Item 1. Financial Statements
Item 1. Financial Statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(unaudited)
March 31,
2022 December 31,
2021
Assets
Current assets:
Cash and cash equivalents $ 1,608,481 $ 1,708,955
Accounts receivable, net of allowances of $ 28,001 and $ 17,003 as of March 31, 2022 and December 31, 2021, respectively
693,568 653,438
Inventories 641,709 588,231
Prepaid expenses and other current assets 146,342 126,370
Total current assets 3,090,100 3,076,994
Property, plant and equipment, net 822,633 820,933
Goodwill 3,555,369 3,502,063
Other intangible assets, net of accumulated amortization of $ 2,314,755 and $ 2,277,393 as of March 31, 2022 and December 31, 2021, respectively
907,315 946,731
Deferred income tax assets 104,226 105,028
Other assets 131,745 162,017
Total assets $ 8,611,388 $ 8,613,766
Liabilities and shareholders' equity
Current liabilities:
Current portion of long-term debt, finance lease and other financing obligations $ 6,694 $ 6,833
Accounts payable 486,432 459,093
Income taxes payable 19,249 26,517
Accrued expenses and other current liabilities 327,670 343,816
Total current liabilities 840,045 836,259
Deferred income tax liabilities 339,332 339,273
Pension and other post-retirement benefit obligations 39,089 38,758
Finance lease and other financing obligations, less current portion 26,347 26,564
Long-term debt, net 4,215,505 4,214,946
Other long-term liabilities 78,753 63,232
Total liabilities 5,539,071 5,519,032
Commitments and contingencies (Note 12)
Shareholders’ equity:
Ordinary shares, € 0.01 nominal value per share, 177,069 shares authorized, and 174,583 and 174,287 shares issued as of March 31, 2022 and December 31, 2021, respectively
2,236 2,232
Treasury shares, at cost, 17,576 and 16,438 shares as of March 31, 2022 and December 31, 2021, respectively
( 899,697 ) ( 832,439 )
Additional paid-in capital 1,831,497 1,812,244
Retained earnings 2,154,563 2,132,257
Accumulated other comprehensive loss ( 16,282 ) ( 19,560 )
Total shareholders' equity 3,072,317 3,094,734
Total liabilities and shareholders' equity $ 8,611,388 $ 8,613,766
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
For the three months ended
March 31, 2022 March 31, 2021
Net revenue $ 975,770 $ 942,528
Operating costs and expenses:
Cost of revenue 657,080 635,349
Research and development 45,980 35,956
Selling, general and administrative 95,680 77,123
Amortization of intangible assets 37,367 32,064
Restructuring and other charges, net 13,733 4,582
Total operating costs and expenses 849,840 785,074
Operating income 125,930 157,454
Interest expense, net ( 45,445 ) ( 44,043 )
Other, net ( 50,456 ) ( 39,397 )
Income before taxes 30,029 74,014
Provision for income taxes 7,588 20,281
Net income $ 22,441 $ 53,733
Basic net income per share $ 0.14 $ 0.34
Diluted net income per share $ 0.14 $ 0.34
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)
For the three months ended
March 31, 2022 March 31, 2021
Net income $ 22,441 $ 53,733
Other comprehensive income:
Cash flow hedges 2,850 14,278
Defined benefit and retiree healthcare plans 428 1,712
Other comprehensive income 3,278 15,990
Comprehensive income $ 25,719 $ 69,723
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
For the three months ended
March 31, 2022 March 31, 2021
Cash flows from operating activities:
Net income $ 22,441 $ 53,733
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 31,531 31,197
Amortization of debt issuance costs 1,716 1,711
Share-based compensation 6,540 5,099
Loss on debt financing — 30,066
Amortization of intangible assets 37,367 32,064
Deferred income taxes ( 340 ) 130
Acquisition-related compensation payments ( 7,500 ) —
Mark-to-market loss on equity investments, net 59,279 —
Unrealized (gain)/loss on derivative instruments and other ( 517 ) 8,797
Changes in operating assets and liabilities, net of the effects of acquisitions:
Accounts receivable, net ( 49,821 ) ( 62,198 )
Inventories ( 53,004 ) ( 16,857 )
Prepaid expenses and other current assets ( 8,807 ) ( 4,971 )
Accounts payable and accrued expenses 13,488 26,409
Income taxes payable ( 7,268 ) 2,283
Other 2,250 ( 2,952 )
Net cash provided by operating activities 47,355 104,511
Cash flows from investing activities:
Acquisitions, net of cash received ( 48,441 ) ( 20,406 )
Additions to property, plant and equipment and capitalized software ( 35,711 ) ( 27,172 )
Investment in debt and equity securities ( 6,853 ) ( 1,799 )
Other 152 340
Net cash used in investing activities ( 90,853 ) ( 49,037 )
Cash flows from financing activities:
Proceeds from exercise of stock options and issuance of ordinary shares 13,348 10,556
Payment of employee restricted stock tax withholdings ( 135 ) ( 221 )
Proceeds from borrowings on debt — 750,000
Payments on debt ( 2,931 ) ( 752,753 )
Payments to repurchase ordinary shares ( 67,258 ) —
Payments of debt financing costs — ( 31,110 )
Net cash used in financing activities ( 56,976 ) ( 23,528 )
Net change in cash and cash equivalents ( 100,474 ) 31,946
Cash and cash equivalents, beginning of year 1,708,955 1,861,980
Cash and cash equivalents, end of period $ 1,608,481 $ 1,893,926
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Changes in Shareholders' Equity
(In thousands)
(unaudited)
Ordinary Shares Treasury Shares Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity
Number Amount Number Amount
Balance as of December 31, 2021 174,287 $ 2,232 ( 16,438 ) $ ( 832,439 ) $ 1,812,244 $ 2,132,257 $ ( 19,560 ) $ 3,094,734
Surrender of shares for tax withholding — — ( 3 ) ( 135 ) — — — ( 135 )
Stock options exercised 290 4 — — 12,713 — — 12,717
Vesting of restricted securities 9 — — — — — — —
Repurchase of ordinary shares — — ( 1,138 ) ( 67,258 ) — — — ( 67,258 )
Retirement of ordinary shares ( 3 ) — 3 135 — ( 135 ) — —
Share-based compensation — — — — 6,540 — — 6,540
Net income — — — — — 22,441 — 22,441
Other comprehensive income — — — — — — 3,278 3,278
Balance as of March 31, 2022 174,583 $ 2,236 ( 17,576 ) $ ( 899,697 ) $ 1,831,497 $ 2,154,563 $ ( 16,282 ) $ 3,072,317
Ordinary Shares Treasury Shares Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity
Number Amount Number Amount
Balance as of December 31, 2020 173,266 $ 2,220 ( 15,631 ) $ ( 784,596 ) $ 1,759,668 $ 1,777,729 $ ( 49,535 ) $ 2,705,486
Surrender of shares for tax withholding — — ( 4 ) ( 221 ) — — — ( 221 )
Stock options exercised 259 3 — — 10,553 — — 10,556
Vesting of restricted securities 12 — — — — — — —
Retirement of ordinary shares ( 4 ) — 4 221 — ( 221 ) — —
Share-based compensation — — — — 5,099 — — 5,099
Net income — — — — — 53,733 — 53,733
Other comprehensive income — — — — — — 15,990 15,990
Balance as of March 31, 2021 173,533 $ 2,223 ( 15,631 ) $ ( 784,596 ) $ 1,775,320 $ 1,831,241 $ ( 33,545 ) $ 2,790,643
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SENSATA TECHNOLOGIES HOLDING PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements reflect the financial position, results of operations, comprehensive income, cash flows, and changes in shareholders' equity of Sensata Technologies Holding plc, a public limited company incorporated under the laws of England and Wales, and its consolidated subsidiaries, collectively referred to as the "Company," "Sensata," "we," "our," or "us."
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q. Accordingly, these interim financial statements do not include all of the information and note disclosures required by U.S. GAAP for complete financial statements. The accompanying financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the interim period results. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (the "SEC") on February 10, 2022 (the "2021 Annual Report").
All U.S. dollar ("USD") and share amounts presented, except per share amounts, are stated in thousands, unless otherwise indicated.
2. New Accounting Standards
There are no recently issued accounting standards that have been adopted in the current period or will be adopted in future periods that have had or are expected to have a material impact on our consolidated financial position or results of operations.
3. Revenue Recognition
The following table presents net revenue disaggregated by segment and end market for the three months ended March 31, 2022 and 2021:
For the three months ended March 31, 2022 For the three months ended March 31, 2021
Performance Sensing Sensing Solutions Total Performance Sensing Sensing Solutions Total
Automotive $ 502,362 $ 9,285 $ 511,647 $ 536,713 $ 11,500 $ 548,213
HVOR (1)
215,335 — 215,335 177,799 — 177,799
Industrial — 114,619 114,619 — 90,475 90,475
Appliance and HVAC (2)
— 58,825 58,825 — 59,916 59,916
Aerospace — 33,270 33,270 — 32,677 32,677
Other — 42,074 42,074 — 33,448 33,448
Total $ 717,697 $ 258,073 $ 975,770 $ 714,512 $ 228,016 $ 942,528
________________________
(1) Heavy vehicle and off-road
(2) Heating, ventilation and air conditioning
4. Share-Based Payment Plans
The following table presents the components of non-cash compensation expense related to our equity awards for the three months ended March 31, 2022 and 2021:
For the three months ended
March 31, 2022 March 31, 2021
Stock options $ 307 $ 460
Restricted securities 6,233 4,639
Share-based compensation expense $ 6,540 $ 5,099
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5. Restructuring and Other Charges, Net
The following table presents the components of restructuring and other charges, net for the three months ended March 31, 2022 and 2021:
For the three months ended
March 31, 2022 March 31, 2021
Q2 2020 Global Restructure Program charges
$ — $ 1,824
Other restructuring and other charges, net
Severance costs, net 587 186
Facility and other exit costs 1,048 666
Other (1)
12,098 1,906
Restructuring and other charges, net $ 13,733 $ 4,582
________________________
(1) Primarily includes expenses related to acquisition-related incentive compensation, partially offset by a gain resulting from reduction of the liability for contingent consideration for Spear Power Systems ("Spear"). Refer to Note 16: Acquisitions for additional information.
The following table presents a rollforward of the severance portion of our restructuring obligations for the three months ended March 31, 2022.
Q2 2020 Global Restructure Program Other Total
Balance as of December 31, 2021 $ 3,853 $ 3,380 $ 7,233
Charges, net of reversals — 587 587
Payments ( 2,955 ) ( 1,130 ) ( 4,085 )
Foreign currency remeasurement ( 6 ) 12 6
Balance as of March 31, 2022 $ 892 $ 2,849 $ 3,741
The severance liability as of March 31, 2022 was entirely recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheet.
6. Other, Net
The following table presents the components of other, net for the three months ended March 31, 2022 and 2021:
For the three months ended
March 31, 2022 March 31, 2021
Currency remeasurement loss on net monetary assets $ ( 67 ) $ ( 1,477 )
Loss on foreign currency forward contracts ( 1,243 ) ( 958 )
Gain/(loss) on commodity forward contracts 9,424 ( 1,153 )
Loss on debt financing — ( 30,066 )
Mark-to-market loss on investments, net ( 59,279 ) —
Net periodic benefit cost, excluding service cost ( 755 ) ( 2,410 )
Other 1,464 ( 3,333 )
Other, net $ ( 50,456 ) $ ( 39,397 )
7. Income Taxes
The following table presents the provision for income taxes for the three months ended March 31, 2022 and 2021:
For the three months ended
March 31, 2022 March 31, 2021
Provision for income taxes $ 7,588 $ 20,281
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The decrease in total tax for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was predominantly related to the overall decrease in income before taxes, driven in part by the mark-to-market loss on our investment in Quanergy as discussed in Note 14: Fair Value Measures .
The provision for income taxes consists of (1) current tax expense, which relates primarily to our profitable operations in tax jurisdictions with limited or no net operating loss carryforwards and withholding taxes related to management fees, royalties, and the repatriation of foreign earnings; and (2) deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to (a) book versus tax basis in intangible assets, (b) changes in net operating loss carryforwards, (c) changes in tax rates, and (d) changes in our assessment of the realizability of our deferred tax assets.
8. Net Income per Share
Basic and diluted net income per share are calculated by dividing net income by the number of basic and diluted weighted-average ordinary shares outstanding during the period. For the three months ended March 31, 2022 and 2021 the weighted-average ordinary shares outstanding used to calculate basic and diluted net income per share were as follows:
For the three months ended
March 31, 2022 March 31, 2021
Basic weighted-average ordinary shares outstanding 157,422 157,764
Dilutive effect of stock options 473 708
Dilutive effect of unvested restricted securities 735 758
Diluted weighted-average ordinary shares outstanding 158,630 159,230
Certain potential ordinary shares were excluded from our calculation of diluted weighted-average ordinary shares outstanding because either they would have had an anti-dilutive effect on net income per share or they related to equity awards that were contingently issuable for which the contingency had not been satisfied. These potential ordinary shares were as follows:
For the three months ended
March 31, 2022 March 31, 2021
Anti-dilutive shares excluded 4 6
Contingently issuable shares excluded 1,002 950
9. Inventories
The following table presents the components of inventories as of March 31, 2022 and December 31, 2021:
March 31, 2022 December 31, 2021
Finished goods $ 222,375 $ 201,424
Work-in-process 114,496 101,558
Raw materials 304,838 285,249
Inventories $ 641,709 $ 588,231
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10. Pension and Other Post-Retirement Benefits
The following table presents the components of net periodic benefit cost/(credit) associated with our defined benefit and retiree healthcare plans for the three months ended March 31, 2022 and 2021:
U.S. Plans Non-U.S. Plans
Defined Benefit Retiree Healthcare Defined Benefit Total
2022 2021 2022 2021 2022 2021 2022 2021
Service cost $ — $ — $ 2 $ 2 $ 956 $ 978 $ 958 $ 980
Interest cost 113 120 46 21 424 404 583 545
Expected return on plan assets ( 195 ) ( 226 ) — — ( 244 ) ( 178 ) ( 439 ) ( 404 )
Amortization of net loss 141 401 — — 278 459 419 860
Amortization of prior service (credit)/cost — — ( 100 ) ( 159 ) 2 3 ( 98 ) ( 156 )
Loss on settlement 290 1,565 — — — — 290 1,565
Net periodic benefit cost/(credit) $ 349 $ 1,860 $ ( 52 ) $ ( 136 ) $ 1,416 $ 1,666 $ 1,713 $ 3,390
Components of net periodic benefit cost/(credit) other than service cost are presented in other, net in the condensed consolidated statements of operations. Refer to Note 6: Other, Net .
11. Debt
The following table presents the components of long-term debt, finance lease and other financing obligations as of March 31, 2022 and December 31, 2021:
Maturity Date March 31, 2022 December 31, 2021
Term Loan September 20, 2026 $ 450,308 $ 451,465
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
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 1,000,000
Less: debt discount, net of premium ( 4,763 ) ( 5,207 )
Less: deferred financing costs ( 25,410 ) ( 26,682 )
Less: current portion ( 4,630 ) ( 4,630 )
Long-term debt, net $ 4,215,505 $ 4,214,946
Finance lease and other financing obligations $ 28,411 $ 28,767
Less: current portion ( 2,064 ) ( 2,203 )
Finance lease and other financing obligations, less current portion $ 26,347 $ 26,564
As of March 31, 2022, we had $ 416.1 million available under our $ 420.0 million revolving credit facility (the "Revolving Credit Facility"), net of $ 3.9 million of obligations in respect of outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of March 31, 2022, no amounts had been drawn against these outstanding letters of credit.
In the three months ended March 31, 2021, in connection with the redemption of $ 750.0 million aggregate principal amount of 6.25 % senior notes due 2026 (the "6.25% Senior Notes"), we recognized a loss of $ 30.1 million, which included $ 23.4 million in premiums paid, with the remaining loss representing write-off of debt discounts and deferred financing costs.
Accrued Interest
Accrued interest associated with our outstanding debt is included as a component of accrued expenses and other current liabilities in the condensed consolidated balance sheets. As of March 31, 2022 and December 31, 2021, accrued interest totaled $ 63.1 million and $ 45.1 million, respectively.
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12. Commitments and Contingencies
We are regularly involved in a number of claims and litigation matters that arise in the ordinary course of business. Although it is not feasible to predict the outcome of these matters, based upon our experience and current information known to us, we do not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on our results of operations, financial condition, and/or cash flows.
13. Shareholders' Equity
Treasury Shares
From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or terminated by the Board at any time. On January 20, 2022, we announced that our Board of Directors had authorized a new $ 500.0 million ordinary share repurchase program (the “January 2022 Program”), which replaced the previous $ 500.0 million program approved in July 2019, which had availability of $ 254.5 million as of December 31, 2021. As of March 31, 2022, $ 449.5 million remained available for repurchase under the January 2022 Program.
Accumulated Other Comprehensive Loss
The following table presents the components of accumulated other comprehensive loss for the three months ended March 31, 2022:
Cash Flow Hedges Defined Benefit and Retiree Healthcare Plans Accumulated Other Comprehensive Loss
Balance as of December 31, 2021 $ 16,831 $ ( 36,391 ) $ ( 19,560 )
Other comprehensive income before reclassifications, net of tax 7,965 — 7,965
Reclassifications from accumulated other comprehensive loss, net of tax ( 5,115 ) 428 ( 4,687 )
Other comprehensive income 2,850 428 3,278
Balance as of March 31, 2022 $ 19,681 $ ( 35,963 ) $ ( 16,282 )
The following table presents the amounts reclassified from accumulated other comprehensive loss for the three months ended March 31, 2022 and 2021:
For the three months ended March 31, Affected Line in Condensed Consolidated Statements of Operations
Component 2022 2021
Derivative instruments designated and qualifying as cash flow hedges:
Foreign currency forward contracts $ ( 4,264 ) $ 4,407 Net revenue (1)
Foreign currency forward contracts ( 2,629 ) ( 743 ) Cost of revenue (1)
Total, before taxes ( 6,893 ) 3,664 Income before taxes
Income tax effect 1,778 ( 916 ) Provision for income taxes
Total, net of taxes $ ( 5,115 ) $ 2,748 Net income
Defined benefit and retiree healthcare plans $ 611 $ 2,269 Other, net (2)
Income tax effect ( 183 ) ( 557 ) Provision for income taxes
Total, net of taxes $ 428 $ 1,712 Net income
__________________________
(1) Refer to Note 15: Derivative Instruments and Hedging Activities for additional information on amounts to be reclassified from accumulated other comprehensive loss in future periods.
(2) Refer to Note 10: Pension and Other Post-Retirement Benefits for additional information on net periodic benefit cost/(credit).
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14. Fair Value Measures
Measured on a Recurring Basis
The fair values of our assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 are shown in the below table. All fair value measures presented are categorized in Level 2 of the fair value hierarchy.
March 31, 2022 December 31, 2021
Assets
Foreign currency forward contracts $ 29,063 $ 25,112
Commodity forward contracts 8,474 2,979
Total $ 37,537 $ 28,091
Liabilities
Foreign currency forward contracts $ 3,682 $ 3,073
Commodity forward contracts 1,752 4,492
Total $ 5,434 $ 7,565
Refer to Note 15: Derivative Instruments and Hedging Activities for additional information related to our forward contracts.
Quanergy
As of December 31, 2021, we held a $ 50.0 million investment in Quanergy Systems, Inc. ("Quanergy") Series B Preferred Stock. This equity investment did not have a readily determinable fair value and it was held using the measurement alternative prescribed in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 321, Investments - Equity Securities . Such investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.
On June 22, 2021, 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 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 New York Stock Exchange (the "NYSE") under the ticker symbol QNGY.
Upon closing of the business combination, our investment in Quanergy comprised the following:
• 5.0 million common shares, which represented the conversion of our $ 50 million Series B Preferred Stock investment (at a $ 10 per share implied valuation);
• 750,000 unregistered common shares, representing a $ 7.5 million private investment in public equity ("PIPE") contribution; and
• 2.5 million common shares (the "Warrant Shares"), representing the conversion of 2.5 million warrants provided by Quanergy as up-front consideration for a four-year technical and marketing support agreement (the "Support Agreement").
The 5.75 million common share investment in Quanergy (excluding the Warrant Shares) have a historical cost basis of $ 57.5 million. The Warrant Shares were converted at a share price of $ 7.05 per share (the closing market price on February 8, 2022), or approximately $ 17.6 million, which was recorded as deferred income. Refer to below discussion for additional details on the Support Agreement. Refer to the below table for a summary of our investment in Quanergy as of March 31, 2022,
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February 8, 2022, and December 31, 2021, which is presented in other assets on our consolidated balance sheets as of March 31, 2022 and December 31, 2021.
As of
March 31, 2022 February 8, 2022 December 31, 2021
Series B Preferred Stock $ — $ — $ 50,000
Common shares 9,200 50,000 —
PIPE investment 1,380 7,500 —
Warrant Shares 4,575 17,600 —
Total equity investment in Quanergy $ 15,155 $ 75,100 $ 50,000
For the three months ended March 31, 2022
Mark-to-market loss $ 59,945
The mark-to-market loss presented in the table above is presented in other, net, and is the result of the decline in Quanergy share price to $ 1.84 per share on March 31, 2022.
In exchange for the Warrant Shares, we entered into the Support Agreement, whereby we agreed to provide technical and marketing assistance to Quanergy for a term of four years from the effective date of February 8, 2022. We will recognize the consideration ($ 17.6 million) for the Support Agreement on a straight-line basis over the term of the agreement. We recognized approximately $ 0.7 million of income in the three months ended March 31, 2022 and will recognize approximately $ 1.1 million of income each quarter through the end of the term of the Support Agreement.
Measured on a Nonrecurring Basis
We evaluated our goodwill and other indefinite-lived intangible assets for impairment as of October 1, 2021 and determined that they were not impaired. During the three months ended March 31, 2022, no events or changes in circumstances occurred that would have triggered the need for an additional impairment review of these assets.
Financial Instruments Not Recorded at Fair Value
The following table presents the carrying values and fair values of financial instruments not recorded at fair value in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021. All fair value measures presented are categorized in Level 2 of the fair value hierarchy.
March 31, 2022 December 31, 2021
Carrying Value (1)
Fair Value Carrying Value (1)
Fair Value
Liabilities
Term Loan $ 450,308 $ 449,182 $ 451,465 $ 450,901
4.875 % Senior Notes
$ 500,000 $ 512,500 $ 500,000 $ 526,250
5.625 % Senior Notes
$ 400,000 $ 416,000 $ 400,000 $ 438,000
5.0 % Senior Notes
$ 700,000 $ 714,875 $ 700,000 $ 759,500
4.375 % Senior Notes
$ 450,000 $ 432,000 $ 450,000 $ 479,250
3.75 % Senior Notes
$ 750,000 $ 690,938 $ 750,000 $ 747,188
4.0 % Senior Notes
$ 1,000,000 $ 942,500 $ 1,000,000 $ 1,022,500
___________________________________
(1) Excluding any related debt discounts, premiums, and deferred financing costs.
Cash and cash equivalents are carried at cost, which approximates fair value because of their short-term nature.
In addition to the above, we hold certain equity investments that do not have readily determinable fair values for which we use the measurement alternative prescribed in FASB ASC Topic 321. There were no impairments or changes resulting from observable transactions for any of these investments and no adjustments were made to their carrying values.
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Refer to the table below for the carrying values of equity investments using the measurement alternative, which are presented as a component of other assets in the condensed consolidated balance sheets.
March 31, 2022 December 31, 2021
Quanergy Systems, Inc. (1)
$ — $ 50,000
Other 15,000 15,000
Total $ 15,000 $ 65,000
___________________________________
(1) As of March 31, 2022, Quanergy is no longer classified as an equity investment without a readily determinable fair value. See additional discussion under the heading Quanergy elsewhere in this Note.
15. Derivative Instruments and Hedging Activities
Hedges of Foreign Currency Risk
For the three months ended March 31, 2022 and 2021, amounts excluded from the assessment of effectiveness of our foreign currency forward contracts that are designated as cash flow hedges were not material. As of March 31, 2022, we estimated that $ 23.7 million of net gains will be reclassified from accumulated other comprehensive loss to earnings during the twelve-month period ending March 31, 2023.
As of March 31, 2022, we had the following outstanding foreign currency forward contracts:
Notional
(in millions) Effective Date(s) Maturity Date(s) Index (Exchange Rates) Weighted-Average Strike Rate Hedge
Designation (1)
15.0 EUR March 29, 2022 April 29, 2022 Euro ("EUR") to USD 1.11 USD Not designated
349.6 EUR Various from May 2020 to March 2022 Various from April 2022 to March 2024 EUR to USD 1.19 USD Cash flow hedge
1,170.0 CNY Various in March 2022 Various in April 2022 USD to Chinese Renminbi ("CNY") 6.38 CNY Not designated
1,134.3 CNY Various from October 2021 to March 2022 Various from April 2022 to December 2022 USD to CNY 6.44 CNY Cash flow hedge
684.0 JPY March 29, 2022 April 28, 2022 USD to Japanese Yen ("JPY") 122.02 JPY Not designated
24,400.0 KRW Various from May 2020 to March 2022 Various from April 2022 to February 2024 USD to Korean Won ("KRW") 1,170.98 KRW Cash flow hedge
24.0 MYR March 28, 2022 April 29, 2022 USD to Malaysian Ringgit ("MYR") 4.21 MYR Not designated
259.0 MXN March 29, 2022 April 29, 2022 USD to Mexican Peso ("MXN") 20.05 MXN Not designated
3,477.3 MXN Various from May 2020 to March 2022 Various from April 2022 to March 2024 USD to MXN 22.11 MXN Cash flow hedge
52.4 GBP Various from May 2020 to March 2022 Various from April 2022 to March 2024 British Pound Sterling ("GBP") to USD 1.36 USD Cash flow hedge
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(1) Derivative financial instruments not designated as hedges are used to manage our exposure to currency exchange rate risk. They are intended to preserve economic value, and they are not used for trading or speculative purposes.
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Hedges of Commodity Risk
As of March 31, 2022, we had the following outstanding commodity forward contracts, none of which were designated for hedge accounting treatment in accordance with FASB ASC Topic 815, Derivatives and Hedging :
Commodity Notional Remaining Contracted Periods Weighted-Average Strike Price Per Unit
Silver 1,109,868 troy oz. April 2022 - February 2024 $ 24.72
Gold 8,380 troy oz. April 2022 - February 2024 $ 1,833.55
Nickel 250,238 pounds April 2022 - February 2024 $ 8.69
Aluminum 3,851,210 pounds April 2022 - February 2024 $ 1.17
Copper 7,740,838 pounds April 2022 - February 2024 $ 4.30
Platinum 11,588 troy oz. April 2022 - February 2024 $ 1,045.40
Palladium 1,408 troy oz. April 2022 - February 2024 $ 2,383.12
Financial Instrument Presentation
The following table presents the fair values of our derivative financial instruments and their classification in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021:
Asset Derivatives Liability Derivatives
Balance Sheet Location March 31, 2022 December 31, 2021 Balance Sheet Location March 31, 2022 December 31, 2021
Derivatives designated as hedging instruments
Foreign currency forward contracts Prepaid expenses and other current assets $ 24,946 $ 20,562 Accrued expenses and other current liabilities $ 2,656 $ 1,981
Foreign currency forward contracts Other assets 4,063 4,391 Other long-term liabilities 683 904
Total $ 29,009 $ 24,953 $ 3,339 $ 2,885
Derivatives not designated as hedging instruments
Commodity forward contracts Prepaid expenses and other current assets $ 6,298 $ 2,583 Accrued expenses and other current liabilities $ 1,490 $ 3,422
Commodity forward contracts Other assets 2,176 396 Other long-term liabilities 262 1,070
Foreign currency forward contracts Prepaid expenses and other current assets 54 159 Accrued expenses and other current liabilities 343 188
Total $ 8,528 $ 3,138 $ 2,095 $ 4,680
These fair value measurements were all categorized within Level 2 of the fair value hierarchy.
The following tables present the effect of our derivative financial instruments on the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income for the three months ended March 31, 2022 and 2021:
Derivatives designated as
hedging instruments Amount of Deferred Gain/(Loss) Recognized in Other Comprehensive Income Location of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income Amount of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income
2022 2021 2022 2021
Foreign currency forward contracts $ 5,586 $ 18,799 Net revenue $ 4,264 $ ( 4,407 )
Foreign currency forward contracts $ 5,145 $ ( 3,425 ) Cost of revenue $ 2,629 $ 743
Derivatives not designated as
hedging instruments Amount of Gain/(Loss) Recognized in Net Income Location of Gain/(Loss) Recognized in Net Income
2022 2021
Commodity forward contracts $ 9,424 $ ( 1,153 ) Other, net
Foreign currency forward contracts $ ( 1,243 ) $ ( 958 ) Other, net
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Credit Risk Related Contingent Features
We have agreements with our derivative counterparties that contain a provision whereby if we default on our indebtedness and repayment of the indebtedness has been accelerated by the lender, then we could also be declared in default on our derivative obligations.
As of March 31, 2022, the termination value of outstanding derivatives in a liability position, excluding any adjustment for non-performance risk, was $ 5.5 million. As of March 31, 2022, we had no t posted any cash collateral related to these agreements. If we breach any of the default provisions on any of our indebtedness as described above, we could be required to settle our obligations under the derivative agreements at their termination values.
16. Acquisitions
Spear Power Systems
On November 19, 2021, we acquired all of the equity interests of Spear, a leader in electrification solutions that supports our newly-established Clean Energy Solutions business unit, for an aggregate purchase price of $ 113.7 million, subject to certain post-closing items, including the discounted present value of contingent consideration. As of March 31, 2022, the present value of this contingent consideration was $ 2.3 million. Any gains or losses resulting from adjustments to contingent consideration are recorded in restructuring and other charges, net. We are integrating Spear into the Sensing Solutions reportable segment.
As of March 31, 2022, 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. Refer to Note 21: Acquisitions of the audited consolidated financial statements and notes thereto included in our 2021 Annual Report for detailed information regarding the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of December 31, 2021.
SmartWitness Holdings, Inc.
On November 19, 2021, we acquired all of the equity interests of SmartWitness Holdings, Inc. ("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 items. In addition to the aggregate purchase price, we paid $ 8.6 million of cash at closing related to an employee retention arrangement, which was reflected as an operating cash outflow on our consolidated statement of cash flows for the year ended December 31, 2021. We are integrating SmartWitness into the Performance Sensing reportable segment.
As of March 31, 2022, 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. Refer to Note 21: Acquisitions of the audited consolidated financial statements and notes thereto included in our 2021 Annual Report for detailed information regarding the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of December 31, 2021.
Elastic M2M Inc.
On February 11, 2022, we acquired all of the equity interests of Elastic M2M Inc. ("Elastic M2M") for an aggregate cash purchase price of $ 51.2 million, subject to certain post-closing items. In addition to the aggregate cash purchase price, the previous shareholders of Elastic M2M are entitled to up to $ 30.0 million additional acquisition-related incentive compensation, pending the completion of certain technical milestones in fiscal year 2022 and achievement of revenue targets in fiscal years 2022 and 2023. In the first quarter of 2022, we determined that $ 15.0 million of that acquisition-related incentive compensation was earned as all of the technical milestones were achieved. This amount is recorded in restructuring and other charges, net. We paid $ 7.5 million of this acquisition-related incentive compensation in the three months ended March 31, 2022, which is reflected as an operating cash outflow on our condensed consolidated statement of cash flows for the three months ended March 31, 2022.
Elastic M2M is a privately-held innovator of connected intelligence for operational assets across heavy-duty transport, warehouse, supply chain and logistics, industrial, light-duty passenger car, and a variety of other industry segments. Elastic M2M primarily serves telematics service providers and resellers, enabling them to leverage Elastic M2M’s cloud platform and analytics capabilities to deliver sensor-based operational insights to their end users. This acquisition augments our cloud capabilities critical to delivering actionable sensor-based insights, an increasingly important capability in this fast-growing industry segment. We are integrating Elastic M2M into the Performance Sensing reportable segment.
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The purchase price of Elastic M2M has been primarily allocated to goodwill. The preliminary valuation of intangible assets is not yet available. We expect the preliminary valuation to be complete in the second quarter of 2022, at which time we will adjust the allocation to include definite-lived intangible assets. The final allocation of the purchase price to the assets acquired will be completed when the final valuations are completed.
17. 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, 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, information technology, legal, and human resources. We believe that segment operating income, as defined above, is an appropriate measure for evaluating the operating performance of our segments. However, this measure should be considered in addition to, and not as a substitute for, or superior to, operating income or other measures of financial performance prepared in accordance with U.S. GAAP. The accounting policies of each of our operating and reportable segments are materially consistent with those described in Note 2: Significant Accounting Policies of the audited consolidated financial statements and notes thereto included in our 2021 Annual Report.
The following table presents net revenue and segment operating income for our reportable segments and other operating results not allocated to our reportable segments for the three months ended March 31, 2022 and 2021:
For the three months ended
March 31, 2022 March 31, 2021
Net revenue:
Performance Sensing $ 717,697 $ 714,512
Sensing Solutions 258,073 228,016
Total net revenue $ 975,770 $ 942,528
Segment operating income (as defined above):
Performance Sensing $ 180,638 $ 195,844
Sensing Solutions 72,515 66,894
Total segment operating income 253,153 262,738
Corporate and other ( 76,123 ) ( 68,638 )
Amortization of intangible assets ( 37,367 ) ( 32,064 )
Restructuring and other charges, net ( 13,733 ) ( 4,582 )
Operating income 125,930 157,454
Interest expense, net ( 45,445 ) ( 44,043 )
Other, net ( 50,456 ) ( 39,397 )
Income before taxes $ 30,029 $ 74,014
18. Subsequent Events
On April 22, 2022, we signed a stock purchase agreement to acquire Dynapower Company, LLC ("Dynapower"), a leading provider of high-voltage power conversion solutions for clean energy segments, for an aggregate cash purchase price of $ 580 million, subject to working capital and other adjustments. We expect to complete the acquisition in the third quarter of 2022, subject to regulatory approvals and other customary closing conditions. We intend to fund the transaction using available cash on hand.
Dynapower is a leader in power conversion systems including inverters, converters, and rectifiers for renewable energy generation, green hydrogen production, electric vehicle charging stations, and microgrid applications, as well as industrial and
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defense applications. Dynapower also provides aftermarket sales and service to maintain its equipment in the field. We are acquiring Dynapower as a foundational addition to our Clean Energy Solutions strategy and complement to our recent acquisitions of GIGAVAC, Lithium Balance, and Spear.
On April 26, 2022, we announced that our Board had declared a quarterly dividend of $ 0.11 per share, payable on May 25, 2022 to shareholders of record as of May 11, 2022.
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Cautionary Statements Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by terminology such as "may," "will," "could," "should," "expect," "anticipate," "believe," "estimate," "predict," "project," "forecast," "continue," "intend," "plan," "potential," "opportunity," "guidance," and similar terms or phrases. Forward-looking statements involve, among other things, expectations, projections, and assumptions about future financial and operating results, objectives, business and market outlook, megatrends, priorities, growth, shareholder value, capital expenditures, cash flows, demand for products and services, share repurchases, and Sensata’s strategic initiatives, including those relating to acquisitions and dispositions and the impact of such transactions on our strategic and operational plans and financial results. These statements are subject to risks, uncertainties, and other important factors relating to our operations and business environment, and we can give no assurances that these forward-looking statements will prove to be correct.
A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements, including, but not limited to, risks related to public health crises, instability and changes in the global markets, supplier interruption or non-performance, the acquisition of disposition of businesses, adverse conditions or competition in the industries upon which we are dependent, intellectual property, product liability, warranty, and recall claims, market acceptance of new product introductions and product innovations, labor disruptions or increased labor costs, and changes in existing environmental or safety laws, regulations, and programs.
Investors and others should carefully consider the foregoing factors and other uncertainties, risks and potential events including, but not limited to, those described in Item 1A: Risk Factors included in our 2021 Annual Report and as may be updated from time to time in Item 1A: Risk Factors in our quarterly reports on Form 10-Q or other subsequent filings with the SEC. All such forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update these statements other than as required by law.