Sensata Technologies Holding plc 10-Q

Item 1. Financial Statements. SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Balance Sheets (In thousands, except per share amounts) (unaudited) March 31, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 1,034,134 $ 1,225,518 Accounts receivable, net of allowances of $ 23,675 and $ 24,246 as of March 31, 2023 and December 31, 2022, respectively 759,752 742,382 Inventories 658,562 644,875 Prepaid expenses and other current assets 187,747 162,268 Total current assets 2,640,195 2,775,043 Property, plant and equipment, net 848,033 840,819 Goodwill 3,902,862 3,911,224 Other intangible assets, net of accumulated amortization of $ 2,393,587 and $ 2,352,813 as of March 31, 2023 and December 31, 2022, respectively 959,469 999,722 Deferred income tax assets 98,230 100,539 Other assets 136,065 128,873 Total assets $ 8,584,854 $ 8,756,220 Liabilities and shareholders' equity Current liabilities: Current portion of long-term debt, finance lease and other financing obligations $ 198,696 $ 256,471 Accounts payable 529,941 531,572 Income taxes payable 50,869 43,987 Accrued expenses and other current liabilities 329,960 346,942 Total current liabilities 1,109,466 1,178,972 Deferred income tax liabilities 369,897 364,593 Pension and other post-retirement benefit obligations 37,883 36,086 Finance lease and other financing obligations, less current portion 24,471 24,742 Long-term debt, net 3,768,627 3,958,928 Other long-term liabilities 81,018 82,092 Total liabilities 5,391,362 5,645,413 Commitments and contingencies (Note 11) Shareholders’ equity: Ordinary shares, € 0.01 nominal value per share, 177,069 shares authorized, and 175,298 and 175,207 shares issued as of March 31, 2023 and December 31, 2022, respectively 2,243 2,242 Treasury shares, at cost, 22,781 and 22,781 shares as of March 31, 2023 and December 31, 2022, respectively ( 1,124,713 ) ( 1,124,713 ) Additional paid-in capital 1,876,168 1,866,201 Retained earnings 2,452,858 2,383,341 Accumulated other comprehensive loss ( 13,064 ) ( 16,264 ) Total shareholders' equity 3,193,492 3,110,807 Total liabilities and shareholders' equity $ 8,584,854 $ 8,756,220 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (unaudited) For the three months ended March 31, 2023 March 31, 2022 Net revenue $ 998,175 $ 975,770 Operating costs and expenses: Cost of revenue 670,471 657,080 Research and development 45,939 45,980 Selling, general and administrative 86,150 95,680 Amortization of intangible assets 40,774 37,367 Restructuring and other charges, net 5,999 13,733 Total operating costs and expenses 849,333 849,840 Operating income 148,842 125,930 Interest expense, net ( 40,091 ) ( 45,445 ) Other, net 1,392 ( 50,456 ) Income before taxes 110,143 30,029 Provision for income taxes 23,726 7,588 Net income $ 86,417 $ 22,441 Basic net income per share $ 0.57 $ 0.14 Diluted net income per share $ 0.56 $ 0.14 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Statements of Comprehensive Income (In thousands) (unaudited) For the three months ended March 31, 2023 March 31, 2022 Net income $ 86,417 $ 22,441 Other comprehensive income: Cash flow hedges 2,807 2,850 Defined benefit and retiree healthcare plans 393 428 Other comprehensive income 3,200 3,278 Comprehensive income $ 89,617 $ 25,719 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Statements of Cash Flows (In thousands) (unaudited) For the three months ended March 31, 2023 March 31, 2022 Cash flows from operating activities: Net income $ 86,417 $ 22,441 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 30,948 31,531 Amortization of debt issuance costs 1,734 1,716 Gain on sale of business ( 5,877 ) — Share-based compensation 7,206 6,540 Loss on debt financing 485 — Amortization of intangible assets 40,774 37,367 Deferred income taxes 6,491 ( 340 ) Acquisition-related compensation payments ( 3,000 ) ( 7,500 ) Mark-to-market loss on equity investments, net — 59,279 Unrealized loss/(gain) on derivative instruments and other 3,107 ( 517 ) Changes in operating assets and liabilities, net of the effects of acquisitions: Accounts receivable, net ( 17,370 ) ( 49,821 ) Inventories ( 13,687 ) ( 53,004 ) Prepaid expenses and other current assets ( 19,668 ) ( 8,807 ) Accounts payable and accrued expenses ( 27,586 ) 13,488 Income taxes payable 6,882 ( 7,268 ) Other 32 2,250 Net cash provided by operating activities 96,888 47,355 Cash flows from investing activities: Acquisitions, net of cash received — ( 48,441 ) Additions to property, plant and equipment and capitalized software ( 36,882 ) ( 35,711 ) Investment in debt and equity securities — ( 6,853 ) Proceeds from the sale of business, net of cash sold 14,000 — Other — 152 Net cash used in investing activities ( 22,882 ) ( 90,853 ) Cash flows from financing activities: Proceeds from exercise of stock options and issuance of ordinary shares 2,762 13,348 Payment of employee restricted stock tax withholdings ( 123 ) ( 135 ) Payments on debt ( 250,944 ) ( 2,931 ) Dividends paid ( 16,777 ) — Payments to repurchase ordinary shares — ( 67,258 ) Payments of debt financing costs ( 308 ) — Net cash used in financing activities ( 265,390 ) ( 56,976 ) Net change in cash and cash equivalents ( 191,384 ) ( 100,474 ) Cash and cash equivalents, beginning of year 1,225,518 1,708,955 Cash and cash equivalents, end of period $ 1,034,134 $ 1,608,481 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC Condensed Consolidated Statements of Changes in Shareholders' Equity (In thousands) (unaudited) Ordinary Shares Treasury Shares Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity Number Amount Number Amount Balance as of December 31, 2022 175,207 $ 2,242 ( 22,781 ) $ ( 1,124,713 ) $ 1,866,201 $ 2,383,341 $ ( 16,264 ) $ 3,110,807 Surrender of shares for tax withholding — — ( 2 ) ( 123 ) — — — ( 123 ) Stock options exercised 82 1 — — 2,761 — — 2,762 Vesting of restricted securities 11 — — — — — — — Cash dividends paid — — — — — ( 16,777 ) — ( 16,777 ) Retirement of ordinary shares ( 2 ) — 2 123 — ( 123 ) — — Share-based compensation — — — — 7,206 — — 7,206 Net income — — — — — 86,417 — 86,417 Other comprehensive income — — — — — — 3,200 3,200 Balance as of March 31, 2023 175,298 $ 2,243 ( 22,781 ) $ ( 1,124,713 ) $ 1,876,168 $ 2,452,858 $ ( 13,064 ) $ 3,193,492 Ordinary Shares Treasury Shares Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity Number Amount Number Amount Balance as of December 31, 2021 174,287 $ 2,232 ( 16,438 ) $ ( 832,439 ) $ 1,812,244 $ 2,132,257 $ ( 19,560 ) $ 3,094,734 Surrender of shares for tax withholding — — ( 3 ) ( 135 ) — — — ( 135 ) Stock options exercised 290 4 — — 12,713 — — 12,717 Vesting of restricted securities 9 — — — — — — — Repurchase of ordinary shares — — ( 1,138 ) ( 67,258 ) — — — ( 67,258 ) Retirement of ordinary shares ( 3 ) — 3 135 — ( 135 ) — — Share-based compensation — — — — 6,540 — — 6,540 Net income — — — — — 22,441 — 22,441 Other comprehensive income — — — — — — 3,278 3,278 Balance as of March 31, 2022 174,583 $ 2,236 ( 17,576 ) $ ( 899,697 ) $ 1,831,497 $ 2,154,563 $ ( 16,282 ) $ 3,072,317 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents SENSATA TECHNOLOGIES HOLDING PLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements reflect the financial position, results of operations, comprehensive income, cash flows, and changes in shareholders' equity of Sensata Technologies Holding plc, a public limited company incorporated under the laws of England and Wales, and its consolidated subsidiaries, collectively referred to as the "Company," "Sensata," "we," "our," or "us." The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q. Accordingly, these interim financial statements do not include all of the information and note disclosures required by U.S. GAAP for complete financial statements. The accompanying interim financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the interim period results. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the U.S. Securities and Exchange Commission on February 13, 2023 (the "2022 Annual Report"). All U.S. dollar ("USD") and share amounts presented, except per share amounts, are stated in thousands, unless otherwise indicated. 2. New Accounting Standards There are no recently issued accounting standards that have been adopted in the current period or will be adopted in future periods that have had or are expected to have a material impact on our consolidated financial position or results of operations. 3. Revenue Recognition The following table presents net revenue disaggregated by segment and end market for the three months ended March 31, 2023 and 2022: For the three months ended March 31, 2023 For the three months ended March 31, 2022 Performance Sensing Sensing Solutions Total Performance Sensing Sensing Solutions Total Automotive $ 516,884 $ 8,134 $ 525,018 $ 502,362 $ 9,285 $ 511,647 HVOR (1) 234,641 — 234,641 215,335 — 215,335 Industrial — 135,255 135,255 — 114,619 114,619 Appliance and HVAC (2) — 47,474 47,474 — 58,825 58,825 Aerospace — 44,326 44,326 — 33,270 33,270 Other — 11,461 11,461 — 42,074 42,074 Total $ 751,525 $ 246,650 $ 998,175 $ 717,697 $ 258,073 $ 975,770 ___________________________________ (1) Heavy vehicle and off-road (2) Heating, ventilation and air conditioning 4. Share-Based Payment Plans The following table presents the components of non-cash compensation expense related to our equity awards for the three months ended March 31, 2023 and 2022: For the three months ended March 31, 2023 March 31, 2022 Stock options $ 119 $ 307 Restricted securities 7,087 6,233 Share-based compensation expense $ 7,206 $ 6,540 8 Table of Contents 5. Restructuring and Other Charges, Net The following table presents the components of restructuring and other charges, net for the three months ended March 31, 2023 and 2022: For the three months ended March 31, 2023 March 31, 2022 Severance costs, net $ 4,213 $ 587 Facility and other exit costs 225 1,048 Gain on sale of business ( 5,877 ) — Acquisition-related compensation arrangements (1) 7,272 18,255 Other (1)(2) 166 ( 6,157 ) Restructuring and other charges, net $ 5,999 $ 13,733 ___________________________________ (1) We have reclassified acquisition-related compensation arrangements for the three months ended March 31, 2022 from the "other" caption within restructuring and other charges, net, to correspond to current period presentation. (2) The three months ended March 31, 2022 primarily includes gains related to changes in the fair value of acquisition-related contingent consideration amounts. The following table presents a rollforward of our severance liability for the three months ended March 31, 2023: Severance Balance as of December 31, 2022 $ 8,617 Charges, net of reversals 4,213 Payments ( 5,635 ) Foreign currency remeasurement 139 Balance as of March 31, 2023 $ 7,334 The severance liability as of March 31, 2023 and December 31, 2022 was entirely recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets. 6. Other, Net The following table presents the components of other, net for the three months ended March 31, 2023 and 2022: For the three months ended March 31, 2023 March 31, 2022 Currency remeasurement loss on net monetary assets $ ( 1,259 ) $ ( 67 ) Gain/(loss) on foreign currency forward contracts 184 ( 1,243 ) Gain on commodity forward contracts 1,899 9,424 Loss on debt financing ( 485 ) — Mark-to-market loss on equity investments, net — ( 59,279 ) Net periodic benefit cost, excluding service cost ( 971 ) ( 755 ) Other 2,024 1,464 Other, net $ 1,392 $ ( 50,456 ) 7. Income Taxes The following table presents the provision for income taxes for the three months ended March 31, 2023 and 2022: For the three months ended March 31, 2023 March 31, 2022 Provision for income taxes $ 23,726 $ 7,588 The provision for income taxes consists of (1) current tax expense, which relates primarily to our profitable operations in tax jurisdictions with limited or no net operating loss carryforwards and withholding taxes related to management fees, royalties, and the repatriation of foreign earnings; and (2) deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to (a) book versus tax basis in intangible assets, (b) changes in net operating loss 9 Table of Contents carryforwards, and (c) changes in withholding taxes on unremitted earnings. Other items impacting deferred tax expense include changes in tax rates and changes in our assessment of the realizability of our deferred tax assets. We recorded a partial valuation allowance against certain interest carryforwards in the U.S. at both December 31, 2022 and December 31, 2021. We are continually evaluating both the positive and negative evidence for this partial valuation allowance. We believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of this deferred tax asset and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability and future utilization of this attribute that we are able to actually achieve. 8. Net Income per Share Basic and diluted net income per share are calculated by dividing net income by the number of basic and diluted weighted-average ordinary shares outstanding during the period. For the three months ended March 31, 2023 and 2022 the weighted-average ordinary shares outstanding used to calculate basic and diluted net income per share were as follows: For the three months ended March 31, 2023 March 31, 2022 Basic weighted-average ordinary shares outstanding 152,518 157,422 Dilutive effect of stock options 151 473 Dilutive effect of unvested restricted securities 655 735 Diluted weighted-average ordinary shares outstanding 153,324 158,630 Certain potential ordinary shares were excluded from our calculation of diluted weighted-average ordinary shares outstanding because either they would have had an anti-dilutive effect on net income per share or they related to equity awards that were contingently issuable for which the contingency had not been satisfied. These potential ordinary shares were as follows: For the three months ended March 31, 2023 March 31, 2022 Anti-dilutive shares excluded 381 4 Contingently issuable shares excluded 1,268 1,002 9. Inventories The following table presents the components of inventories as of March 31, 2023 and December 31, 2022: March 31, 2023 December 31, 2022 Finished goods $ 217,181 $ 202,531 Work-in-process 115,608 117,691 Raw materials 325,773 324,653 Inventories $ 658,562 $ 644,875 10 Table of Contents 10. Debt The following table presents the components of long-term debt, finance lease and other financing obligations as of March 31, 2023 and December 31, 2022: Maturity Date March 31, 2023 December 31, 2022 Term Loan (1) September 20, 2026 $ 196,834 $ 446,834 5.625 % Senior Notes November 1, 2024 400,000 400,000 5.0 % Senior Notes October 1, 2025 700,000 700,000 4.375 % Senior Notes February 15, 2030 450,000 450,000 3.75 % Senior Notes February 15, 2031 750,000 750,000 4.0 % Senior Notes April 15, 2029 1,000,000 1,000,000 5.875 % Senior Notes September 1, 2030 500,000 500,000 Less: debt discount, net of premium ( 2,831 ) ( 3,360 ) Less: deferred financing costs ( 28,542 ) ( 29,916 ) Less: current portion ( 196,834 ) ( 254,630 ) Long-term debt, net $ 3,768,627 $ 3,958,928 Finance lease and other financing obligations $ 26,333 $ 26,583 Less: current portion ( 1,862 ) ( 1,841 ) Finance lease and other financing obligations, less current portion $ 24,471 $ 24,742 ___________________________________ (1) On February 6, 2023, we prepaid $ 250.0 million of outstanding principal on our Term Loan balance. Accordingly, that portion of the principal balance outstanding on the Term Loan has been presented as current portion of long-term debt on our consolidated balance sheet as of December 31, 2022. On April 25, 2023, we announced that we intend to pay down the remaining balance on the Term Loan in the second quarter of 2023. Accordingly, the remaining principal balance outstanding on the Term Loan has been presented as current portion of long-term debt on our condensed consolidated balance sheet as of March 31, 2023. Our debt consists of secured credit facilities and various tranches of senior unsecured notes. Refer to Note 14: Debt of our 2022 Annual Report for additional information related to our existing indebtedness. As of March 31, 2023, we had $ 746.1 million available under our $ 750.0 million revolving credit facility (the "Revolving Credit Facility"), net of $ 3.9 million of obligations in respect of outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of March 31, 2023, no amounts had been drawn against these outstanding letters of credit. Accrued Interest Accrued interest associated with our outstanding debt is included as a component of accrued expenses and other current liabilities in the condensed consolidated balance sheets. As of March 31, 2023 and December 31, 2022, accrued interest totaled $ 54.4 million and $ 50.1 million, respectively. 11. Commitments and Contingencies We are regularly involved in a number of claims and litigation matters that arise in the ordinary course of business. Although it is not feasible to predict the outcome of these matters, based upon our experience and current information known to us, we do not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on our results of operations, financial condition, and/or cash flows. 12. Shareholders' Equity Cash Dividends On February 22, 2023, we paid a cash dividend of $ 0.11 per share, or $ 16.8 million in aggregate, to shareholders of record as of February 8, 2023. On April 13, 2023, we announced that our Board of Directors approved a quarterly dividend of $ 0.12 per share, payable on May 24, 2023 to shareholders of record as of May 10, 2023. 11 Table of Contents Treasury Shares From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or terminated by the Board at any time. On January 20, 2022, we announced that our Board of Directors had authorized a new $ 500.0 million ordinary share repurchase program (the “January 2022 Program”), which replaced the previous $ 500.0 million program approved in July 2019. We did not repurchase any ordinary shares under this program in the three months ended March 31, 2023. In the three months ended March 31, 2022, we repurchased 1.1 million ordinary shares under the January 2022 Program. As of March 31, 2023, $ 224.5 million remained available for repurchase under the January 2022 Program. Accumulated Other Comprehensive Loss The following table presents the components of accumulated other comprehensive loss for the three months ended March 31, 2023: Cash Flow Hedges Defined Benefit and Retiree Healthcare Plans Accumulated Other Comprehensive Loss Balance as of December 31, 2022 $ 15,665 $ ( 31,929 ) $ ( 16,264 ) Other comprehensive income before reclassifications, net of tax 8,992 — 8,992 Reclassifications from accumulated other comprehensive loss, net of tax ( 6,185 ) 393 ( 5,792 ) Other comprehensive income 2,807 393 3,200 Balance as of March 31, 2023 $ 18,472 $ ( 31,536 ) $ ( 13,064 ) The following table presents the amounts reclassified from accumulated other comprehensive loss for the three months ended March 31, 2023 and 2022: For the three months ended March 31, Affected Line in Condensed Consolidated Statements of Operations Component 2023 2022 Derivative instruments designated and qualifying as cash flow hedges: Foreign currency forward contracts $ ( 6,639 ) $ ( 4,264 ) Net revenue (1) Foreign currency forward contracts ( 1,697 ) ( 2,629 ) Cost of revenue (1) Total, before taxes ( 8,336 ) ( 6,893 ) Income before taxes Income tax effect 2,151 1,778 Provision for income taxes Total, net of taxes $ ( 6,185 ) $ ( 5,115 ) Net income Defined benefit and retiree healthcare plans $ 537 $ 611 Other, net Income tax effect ( 144 ) ( 183 ) Provision for income taxes Total, net of taxes $ 393 $ 428 Net income ___________________________________ (1) Refer to Note 14: Derivative Instruments and Hedging Activities for additional information on amounts to be reclassified from accumulated other comprehensive loss in future periods. 12 Table of Contents 13. Fair Value Measures Measured on a Recurring Basis The fair values of our derivative assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 are shown in the below table. All fair value measures presented in the table below are categorized in Level 2 of the fair value hierarchy. March 31, 2023 December 31, 2022 Assets Foreign currency forward contracts $ 33,583 $ 31,126 Commodity forward contracts 5,091 4,181 Total $ 38,674 $ 35,307 Liabilities Foreign currency forward contracts $ 10,438 $ 9,866 Commodity forward contracts 2,734 4,671 Total $ 13,172 $ 14,537 Refer to Note 14: Derivative Instruments and Hedging Activities for additional information related to our forward contracts. As of March 31, 2023 and December 31, 2022, we also held cash equivalents of $ 653.3 million and $ 860.0 million, respectively, consisting of U.S. Government Treasury money market funds that are categorized in Level 1 of the fair value hierarchy. Measured on a Nonrecurring Basis We evaluated our goodwill and other indefinite-lived intangible assets for impairment as of October 1, 2022 and determined that they were not impaired. No events or changes in circumstances occurred in the three months ended March 31, 2023 that would have triggered the need for an additional impairment review of our goodwill and other indefinite-lived intangible assets. Financial Instruments Not Recorded at Fair Value The following table presents the carrying values and fair values of financial instruments not recorded at fair value in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022. All fair value measures presented are categorized in Level 2 of the fair value hierarchy. March 31, 2023 December 31, 2022 Carrying Value (1) Fair Value Carrying Value (1) Fair Value Liabilities Term Loan $ 196,834 $ 196,343 $ 446,834 $ 443,483 5.625 % Senior Notes $ 400,000 $ 398,000 $ 400,000 $ 398,000 5.0 % Senior Notes $ 700,000 $ 685,125 $ 700,000 $ 684,250 4.375 % Senior Notes $ 450,000 $ 408,375 $ 450,000 $ 400,500 3.75 % Senior Notes $ 750,000 $ 648,750 $ 750,000 $ 626,250 4.0 % Senior Notes $ 1,000,000 $ 897,500 $ 1,000,000 $ 875,000 5.875 % Senior Notes $ 500,000 $ 490,625 $ 500,000 $ 473,750 ___________________________________ (1) Excluding any related debt discounts, premiums, and deferred financing costs. In addition to the above, we hold certain equity investments that do not have readily determinable fair values for which we use the measurement alternative prescribed in FASB ASC Topic 321, Investments—Equity Securities . As of March 31, 2023 and December 31, 2022, we held a $ 15.0 million equity investment using the measurement alternative, which is presented as a component of other assets in the condensed consolidated balance sheets. There were no impairments or changes resulting from observable transactions for this investment in the three months ended March 31, 2023 and 2022 and no adjustments have been made to its carrying value as of March 31, 2023 and December 31, 2022. 13 Table of Contents 14. Derivative Instruments and Hedging Activities Hedges of Foreign Currency Risk For the three months ended March 31, 2023 and 2022, amounts excluded from the assessment of effectiveness of our foreign currency forward contracts that are designated as cash flow hedges were not material. As of March 31, 2023, we estimated that $ 21.8 million of net gains will be reclassified from accumulated other comprehensive loss to earnings during the twelve-month period ending March 31, 2024. As of March 31, 2023, we had the following outstanding foreign currency forward contracts: Notional (in millions) Effective Date(s) Maturity Date(s) Index (Exchange Rates) Weighted-Average Strike Rate Hedge Designation (1) 20.0 EUR March 29, 2023 April 28, 2023 Euro ("EUR") to USD 1.09 USD Not designated 364.3 EUR Various from April 2021 to March 2023 Various from April 2023 to March 2025 EUR to USD 1.10 USD Cash flow hedge 474.0 CNY March 28, 2023 April 28, 2023 USD to Chinese Renminbi ("CNY") 6.85 CNY Not designated 530.0 CNY Various in January 2023 Various from April 2023 to September 2023 USD to CNY 6.76 CNY Cash flow hedge 609.0 JPY March 29, 2023 April 28, 2023 USD to Japanese Yen ("JPY") 131.83 JPY Not designated 19,364.0 KRW Various from June 2021 to March 2023 Various from April 2023 to February 2025 USD to Korean Won ("KRW") 1,248.39 KRW Cash flow hedge 25.0 MYR March 28, 2023 April 28, 2023 USD to Malaysian Ringgit ("MYR") 4.37 MYR Not designated 20.0 MXN March 29, 2023 April 28, 2023 USD to Mexican Peso ("MXN") 18.23 MXN Not designated 3,616.3 MXN Various from April 2021 to March 2023 Various from April 2023 to March 2025 USD to MXN 21.76 MXN Cash flow hedge 6.3 GBP March 29, 2023 April 28, 2023 British Pound Sterling ("GBP") to USD 1.23 USD Not Designated 57.6 GBP Various from April 2021 to March 2023 Various from April 2023 to March 2025 GBP to USD 1.24 USD Cash flow hedge ___________________________________ (1) Derivative financial instruments not designated as hedges are used to manage our exposure to currency exchange rate risk. They are intended to preserve economic value, and they are not used for trading or speculative purposes. Hedges of Commodity Risk As of March 31, 2023, we had the following outstanding commodity forward contracts, none of which were designated for hedge accounting treatment in accordance with FASB ASC Topic 815, Derivatives and Hedging : Commodity Notional Remaining Contracted Periods Weighted-Average Strike Price Per Unit Silver 869,069 troy oz. April 2023 to January 2025 $ 22.84 Gold 7,119 troy oz. April 2023 to January 2025 $ 1,875.71 Nickel 207,887 pounds April 2023 to January 2025 $ 11.24 Aluminum 3,904,000 pounds April 2023 to January 2025 $ 1.21 Copper 7,591,333 pounds April 2023 to January 2025 $ 4.03 Platinum 9,563 troy oz. April 2023 to January 2025 $ 969.95 Palladium 1,237 troy oz. April 2023 to January 2025 $ 2,100.68 14 Table of Contents Financial Instrument Presentation The following table presents the fair values of our derivative financial instruments and their classification in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022: Asset Derivatives Liability Derivatives Balance Sheet Location March 31, 2023 December 31, 2022 Balance Sheet Location March 31, 2023 December 31, 2022 Derivatives designated as hedging instruments Foreign currency forward contracts Prepaid expenses and other current assets $ 28,404 $ 27,114 Accrued expenses and other current liabilities $ 7,023 $ 6,586 Foreign currency forward contracts Other assets 5,057 3,763 Other long-term liabilities 3,247 3,280 Total $ 33,461 $ 30,877 $ 10,270 $ 9,866 Derivatives not designated as hedging instruments Commodity forward contracts Prepaid expenses and other current assets $ 3,328 $ 2,542 Accrued expenses and other current liabilities $ 2,504 $ 4,066 Commodity forward contracts Other assets 1,763 1,639 Other long-term liabilities 230 605 Foreign currency forward contracts Prepaid expenses and other current assets 122 249 Accrued expenses and other current liabilities 168 — Total $ 5,213 $ 4,430 $ 2,902 $ 4,671 These fair value measurements were all categorized within Level 2 of the fair value hierarchy. The following tables present the effect of our derivative financial instruments on the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income for the three months ended March 31, 2023 and 2022: Derivatives designated as hedging instruments Amount of Deferred (Loss)/Gain Recognized in Other Comprehensive Income Location of Net Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income Amount of Net Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income 2023 2022 2023 2022 Foreign currency forward contracts $ ( 3,588 ) $ 5,586 Net revenue $ 6,639 $ 4,264 Foreign currency forward contracts $ 15,708 $ 5,145 Cost of revenue $ 1,697 $ 2,629 Derivatives not designated as hedging instruments Amount of Gain/(Loss) Recognized in Net Income Location of Gain/(Loss) Recognized in Net Income 2023 2022 Commodity forward contracts $ 1,899 $ 9,424 Other, net Foreign currency forward contracts $ 184 $ ( 1,243 ) Other, net Credit Risk Related Contingent Features We have agreements with our derivative counterparties that contain a provision whereby if we default on our indebtedness and repayment of the indebtedness has been accelerated by the lender, then we could also be declared in default on our derivative obligations. As of March 31, 2023, the termination value of outstanding derivatives in a liability position, excluding any adjustment for non-performance risk, was $ 13.3 million. As of March 31, 2023, we had no t posted any cash collateral related to these agreements. If we breach any of the default provisions on any of our indebtedness as described above, we could be required to settle our obligations under the derivative agreements at their termination values. 15. Acquisitions and Divestitures Acquisitions Elastic M2M On February 11, 2022, we acquired all of the equity interests of Elastic M2M Inc. ("Elastic M2M") for an aggregate cash purchase price of $ 51.6 million, subject to certain post-closing items. In addition to the aggregate cash purchase price, the previous shareholders of Elastic M2M are entitled to up to $ 30.0 million of additional acquisition-related incentive 15 Table of Contents compensation, which was pending the completion of certain technical milestones in fiscal year 2022 and achievement of financial targets in fiscal years 2022 and 2023. All technical milestones were completed in fiscal year 2022. As of December 31, 2022, we had recognized $ 24.7 million of this acquisition-related incentive compensation. In three months ended March 31, 2023, we recognized an additional $ 3.3 million of this acquisition-related incentive compensation. This incentive compensation is recorded in restructuring and other charges, net. Elastic M2M was a privately-held innovator of connected intelligence for operational assets across heavy-duty transport, warehouse, supply chain and logistics, industrial, light-duty passenger car, and a variety of other industry segments. Elastic M2M primarily serves telematics service providers and resellers, enabling them to leverage Elastic M2M’s cloud platform and analytics capabilities to deliver sensor-based operational insights to their end users. This acquisition augments our cloud capabilities critical to delivering actionable sensor-based insights, an increasingly important capability in this fast-growing industry segment. We are integrating Elastic M2M into the Performance Sensing reportable segment. The allocation of the purchase price related to this acquisition was finalized in the three months ended March 31, 2023. The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed: Net working capital, excluding cash $ 35 Goodwill 28,211 Other intangible assets 27,700 Deferred income tax liabilities ( 5,925 ) Fair value of net assets acquired, excluding cash and cash equivalents 50,021 Cash and cash equivalents 1,597 Fair value of net assets acquired $ 51,618 The goodwill recognized as a result of this acquisition represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. The goodwill recognized in this acquisition will not be deductible for tax purposes. In connection with the allocation of purchase price to the assets acquired and liabilities assumed, we identified certain definite-lived intangible assets. The following table presents the acquired intangible assets, their estimated fair values, and weighted-average lives: Acquisition Date Fair Value Weighted-Average Lives (years) Acquired definite-lived intangible assets Customer relationships $ 17,500 13 Completed technologies 10,200 10 Total definite-lived intangible assets acquired $ 27,700 12 The definite-lived intangible assets were valued using the income approach. We primarily used the relief-from-royalty method to value completed technologies, and we used the multi-period excess earnings method to value customer relationships. These valuation methods incorporate assumptions including expected discounted future net cash flows resulting from either the future estimated after-tax royalty payments avoided as a result of owning the completed technologies or the future earnings related to existing customer relationships. Dynapower On July 12, 2022, we completed the acquisition of all of the outstanding equity interests of DP Acquisition Corp ("Dynapower"), a leader in power conversion systems including inverters, converters, and rectifiers for renewable energy generation, green hydrogen production, electric vehicle charging stations, and microgrid applications, as well as industrial and defense applications, for an aggregate cash purchase price of $ 577.5 million, subject to certain post-closing items. Dynapower also provides aftermarket sales and service to maintain its equipment in the field. Dynapower is a foundational addition to our Clean Energy Solutions strategy and complements our recent acquisitions of GIGAVAC, Lithium Balance, and Spear. We are integrating Dynapower into our Sensing Solutions reportable segment. 16 Table of Contents The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed: Net working capital, excluding cash $ 13,487 Property, plant and equipment 1,846 Goodwill 418,257 Other intangible assets 164,400 Other assets 1,656 Deferred income tax liabilities ( 25,548 ) Other long-term liabilities ( 1,035 ) Fair value of net assets acquired, excluding cash and cash equivalents 573,063 Cash and cash equivalents 4,410 Fair value of net assets acquired $ 577,473 The allocation of purchase price of Dynapower is preliminary and is based on management’s judgments after evaluating several factors, including preliminary valuation assessments of intangible assets. The final allocation of the purchase price to the assets acquired will be completed when the final valuations are completed. The preliminary goodwill recognized as a result of this acquisition represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. The goodwill recognized in this acquisition will not be deductible for tax purposes. In connection with the preliminary allocation of purchase price to the assets acquired and liabilities assumed, we identified certain definite-lived intangible assets. The following table presents the acquired intangible assets, their estimated fair values, and weighted-average lives: Acquisition Date Fair Value Weighted-Average Lives (years) Acquired definite-lived intangible assets Customer relationships $ 37,000 13 Backlog 7,100 2 Completed technologies 86,100 12 Tradenames 34,200 18 Total definite-lived intangible assets acquired $ 164,400 13 The definite-lived intangible assets were valued using the income approach. We primarily used the relief-from-royalty method to value completed technologies and tradenames, and we used the multi-period excess earnings method to value customer relationships. These valuation methods incorporate assumptions including expected discounted future net cash flows resulting from either the future estimated after-tax royalty payments avoided as a result of owning the completed technologies or the future earnings related to existing customer relationships. Divestiture - Qinex Business On May 27, 2022, we executed an asset purchase agreement (the "APA") whereby we agreed to sell various assets and liabilities comprising our semiconductor test and thermal business (collectively, the "Qinex Business") to LTI Holdi ngs, Inc. ("LTI") in exchange for consideration of approximately $ 219.0 million, subject to working capital and other adjustments. Concurrent with the execution of the APA, the parties entered into a Contract Manufacturing Agreement ("CMA") and a Transition Services Agreement ("TSA"), each for nominal consideration. The CMA commenced at closing of the transaction ("Closing") and had a term of either six or nine months , depending on the manufacturing site. LTI also had the option of extending each contract for an additional three months . The period from Closing to the end of the CMA term (including extensions, if any) is referred to as the "Transition Period." The terms of the CMA required that we provide manufacturing and distribution services for the Transition Period. The TSA commenced at Closing and had a term that varied depending on the nature of the support services, ranging from one month to the entirety of the Transition Period. The terms of the TSA required that we provide various forms of commercial, operational, and back-office support to LTI. As of March 31, 2023, the Transition Period has ended. Closing occurred in July 2022, at which time assets of approximately $ 70 million (including allocated goodwill of $ 45 million) and liabilities of approximately $ 2 million transferred to LTI. Transferred assets and liabilities excluded inventories and accounts payable, which transferred to LTI at the end of the Transition Peri od. We received cash consideration of 17 Table of Contents $ 198.8 million at Closing and recognized a pre-tax gain of $ 135.1 million. Cash consideration received at Closing excluded amounts held in escrow until various milestones were met through the Transition Period. The Qinex Business manufactures semiconductor burn-in test sockets and thermal control solutions and was formed through the combination of Sensata’s semiconductor interconnect business with Wells-CTI in 2012. The Qinex Business was included in our Sensing Solutions segment (and Industrial Solutions reporting unit). We allocated goodwill to the Qinex Business based on its fair value relative to the total fair value of the Industrial Solutions reporting unit. 16. Segment Reporting We present financial information for two reportable segments, Performance Sensing and Sensing Solutions. The Performance Sensing reportable segment consists of two operating segments, Automotive and HVOR, which meet the criteria for aggregation in FASB ASC Topic 280, Segment Reporting . The Sensing Solutions reportable segment is also an operating segment. Our operating segments are businesses that we manage as components of an enterprise, for which separate financial information is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and assess performance. An operating segment’s performance is primarily evaluated based on segment operating income, which excludes amortization of intangible assets, restructuring and other charges, net, certain costs associated with our strategic megatrend initiatives, and certain corporate costs or credits not associated with the operations of the segment, including share-based compensation expense and a portion of depreciation expense associated with assets recognized in connection with acquisitions. Corporate and other costs excluded from an operating (and reportable) segment’s performance are separately stated below and also include costs that are related to functional areas such as finance, information technology, legal, and human resources. We believe that segment operating income, as defined above, is an appropriate measure for evaluating the operating performance of our segments. However, this measure should be considered in addition to, and not as a substitute for, or superior to, operating income or other measures of financial performance prepared in accordance with U.S. GAAP. The accounting policies of each of our operating and reportable segments are materially consistent with those described in Note 2: Significant Accounting Policies of the audited consolidated financial statements and notes thereto included in our 2022 Annual Report. The following table presents net revenue and segment operating income for our reportable segments and other operating results not allocated to our reportable segments for the three months ended March 31, 2023 and 2022: For the three months ended March 31, 2023 March 31, 2022 Net revenue: Performance Sensing $ 751,525 $ 717,697 Sensing Solutions 246,650 258,073 Total net revenue $ 998,175 $ 975,770 Segment operating income (as defined above): Performance Sensing $ 188,377 $ 180,638 Sensing Solutions 69,679 72,515 Total segment operating income 258,056 253,153 Corporate and other ( 62,441 ) ( 76,123 ) Amortization of intangible assets ( 40,774 ) ( 37,367 ) Restructuring and other charges, net ( 5,999 ) ( 13,733 ) Operating income 148,842 125,930 Interest expense, net ( 40,091 ) ( 45,445 ) Other, net 1,392 ( 50,456 ) Income before taxes $ 110,143 $ 30,029 18 Table of Contents Cautionary Statements Concerning Forward-Looking Statements This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by terminology such as "may," "will," "could," "should," "expect," "anticipate," "believe," "estimate," "predict," "project," "forecast," "continue," "intend," "plan," "potential," "opportunity," "guidance," and similar terms or phrases. Forward-looking statements involve, among other things, expectations, projections, and assumptions about future financial and operating results, objectives, business and market outlook, megatrends, priorities, growth, shareholder value, capital expenditures, cash flows, demand for products and services, share repurchases, and Sensata’s strategic initiatives, including those relating to acquisitions and dispositions and the impact of such transactions on our strategic and operational plans and financial results. These statements are subject to risks, uncertainties, and other important factors relating to our operations and business environment, and we can give no assurances that these forward-looking statements will prove to be correct. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements, including, but not limited to, risks related to public health crises, instability and changes in the global markets, supplier interruption or non-performance, the acquisition or disposition of businesses, adverse conditions or competition in the industries upon which we are dependent, intellectual property, product liability, warranty and recall claims, market acceptance of new product introductions and product innovations, labor disruptions or increased labor costs, and changes in existing environmental or safety laws, regulations, and programs. Investors and others should carefully consider the foregoing factors and other uncertainties, risks, and potential events including, but not limited to, those described in Item 1A: Risk Factors included in our 2022 Annual Report and as may be updated from time to time in Item 1A: Risk Factors included in our quarterly reports on Form 10-Q or other subsequent filings with the United States Securities and Exchange Commission. All such forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update these statements other than as required by law.