Sensata Technologies Holding plc 10-Q

Item 1. Financial Statements. SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Balance Sheets (In thousands, except per share amounts) (unaudited) September 30, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 1,103,916 $ 1,708,955 Accounts receivable, net of allowances of $ 33,828 and $ 17,003 as of September 30, 2022 and December 31, 2021, respectively 722,934 653,438 Inventories 675,862 588,231 Prepaid expenses and other current assets 197,487 126,370 Total current assets 2,700,199 3,076,994 Property, plant and equipment, net 831,587 820,933 Goodwill 3,847,450 3,502,063 Other intangible assets, net of accumulated amortization of $ 2,361,199 and $ 2,277,393 as of September 30, 2022 and December 31, 2021, respectively 1,103,256 946,731 Deferred income tax assets 100,014 105,028 Other assets 130,110 162,017 Total assets $ 8,712,616 $ 8,613,766 Liabilities and shareholders' equity Current liabilities: Current portion of long-term debt, finance lease and other financing obligations $ 6,536 $ 6,833 Accounts payable 501,301 459,093 Income taxes payable 42,732 26,517 Accrued expenses and other current liabilities 355,405 343,816 Total current liabilities 905,974 836,259 Deferred income tax liabilities 392,222 339,273 Pension and other post-retirement benefit obligations 35,445 38,758 Finance lease and other financing obligations, less current portion 25,180 26,564 Long-term debt, net 4,208,670 4,214,946 Other long-term liabilities 75,807 63,232 Total liabilities 5,643,298 5,519,032 Commitments and contingencies (Note 12) Shareholders’ equity: Ordinary shares, € 0.01 nominal value per share, 177,069 shares authorized, and 174,983 and 174,287 shares issued as of September 30, 2022 and December 31, 2021, respectively 2,240 2,232 Treasury shares, at cost, 21,615 and 16,438 shares as of September 30, 2022 and December 31, 2021, respectively ( 1,077,041 ) ( 832,439 ) Additional paid-in capital 1,852,249 1,812,244 Retained earnings 2,287,683 2,132,257 Accumulated other comprehensive income/(loss) 4,187 ( 19,560 ) Total shareholders' equity 3,069,318 3,094,734 Total liabilities and shareholders' equity $ 8,712,616 $ 8,613,766 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (unaudited) For the three months ended For the nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Net revenue $ 1,018,268 $ 951,021 $ 3,014,586 $ 2,886,209 Operating costs and expenses: Cost of revenue 694,535 628,922 2,038,218 1,922,556 Research and development 47,947 40,060 141,898 118,929 Selling, general and administrative 90,013 85,784 283,022 249,728 Amortization of intangible assets 40,313 34,571 114,485 101,492 Restructuring and other charges, net ( 107,441 ) 345 ( 80,811 ) 9,956 Total operating costs and expenses 765,367 789,682 2,496,812 2,402,661 Operating income 252,901 161,339 517,774 483,548 Interest expense, net ( 44,856 ) ( 45,137 ) ( 135,143 ) ( 134,393 ) Other, net ( 21,371 ) ( 9,403 ) ( 111,067 ) ( 47,788 ) Income before taxes 186,674 106,799 271,564 301,367 Provision for income taxes 46,421 21,840 74,029 49,759 Net income $ 140,253 $ 84,959 $ 197,535 $ 251,608 Basic net income per share $ 0.91 $ 0.54 $ 1.27 $ 1.59 Diluted net income per share $ 0.91 $ 0.53 $ 1.26 $ 1.58 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Statements of Comprehensive Income (In thousands) (unaudited) For the three months ended For the nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Net income $ 140,253 $ 84,959 $ 197,535 $ 251,608 Other comprehensive income: Cash flow hedges 10,329 2,975 22,362 18,651 Defined benefit and retiree healthcare plans 577 594 1,385 3,978 Other comprehensive income 10,906 3,569 23,747 22,629 Comprehensive income $ 151,159 $ 88,528 $ 221,282 $ 274,237 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Statements of Cash Flows (In thousands) (unaudited) For the nine months ended September 30, 2022 September 30, 2021 Cash flows from operating activities: Net income $ 197,535 $ 251,608 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 94,562 94,361 Amortization of debt issuance costs 5,256 5,142 Gain on sale of business ( 135,112 ) — Share-based compensation 24,180 18,871 Loss on debt financing 5,468 30,066 Amortization of intangible assets 114,485 101,492 Deferred income taxes 3,313 ( 2,070 ) Acquisition-related compensation payments ( 23,500 ) ( 7,000 ) Mark-to-market loss on equity investments, net 75,135 — Unrealized loss on derivative instruments and other 40,702 17,359 Changes in operating assets and liabilities, net of the effects of acquisitions: Accounts receivable, net ( 88,617 ) ( 66,340 ) Inventories ( 77,059 ) ( 93,651 ) Prepaid expenses and other current assets ( 24,145 ) ( 14,890 ) Accounts payable and accrued expenses 10,928 44,879 Income taxes payable 16,205 13,615 Other ( 3,603 ) ( 216 ) Net cash provided by operating activities 235,733 393,226 Cash flows from investing activities: Acquisitions, net of cash received ( 632,683 ) ( 414,959 ) Additions to property, plant and equipment and capitalized software ( 110,424 ) ( 100,410 ) Investment in debt and equity securities ( 7,773 ) ( 4,655 ) Proceeds from the sale of business, net of cash sold 198,841 — Other 152 3,919 Net cash used in investing activities ( 551,887 ) ( 516,105 ) Cash flows from financing activities: Proceeds from exercise of stock options and issuance of ordinary shares 16,460 20,016 Payment of employee restricted stock tax withholdings ( 7,834 ) ( 8,987 ) Proceeds from borrowings on debt 500,000 1,001,875 Payments on debt ( 507,968 ) ( 760,768 ) Dividends paid ( 34,271 ) — Payments to repurchase ordinary shares ( 241,903 ) — Payments of debt financing costs ( 13,369 ) ( 33,093 ) Net cash (used in)/provided by financing activities ( 288,885 ) 219,043 Net change in cash and cash equivalents ( 605,039 ) 96,164 Cash and cash equivalents, beginning of year 1,708,955 1,861,980 Cash and cash equivalents, end of period $ 1,103,916 $ 1,958,144 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents 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 Income/(Loss) Total Shareholders' Equity Number Amount Number Amount Balance as of June 30, 2022 174,924 $ 2,239 ( 19,269 ) $ ( 978,595 ) $ 1,841,925 $ 2,164,734 $ ( 6,719 ) $ 3,023,584 Surrender of shares for tax withholding — — ( 6 ) ( 257 ) — — — ( 257 ) Stock options exercised 45 — — — 1,883 — — 1,883 Vesting of restricted securities 20 1 — — — ( 1 ) — — Cash dividends paid — — — — — ( 17,046 ) — ( 17,046 ) Repurchase of ordinary shares — — ( 2,346 ) ( 98,446 ) — — — ( 98,446 ) Retirement of ordinary shares ( 6 ) — 6 257 — ( 257 ) — — Share-based compensation — — — — 8,441 — — 8,441 Net income — — — — — 140,253 — 140,253 Other comprehensive income — — — — — — 10,906 10,906 Balance as of September 30, 2022 174,983 $ 2,240 ( 21,615 ) $ ( 1,077,041 ) $ 1,852,249 $ 2,287,683 $ 4,187 $ 3,069,318 Ordinary Shares Treasury Shares Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income/(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 — — ( 157 ) ( 7,834 ) — — — ( 7,834 ) Stock options exercised 374 4 — — 15,825 — — 15,829 Vesting of restricted securities 479 6 — — — ( 6 ) — — Cash dividends paid — — — — — ( 34,271 ) — ( 34,271 ) Repurchase of ordinary shares — — ( 5,177 ) ( 244,602 ) — — — ( 244,602 ) Retirement of ordinary shares ( 157 ) ( 2 ) 157 7,834 — ( 7,832 ) — — Share-based compensation — — — — 24,180 — — 24,180 Net income — — — — — 197,535 — 197,535 Other comprehensive income — — — — — — 23,747 23,747 Balance as of September 30, 2022 174,983 $ 2,240 ( 21,615 ) $ ( 1,077,041 ) $ 1,852,249 $ 2,287,683 $ 4,187 $ 3,069,318 Ordinary Shares Treasury Shares Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity Number Amount Number Amount Balance as of June 30, 2021 174,005 $ 2,229 ( 15,631 ) $ ( 784,596 ) $ 1,789,863 $ 1,936,427 $ ( 30,475 ) $ 2,913,448 Surrender of shares for tax withholding — — ( 18 ) ( 1,039 ) — — — ( 1,039 ) Stock options exercised 34 — — — 1,290 — — 1,290 Vesting of restricted securities 58 1 — — — ( 1 ) — — Retirement of ordinary shares ( 18 ) — 18 1,039 — ( 1,039 ) — — Share-based compensation — — — — 7,396 — — 7,396 Net income — — — — — 84,959 — 84,959 Other comprehensive income — — — — — — 3,569 3,569 Balance as of September 30, 2021 174,079 $ 2,230 ( 15,631 ) $ ( 784,596 ) $ 1,798,549 $ 2,020,346 $ ( 26,906 ) $ 3,009,623 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 — — ( 154 ) ( 8,987 ) — — — ( 8,987 ) Stock options exercised 501 6 — — 20,010 — — 20,016 Vesting of restricted securities 466 6 — — — ( 6 ) — — Retirement of ordinary shares ( 154 ) ( 2 ) 154 8,987 — ( 8,985 ) — — Share-based compensation — — — — 18,871 — — 18,871 Net income — — — — — 251,608 — 251,608 Other comprehensive income — — — — — — 22,629 22,629 Balance as of September 30, 2021 174,079 $ 2,230 ( 15,631 ) $ ( 784,596 ) $ 1,798,549 $ 2,020,346 $ ( 26,906 ) $ 3,009,623 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents 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. Certain reclassifications have been made to prior periods to conform to current period presentation. 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 and nine months ended September 30, 2022 and 2021: For the three months ended September 30, 2022 For the three months ended September 30, 2021 Performance Sensing Sensing Solutions Total Performance Sensing Sensing Solutions Total Automotive $ 525,271 $ 8,616 $ 533,887 $ 488,041 $ 9,451 $ 497,492 HVOR (1) 229,256 — 229,256 218,425 — 218,425 Industrial — 147,191 147,191 — 106,809 106,809 Appliance and HVAC (2) — 51,927 51,927 — 62,793 62,793 Aerospace — 37,789 37,789 — 34,377 34,377 Other — 18,218 18,218 — 31,125 31,125 Total $ 754,527 $ 263,741 $ 1,018,268 $ 706,466 $ 244,555 $ 951,021 ___________________________________ (1) Heavy vehicle and off-road (2) Heating, ventilation and air conditioning For the nine months ended September 30, 2022 For the nine months ended September 30, 2021 Performance Sensing Sensing Solutions Total Performance Sensing Sensing Solutions Total Automotive $ 1,533,865 $ 27,833 $ 1,561,698 $ 1,543,121 $ 33,003 $ 1,576,124 HVOR 685,241 — 685,241 619,709 — 619,709 Industrial — 385,470 385,470 — 302,758 302,758 Appliance and HVAC — 168,427 168,427 — 185,896 185,896 Aerospace — 109,617 109,617 — 99,847 99,847 Other — 104,133 104,133 — 101,875 101,875 Total $ 2,219,106 $ 795,480 $ 3,014,586 $ 2,162,830 $ 723,379 $ 2,886,209 8 Table of Contents 4. Share-Based Payment Plans The following table presents the components of non-cash compensation expense related to our equity awards for the three and nine months ended September 30, 2022 and 2021: For the three months ended For the nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Stock options $ 158 $ 307 $ 467 $ 1,072 Restricted securities 8,283 7,089 23,713 17,799 Share-based compensation expense $ 8,441 $ 7,396 $ 24,180 $ 18,871 Equity Awards We granted the following restricted stock units ("RSUs" and each, an "RSU") and performance-based restricted stock units ("PRSUs" and each, a "PRSU") under the Sensata Technologies Holding plc 2021 Equity Incentive Plan during the nine months ended September 30, 2022: Awards Granted To: Type of Award Number of Units Granted (in thousands) Percentage of PRSUs Awarded that May Vest Weighted Average Grant Date Fair Value Directors RSU (1) 29 N/A $ 46.30 Various executives and employees RSU (2) 583 N/A $ 49.97 Various executives and employees PRSU (3) 420 0.0 % - 200.0 % $ 49.45 ____________________________________ (1) These RSUs cliff vest one year from the grant date (May 2023). (2) These RSUs vest ratably over three years , one-third per year beginning on the first anniversary of the grant date. These RSUs will fully vest on various dates between January 2025 and September 2025. (3) These PRSUs vest on various dates between April 2025 and September 2025. The number of units that ultimately vest is dependent on the achievement of certain performance criteria. 5. Restructuring and Other Charges, Net The following table presents the components of restructuring and other charges, net for the three and nine months ended September 30, 2022 and 2021: For the three months ended For the nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Q2 2020 Global Restructure Program charges $ — $ 3,098 $ — $ 8,752 Other restructuring and other charges, net Severance costs, net 6,249 133 6,836 726 Facility and other exit costs 2,181 541 4,470 1,832 Gain on sale of Qinex Business ( 135,112 ) — ( 135,112 ) — Acquisition-related compensation arrangements 7,359 — 38,448 — Other (1) 11,882 ( 3,427 ) 4,547 ( 1,354 ) Restructuring and other charges, net $ ( 107,441 ) $ 345 $ ( 80,811 ) $ 9,956 ___________________________________ (1) Primarily includes, in the three and nine months ended September 30, 2022, transaction-related charges to sell the Qinex Business, partially offset in the nine months ended September 30, 2022 by gains related to changes in the fair value of acquisition-related contingent consideration amounts. Refer to Note 16: Acquisitions and Divestitures for additional information. 9 Table of Contents The following table presents a rollforward of the severance portion of our restructuring obligations for the nine months ended September 30, 2022. Q2 2020 Global Restructure Program Other Total Balance as of December 31, 2021 $ 3,853 $ 3,380 $ 7,233 Charges, net of reversals — 6,836 6,836 Payments ( 3,129 ) ( 2,323 ) ( 5,452 ) Foreign currency remeasurement ( 90 ) ( 281 ) ( 371 ) Balance as of September 30, 2022 $ 634 $ 7,612 $ 8,246 The severance liability as of September 30, 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 and nine months ended September 30, 2022 and 2021: For the three months ended For the nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Currency remeasurement (loss)/gain on net monetary assets $ ( 12,583 ) $ ( 324 ) $ ( 26,740 ) $ 187 Gain/(loss) on foreign currency forward contracts 6,178 ( 2,414 ) 8,100 ( 4,791 ) Loss on commodity forward contracts ( 5,773 ) ( 6,495 ) ( 14,603 ) ( 6,462 ) Loss on debt financing ( 5,468 ) — ( 5,468 ) ( 30,066 ) Mark-to-market loss on investments, net ( 4,035 ) — ( 75,135 ) — Net periodic benefit cost, excluding service cost ( 868 ) ( 1,053 ) ( 2,262 ) ( 5,731 ) Other 1,178 883 5,041 ( 925 ) Other, net $ ( 21,371 ) $ ( 9,403 ) $ ( 111,067 ) $ ( 47,788 ) 7. Income Taxes The following table presents the provision for income taxes for the three and nine months ended September 30, 2022 and 2021: For the three months ended For the nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Provision for income taxes $ 46,421 $ 21,840 $ 74,029 $ 49,759 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, and (c) changes in withholding taxes on unremitted earnings. Other items impacting deferred tax expense include changes in tax rates and changes in our assessment of the realizability of our deferred tax assets. 10 Table of Contents 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 and nine months ended September 30, 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 For the nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Basic weighted-average ordinary shares outstanding 154,474 158,394 156,124 158,122 Dilutive effect of stock options 107 603 256 660 Dilutive effect of unvested restricted securities 362 482 475 569 Diluted weighted-average ordinary shares outstanding 154,943 159,479 156,855 159,351 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 For the nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Anti-dilutive shares excluded 1,917 9 1,116 8 Contingently issuable shares excluded 1,513 1,072 1,299 1,037 9. Inventories The following table presents the components of inventories as of September 30, 2022 and December 31, 2021: September 30, 2022 December 31, 2021 Finished goods $ 223,607 $ 201,424 Work-in-process 111,823 101,558 Raw materials 340,432 285,249 Inventories $ 675,862 $ 588,231 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 September 30, 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 $ 958 $ 725 $ 960 $ 727 Interest cost 113 167 22 21 417 405 552 593 Expected return on plan assets ( 195 ) ( 226 ) — — ( 214 ) ( 177 ) ( 409 ) ( 403 ) Amortization of net loss/(gain) 226 243 ( 43 ) — 327 461 510 704 Amortization of prior service (credit)/cost — — ( 100 ) ( 159 ) 2 3 ( 98 ) ( 156 ) Loss on settlement 313 315 — — — — 313 315 Net periodic benefit cost/(credit) $ 457 $ 499 $ ( 119 ) $ ( 136 ) $ 1,490 $ 1,417 $ 1,828 $ 1,780 11 Table of Contents The following table presents the components of net periodic benefit cost/(credit) associated with our defined benefit and retiree healthcare plans for the nine months ended September 30, 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 $ — $ — $ 6 $ 6 $ 2,896 $ 3,028 $ 2,902 $ 3,034 Interest cost 339 407 86 63 1,267 1,210 1,692 1,680 Expected return on plan assets ( 585 ) ( 678 ) — — ( 700 ) ( 534 ) ( 1,285 ) ( 1,212 ) Amortization of net loss/(gain) 593 1,045 ( 86 ) — 935 1,382 1,442 2,427 Amortization of prior service (credit)/cost — — ( 300 ) ( 477 ) 7 19 ( 293 ) ( 458 ) Loss on settlement 706 3,294 — — — — 706 3,294 Net periodic benefit cost/(credit) $ 1,053 $ 4,068 $ ( 294 ) $ ( 408 ) $ 4,405 $ 5,105 $ 5,164 $ 8,765 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 September 30, 2022 and December 31, 2021: Maturity Date September 30, 2022 December 31, 2021 Term Loan September 20, 2026 $ 447,992 $ 451,465 4.875 % Senior Notes October 15, 2023 — 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 5.875 % Senior Notes September 1, 2030 500,000 — Less: debt discount, net of premium ( 3,740 ) ( 5,207 ) Less: deferred financing costs ( 30,952 ) ( 26,682 ) Less: current portion ( 4,630 ) ( 4,630 ) Long-term debt, net $ 4,208,670 $ 4,214,946 Finance lease and other financing obligations $ 27,086 $ 28,767 Less: current portion ( 1,906 ) ( 2,203 ) Finance lease and other financing obligations, less current portion $ 25,180 $ 26,564 Our debt consists of secured credit facilities and various tranches of senior unsecured notes. Refer to Note 14: Debt of our 2021 Annual Report for additional information related to our existing indebtedness. Secured Credit Facilities On June 23, 2022, certain of our indirect, wholly-owned subsidiaries, including Sensata Technologies, Inc. ("STI"), Sensata Technologies Intermediate Holding B.V. ("STIHBV"), and Sensata Technologies B.V. (“STBV”), entered into an amendment (the “Eleventh Amendment”) to (i) the credit agreement, dated as of May 12, 2011 (as amended, supplemented, waived, or otherwise modified, the “Credit Agreement”), and (ii) the Foreign Guaranty, dated as of May 12, 2011. Among other changes to the Credit Agreement, the Eleventh Amendment (i) increased the aggregate principal amount of the revolving credit facility under the Credit Agreement (the "Revolving Credit Facility") to $ 750.0 million; (ii) extended the maturity date of the Revolving Credit Facility to June 23, 2027 (which could be accelerated to June 22, 2026 if, prior to June 22, 2026, the term loan under the Credit Agreement (the "Term Loan") is not refinanced with a maturity date that is on or after June 23, 2027); (iii) released the Foreign Guarantors (as defined in the Credit Agreement), excluding STBV, from their obligations to guarantee the obligations of STI and the other Loan Parties (as defined in the Credit Agreement) relating to the 12 Table of Contents Revolving Credit Facility and certain related obligations, subject to an obligation to reinstate such guaranties under certain conditions; (iv) replaced the LIBOR-based interest rates referenced by the Credit Agreement regarding revolving credit loans to (a) for revolving credit loans denominated in U.S. dollars, an interest rate based on the secured overnight financing rate ("SOFR") published by the Federal Reserve Bank of New York and (b) for revolving credit loans denominated in pounds sterling, an interest rate based on the Sterling Overnight Index Average ("SONIA"); and (v) certain of the operational and restrictive covenants and other terms and conditions of the Credit Agreement were modified to provide STI and its affiliates increased flexibility and permissions thereunder. As of September 30, 2022, we had $ 746.1 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 September 30, 2022, no amounts had been drawn against these outstanding letters of credit. 5.875 % Senior Notes On August 29, 2022, STBV completed the issuance and sale of $ 500.0 million aggregate principal amount of 5.875 % senior notes due 2030 (the " 5.875 % Senior Notes"). The 5.875 % Senior Notes were issued under an indenture dated as of August 29, 2022 among STBV, as issuer, The Bank of New York Mellon, as trustee, and our guarantor subsidiaries named therein (the " 5.875 % Senior Notes Indenture"). The 5.875 % Senior Notes Indenture contains covenants that limit the ability of STBV and its subsidiaries to, among other things: incur liens; engage in sale and leaseback transactions; with respect to any subsidiary of STBV, incur indebtedness without such subsidiary’s guaranteeing the 5.875 % Senior Notes; or consolidate, merge with, or sell, assign, convey, transfer, lease, or otherwise dispose of all or substantially all of their properties or assets to, another person. These covenants are subject to important exceptions and qualifications set forth in the 5.875 % Senior Notes Indenture. The 5.875 % Senior Notes bear interest at 5.875 % per year and mature on September 1, 2030. Interest is payable semi-annually on September 1 and March 1 of each year, commencing on March 1, 2023. The 5.875 % Senior Notes are guaranteed by each of STBV's wholly-owned subsidiaries that is a borrower or guarantor under the senior secured credit facilities (the "Senior Secured Credit Facilities") of STI and an issuer or a guarantor under our existing senior notes as follows: STBV's 5.625 % Senior Notes due 2024, 5.0 % Senior Notes due 2025, and 4.0 % Senior Notes due 2029; and STI's 4.375 % Senior Notes due 2030 and 3.75 % Senior Notes due 2031. At any time, and from time to time, prior to September 1, 2025, STBV may redeem the 5.875 % Senior Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount of the 5.875 % Senior Notes being redeemed, plus a “make whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time on or after September 1, 2025, STBV may redeem the 5.875 % 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 September 1, Price 2025 102.398 % 2026 101.469 % 2027 and thereafter 100.000 % In addition, at any time prior to September 1, 2025, STBV may redeem up to 40 % of the principal amount of the outstanding 5.875 % Senior Notes (including additional 5.875 % Senior Notes, if any) with the net cash proceeds of certain equity offerings at a redemption price (expressed as a percentage of principal amount) of 105.875 %, 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 5.875 % Senior Notes (including additional 5.875 % Senior Notes, if any) remains outstanding immediately after each such redemption. Upon the occurrence of certain changes in control, each holder of the 5.875 % Senior Notes will have the right to require STBV to repurchase the 5.875 % Senior Notes at 101 % of their principal amount plus accrued and unpaid interest, if any, up to but excluding the date of repurchase. Upon changes in certain tax laws or treaties, or any change in the official application, administration, or interpretation thereof, STBV may, at its option, redeem the 5.875 % 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, up to but excluding the redemption date, premium, if any, and all Additional Amounts (as defined in the 5.875 % Senior Notes Indenture), if any, then due and which will become due on the date of redemption. 13 Table of Contents 4.875 % Senior Notes Redemption On August 29, 2022, we announced that we intended to redeem in full the $ 500.0 million aggregate principal amount outstanding on our 4.875 % senior notes due 2023 (the " 4.875 % Senior Notes"). We redeemed the 4.875 % Senior Notes on September 28, 2022 in accordance with the terms of the indenture under which the 4.875 % Senior Notes were issued and the terms of the notice of redemption at a price of 101.0 % of the aggregate principal amount of the outstanding 4.875 % Senior Notes (which includes the applicable premium), plus accrued and unpaid interest to (but not including) the redemption date. Accounting for Debt Financing Transactions We account for our debt financing transactions as disclosed in Note 2: Significant Accounting Policies of the audited consolidated financial statements and notes thereto included in our 2021 Annual Report. In the nine months ended September 30, 2022, in connection with the entry into the Eleventh Amendment, we recognized $ 2.6 million of deferred financing costs, which are presented as a reduction of long-term debt on our condensed consolidated balance sheets. In the three months ended September 30, 2022, in connection with the issuance of the 5.875 % Senior Notes, we capitalized $ 5.9 million of deferred financing costs, which are presented on the condensed consolidated balance sheets as a reduction of long-term debt. In connection with the redemption of the 4.875 % Senior Notes, we recognized a loss of $ 5.5 million, presented in other, net, related to the redemption premium of $ 5.0 million and the write-off of unamortized deferred financing costs and debt discounts. In the nine months ended September 30, 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 September 30, 2022 and December 31, 2021, accrued interest totaled $ 54.9 million and $ 45.1 million, respectively. 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 Cash Dividends On August 24, 2022, we paid a cash dividend of $ 0.11 per share, or $ 17.0 million in aggregate, to shareholders of record as of August 10, 2022. 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 September 30, 2022, $ 272.2 million remained available for repurchase under the January 2022 Program. 14 Table of Contents Accumulated Other Comprehensive Income/(Loss) The following table presents the components of accumulated other comprehensive income/(loss) for the nine months ended September 30, 2022: Cash Flow Hedges Defined Benefit and Retiree Healthcare Plans Accumulated Other Comprehensive Income/(Loss) Balance as of December 31, 2021 $ 16,831 $ ( 36,391 ) $ ( 19,560 ) Other comprehensive income before reclassifications, net of tax 48,437 — 48,437 Reclassifications from accumulated other comprehensive income/(loss), net of tax ( 26,075 ) 1,385 ( 24,690 ) Other comprehensive income 22,362 1,385 23,747 Balance as of September 30, 2022 $ 39,193 $ ( 35,006 ) $ 4,187 The following table presents the amounts reclassified from accumulated other comprehensive income/(loss) for the three and nine months ended September 30, 2022 and 2021: For the three months ended September 30, For the nine months ended September 30, Affected Line in Condensed Consolidated Statements of Operations Component 2022 2021 2022 2021 Derivative instruments designated and qualifying as cash flow hedges: Foreign currency forward contracts $ ( 14,909 ) $ 1,976 $ ( 28,649 ) $ 9,816 Net revenue (1) Foreign currency forward contracts ( 1,260 ) ( 3,557 ) ( 6,492 ) ( 6,324 ) Cost of revenue (1) Total, before taxes ( 16,169 ) ( 1,581 ) ( 35,141 ) 3,492 Income before taxes Income tax effect 4,172 395 9,066 ( 873 ) Provision for income taxes Total, net of taxes $ ( 11,997 ) $ ( 1,186 ) $ ( 26,075 ) $ 2,619 Net income Defined benefit and retiree healthcare plans $ 725 $ 863 $ 1,855 $ 5,263 Other, net (2) Income tax effect ( 148 ) ( 269 ) ( 470 ) ( 1,285 ) Provision for income taxes Total, net of taxes $ 577 $ 594 $ 1,385 $ 3,978 Net income ___________________________________ (1) Refer to Note 15: Derivative Instruments and Hedging Activities for additional information on amounts to be reclassified from accumulated other comprehensive income/(loss) in future periods. (2) Refer to Note 10: Pension and Other Post-Retirement Benefits for additional information on net periodic benefit cost/(credit). 14. Fair Value Measures Measured on a Recurring Basis The fair values of our derivative assets and liabilities measured at fair value on a recurring basis as of September 30, 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. September 30, 2022 December 31, 2021 Assets Foreign currency forward contracts $ 65,808 $ 25,112 Commodity forward contracts 303 2,979 Total $ 66,111 $ 28,091 Liabilities Foreign currency forward contracts $ 13,087 $ 3,073 Commodity forward contracts 14,297 4,492 Total $ 27,384 $ 7,565 Refer to Note 15: Derivative Instruments and Hedging Activities for additional information related to our forward contracts. 15 Table of Contents Quanergy As of December 31, 2021, we held a $ 50.0 million investment in Quanergy Systems, Inc. ("Quanergy") Series B Preferred Stock (the "Series B Investment"). The Series B Investment did not have a readily determinable fair value and 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 (the "Merger Agreement") with CITIC Capital Acquisition Corp ("CITIC") (NYSE: CCAC). On July 16, 2021, CITIC filed a Registration Statement on Form S-4 (together with subsequent amendments, the "SPAC Form S-4") with the SEC, the effectiveness of which was a condition to closing of the business combination (the "SPAC Merger"). At December 31, 2021, we assessed our investment in Quanergy based on the proposed terms of the Merger Agreement and concluded that there were no indicators of impairment. On January 6, 2022, the SPAC 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 SPAC Merger was approved. The SPAC Merger 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 SPAC Merger, our investment in Quanergy comprised the following: • 5.0 million common shares, which represented the conversion of the $ 50.0 million Series B Investment (at a $ 10.00 per common share implied valuation); • 750 thousand common shares, purchased in exchange for a $ 7.5 million contribution as part of a private investment in public equity ("PIPE") subscription agreement; and • 2.5 million warrants (the "Warrants"), each of which represent the right to purchase one common share at a price of $ 0.01 per share, received from 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 (including the investment in the PIPE) has a historical cost basis of $ 57.5 million. The fair value of the Warrants was determined to be equal to their intrinsic value at closing of the SPAC Merger in accordance with the guidance in FASB ASC Topic 815, Derivatives and Hedging . At closing of the SPAC Merger, the common shares underlying the Warrants were valued at $ 7.05 per share (the closing market price on February 8, 2022). The intrinsic value of the Warrants, reflecting the $ 0.01 exercise price, was $ 17.6 million, which was recorded as deferred income. The following table presents a summary of our investment in Quanergy, presented in other assets on our condensed consolidated balance sheets, at certain dates since December 31, 2021: As of September 30, 2022 June 30, 2022 February 8, 2022 December 31, 2021 Price per share (1) $ 0.21 $ 0.41 $ 7.05 N/A Total shares of Quanergy held, including Warrants (in millions) (1) 8.25 8.25 8.25 N/A Series B Investment $ — $ — $ — $ 50,000 Common shares (2) 1,553 3,075 50,000 — PIPE investment 155 308 7,500 — Warrants (2) — — 17,600 — Total equity investment in Quanergy $ 1,708 $ 3,383 $ 75,100 $ 50,000 ___________________________________ (1) Represents common share price and shares held, unadjusted for a 1-to-20 reverse stock split effective after market close on October 6, 2022. Upon execution of the reverse stock split, our holdings of Quanergy common stock (including the PIPE investment) declined to approximately 0.4 million shares, with no impact on fair value. The split-adjusted stock price after close of business on September 30, 2022 was $ 4.14 per share. Beginning October 7, 2022, Quanergy common stock began trading on a split-adjusted basis. 16 Table of Contents (2) In the three months ended June 30, 2022, we converted the Warrants into common shares. Accordingly, as of September 30, 2022, we had 7.5 million common shares outstanding (excluding the PIPE investment), compared to 5.0 million common shares outstanding as of February 8, 2022. The following table presents a summary of recorded losses related to our equity investment in Quanergy, presented in other, net on our condensed consolidated statements of operations: For the three months ended September 30, 2022 For the nine months ended September 30, 2022 Mark-to-market loss $ ( 1,675 ) $ ( 73,392 ) As noted above, in exchange for the Warrants, we entered into the Support Agreement, whereby we agreed to provide technical and business development services to Quanergy for a term of four years from the effective date of February 8, 2022. This transaction is an exchange of noncash consideration for services and was accounted for under FASB ASC Topic 845, Nonmonetary Transactions , using the fair value of the Warrants at February 8, 2022 ($ 17.6 million) as the measure of compensation received. We have deferred this consideration and are recognizing it in earnings on a straight-line basis over the term of the agreement (48 months). 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. No events or changes in circumstances occurred in the nine months ended September 30, 2022 that would have triggered the need for an additional impairment review of our goodwill and other indefinite-lived intangible assets. In July 2022, we sold various assets and liabilities comprising our semiconductor test and thermal business (collectively, the “Qinex Business”). Refer to Note 16: Acquisitions and Divestitures for additional information. We allocated goodwill to the Qinex Business based on its fair value relative to the total fair value of the Industrial Solutions reporting unit. 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 September 30, 2022 and December 31, 2021. All fair value measures presented are categorized in Level 2 of the fair value hierarchy. September 30, 2022 December 31, 2021 Carrying Value (1) Fair Value Carrying Value (1) Fair Value Liabilities Term Loan $ 447,992 $ 444,632 $ 451,465 $ 450,901 4.875 % Senior Notes $ — $ — $ 500,000 $ 526,250 5.625 % Senior Notes $ 400,000 $ 394,000 $ 400,000 $ 438,000 5.0 % Senior Notes $ 700,000 $ 661,500 $ 700,000 $ 759,500 4.375 % Senior Notes $ 450,000 $ 373,500 $ 450,000 $ 479,250 3.75 % Senior Notes $ 750,000 $ 579,375 $ 750,000 $ 747,188 4.0 % Senior Notes $ 1,000,000 $ 820,000 $ 1,000,000 $ 1,022,500 5.875 % Senior Notes $ 500,000 $ 463,750 $ — $ — ___________________________________ (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. 17 Table of Contents 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. September 30, 2022 December 31, 2021 Quanergy Systems, Inc. (1) $ — $ 50,000 Other 15,000 15,000 Total $ 15,000 $ 65,000 ___________________________________ (1) As of September 30, 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 and nine months ended September 30, 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 September 30, 2022, we estimated that $ 46.4 million of net gains will be reclassified from accumulated other comprehensive income/(loss) to earnings during the twelve-month period ending September 30, 2023. As of September 30, 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) 32.0 EUR September 28, 2022 October 31, 2022 Euro ("EUR") to USD 0.96 USD Not designated 364.7 EUR Various from October 2020 to September 2022 Various from October 2022 to September 2024 EUR to USD 1.13 USD Cash flow hedge 471.0 CNY September 27, 2022 October 31, 2022 USD to Chinese Renminbi ("CNY") 7.14 CNY Not designated 378.1 CNY Various from October 2021 to March 2022 Various from October to December 2022 USD to CNY 6.47 CNY Cash flow hedge 21,673.3 KRW Various from November 2020 to September 2022 Various from October 2022 to August 2024 USD to Korean Won ("KRW") 1,208.00 KRW Cash flow hedge 23.0 MYR September 27, 2022 October 31, 2022 USD to Malaysian Ringgit ("MYR") 4.63 MYR Not designated 266.0 MXN September 28, 2022 October 31, 2022 USD to Mexican Peso ("MXN") 20.43 MXN Not designated 3,525.3 MXN Various from October 2020 to September 2022 Various from October 2022 to September 2024 USD to MXN 22.20 MXN Cash flow hedge 10.0 GBP September 28, 2022 October 31, 2022 British Pound Sterling ("GBP") to USD 1.06 USD Not Designated 60.2 GBP Various from October 2020 to September 2022 Various from October 2022 to September 2024 GBP to USD 1.29 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 economic value, and they are not used for trading or speculative purposes. 18 Table of Contents Hedges of Commodity Risk As of September 30, 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: Commodity Notional Remaining Contracted Periods Weighted-Average Strike Price Per Unit Silver 983,717 troy oz. October 2022 to July 2024 $ 23.89 Gold 7,757 troy oz. October 2022 to July 2024 $ 1,861.62 Nickel 255,206 pounds October 2022 to July 2024 $ 10.27 Aluminum 4,225,448 pounds October 2022 to July 2024 $ 1.23 Copper 8,124,126 pounds October 2022 to July 2024 $ 4.23 Platinum 11,503 troy oz. October 2022 to July 2024 $ 1,000.80 Palladium 1,340 troy oz. October 2022 to July 2024 $ 2,291.99 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 September 30, 2022 and December 31, 2021: Asset Derivatives Liability Derivatives Balance Sheet Location September 30, 2022 December 31, 2021 Balance Sheet Location September 30, 2022 December 31, 2021 Derivatives designated as hedging instruments Foreign currency forward contracts Prepaid expenses and other current assets $ 55,457 $ 20,562 Accrued expenses and other current liabilities $ 9,630 $ 1,981 Foreign currency forward contracts Other assets 10,251 4,391 Other long-term liabilities 2,651 904 Total $ 65,708 $ 24,953 $ 12,281 $ 2,885 Derivatives not designated as hedging instruments Commodity forward contracts Prepaid expenses and other current assets $ 218 $ 2,583 Accrued expenses and other current liabilities $ 11,338 $ 3,422 Commodity forward contracts Other assets 85 396 Other long-term liabilities 2,959 1,070 Foreign currency forward contracts Prepaid expenses and other current assets 100 159 Accrued expenses and other current liabilities 806 188 Total $ 403 $ 3,138 $ 15,103 $ 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 September 30, 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 Income/(Loss) into Net Income Amount of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Income/(Loss) into Net Income 2022 2021 2022 2021 Foreign currency forward contracts $ 35,324 $ 9,379 Net revenue $ 14,909 $ ( 1,976 ) Foreign currency forward contracts $ ( 5,204 ) $ ( 3,832 ) Cost of revenue $ 1,260 $ 3,557 Derivatives not designated as hedging instruments Amount of (Loss)/Gain Recognized in Net Income Location of (Loss)/Gain Recognized in Net Income 2022 2021 Commodity forward contracts $ ( 5,773 ) $ ( 6,495 ) Other, net Foreign currency forward contracts $ 6,178 $ ( 2,414 ) Other, net 19 Table of Contents 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 nine months ended September 30, 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 Income/(Loss) into Net Income Amount of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Income/(Loss) into Net Income 2022 2021 2022 2021 Foreign currency forward contracts $ 69,102 $ 21,825 Net revenue $ 28,649 $ ( 9,816 ) Foreign currency forward contracts $ ( 3,824 ) $ ( 449 ) Cost of revenue $ 6,492 $ 6,324 Derivatives not designated as hedging instruments Amount of (Loss)/Gain Recognized in Net Income Location of (Loss)/Gain Recognized in Net Income 2022 2021 Commodity forward contracts $ ( 14,603 ) $ ( 6,462 ) Other, net Foreign currency forward contracts $ 8,100 $ ( 4,791 ) 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 September 30, 2022, the termination value of outstanding derivatives in a liability position, excluding any adjustment for non-performance risk, was $ 27.8 million. As of September 30, 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 and Divestitures Acquisitions Spear Power Systems On November 19, 2021, we acquired all of the equity interests of 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 $ 113.7 million, subject to certain post-closing items, including a contingent consideration arrangement whereby we may be required to pay up to an additional $ 30.0 million to the selling shareholders. Using a present value technique, we estimated the acquisition-date fair value of the contingent consideration arrangement to be $ 8.6 million, which is reflected in the aggregate purchase price. As of September 30, 2022, having evaluated updated financial forecasts, and have determined that the fair value of the contingent consideration arrangement as of September 30, 2022 is $ 0.0 million , which is unchanged from its fair value as of June 30, 2022. Accordingly, a gain of $ 8.6 million for the nine months ended September 30, 2022 was recognized in earnings and presented in restructuring and other charges, net. We are integrating Spear into the Sensing Solutions reportable segment. As of September 30, 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 purchase price of $ 206.4 million, including $ 204.2 million of cash paid at closing, 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. We are integrating SmartWitness into the Performance Sensing reportable segment. 20 Table of Contents As of September 30, 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 $ 51.6 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 of additional acquisition-related incentive compensation, pending the completion of certain technical milestones in fiscal year 2022 and achievement of financial targets in fiscal years 2022 and 2023. In three and nine months ended September 30, 2022, we recognized $ 2.0 million and $ 20.4 million, respectively, of that acquisition-related incentive compensation. This incentive compensation is recorded in restructuring and other charges, net. We paid $ 15.0 million of this acquisition-related incentive compensation in the nine months ended September 30, 2022, which is reflected as an operating cash outflow on our condensed consolidated statement of cash flows. 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. 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 $ 35 Goodwill 24,708 Other intangible assets 33,500 Deferred income tax liabilities ( 8,222 ) Fair value of net assets acquired, excluding cash and cash equivalents 50,021 Cash and cash equivalents 1,597 Fair value of net assets acquired $ 51,618 The allocation of purchase price of Elastic M2M is preliminary and is based on management’s judgments after evaluating several factors, including preliminary valuation assessments of 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 of $ 24.7 million recognized as a result of this acquisition represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. The goodwill recognized in this acquisition will not be deductible for tax purposes. In connection with the preliminary 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 $ 23,300 13 Completed technologies 10,200 10 Total definite-lived intangible assets acquired $ 33,500 12 21 Table of Contents The definite-lived intangible assets were valued using the income approach. We primarily used the relief-from-royalty method to value completed technologies, 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. Dynapower On July 12, 2022, we completed the acquisition of all of the outstanding equity interests of DP Acquisition Corp ("Dynapower"), 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 defense applications, for an aggregate cash purchase price of $ 577.7 million, subject to certain post-closing items. Dynapower also provides aftermarket sales and service to maintain its equipment in the field. Dynapower will be a foundational addition to our Clean Energy Solutions strategy and will complement our recent acquisitions of GIGAVAC, Lithium Balance, and Spear. We are integrating Dynapower into our Sensing Solutions 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 $ 25,333 Goodwill 357,380 Other intangible assets 229,100 Net long-term other liabilities ( 38,483 ) Fair value of net assets acquired, excluding cash and cash equivalents 573,330 Cash and cash equivalents 4,410 Fair value of net assets acquired $ 577,740 The allocation of purchase price of Dynapower is preliminary and is based on management’s judgments after evaluating several factors, including preliminary valuation assessments of 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 $ 357.4 million, which represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. The goodwill recognized in this acquisition will not be deductible for tax purposes. In connection with the preliminary 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 $ 145,600 11 Completed technologies 75,700 10 Tradenames 7,800 10 Total definite-lived intangible assets acquired $ 229,100 11 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. Divestiture - Qinex Business On May 27, 2022, we executed an asset purchase agreement (the "APA") whereby we agreed to sell the Qinex Business to LTI Holdi ngs, Inc. ("LTI") in exchange for consideration of approximately $ 219.0 million, subject to working capital and other adjustments. Concurrent with the execution of the APA, the parties entered into a Contract Manufacturing Agreement ("CMA") and a Transition Services Agreement ("TSA"), each for nominal consideration. 22 Table of Contents The CMA commenced at closing of the transaction ("Closing") and has a term of either six or nine months , depending on the manufacturing site. LTI also has the option of extending each contract for an additional three months . The period from Closing to the end of the CMA term (including extensions, if any) is referred to as the "Transition Period." The terms of the CMA require that we provide manufacturing and distribution services for the Transition Period. The TSA commences at Closing and has a term that varies depending on the nature of the support services, ranging from one month to the entirety of the Transition Period. The terms of the TSA require that we provide various forms of commercial, operational, and back-office support to LTI. Closing occurred in July 2022, at which time assets of approximately $ 70 million (including allocated goodwill of $ 45 million) and liabilities of approximately $ 2 million transferred to LTI. Transferred assets and liabilities excluded inventories and accounts payable, which will transfer to LTI at the end of the Transition Peri od. We received cash consideration of $ 198.8 million at Closing, which is presented as an investing cash flow for the nine months ended September 30, 2022. Cash consideration received at Closing excludes amounts held in escrow until various milestones are met through the Transition Period. We received an additional $ 5.0 million in August 2022 following fulfillment of a portion of our TSA obligations, which is presented as an operating cash inflow. In the three months ended September 30, 2022, we recognized a pre-tax gain of approximately $ 135.1 million. In the three and nine months ended September 30, 2022, we recognized approximately $ 13.5 million and $ 15.6 million, respectively, of transaction-related charges to sell the Qinex Business. Each of the gain on sale and transaction costs are presented in restructuring and other charges, net in our condensed consolidated statements of operations for the three and nine months ended September 30, 2022. Refer to Note 5: Restructuring and Other Charges, Net . The Qinex Business manufactures semiconductor burn-in test sockets and thermal control solutions and was formed through the combination of Sensata’s semiconductor interconnect business with Wells-CTI in 2012. The Qinex Business was included in our Sensing Solutions segment (and Industrial Solutions reporting unit). We allocated goodwill to the Qinex Business based on its fair value relative to the total fair value of the Industrial Solutions reporting unit. 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. 23 Table of Contents 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 and nine months ended September 30, 2022 and 2021: For the three months ended For the nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Net revenue: Performance Sensing $ 754,527 $ 706,466 $ 2,219,106 $ 2,162,830 Sensing Solutions 263,741 244,555 795,480 723,379 Total net revenue $ 1,018,268 $ 951,021 $ 3,014,586 $ 2,886,209 Segment operating income (as defined above): Performance Sensing $ 188,560 $ 193,742 $ 554,717 $ 591,650 Sensing Solutions 73,622 75,262 225,625 218,705 Total segment operating income 262,182 269,004 780,342 810,355 Corporate and other ( 76,409 ) ( 72,749 ) ( 228,894 ) ( 215,359 ) Amortization of intangible assets ( 40,313 ) ( 34,571 ) ( 114,485 ) ( 101,492 ) Restructuring and other charges, net 107,441 ( 345 ) 80,811 ( 9,956 ) Operating income 252,901 161,339 517,774 483,548 Interest expense, net ( 44,856 ) ( 45,137 ) ( 135,143 ) ( 134,393 ) Other, net ( 21,371 ) ( 9,403 ) ( 111,067 ) ( 47,788 ) Income before taxes $ 186,674 $ 106,799 $ 271,564 $ 301,367 24 Table of Contents 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 or 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 included 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.