additional impairment review of goodwill or other indefinite-lived intangible assets. Refer to Note 11: Goodwill and Other Intangible Assets, Net for additional information. 115 Table of Contents Financial Instruments Not Recorded at Fair Value The following table presents the carrying values and fair values of financial instruments not recorded at fair value in the consolidated balance sheets as of December 31, 2021 and 2020. All fair value measures presented are categorized within Level 2 of the fair value hierarchy. As of December 31, 2021 2020 Carrying Value (1) Fair Value Carrying Value (1) Fair Value Term Loan $ 451,465 $ 450,901 $ 456,096 $ 454,955 4.875 % Senior Notes $ 500,000 $ 526,250 $ 500,000 $ 538,750 5.625 % Senior Notes $ 400,000 $ 438,000 $ 400,000 $ 448,000 5.0 % Senior Notes $ 700,000 $ 759,500 $ 700,000 $ 777,000 6.25 % Senior Notes $ — $ — $ 750,000 $ 778,125 4.375 % Senior Notes $ 450,000 $ 479,250 $ 450,000 $ 487,125 3.75 % Senior Notes $ 750,000 $ 747,188 $ 750,000 $ 776,250 4.0 % Senior Notes $ 1,000,000 $ 1,022,500 $ — $ — __________________________ (1) Excluding any related debt discounts, premiums, and deferred financing costs. In addition to the above, we hold certain equity investments that do not have readily determinable fair values for which we use the measurement alternative prescribed in FASB ASC Topic 321 . Such investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. There were no impairments or changes resulting from observable transactions for any of these investments and no adjustments were made to their carrying values. Refer to the table below for the carrying values of equity investments using the measurement alternative, which are presented as a component of other assets in the consolidated balance sheets. As of December 31, 2021 2020 Quanergy Systems, Inc. $ 50,000 $ 50,000 Other 15,000 15,000 Total $ 65,000 $ 65,000 On June 22, 2021, Quanergy Systems, Inc. ("Quanergy") announced that it had entered into a definitive business combination agreement with CITIC Capital Acquisition Corp ("CITIC") (NYSE: CCAC). On July 16, 2021, CITIC filed a Registration Statement on Form S-4 with the U.S. Securities and Exchange Commission (the "SEC"), the effectiveness of which was a condition to closing of the business combination. At December 31, 2021, we assessed our investment in Quanergy based on the proposed terms of the business combination agreement and concluded that there were no indicators of impairment. On January 6, 2022, the related Registration Statement on Form S-4 was declared effective by the SEC. An Extraordinary General Meeting of shareholders of CITIC was held on January 31, 2022 at which time the business combination was approved. The business combination closed on February 8, 2022. Beginning on February 9, 2022, the combined company, which retained the name "Quanergy Systems, Inc.," was listed on the NYSE under the ticker symbol QNGY. Accordingly, we will begin marking our investment in Quanergy to market each reporting period. 19. Derivative Instruments and Hedging Activities We utilize derivative instruments that are designated and qualify as hedges of our exposure to variability in expected future cash flows. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on these hedging instruments with the earnings effect of the hedged forecasted transactions. We may enter into other derivative contracts that are intended to economically hedge certain risks, even though we elect not to apply hedge accounting under FASB ASC Topic 815. Derivative financial instruments not designated as hedges are used to manage our exposure to certain risks, not for trading or speculative purposes. Refer to Note 2: Significant Accounting Policies for additional information related to the valuation techniques and accounting policies regarding derivative instruments and hedging activities. 116 Table of Contents Foreign Currency Risk We are exposed to fluctuations in the values of certain foreign currencies relative to our functional currency, the USD. We enter into forward contracts to manage this exposure. We currently have outstanding foreign currency forward contracts that qualify as cash flow hedges intended to offset the effect of exchange rate fluctuations on forecasted sales and certain manufacturing costs. We also have outstanding foreign currency forward contracts that are intended to preserve the economic value of foreign currency denominated monetary assets and liabilities, which are not designated for hedge accounting treatment in accordance with FASB ASC Topic 815. For each of the years ended December 31, 2021, 2020, and 2019, amounts excluded from the assessment of effectiveness of our foreign currency forward contracts that are designated as cash flow hedges were not material. As of December 31, 2021, we estimate that $ 20.2 million of net gains will be reclassified from accumulated other comprehensive loss to earnings during the twelve-month period ending December 31, 2022. As of December 31, 2021, we had the following outstanding foreign currency forward contracts: Notional (in millions) Effective Date(s) Maturity Date(s) Index (Exchange Rates) Weighted- Average Strike Rate Hedge Designation (1) 25.0 EUR December 27, 2021 January 31, 2022 Euro ("EUR") to USD 1.13 USD Not designated 371.2 EUR Various from February 2020 to December 2021 Various from January 2022 to December 2023 EUR to USD 1.19 USD Cash flow hedge 1,020.0 CNY December 27, 2021 January 28, 2022 USD to Chinese Renminbi ("CNY") 6.39 CNY Not designated 255.6 CNY October 21, 2021 Various from January 2022 to December 2022 USD to CNY 6.54 CNY Cash flow hedge 530.0 JPY December 27, 2021 January 31, 2022 USD to Japanese Yen ("JPY") 114.71 JPY Not designated 22,033.3 KRW Various from February 2020 to December 2021 Various from January 2022 to November 2023 USD to Korean Won ("KRW") 1,158.60 KRW Cash flow hedge 27.0 MYR December 27, 2021 January 31, 2022 USD to Malaysian Ringgit ("MYR") 4.19 MYR Not designated 393.0 MXN December 27, 2021 January 31, 2022 USD to Mexican Peso ("MXN") 20.75 MXN Not designated 3,332.5 MXN Various from February 2020 to December 2021 Various from January 2022 to December 2023 USD to MXN 22.29 MXN Cash flow hedge 1.0 GBP December 27, 2021 January 31, 2022 British Pound Sterling ("GBP") to USD 1.34 USD Not designated 56.5 GBP Various from February 2020 to December 2021 Various from January 2022 to December 2023 GBP to USD 1.35 USD Cash flow hedge __________________________ (1) Derivative financial instruments not designated as hedges are used to manage our exposure to currency exchange rate risk. They are intended to preserve the economic value, and they are not used for trading or speculative purposes. Commodity Risk We enter into commodity forward contracts in order to limit our exposure to variability in raw material costs that is caused by movements in the price of underlying metals. The terms of these forward contracts fix the price at a future date for various notional amounts associated with these commodities. These instruments are not designated for hedge accounting treatment in accordance with FASB ASC Topic 815. 117 Table of Contents As of December 31, 2021, we had the following outstanding commodity forward contracts, none of which were designated for hedge accounting treatment in accordance with FASB ASC Topic 815: Commodity Notional Remaining Contracted Periods Weighted-Average Strike Price Per Unit Silver 1,226,350 troy oz. January 2022 - December 2023 $ 24.62 Gold 9,431 troy oz. January 2022 - December 2023 $ 1,826.83 Nickel 262,706 pounds January 2022 - December 2023 $ 8.25 Aluminum 3,906,813 pounds January 2022 - December 2023 $ 1.11 Copper 6,705,953 pounds January 2022 - December 2023 $ 4.20 Platinum 12,791 troy oz. January 2022 - December 2023 $ 1,034.81 Palladium 1,621 troy oz. January 2022 - December 2023 $ 2,378.28 Financial Instrument Presentation The following table presents the fair value of our derivative financial instruments and their classification in the consolidated balance sheets as of December 31, 2021 and 2020: Asset Derivatives Liability Derivatives Balance Sheet Location As of December 31, Balance Sheet Location As of December 31, 2021 2020 2021 2020 Derivatives designated as hedging instruments: Foreign currency forward contracts Prepaid expenses and other current assets $ 20,562 $ 11,281 Accrued expenses and other current liabilities $ 1,981 $ 18,834 Foreign currency forward contracts Other assets 4,391 4,728 Other long-term liabilities 904 5,182 Total $ 24,953 $ 16,009 $ 2,885 $ 24,016 Derivatives not designated as hedging instruments: Commodity forward contracts Prepaid expenses and other current assets $ 2,583 $ 7,598 Accrued expenses and other current liabilities $ 3,422 $ 149 Commodity forward contracts Other assets 396 1,304 Other long-term liabilities 1,070 161 Foreign currency forward contracts Prepaid expenses and other current assets 159 154 Accrued expenses and other current liabilities 188 644 Total $ 3,138 $ 9,056 $ 4,680 $ 954 These fair value measurements are all categorized within Level 2 of the fair value hierarchy. Refer to Note 18: Fair Value Measures for additional information related to the categorization of these fair value measurements within the fair value hierarchy. 118 Table of Contents The following tables present the effect of our derivative financial instruments on the consolidated statements of operations and the consolidated statements of comprehensive income for the years ended December 31, 2021 and 2020: Derivatives designated as hedging instruments Amount of Deferred Gain/(Loss) Recognized in Other Comprehensive Income/(Loss) Location of Net (Loss)/Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income Amount of Net (Loss)/Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income For the year ended December 31, For the year ended December 31, 2021 2020 2021 2020 Foreign currency forward contracts $ 32,698 $ ( 25,866 ) Net revenue $ ( 9,281 ) $ 10,785 Foreign currency forward contracts $ ( 601 ) $ 2,140 Cost of revenue $ 9,707 $ ( 3,397 ) Derivatives not designated as hedging instruments Amount of (Loss)/Gain Recognized in Net Income Location of (Loss)/Gain Recognized in Net Income For the year ended December 31, 2021 2020 Commodity forward contracts $ ( 2,967 ) $ 10,027 Other, net Foreign currency forward contracts $ ( 7,553 ) $ ( 6,762 ) Other, net Credit risk related contingent features We have agreements with our derivative counterparties that contain a provision whereby if we default on our indebtedness and repayment of the indebtedness has been accelerated by the lender, then we could also be declared in default on our derivative obligations. As of December 31, 2021, the termination value of outstanding derivatives in a liability position, excluding any adjustment for non-performance risk, was $ 7.7 million. As of December 31, 2021, we have no t posted any cash collateral related to these agreements. If we breach any of the default provisions on any of our indebtedness as described above, we could be required to settle our obligations under the derivative agreements at their termination values. 20. Segment Reporting We present financial information for two reportable segments, Performance Sensing and Sensing Solutions. The Performance Sensing reportable segment consists of two operating segments, Automotive and HVOR, each of which meet the criteria for aggregation in FASB ASC Topic 280, Segment Reporting . The Sensing Solutions reportable segment is also an operating segment. Our operating segments are businesses that we manage as components of an enterprise, for which separate financial information is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and assess performance. An operating segment’s performance is primarily evaluated based on segment operating income, which excludes amortization of intangible assets, restructuring and other charges, net, certain costs associated with our strategic megatrend initiatives, and certain corporate costs or credits not associated with the operations of the segment, including share-based compensation expense and a portion of depreciation expense associated with assets recognized in connection with acquisitions. Corporate and other costs excluded from an operating (and reportable) segment’s performance are separately stated below and also include costs that are related to functional areas such as finance, IT, legal, and human resources. We believe that segment operating income, as defined above, is an appropriate measure for evaluating the operating performance of our segments. However, this measure should be considered in addition to, and not as a substitute for, or superior to, operating income or other measures of financial performance prepared in accordance with U.S. GAAP. The accounting policies of each of our operating and reportable segments are materially consistent with those described in Note 2: Significant Accounting Policies . The Performance Sensing segment serves the automotive and HVOR industries through its development and manufacture of sensors, high-voltage solutions (i.e. electrical protection components), and other solutions that are used in mission-critical systems and applications. Examples include those used in subsystems of automobiles, on-road trucks, and off-road equipment, such as tire pressure monitoring, thermal management, electrical protection, regenerative braking, powertrain (engine/transmission), and exhaust management. Our products are used in subsystems that, among other things, improve operating performance and efficiency, contribute to environmentally sustainable and safe solutions, and provide data-driven insight, connectivity, and prognostics to commercial fleet operators and asset managers. Sensing Solutions primarily serves the industrial and aerospace industries through development and manufacture of a broad portfolio of application-specific sensor and electrical protection products used in a diverse range of industrial markets, including 119 Table of Contents the appliance, HVAC, semiconductor, factory automation, water management, and charging infrastructure markets, as well as the aerospace market, including commercial aircraft, defense, and aftermarket markets. The following table presents net revenue and segment operating income for the reportable segments and other operating results not allocated to the reportable segments for the years ended December 31, 2021, 2020, and 2019: For the year ended December 31, 2021 2020 2019 Net revenue: Performance Sensing $ 2,847,908 $ 2,223,810 $ 2,546,016 Sensing Solutions 972,898 821,768 904,615 Total net revenue $ 3,820,806 $ 3,045,578 $ 3,450,631 Segment operating income (as defined above): Performance Sensing $ 777,237 $ 532,529 $ 670,470 Sensing Solutions 293,185 241,218 293,967 Total segment operating income 1,070,422 773,747 964,437 Corporate and other ( 288,111 ) ( 273,367 ) ( 211,106 ) Amortization of intangible assets ( 134,129 ) ( 129,549 ) ( 142,886 ) Restructuring and other charges, net ( 14,942 ) ( 33,094 ) ( 53,560 ) Operating income 633,240 337,737 556,885 Interest expense, net ( 179,291 ) ( 171,757 ) ( 158,554 ) Other, net ( 40,032 ) ( 339 ) ( 7,908 ) Income before taxes $ 413,917 $ 165,641 $ 390,423 No customer exceeded 10% of our net revenue in any of the periods presented. The following table presents net revenue by product category for the years ended December 31, 2021, 2020, and 2019: Performance Sensing Sensing Solutions For the year ended December 31, 2021 2020 2019 Net revenue: Sensors X X $ 3,027,183 $ 2,380,608 $ 2,712,926 Electrical protection X X 635,141 504,001 573,631 Other X X 158,482 160,969 164,074 Net revenue $ 3,820,806 $ 3,045,578 $ 3,450,631 The following table presents depreciation and amortization expense for our reportable segments for the years ended December 31, 2021, 2020, and 2019: For the year ended December 31, 2021 2020 2019 Depreciation and amortization: Performance Sensing $ 91,591 $ 91,522 $ 85,511 Sensing Solutions 16,334 16,564 16,678 Corporate and other (1) 151,163 147,143 156,559 Total depreciation and amortization $ 259,088 $ 255,229 $ 258,748 __________________________ (1) Included within corporate and other is depreciation and amortization expense associated with the fair value step-up recognized in acquisitions and accelerated depreciation recognized in connection with restructuring actions. We do not allocate the additional depreciation and amortization expense associated with the step-up in the fair value of the PP&E and intangible assets associated with these acquisitions or accelerated depreciation related to restructuring actions to our segments. This treatment is consistent with the financial information reviewed by our chief operating decision maker. 120 Table of Contents The following table presents total assets for our reportable segments as of December 31, 2021 and 2020: As of December 31, 2021 2020 Assets: Performance Sensing $ 1,605,313 $ 1,447,885 Sensing Solutions 555,135 459,544 Corporate and other (1) 6,453,318 5,936,773 Total assets $ 8,613,766 $ 7,844,202 __________________________ (1) The following is included within corporate and other as of December 31, 2021 and 2020: goodwill of $ 3,502.1 million and $ 3,111.3 million, respectively; other intangible assets, net of $ 946.7 million and $ 691.5 million, respectively; cash and cash equivalents of $ 1,709.0 million and $ 1,862.0 million, respectively; and PP&E, net of $ 41.8 million and $ 41.7 million, respectively. This treatment is consistent with the financial information reviewed by our chief operating decision maker. The following table presents additions to PP&E and capitalized software for our reportable segments for the years ended December 31, 2021, 2020, and 2019: For the year ended December 31, 2021 2020 2019 Additions to property, plant and equipment and capitalized software: Performance Sensing $ 19,624 $ 79,252 $ 125,412 Sensing Solutions 104,220 16,885 19,520 Corporate and other 20,559 10,582 16,327 Total additions to property, plant and equipment and capitalized software $ 144,403 $ 106,719 $ 161,259 Geographic Area Information The following tables present net revenue by geographic area and by significant country for the years ended December 31, 2021, 2020, and 2019. In these tables, net revenue is aggregated according to the location of our subsidiaries. For the year ended December 31, 2021 2020 2019 Net revenue: Americas $ 1,450,658 $ 1,197,846 $ 1,460,101 Europe 1,003,204 816,287 969,470 Asia and rest of world 1,366,944 1,031,445 1,021,060 Net revenue $ 3,820,806 $ 3,045,578 $ 3,450,631 For the year ended December 31, 2021 2020 2019 Net revenue: United States $ 1,311,878 $ 1,082,671 $ 1,333,532 China 871,667 641,516 575,211 The Netherlands 621,658 482,020 576,804 Korea 191,045 172,229 188,226 United Kingdom 120,686 122,403 151,674 All other 703,872 544,739 625,184 Net revenue $ 3,820,806 $ 3,045,578 $ 3,450,631 121 Table of Contents The following tables present PP&E, net, by geographic area and by significant country as of December 31, 2021 and 2020. In these tables, PP&E, net is aggregated based on the location of our subsidiaries. As of December 31, 2021 2020 Property, plant and equipment, net: Americas $ 264,901 $ 266,378 Europe 180,524 196,132 Asia and rest of world 375,508 341,315 Property, plant and equipment, net $ 820,933 $ 803,825 As of December 31, 2021 2020 Property, plant and equipment, net: United States $ 108,590 $ 108,615 China 285,516 257,935 Mexico 156,132 157,576 Bulgaria 138,564 147,103 United Kingdom 32,345 34,453 Malaysia 85,154 78,752 All other 14,632 19,391 Property, plant and equipment, net $ 820,933 $ 803,825 21. Acquisitions Xirgo On April 1, 2021, we completed the acquisition of all of the equity interests in Xirgo, a leading telematics and data insights provider across the fleet transportation and logistics segments, headquartered in Camarillo, California, for an aggregate cash purchase price of $ 401.7 million. In addition to the aggregate purchase price, we paid $ 7.0 million of cash at closing related to an employee retention arrangement, which is reflected as an operating cash outflow on our consolidated statements of cash flows. The product offerings and technology of Xirgo will augment our existing portfolio in advancing our Insights megatrend initiative, and greatly expands our ability to provide data insights to fleet transportation and logistics customers, by serving telematics service providers, fleet management solution providers, and fleet operators themselves. Xirgo brings a comprehensive suite of telematics and asset tracking devices, cloud-based data insight solutions, as well as emerging cargo capacity and video sensing applications and data services. We are integrating Xirgo into our Performance Sensing reportable segment. The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed: Net working capital, excluding cash $ 11,536 Property, plant and equipment 1,427 Goodwill 164,280 Other intangible assets 249,612 Other assets 508 Deferred income tax liabilities ( 32,518 ) Other long-term liabilities ( 292 ) Fair value of net assets acquired, excluding cash and cash equivalents 394,553 Cash and cash equivalents 7,117 Fair value of net assets acquired $ 401,670 The goodwill recognized as a result of this acquisition was approximately $ 164.3 million, which represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. The amount of goodwill recognized that is expected to be deductible for tax purposes is not material. 122 Table of Contents In connection with the allocation of purchase price to the assets acquired and liabilities assumed, we identified certain definite-lived intangible assets. The following table presents the acquired intangible assets, their estimated fair values, and weighted-average lives: Acquisition Date Fair Value Weighted-Average Lives (years) Acquired definite-lived intangible assets Customer relationships $ 198,540 15 Completed technologies 44,130 10 Tradenames 6,930 11 Other 12 1 Total definite-lived intangible assets acquired $ 249,612 14 The definite-lived intangible assets were valued using the income approach. We primarily used the relief-from-royalty method to value completed technologies and tradenames, and we used the multi-period excess earnings method to value customer relationships. These valuation methods incorporate assumptions including expected discounted future net cash flows resulting from either the future estimated after-tax royalty payments avoided as a result of owning the completed technologies or the future earnings related to existing customer relationships. Spear On November 19, 2021, we acquired all of the equity interests in Spear Power Systems ("Spear"), a leader in electrification solutions that supports our newly established Clean Energy Solutions business unit, for an aggregate purchase price of $ 114.4 million, subject to certain post-closing items, including the discounted present value of contingent consideration of $ 8.6 million, which is recorded as a liability on our consolidated balance sheet as of December 31, 2021. Spear is headquartered in Grandview, Missouri, and develops next generation scalable lithium-ion battery storage systems for demanding land, sea, and air applications. The acquisition of Spear advances Sensata’s Electrification portfolio and strategy into new clean energy markets. Spear expands on Sensata’s acquisition of Lithium Balance in battery management systems and GIGAVAC in high-voltage contactors and provides energy storage solutions for OEMs and system integrators in fast-growing end-markets that offer significant growth opportunities. We are integrating Spear into our Sensing Solutions Segment. The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed: Net working capital, excluding cash $ 4,431 Property, plant and equipment 4,443 Goodwill 72,756 Other intangible assets 30,736 Deferred income tax liabilities ( 2,468 ) Fair value of net assets acquired, excluding cash and cash equivalents 109,898 Cash and cash equivalents 4,547 Fair value of net assets acquired $ 114,445 The allocation of purchase price of Spear is preliminary and is based on management’s judgments after evaluating several factors, including preliminary valuation assessments of tangible and intangible assets. The final allocation of the purchase price to the assets acquired will be completed when the final valuations are completed. The preliminary goodwill recognized as a result of this acquisition was approximately $ 72.8 million, which represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. The amount of goodwill recognized in this acquisition will not be deductible for tax purposes. 123 Table of Contents In connection with the allocation of purchase price to the assets acquired and liabilities assumed, we identified certain definite-lived intangible assets. The following table presents the acquired intangible assets, their preliminary estimated fair values, and weighted-average lives: Acquisition Date Fair Value Weighted-Average Lives (years) Acquired definite-lived intangible assets Customer relationships $ 6,100 10 Completed technologies 22,400 13 Tradenames 1,900 10 Other 336 3 Total definite-lived intangible assets acquired $ 30,736 12 The definite-lived intangible assets were valued using the income approach. We primarily used the relief-from-royalty method to value completed technologies and tradenames, and we used the multi-period excess earnings method to value customer relationships. These valuation methods incorporate assumptions including expected discounted future net cash flows resulting from either the future estimated after-tax royalty payments avoided as a result of owning the completed technologies or the future earnings related to existing customer relationships. SmartWitness On November 19, 2021, we acquired all of the outstanding equity interests of SmartWitness, a privately held innovator of video telematics technology for heavy- and light-duty fleets, for an aggregate cash purchase price of $ 204.2 million, subject to certain post-closing conditions. In addition to the aggregate purchase price, we paid $ 8.6 million of cash at closing related to an employee retention arrangement, which is reflected as an operating cash outflow on our consolidated statements of cash flows. SmartWitness is headquartered in Schaumburg, Illinois and expands the capabilities of Sensata Insights into high growth video telematics applications, providing access to applications that will drive adoption of traditional and video telematics solutions. SmartWitness will be integrated into the Performance Sensing reportable segment. The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed: Net working capital, excluding cash $ 10,256 Property, plant and equipment 58 Goodwill 126,549 Other intangible assets 76,800 Other assets 4 Deferred income tax liabilities ( 18,920 ) Fair value of net assets acquired, excluding cash and cash equivalents 194,747 Cash and cash equivalents 9,502 Fair value of net assets acquired $ 204,249 The allocation of purchase price of SmartWitness is preliminary and is based on management’s judgments after evaluating several factors, including preliminary valuation assessments of tangible and intangible assets. The final allocation of the purchase price to the assets acquired will be completed when the final valuations are completed. The preliminary goodwill recognized as a result of this acquisition was approximately $ 126.5 million, which represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. The amount of goodwill recognized in this acquisition will not be deductible for tax purposes. 124 Table of Contents In connection with the allocation of purchase price to the assets acquired and liabilities assumed, we identified certain definite-lived intangible assets. The following table presents the acquired intangible assets, their preliminary estimated fair values, and weighted-average lives: Acquisition Date Fair Value Weighted-Average Lives (years) Acquired definite-lived intangible assets Customer relationships $ 24,100 16 Completed technologies 52,000 10 Tradenames 700 6 Total definite-lived intangible assets acquired $ 76,800 12 The definite-lived intangible assets were valued using the income approach. We primarily used the relief-from-royalty method to value completed technologies and tradenames, and we used the multi-period excess earnings method to value customer relationships. These valuation methods incorporate assumptions including expected discounted future net cash flows resulting from either the future estimated after-tax royalty payments avoided as a result of owning the completed technologies or the future earnings related to existing customer relationships. 125 Table of Contents SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT SENSATA TECHNOLOGIES HOLDING PLC (Parent Company Only) Balance Sheets (In thousands) As of December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 1,858 $ 664 Intercompany receivables 2,662 837 Intercompany notes receivable from subsidiaries 290,944 65,972 Prepaid expenses and other current assets 2,288 1,821 Total current assets 297,752 69,294 Deferred income tax assets 462 506 Other non-current assets 49 51 Investment in subsidiaries 2,955,727 2,726,216 Total assets $ 3,253,990 $ 2,796,067 Liabilities and shareholders’ equity Current liabilities: Accounts payable $ 443 $ 414 Intercompany accounts payable to subsidiaries 7,264 12,937 Intercompany notes payable to subsidiaries 149,208 76,482 Accrued expenses and other current liabilities 2,341 748 Total current liabilities 159,256 90,581 Total liabilities 159,256 90,581 Total shareholders’ equity 3,094,734 2,705,486 Total liabilities and shareholders’ equity $ 3,253,990 $ 2,796,067 The accompanying notes are an integral part of these condensed financial statements. 126 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC (Parent Company Only) Statements of Operations (In thousands) For the year ended December 31, 2021 2020 2019 Net revenue $ — $ — $ — Operating costs and expenses: Selling, general and administrative 13,687 12,477 8,860 Total operating costs and expenses 13,687 12,477 8,860 Loss from operations ( 13,687 ) ( 12,477 ) ( 8,860 ) Intercompany dividend income 200,000 — 700,000 Intercompany interest expense, net ( 315 ) ( 479 ) ( 23,294 ) Other, net ( 215 ) 115 ( 21 ) Net income/(loss) before income taxes and equity in net income of subsidiaries 185,783 ( 12,841 ) 667,825 Equity in net income/(loss) of subsidiaries 175,663 182,733 ( 401,715 ) Benefit from/(provision for) income taxes 2,134 ( 5,606 ) 16,604 Net income $ 363,580 $ 164,286 $ 282,714 The accompanying notes are an integral part of these condensed financial statements. 127 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC (Parent Company Only) Statements of Comprehensive Income (In thousands) For the year ended December 31, 2021 2020 2019 Net income $ 363,580 $ 164,286 $ 282,714 Other comprehensive income/(loss), net of tax: Defined benefit plan — — — Subsidiaries' other comprehensive income/(loss) 29,975 ( 29,051 ) 5,694 Other comprehensive income/(loss) 29,975 ( 29,051 ) 5,694 Comprehensive income $ 393,555 $ 135,235 $ 288,408 The accompanying notes are an integral part of these condensed financial statements. 128 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC (Parent Company Only) Statements of Cash Flows (In thousands) For the year ended December 31, 2021 2020 2019 Net cash used in operating activities $ ( 15,959 ) $ ( 7,911 ) $ ( 14,989 ) Cash flows from investing activities: Intercompany loans ( 224,972 ) — — Dividends received from subsidiary 200,000 — 700,000 Net cash provided by investing activities ( 24,972 ) — 700,000 Cash flows from financing activities: Proceeds from exercise of stock options and issuance of ordinary shares 26,290 15,457 15,150 Proceeds from/(payments on) intercompany borrowings 72,726 30,966 ( 344,018 ) Payments to repurchase ordinary shares ( 47,843 ) ( 35,175 ) ( 350,004 ) Payments of employee restricted stock tax withholdings ( 9,048 ) ( 2,911 ) ( 6,990 ) Net cash provided by/(used in) financing activities 42,125 8,337 ( 685,862 ) Net change in cash and cash equivalents 1,194 426 ( 851 ) Cash and cash equivalents, beginning of year 664 238 1,089 Cash and cash equivalents, end of year $ 1,858 $ 664 $ 238 The accompanying notes are an integral part of these condensed financial statements. 129 Table of Contents 1. Basis of Presentation and Description of Business Sensata Technologies Holding plc (Parent Company)—Schedule I—Condensed Financial Information of Sensata Technologies Holding plc ("Sensata plc"), included in this Annual Report on Form 10-K (this "Report"), provides all parent company information that is required to be presented in accordance with the United States (the "U.S.") Securities and Exchange Commission ("SEC") rules and regulations for financial statement schedules. The accompanying condensed financial statements have been prepared in accordance with the reduced disclosure requirements permitted by the SEC. Sensata plc and subsidiaries' audited consolidated financial statements are included elsewhere in this Report. Sensata plc conducts limited separate operations and acts primarily as a holding company. Sensata plc has no direct outstanding debt obligations. However, Sensata Technologies B.V., an indirect, wholly-owned subsidiary of Sensata plc, is limited in its ability to pay dividends or otherwise make distributions to its immediate parent company and, ultimately, to Sensata plc, under its senior secured credit facilities and the indentures governing its senior notes. For a discussion of the debt obligations of the subsidiaries of Sensata plc, refer to Note 14: Debt of Sensata plc and subsidiaries' audited consolidated financial statements included elsewhere in this Report (the "Consolidated Financial Statements"). All U.S. dollar amounts presented except per share amounts are stated in thousands, unless otherwise indicated. 2. Commitments and Contingencies For a discussion of the commitments and contingencies of the subsidiaries of Sensata plc, refer to Note 15: Commitments and Contingencies of the Consolidated Financial Statements. 130 Table of Contents SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS (In thousands) Balance at the Beginning of the Period Additions Deductions Balance at the End of the Period Charged, Net of Reversals, to Expenses/Against Revenue For the year ended December 31, 2021 Accounts receivable allowances $ 19,033 $ ( 813 ) $ ( 1,217 ) $ 17,003 For the year ended December 31, 2020 Accounts receivable allowances $ 15,129 $ 5,654 $ ( 1,750 ) $ 19,033 For the year ended December 31, 2019 Accounts receivable allowances $ 13,762 $ 3,005 $ ( 1,638 ) $ 15,129 131 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.