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Item 7. Management’s Discussion and Analysis

2023-02-13 compared with 2022-02-10 · 287 added, 401 removed, 652 unchanged (51% of the section changed)

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

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

Business and our audited consolidated financial statements and accompanying notes thereto (the "Financial Statements"), each included elsewhere in this Annual Report on Form 10-K (this "Report").

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

and high-value stationary asset monitoring.

As discussed in Item 1:

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

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

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

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

We innovate on behalf of our broad array of customers, solving some of their most difficult engineering challenges by providing our products and solutions in the areas that we consider our most significant growth drivers, Electrification, Insights/IoT, and Safe & Efficient.

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

Refer to Item 1:

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

Fiscal Year 2021 Markets and Financial Results

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

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

Market results

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

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

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

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

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

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

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

Market outgrowth

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

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

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

Business , included elsewhere in this Report, for additional discussion on our growth drivers, including megatrends.

In fiscal year 2022, we completed two notable acquisitions in Electrification and Insights/IoT, Dynapower and Elastic M2M, Inc.

("Elastic M2M"), respectively.

Refer to Item 1:

Business – Business Combinations and Note 21:

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

We anticipate significant change in the markets that we serve over the next 10 years, as our customers transform their businesses and product portfolios to adjust to decarbonization trends.

Many equipment categories are electrifying, and significant investment is being made in global infrastructure to support this trend.

During fiscal year 2022, we recognized approximately $460 million of revenue in Electrification.

In addition, new business wins ("NBOs") exceeded $1.0 billion in fiscal year 2022, an increase from NBOs of $640 million in fiscal year 2021.

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

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

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

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

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

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

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

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

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

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

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

This outgrowth was driven by new Electrification launches.

Operating Income

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

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

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

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

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

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

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

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

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

Forward-looking information

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

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

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

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

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

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

Accordingly, NBOs are an indicator of future revenue potential.

Approximately 70% of those NBOs in fiscal year 2022 were in Electrification, which will help drive future revenue outgrowth in this megatrend.

Within our Insights/IoT megatrend initiative, we see a large and fast-growing market opportunity to deliver data insights across heavy, medium, and light vehicle fleets.

The Sensata INSIGHTS business addresses this opportunity by providing data and video telematics, asset tracking devices, and other cloud-based solutions.

In February 2022, we acquired Elastic M2M, which augments our cloud capabilities critical to delivering actionable sensor-based insights, continuing the expansion of Sensata INSIGHTS begun with the fiscal year 2021 acquisitions of Xirgo Technologies, LLC ("Xirgo") and SmartWitness Holdings, Inc.

("SmartWitness").

Refer to Item 1:

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

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

Business , included elsewhere in this Report, for additional discussion of the acquisition of Elastic M2M.

Sensata INSIGHTS revenue in fiscal year 2022 was approximately $173.3 million.

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

In fiscal year 2022, according to third party data, global production of light vehicles increased approximately 6% from fiscal year 2021.

Global production in the heavy vehicle and off-road ("HVOR") markets we serve decreased approximately 12% from fiscal year 2021.

Our consolidated revenue increased 5.5% in fiscal year 2022 from the prior year.

Excluding a decrease of 2.4% attributed to changes in foreign currency exchange rates and an increase of 3.1% due to the net effect of acquisitions and divestitures, consolidated net revenue increased 4.8% on an organic basis.

This reflects organic revenue growth of 3.9% in Performance Sensing and 7.5% in Sensing Solutions.

Organic revenue growth (or decline), discussed throughout this Item 7:

Management's Discussion and Analysis of Financial Condition and Results of Operations (this "MD&A"), is a financial measure not presented in accordance with U.S.

generally accepted accounting principles ("GAAP").

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

While our underlying markets were pressured by continuing supply chain disruptions, we produced 820 basis points of market outgrowth in fiscal year 2022, which includes higher pricing, content growth in the automotive and aerospace businesses, and new Electrification launches in our Industrial business.

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

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

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

Operating income for the year ended December 31, 2022 increased $36.9 million, or 5.8%, to $670.1 million (16.6% of net revenue) compared to $633.2 million (16.6% of net revenue) in the prior year.

This increase was primarily due to higher volumes, improved pricing to offset inflationary material and logistics costs, partially offset by unfavorable movements in foreign currency, the impact from investments in the growth vectors of Electrification and Insights/IoT, and the divestiture of various assets and liabilities comprising our semiconductor test and thermal business (collectively, the "Qinex Business").

Refer to Results of Operations included elsewhere in this MD&A for additional discussion of our earnings results for the year ended December 31, 2022.

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

We generated $460.6 million of operating cash flow in fiscal year 2022, ending the year with $1.2 billion in cash.

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

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

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

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

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

In the first quarter of 2021, we used the flexibility provided by our large cash balance to lower our cost of capital and extend our debt maturity by redeeming the full amount outstanding on the 6.25% Senior Notes.

Subsequently, on March 29, 2021, we issued the first $750.0 million of the $1.0 billion aggregate principal amount of 4.0% senior notes due 2029 (the "4.0% Senior Notes"), at par, and on April 8, 2021, we issued an additional $250.0 million of 4.0% Senior Notes at a price of 100.75%.

The combined effect of these transactions was to extend the average maturity of our debt profile and lower our total cost of fixed debt.

Proceeds from the 4.0% Senior Notes will be used for general corporate purposes, to fund future acquisitions and our

capital deployment strategy, and for future debt repayments.

Refer to Note 14:

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

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

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

(In millions) Segment Purchase Price

Acquisition Date Performance Sensing Sensing Solutions Cash Estimated Contingency

Lithium Balance (1)

January 29, 2021 X $ 27.2 $ —

Xirgo April 1, 2021 X $ 401.7 $ —

November 19, 2021 X $ 105.8 $ 8.6

SmartWitness (2)

November 19, 2021 X $ 204.2 $ —

December 8, 2021 X $ 25.1 $ —

__________________________

(1) Step acquisition completed on the date indicated

(2) Purchase price accounting is preliminary

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

Refer to Item 1:

Business – Business Combinations and Note 21:

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

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

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

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

In fiscal year 2022, we used approximately $631.5 million in cash for acquisitions and approximately $292.3 million for share repurchases.

We also paid approximately $51.1 million in cash dividends.

In fiscal year 2023, we will continue to return capital to shareholders through our dividend and opportunistic share repurchases.

We expect improving free cash flow will naturally allow leverage to decline and returns on invested capital to improve over time.

On January 31, 2023, we announced that we intended to pay down $250.0 million of principal on the balance outstanding of the term loan facility (the “Term Loan”) under the senior secured credit facilities (the "Senior Secured Credit Facilities").

That payment was completed on February 6, 2023.

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

We reduced our greenhouse gas emission intensity by more than 10% in fiscal year 2022, reaching our fiscal year 2026 target four years earlier than anticipated.

In addition, we're on our way to achieving the other targets laid out in our Sustainability Report, bolstering the long-term sustainability and success of the company for all of its stakeholders.

Selected Segment Information

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We are a global business with significant operations around the world and a diverse revenue mix by geography, customer, and end market.

The following table presents (as a percentage of total) property, plant and equipment, net ("PP&E"), and net revenue by geographic region for the identified periods:

The following table presents (as a percentage of total) property, plant and equipment ("PP&E") and net revenue by geographic region for the identified periods:

PP&E, net as of December 31,

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Net Revenue by End Market

Our net revenue for the years ended December 31, 2021, 2020, and 2019 was derived from the following end-markets (amounts are calculated based on unrounded numbers, and may not appear to recalculate):

Our net revenue for the years ended December 31, 2022, 2021, and 2020 was derived from the following end markets:

For the year ended December 31,

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(1) Heating, ventilation and air conditioning

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

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

Factors Affecting Our Operating Results

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

We generate revenue primarily from the sale of tangible products.

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

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

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

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

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

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

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

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

• the "mix" of products sold, including the proportion of new or upgraded products and their pricing relative to existing products;

• changes in product sales prices (including quantity discounts, rebates, and cash discounts for prompt payment);

• changes in the level of competition faced by our products, including the launch of new products by competitors;

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

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

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

• fluctuations in foreign currency exchange rates;

• acquisitions and divestitures.

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

Outside of the automotive industry, we sell our products and solutions to end-users in a wide range of industries, end markets, and geographic regions, and the drivers of demand for these products and solutions vary considerably and are influenced by industry, market, or geographic conditions.

Changes in demand for these products and solutions could impact our revenue materially.

Our overall net revenue is impacted by various factors, which we characterize as "organic" or "inorganic." Inorganic factors include fluctuations in foreign currency exchange rates and the net effect of acquisitions and divestitures.

Organic factors include fluctuations in overall economic activity within the industries, end markets, and geographic regions in which we operate, which we term market growth.

Other organic factors combine to reflect what we refer to as market outgrowth.

Such factors include (but are not limited to):

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

(b) the "mix" of products sold, including the proportion of new or upgraded products and their pricing relative to existing products;

(d) changes in the level of competition faced by our products, including the launch of new products by competitors;

(e) our ability to successfully develop, launch, and sell new products and applications;

and (f) the evolution of the markets we serve to safer, cleaner, and more efficient, electrified, and connected technologies.

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

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Cost of revenue

We manufacture the majority of our products and subcontract only a limited number of products to third parties.

We manufacture most of our products, subcontracting only a limited number to third parties.

As such, our cost of revenue consists principally of the following:

• Production Materials Costs.

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

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

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

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

We source production materials globally to ensure a highly effective and efficient supply chain.

However, we are still impacted by local market conditions, including fluctuations in foreign currency exchange rates.

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

We use forward contracts to economically hedge a portion of our exposure to the potential change in prices associated with certain of these commodities, including the impact of exchange rate fluctuations.

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

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

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• Employee Costs.

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

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

As a percentage of net revenue, these costs may decline as a result of economies of scale associated with higher production volumes, and conversely, may increase with lower production volumes.

These costs also fluctuate based on local market conditions.

Wages and benefits, including variable incentive compensation, for employees involved in our manufacturing operations and certain customer service and engineering activities is reflected in cost of revenue.

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

These costs may decline as a percentage of net revenue due to economies of scale associated with higher production volumes, and conversely, may increase with lower production volumes.

These costs also fluctuate based on local labor market conditions.

We rely on contract workers for direct labor in certain geographies.

As of December 31, 2021, we had approximately 1,900 direct labor contract workers on a worldwide basis.

As of December 31, 2022, we had approximately 1,800 direct labor contract workers worldwide.

• Sustaining Engineering Activity Costs.

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

Modifications of existing products for use by new and existing customers in familiar applications are included in cost of revenue, as are costs related to improvements in our manufacturing processes.

Our remaining cost of revenue primarily consists of:

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operating supplies;

◦ other general manufacturing expenses, such as expenses for energy consumption and operating lease expense.

Changes in cost of revenue as a percentage of net revenue have historically been impacted by a number of factors, including:

and other general manufacturing expenses, such as expenses for energy consumption and operating lease expense.

Changes in cost of revenue as a percentage of net revenue have historically been impacted by several factors, including:

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

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

• product lifecycles, as we typically incur higher cost of revenue associated with new product development (related to excess manufacturing capacity and higher production costs during the initial stages of product launches) and during the phase-out of discontinued products;

• changes in production volumes – production costs are capitalized in inventory based on normal production volumes, as revenue increases, the fixed portion of these costs does not;

• product lifecycles, as we typically incur higher costs associated with new product development (related to excess manufacturing capacity and higher production costs during the initial stages of product launches) and during the phase-out of discontinued products;

• changes in production volumes, as a portion of production costs are fixed;

• transfer of production to our lower-cost manufacturing facilities;

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• acquisitions and divestitures – acquired and divested businesses may generate higher or lower cost of revenue as a percentage of net revenue than our core business;

• the increase in the carrying value of inventory that is adjusted to fair value as a result of the application of purchase accounting associated with acquisitions.

• the increase in the carrying value of inventory adjusted to fair value upon the application of purchase accounting associated with acquisitions.

Research and development expense

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

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

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

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

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charges related to the use and maintenance of administrative offices, including depreciation expense;

• other administrative costs, including expenses relating to information systems, human resources, and legal and accounting services;

other administrative costs, including expenses relating to information systems, human resources, and legal, finance, and accounting services;

other selling and marketing related costs, such as expenses incurred in connection with travel and communications;

• transaction costs associated with acquisitions.

and transaction costs associated with acquisitions.

Changes in SG&A expense as a percentage of net revenue have historically been impacted by a number of factors, including:

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These charges may be incurred as part of an announced restructuring plan or may be individual charges recognized related to acquired businesses or the termination of a limited number of employees that do not represent the initiation of a larger restructuring plan.

Restructuring and other charges, net also includes the gain, net of transaction costs, from the sale of businesses and other operating income or expense that is not presented elsewhere in operating income.

Restructuring and other charges, net also includes the gain, net of transaction costs, from the sale of businesses, expense incurred from acquisition-related compensation arrangements, and other operating income or expense that is not presented elsewhere in operating income.

Amounts recognized in restructuring and other charges, net will vary according to the extent of our restructuring programs and other income or expense items not presented elsewhere in operating income.

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

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

Our respective senior unsecured notes (the "Senior Notes") accrue interest at fixed rates.

The credit agreement governing our secured credit facility (as amended, the "Credit Agreement") provides for the Senior Secured Credit Facilities, consisting of the Term Loan, the $750.0 million revolving credit facility (the "Revolving Credit Facility"), and incremental availability (the "Accordion") under which additional secured credit facilities could be issued under certain circumstances.

Our various tranches of senior unsecured notes (the "Senior Notes") accrue interest at fixed rates.

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

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

Other, net primarily includes gains and losses associated with the remeasurement of non-USD denominated monetary assets and liabilities into USD, changes in the fair value of derivative financial instruments not designated as cash flow hedges, debt financing transactions, and net periodic benefit cost, excluding service cost.

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

Other, net primarily includes gains and losses associated with the remeasurement of non-USD denominated monetary assets and liabilities into USD, changes in the fair value of derivative financial instruments not designated as cash flow hedges, mark-to-market gains and losses on investments, losses on debt financing transactions, and net periodic benefit cost, excluding service cost.

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

Refer to Note 6:

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Refer to Item 7A:

Quantitative and Qualitative Disclosures About Market Risk included elsewhere

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

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

Refer to Note 14:

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tax jurisdictions and withholding taxes related to interest, royalties, and repatriation of foreign earnings;

• deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to the step-up in fair value of fixed and intangible assets, including goodwill, acquired in connection with business combination transactions, the utilization of net operating losses, changes in tax rates, and changes in our assessment of the realizability of our deferred tax assets.

Our current tax expense is favorably impacted by the amortization of definite-lived intangible assets and other tax benefits derived from our operating and capital structure, including tax incentives in both the U.K.

and China as well as favorable tax status in Mexico.

and deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to the step-up in fair value of fixed and intangible assets, including goodwill, acquired in connection with business combination transactions, the utilization of net operating losses, changes in tax rates, and changes in our assessment of the realizability of our deferred tax assets.

In addition, our tax structure takes advantage of participation exemption regimes that permit the receipt of intercompany dividends without incurring taxable income in those jurisdictions.

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

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

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

• foreign currency exchange gains and losses;

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

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

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

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

generally accepted accounting principles ("GAAP").

The preparation of the Financial Statements requires us to make estimates and judgments that affect the amounts reported therein.

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Net revenue - Overall

Net revenue for the year ended December 31, 2022 increased 5.5% compared to the year ended December 31, 2021.

Excluding a decrease of 2.4% attributed to changes in foreign currency exchange rates and an increase of 3.1% due to the net effect of acquisitions and divestitures, net revenue increased 4.8% on an organic basis, which represented market outgrowth of 820 basis points.

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

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

This represents market outgrowth of 960 basis points.

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

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

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

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

This represents market outgrowth of 650 basis points.

Net Revenue - Performance Sensing

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Performance Sensing net revenue for the year ended December 31, 2022 increased 4.5% compared to the year ended December 31, 2021.

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

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

Excluding a decrease of 2.7% attributed to changes in foreign currency exchange rates and an increase of 3.3% due to the effect of acquisitions, Performance Sensing net revenue increased 3.9% on an organic basis.

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

Automotive net revenue for the year ended December 31, 2022 increased 2.7% compared to the year ended December 31, 2021.

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

Excluding a decrease of 3.0% attributed to changes in foreign currency exchange rates, automotive net revenue increased 5.7% on an organic basis.

This organic revenue growth was primarily due to continued content growth and pricing.

HVOR net revenue for the year ended December 31, 2022 increased 9.0% compared to the year ended December 31, 2021.

Excluding a decrease of 1.7% attributed to changes in foreign currency exchange rates and an increase of 11.4% due to the effect of acquisitions, HVOR net revenue decreased 0.7% on an organic basis.

This organic revenue decline was primarily due to declining market conditions, largely offset by continued content growth and pricing.

Fiscal year 2021 vs.

fiscal year 2020

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

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

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

Excluding an increase of 2.5% attributed to changes in foreign currency exchange rates, automotive net revenue increased 15.1% on an organic basis.

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

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

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

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

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

Fiscal year 2020 vs.

fiscal year 2019

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

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

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

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

The Performance Sensing results in fiscal year 2020 represented

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

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

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

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

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

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

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

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

Net Revenue - Sensing Solutions

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Sensing Solutions net revenue for the year ended December 31, 2022 increased 8.2% compared to the year ended December 31, 2021.

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

Excluding a decrease of 1.7% attributed to changes in foreign currency exchange rates and an increase of 2.4% due to the net effect of acquisitions and divestitures, Sensing Solutions net revenue increased 7.5% on an organic basis, which primarily reflects the launch of new industrial Electrification applications within the Clean Energy Solutions business as well as growth in content in other industrial businesses and aerospace, partially offset by weakness in our industrial markets, particularly appliance and HVAC.

Fiscal year 2021 vs.

fiscal year 2020

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

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

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

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

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

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

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

Operating costs and expenses

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Cost of revenue

Cost of revenue as a percentage of net revenue increased in fiscal year 2022, primarily due to the impacts of inflation on material and logistics costs and the unfavorable impact of product mix, partially offset by improved pricing.

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

("Schrader") by Wasica.

("Schrader") by Wasica Finance GmbH ("Wasica").

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

Cost of revenue as a percentage of net revenue increased in fiscal year 2020 primarily as a result of (1) productivity headwinds from lower volume, the resulting lower than normal capacity, and increased costs related to the COVID-19 pandemic, (2) a $29.2 million loss in fiscal year 2020 related to the judgment against us in intellectual property litigation originally brought against Schrader by Wasica, and (3) higher compensation to retain and incentivize critical employee talent.

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

Research and development expense

We invest in R&D in megatrend-related areas to design and develop differentiated solutions for the fast-growing trends impacting our customers’ businesses, Electrification and Insights/IoT.

Megatrend-related R&D expense in fiscal year 2022 was $68.5 million, an increase of $20.5 million from fiscal year 2021.

We currently expect approximately $65 million to $70 million in total megatrend spend in fiscal year 2023, the vast majority of which will be recorded as R&D expense.

Total R&D expense increased in fiscal year 2022, primarily as a result of (1) higher spend to support megatrend growth initiatives and (2) incremental R&D expense related to acquired businesses, partially offset by the favorable effect of foreign currency exchange rates.

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

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

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

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

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

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

Selling, general and administrative expense

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

SG&A expense increased in fiscal year 2022, primarily as a result of (1) incremental SG&A expense related to acquired businesses, including related transaction costs, (2) increased selling expenses attributed to organic revenue growth, and (3) higher share-based compensation, partially offset by the favorable effect of changes in foreign currency exchange rates.

Refer to Note 21:

Acquisitions and Divestitures and Note 4:

Share-Based Payment Plans of our Financial Statements, included elsewhere in this Report, for additional information related to acquired businesses and share-based compensation, respectively.

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

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

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

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

Amortization of intangible assets

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

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

Amortization expense increased in fiscal year 2022, primarily due to increased intangibles from recent acquisitions.

Refer to Note 21:

Acquisitions and Divestitures of our Financial Statements, included elsewhere in this Report, for additional information related to acquired businesses.

We expect amortization expense to be approximately $153.7 million in fiscal year 2023.

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

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

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

Restructuring and other charges, net

We recorded a net credit of $66.7 million in restructuring and other charges, net in the year ended December 31, 2022, compared to a net charge of $14.9 million in the prior year, representing a favorable change in earnings of $81.6 million.

This change was primarily due to (1) a gain of $135.1 million on the sale of the Qinex Business and (2) a gain of $8.6 million resulting from the reduction of the liability for contingent consideration for Spear Power Systems ("Spear"), partially offset by (1) expense of $48.9 million for acquisition-related compensation arrangements and (2) higher severance that does not represent the initiation of a larger plan.

Refer to Note 5:

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

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

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

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

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

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

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

For the year ended December 31,

(In millions) 2021 2020 2019

Q2 2020 Global Restructure Program (1)

$ 7.1 $ 24.5 $ —

Other restructuring charges

Severance costs, net (2)

Facility and other exit costs 2.4 1.3 0.8

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

__________________________

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

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

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

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

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

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

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

Refer to Note 5:

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

Operating income

In fiscal year 2022, operating income increased $36.9 million or 5.8%, to $670.1 million (16.6% of net revenue) compared to $633.2 million (16.6% of net revenue) in fiscal year 2021, primarily due to (1) the gain on the sale of the Qinex Business and (2) improvements in pricing to offset increased costs, partially offset by (1) the impact of inflation on our component and logistics costs, (2) higher acquisition-related incentive compensation, (3) the negative impact of product mix, (4) higher amortization, primarily due to acquired intangible assets, (5) higher spend to support our megatrends initiatives, and (6) the unfavorable effect of changes in foreign currency exchange rates.

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

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

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

This decrease was primarily driven by:

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

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

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

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

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

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

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

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

(3) the impact of ongoing savings resulting from cost reduction activities taken in fiscal years 2019 and 2020;

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

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

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

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

Interest expense, net

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

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

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

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

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

On August 17, 2020, we took advantage of historically low interest rates in issuing the 3.75% Senior Notes.

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

Interest expense, net did not change materially in fiscal year 2022, as the impact of various transactions and higher interest rates largely offset.

Refer to the table detailing interest expense by debt instrument under the heading Indebtedness and Liquidity , included elsewhere in this MD&A.

On January 31, 2023, we announced that we intended to pay down $250.0 million of outstanding principal on the Term Loan.

That payment was completed on February 6, 2023.

Interest expense, net increased in fiscal year 2021 primarily as a result of (1) interest expense in fiscal year 2021 related to the issuance of $1.0 billion aggregate principal amount of 4.0% senior notes due 2029 (the “4.0% Senior Notes”), (2) additional interest expense in fiscal year 2021 related to the $750.0 million aggregate principal amount of 3.75% senior notes due 2031 (the "3.75% Senior Notes") as a result of their issuance in fiscal year 2020, partially offset by reduced interest as a result of the redemption of the $750.0 million aggregate principal amount outstanding on the 6.25% senior notes due 2026 (the "6.25% Senior Notes") early in fiscal year 2021.

Other, net for the years ended December 31, 2022, 2021, and 2020 consisted of the following (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

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(In millions) 2022 2021 2020

Currency remeasurement gain/(loss) on net monetary assets (1)

Currency remeasurement (loss)/gain on net monetary assets (1)

$ (18.2) $ 3.4 $ 10.8

(Loss)/gain on foreign currency forward contracts (2)

Gain/(loss) on foreign currency forward contracts (2)

4.3 (7.6) (6.8)

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(5.5) (30.1) —

Mark-to-market loss on investments, net (4)

Net periodic benefit cost, excluding service cost (5.1) (7.5) (10.0)

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Refer to Note 19:

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

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

Refer to Item 7A:

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

(4) Primarily relates to mark-to-market losses on our investment in Quanergy Systems, Inc.

("Quanergy"), as disclosed in Note 18:

Fair Value Measures , of our Financial Statements included elsewhere in this Report.

Provision for income taxes

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$ 83.3 $ 86.9 $ 34.8

Valuation allowances (2)

20.5 8.9 19.6

Foreign tax rate differential (2)

(44.3) (30.5) (22.0)

Research and development incentives (3)

Valuation allowances (3)

15.7 20.5 8.9

Reserve for tax exposure (16.3) (0.2) 20.1

Withholding taxes not creditable 12.3 13.3 12.2

Research and development incentives (4)

(10.8) (11.1) (7.4)

Unrealized foreign currency exchange losses, net 9.3 (6.1) 2.7

Dispositions and capital restructurings (5)

Change in tax laws or rates 2.6 (7.1) 11.2

Intangible property transfers (5)

Reserve for tax exposure 1.3 (16.3) (0.2)

12.1 0.7 15.4

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

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

statutory tax rate.

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

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

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

(3) During the years ended December 31, 2022, 2021, and 2020, we established an additional valuation allowance and recognized a deferred tax expense.

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

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

tax rates under the "patent box" regime.

In the U.K., certain of our subsidiaries are eligible for lower tax rates under the "patent box" regime.

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

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

statutory tax rate.

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

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

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

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

(5) The increase in our effective tax rate for the year ended December 31, 2022 is due to the tax accounting impacts of the divestiture of the Qinex Business, partially offset by separate intangible property transfers.

For the year ended December 31, 2020, the decrease in our effective tax rate was due to a net $54.2 million deferred tax benefit in the fourth quarter of 2020 related to intangible property transfers.

(6) Refer to Note 7:

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Non-GAAP Financial Measures

This section provides additional information regarding certain non-GAAP financial measures, including organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted earnings per share ("EPS"), free cash flow, net leverage ratio, and adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA"), which are used by our management, Board of Directors, and investors.

This section provides additional information regarding certain non-GAAP financial measures, including organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted earnings per share ("EPS"), free cash flow, adjusted corporate and other expenses, net debt, net leverage ratio, and adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA"), which are used by our management, Board of Directors, and investors.

We use these non-GAAP financial measures internally to make operating and strategic decisions, including the preparation of our annual operating plan, evaluation of our overall business performance, and as a factor in determining compensation for certain employees.

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

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

In addition, our measures of organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted EPS, free cash flow, net leverage ratio, and adjusted EBITDA may not be the same as, or comparable to, similar non-GAAP financial measures presented by other companies.

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

In addition, our measures of organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted EPS, free cash flow, adjusted corporate and other expenses, net leverage ratio, and adjusted EBITDA may not be the same as, or comparable to, similar non-GAAP financial measures presented by other companies.

Organic revenue growth (or decline)

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

Adjusted corporate and other expenses

Adjusted corporate and other expenses is defined as corporate and other expenses calculated in accordance with U.S.

GAAP, excluding the portion of non-GAAP adjustments described below that relate to corporate and other expenses.

We believe adjusted corporate and other expenses is useful to management and investors in understanding the impact of non-GAAP adjustments on operating expenses not allocated to our segments.

Adjusted EBITDA

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Non-GAAP adjustments:

Restructuring related and other (d)

Restructuring related and other (e)

36.5 0.9 34.5 0.22

Financing and other transaction costs (b)

Financing and other transaction costs (a)

(75.6) (1.9) 10.7 0.07

Step-up depreciation and amortization 148.3 3.7 148.3 0.95

Deferred loss on derivative instruments 8.3 0.2 11.3 0.07

Deferred (gain)/loss on derivative instruments (1.5) 0.0 1.5 0.01

Amortization of debt issuance costs — — 7.0 0.04

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Non-GAAP adjustments:

Restructuring related and other (d)

Restructuring related and other (e)

23.6 0.6 21.4 0.13

Financing and other transaction costs 8.2 0.3 6.4 0.04

Financing and other transaction costs (b)

13.2 0.3 41.0 0.26

Step-up depreciation and amortization 127.6 3.3 127.6 0.80

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

Deferred loss on derivative instruments 8.3 0.2 11.3 0.07

Amortization of debt issuance costs — — 6.9 0.04

Deferred taxes and other tax related (a)

Deferred taxes and other tax related (c)

— — (4.9) (0.03)

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Non-GAAP adjustments:

Restructuring related and other (d)

Restructuring related and other (e)

87.4 2.9 93.8 0.59

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125.7 4.1 125.7 0.79

Deferred gain on derivative instruments

Deferred loss/(gain) on derivative instruments

3.1 0.1 (7.0) (0.04)

Amortization of debt issuance costs — — 6.9 0.04

Deferred taxes and other tax related — — 55.2 0.34

Deferred taxes and other tax related (d)

— — (40.9) (0.26)

Total adjustments 224.4 7.4 184.9 1.17

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__________________________

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

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

(a) Includes gains of $135.1 million and $9.4 million on the sale of the Qinex Business and changes in the fair value of acquisition-related contingent consideration, respectively, partially offset by $48.9 million of expense related to compensation arrangements entered into concurrent with the closing of acquisitions, each of which were recorded in restructuring and other charges, net.

Also includes $75.6 million of mark-to-market losses on our equity investments, primarily our investment in Quanergy, which are presented in other, net in our consolidated statements of operations.

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

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

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

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

(c) The years ended December 31, 2022 and 2021 include current tax expense of $14.7 million and $10.9 million, respectively, related to the repatriation of earnings from certain Asian subsidiaries to their parent companies in the Netherlands.

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

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

(d) Includes a net $54.2 million deferred tax benefit recorded as a result of the transfer of intangible property.

(e) The following table presents the components of our restructuring related and other non-GAAP adjustment to net income for fiscal years 2022, 2021, and 2020 (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

For the year ended December 31,

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Supply chain repositioning and transition (ii)

8.2 30.8 16.0

Pre-acquisition legal matters (iii)

Other — — 2.7

Income tax effect (iv)

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Fiscal year 2020 includes charges incurred under the Q2 2020 Global Restructure Program and charges for other business and corporate workforce rationalization.

Fiscal year 2019 includes benefits provided under a voluntary retirement incentive program, costs related to the shutdown and relocation of an operating site in Germany, and charges for other business and corporate workforce rationalization.

Primarily includes costs related to optimization of our manufacturing processes to increase productivity and rationalize our manufacturing footprint and supply chain workforce rationalization.

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Free cash flow $ 310.5 $ 409.7 $ 453.1

The following table presents a reconciliation of corporate and other expenses calculated in accordance with U.S.

GAAP to adjusted corporate and other expenses.

For the year ended December 31,

(In millions) 2022 2021 2020

Corporate and other expenses (GAAP) $ (294.4) $ (288.1) $ (273.4)

Non-GAAP adjustments

Restructuring related and other 11.9 9.9 54.9

Financing and other transaction costs 15.7 11.9 7.6

Step-up depreciation and amortization 1.2 1.7 2.8

Deferred (gain)/loss on derivative instruments (1.5) 8.3 3.1

Total Adjustments 27.3 31.8 68.4

Adjusted corporate and other expenses (non-GAAP) $ (267.1) $ (256.3) $ (205.0)

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

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We recognize a deferred tax liability on these unremitted earnings to the extent the remittance of such earnings cannot be recovered in a tax-free manner.

In certain jurisdictions, our cash balances are subject to withholding taxes immediately upon withdrawal of funds to a different jurisdiction.

In addition, in order to take advantage of incentive programs offered by various jurisdictions, including tax incentives, we are required to maintain minimum cash balances in these jurisdictions.

The transfer of cash from these jurisdictions could result in loss of incentives or higher cash tax expense, but those impacts are not expected to be material.

Our cash and cash equivalent balances as of December 31, 2022 and 2021 were held in the following significant currencies:

As of December 31, 2022

(In millions) USD EUR GBP CNY Other

United Kingdom $ 2.7 € 0.0 £ 10.7 ¥ —

United States 16.1 — — —

The Netherlands 848.6 10.9 0.2 —

China 95.0 — — 794.4

Other 99.9 2.3 — —

Total $ 1,062.3 € 13.2 £ 10.9 ¥ 794.4

USD Equivalent $ 14.0 $ 13.2 $ 115.2 $ 20.8

As of December 31, 2021

(In millions) USD EUR GBP CNY Other

United Kingdom $ 1.8 € 0.0 £ 13.2 ¥ —

United States 25.0 — — —

The Netherlands 1,294.2 8.9 — —

China 50.8 — — 1,549.4

Other 51.0 1.7 — —

Total $ 1,422.8 € 10.6 £ 13.2 ¥ 1,549.4

USD Equivalent $ 12.0 $ 17.8 $ 243.1 $ 13.3

The table below summarizes our primary sources and uses of cash for the years ended December 31, 2022, 2021, and 2020.

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Operating Activities

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

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

Net cash provided by operating activities for the year ended December 31, 2022 decreased compared to the prior year, primarily due to lower net income, increases in receivables as our business and revenues grew, our decision to carry higher inventory levels to ensure continuity of supply in uncertain markets, and from acquisition-related compensation payments.

Refer to Results of Operations included elsewhere in this MD&A for discussion of the drivers of changes in net income from fiscal year 2022.

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

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

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

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

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

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

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

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

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

Investing Activities

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

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

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

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

Refer to Item 1:

Business — Business Combinations and Note 21:

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

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

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

Net cash used in investing activities for the year ended December 31, 2022 decreased compared to the corresponding period of the prior year primarily due to lower cash paid for acquisitions (Elastic M2M and Dynapower) and the receipt of $198.8 million of cash proceeds of from the divestiture of the Qinex Business.

In fiscal year 2023, we anticipate additions to PP&E and capitalized software of approximately $170.0 million to $180.0 million, which we expect to be funded with cash flows from operations.

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

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

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

Financing Activities

In fiscal year 2022, we used net cash of $353.5 million in financing activities, compared to net cash of $174.9 million provided by financing activities in fiscal year 2021.

This increased use of cash was primarily due to additional payments to repurchase our ordinary shares in fiscal year 2022, less cash received from debt financing in fiscal year 2022, and $51.1 million of cash used for payment of dividends, a program which we began in fiscal year 2022.

We used $292.3 million of cash for share

repurchases, compared to $47.8 million in fiscal year 2021.

We also issued $500.0 million aggregate principal amount of 5.875% senior notes due 2030 (the "5.875% Senior Notes") and redeemed $500.0 million aggregate principal amount of 4.875% senior notes due 2023 (the "4.875% Senior Notes") in fiscal year 2022, the cash impact of which largely offset.

In fiscal year 2021, cash provided by financing activities was primarily the result of the issuance of $1.0 billion of the 4.0% Senior Notes, partially offset by the redemption of $750.0 million of the 6.25% Senior Notes.

In addition, in fiscal year 2022 we used $13.7 million in cash related to debt financing transactions, compared to $33.1 million in the prior year.

On February 6, 2023, we prepaid $250.0 million of outstanding principal on the Term Loan.

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

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

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

In fiscal year 2021, we issued $1.0 billion of 4.0% Senior Notes and redeemed the $750.0 million aggregate principal amount outstanding on the 6.25% Senior Notes, representing net cash inflow of $218.8 million (including associated fees).

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

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

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

Indebtedness and Liquidity

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Term Loan (1)

$ 446.8 $ 17.0

4.875% Senior Notes (2)

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__________________________

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

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

(1) On February 6, 2023, we prepaid $250.0 million on our outstanding variable rate Term Loan.

(2) We redeemed the full outstanding balance on the 4.875% Senior Notes in September 2022.

(3) We issued the 5.875% Senior Notes in August 2022.

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

Debt Instruments

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

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

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

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

As of December 31, 2022, our debt instruments included the Term Loan, $400.0 million in aggregate principal amount of 5.625% senior notes due 2024 (the "5.625% Senior Notes"), $700.0 million in aggregate principal amount of 5.0% senior notes due 2025 (the "5.0% Senior Notes"), $450.0 million aggregate principal amount of 4.375% senior notes due 2030 (the "4.375% Senior Notes"), the 3.75% Senior Notes, the 4.0% Senior Notes, and the 5.875% Senior Notes.

On June 23, 2022, we 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.

The Eleventh Amendment, among other things:

increased the aggregate principal amount of the Revolving Credit Facility to $750.0 million;

extended the maturity date of the Revolving Credit Facility to June 23, 2027 (subject to certain exceptions as described in Note 14:

Debt of our Financial Statements included elsewhere in this Report);

certain guarantors from their obligations relating to the Revolving Credit Facility and certain related obligations;

and replaced the LIBOR-based interest rates referenced by the Credit Agreement regarding revolving credit loans.

On August 29, 2022, we completed the issuance and sale of the 5.875% Senior Notes.

On September 28, 2022, we redeemed in full the $500.0 million aggregate principal amount outstanding on the 4.875% Senior Notes due 2023 in accordance with the terms of the indenture under which the 4.875% Senior Notes were issued, 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.

Refer to Note 14:

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

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

On February 6, 2023, we prepaid $250.0 million of principal on the Term Loan.

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

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

All letters of credit issued thereunder will terminate at the final

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

All letters of credit issued thereunder will terminate at the final maturity of the Revolving Credit Facility unless cash collateralized prior to such time.

The following table presents the remaining mandatory principal repayments of long-term debt, in millions, excluding finance lease payments, other financing obligations, and discretionary repurchases of debt, in each of the years ended December 31, 2023 through 2027 and thereafter.

The table reflects the payment of $250.0 million principal amount of the Term Loan on February 6, 2023.

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

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As of December 31, 2022, availability under the Accordion was approximately $0.7 billion.

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

Our primary historical uses of cash on hand have been to support the growth of the business through capital expenditures, acquire businesses that extend our market position within our key growth vectors of Electrification and Insights/IoT, and to repurchase our ordinary shares, augmenting our existing capital deployment strategies and enabling us to drive attractive returns on invested capital over the long-term.

We believe, based on our current level of operations for the year ended December 31, 2022, and taking into consideration the restrictions and covenants included in the Credit Agreement and Senior Notes Indentures discussed below and in Note 14:

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

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

("STBV"), and the Guarantors.

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

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

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

the Credit Agreement.

As of January 27, 2023, Moody’s Investors Service’s corporate credit rating for STBV was Ba2 with a stable outlook, and Standard & Poor's corporate credit rating for STBV was BB+ with a stable outlook.

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

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

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

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

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

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

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

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

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

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 July 2019 Program.

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

During the year ended December 31, 2022, we repurchased approximately 6.3 million ordinary shares under the January 2022 Program, at a weighted-average price per share of $46.08.

As of December 31, 2022, approximately $224.5 million remained available under the January 2022 Program.

Critical Accounting Policies and Estimates

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It also requires that we make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes.

The accounting policies and estimates that we believe are most critical to the portrayal of our financial condition and results of operations are listed below.

The accounting policies and estimates that we believe are most critical to the portrayal of our financial

condition and results of operations are listed below.

We believe these policies require the most difficult, subjective, and complex judgments in estimating the effect of inherent uncertainties.

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

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

customary practices.

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

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

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Identification of reporting units.

Our reporting units have been identified based on the definitions and guidance provided in FASB ASC Topic 350.

We have six identified reporting units, Automotive, HVOR, Sensata INSIGHTS, Industrial Solutions, Aerospace, and Clean Energy Solutions.

These reporting units have been identified based on the definitions and guidance provided in FASB ASC Topic 350.

Identification of reporting units includes an analysis of the components that comprise each of our operating segments, which considers, among other things, the manner in which we operate our business and the availability of discrete financial information.

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

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

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

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

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

This reorganization had no impact on our Aerospace reporting unit.

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

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

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

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

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

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

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

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

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We apply that allocation method on a consistent basis from year to year.

Other assets and liabilities, such as debt, cash and cash equivalents, and PP&E associated with our corporate offices, are viewed as being corporate in nature.

Other assets and liabilities, such as

debt, cash and cash equivalents, and PP&E associated with our corporate offices, are viewed as being corporate in nature.

Accordingly, we do not assign these assets and liabilities to our reporting units.

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If the carrying value of a reporting unit exceeds its estimated fair value, we recognize an impairment of goodwill for the amount of this excess, in accordance with the guidance in FASB ASC Topic 350.

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

We evaluated the goodwill of each reporting unit for impairment as of October 1, 2022 using a quantitative method.

As a result of this evaluation we determined that none of our reporting units were impaired.

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

In performing our evaluation under the quantitative method, we estimated the fair values of our reporting units using the discounted cash flow method.

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

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

We also consider the impact of recent acquisitions in our expectations of the reporting units, and how these acquisitions perform against their original expected performance, as these might put pressure on the reporting units' fair value over carrying value in the short term.

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

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We have the option to first assess qualitative factors in determining whether it is more likely than not that an indefinite-lived intangible asset is impaired.

If we elect not to use this option, or we determine that it is more likely than not that the asset is impaired, we perform a quantitative impairment analysis in which we estimate the fair value of the indefinite-lived intangible asset and compare that amount to its carrying value.

asset and compare that amount to its carrying value.

In performing this analysis, we estimate the fair value by using the relief-from-royalty method, in which we make assumptions about future conditions impacting the fair value of our indefinite-lived intangible assets, including projected growth rates, cost of capital, effective tax rates, and royalty rates.

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

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

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

These differences result in deferred tax assets and liabilities.

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In the event that actual results differ from these estimates, or we adjust our estimates in the future, we may need to adjust our valuation allowance assessment, which could materially impact our consolidated financial position and results of operations.

Pension and Other Post-Retirement Benefits

We sponsor various pension and other post-retirement benefit plans covering our current and former employees in several countries.

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

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

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

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

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

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

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

The most significant assumptions used to determine a plan's funded status and net periodic benefit cost relate to discount rate, expected return on plan assets, and rate of increase in healthcare costs.

These assumptions are reviewed annually.

Refer to Note 13:

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

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

It is used to discount the estimated future obligations of the plans to the present value of the liability reflected in the financial statements.

In estimating this rate in countries that have a market of high-quality fixed-income investments, we consider rates of return on these investments included in various bond indices, adjusted to eliminate the effects of call provisions and differences in the timing and amounts of cash outflows related to the bonds.

In other countries where a market of high-quality fixed-income investments does not exist, we estimate the discount rate using government bond yields or long-term inflation rates.

The expected return on plan assets reflects the average rate of earnings expected on the funds invested to provide for the benefits included in the projected benefit obligation.

To determine the expected return on plan assets, we consider the historical returns earned by similarly invested assets, the rates of return expected on plan assets in the future, and our investment strategy and asset mix with respect to the plans’ funds.

The rate of increase of healthcare costs directly impacts the estimate of our future obligations in connection with our post-retirement medical benefits.

Our estimate of healthcare cost trends is based on historical increases in healthcare costs under similarly designed plans, the level of increase in healthcare costs expected in the future, and the design features of the underlying plan.

Other assumptions used include employee demographic factors such as compensation rate increases, retirement patterns, employee turnover rates, and mortality rates.

Our review of demographic assumptions includes analyzing historical patterns and/or referencing industry standard tables, combined with our expectations around future compensation and staffing strategies.

The difference between these assumptions and our actual experience results in the recognition of an actuarial gain or loss.

Future changes to assumptions, or differences between actual and expected outcomes, can significantly affect our future net periodic benefit cost, projected benefit obligations, and accumulated other comprehensive loss.

Share-Based Compensation

FASB ASC Topic 718, Compensation—Stock Compensation , requires that a company measure at fair value any new or modified share-based compensation arrangements with employees, such as stock options and restricted securities, and recognize as compensation expense that fair value over the requisite service period.

We estimate the fair value of stock options on the date of grant using the Black-Scholes-Merton option-pricing model.

Key assumptions used in this model are (1) the fair value of the underlying ordinary shares, (2) the time period for which we expect the stock options will be outstanding (the expected term), (3) the expected volatility of the price of our ordinary shares, (4) the risk-free interest rate, and (5) the expected dividend yield.

Expected term and expected volatility are the judgments that we believe are the most critical and subjective in estimating fair value (and related share-based compensation expense) of our stock option awards.

The expected term is determined based upon our own historical average term of exercised and outstanding stock options.

We consider our own historical volatility, as well as our implied volatility, in estimating expected volatility for stock options.

Implied volatility provides a forward-looking indication and may offer insight into expected volatility.

Other assumptions used include risk-free interest rate and expected dividend yield.

The risk-free interest rate is based on the yield for a U.S.

Treasury security having a maturity similar to the expected term of the related stock option grant.

This assumption is dependent on the assumed expected term.

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

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

Refer to Item 5:

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

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

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Compensation expense recognized for each award ultimately reflects the number of units that actually vest.

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

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

Recently Issued Accounting Standards

In October 2021, the FASB issued Accounting Standards Update ("ASU") No.

2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers to improve the accounting for acquired revenue contracts with customers in a business combination.

The amendments in FASB ASU No.

2021-08 require that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with FASB ASC Topic 606 as if it had originated the contracts.

Previous guidance required an entity to recognize contract assets and contract liabilities at fair value as of the acquisition date.

The amendments in FASB ASU No.

2021-08 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted, including adoption in an interim period.

We have elected to early adopt FASB ASU No.

2021-08 in the fourth quarter of 2021, and in accordance with the requirements of FASB ASU No.

2021-08 related to early adoption in an interim period, we have applied its provisions retrospectively to all acquisitions completed on or after January 1, 2021 and will apply them prospectively to all future acquisitions.

There was no retrospective impact on our financial statements resulting from this adoption.

Any future impact will be dependent on facts and circumstances of future acquisitions.

There have been no other recently issued accounting standards that have been adopted in the current period or will be adopted in future periods that have had or are expected to have a material impact on our consolidated financial position or results of operations.

There have been 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.

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What changed 10-K

Item 7. Management’s Discussion and Analysis