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Item 2. Management’s Discussion and Analysis

2023-11-07 compared with 2023-08-01 · 122 added, 102 removed, 312 unchanged (42% of the section changed)

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The following discussion should also be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Amounts and percentages in the following discussions have been calculated based on unrounded numbers.

Amounts and percentages in the following discussions and tables have been calculated based on unrounded numbers.

Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

Net revenue for the three months ended June 30, 2023 was $1,062.1 million, an increase of 4.1% compared to $1,020.5 million in the three months ended June 30, 2022.

Excluding a decrease of 1.4% attributed to changes in foreign currency exchange rates and an increase of 2.1% due to the net effect of acquisitions and divestitures, net revenue increased 3.4% on an organic basis.

Net revenue for the three months ended September 30, 2023 was $1,001.3 million, a decrease of 1.7% compared to $1,018.3 million in the prior period.

Excluding a decrease of 1.0% attributed to changes in foreign currency exchange rates, net revenue decreased 0.7% on an organic basis.

Organic revenue growth (or decline), discussed throughout this Item 2:

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

Net revenue for the six months ended June 30, 2023 was $2,060.3 million, an increase of 3.2% compared to $1,996.3 million in the six months ended June 30, 2022.

Net revenue for the nine months ended September 30, 2023 was $3,061.6 million, an increase of 1.6% compared to $3,014.6 million in the nine months ended September 30, 2022.

Excluding a decrease of 1.5% attributed to changes in foreign currency exchange rates and an increase of 0.7% due to the net effect of acquisitions and divestitures, net revenue increased 2.4% on an organic basis.

Operating income for the three months ended June 30, 2023 decreased $20.9 million, or 15.1%, to $118.0 million (11.1% of net revenue) from $138.9 million (13.6% of net revenue) in the three months ended June 30, 2022.

This decline was largely driven by our decision to exit the Marine Business in the second quarter of 2023 (reflecting $38.3 million of charges incurred, including those related to accelerated amortization of intangible assets, write-down of inventory, and other restructuring charges), partially offset by the net impacts of pricing recoveries from customers, inflation on material and logistics costs, and volume leverage.

In the fourth quarter of 2023, we expect the impacts of the United Auto Workers' ("UAW") strike to result in a revenue headwind of approximately $35 million to $40 million sequentially from the third quarter of 2023.

Operating income for the three months ended September 30, 2023 decreased $136.6 million, or 54.0%, to $116.3 million (11.6% of net revenue) from $252.9 million (24.8% of net revenue) in the three months ended September 30, 2022.

Operating income for the nine months ended September 30, 2023 decreased $134.7 million, or 26.0%, to $383.1 million (12.5% of net revenue) compared to $517.8 million (17.2% of net revenue) in the nine months ended September 30, 2022.

Refer to Results of Operations included elsewhere in this MD&A for additional discussion of our earnings results for the three and nine months ended September 30, 2023 compared to the prior year periods.

We generated $351.6 million of operating cash flows in the nine months ended September 30, 2023, ending the quarter with $889.7 million in cash and cash equivalents.

In the nine months ended September 30, 2023, we used approximately $446.8

million to pay down the remaining balance on our variable-rate Term Loan, bringing our gross indebtedness to $3.8 billion as of September 30, 2023 (a net leverage ratio of 3.1x) compared to $4.3 billion as of December 31, 2022 (a net leverage ratio of 3.4x).

In the nine months ended September 30, 2023, we used cash of approximately $136.2 million for capital expenditures, $53.4 million for payment of dividends, and $60.3 million for share repurchases as part of our share repurchase plan.

We will continue to execute our capital allocation strategy that is currently designed to reduce our net leverage and return capital to shareholders through our dividend and opportunistic share repurchases.

This strategy reduces risk in our capital structure, lowers interest expense, and improves net income and earnings per share.

We expect improving free cash flow (cash from operations less capital expenditures) will naturally allow leverage to decline and returns on invested capital to improve over time.

In the three months ended September 30, 2023, we committed to a plan to reorganize our business (the “Q3 2023 Plan”).

The Q3 2023 Plan, consisting of voluntary and involuntary reductions-in-force, site closures, and other cost-savings initiatives, was commenced to adjust our cost structure and business activities to better align with weaker market demand we have been experiencing due to continued economic uncertainty in many of our end markets and to take active measures to accelerate margin recovery.

Our business strategy remains the same with increasing focus and effort in penetrating the fast-growing electrification trend where we are having great success with significant new business wins.

The reductions-in-force, which are subject to the laws and regulations of the countries in which the actions are planned, are expected to impact 451 positions.

Over the life of the Q3 2023 Plan, we expect to incur restructuring charges of between $20.5 million and $25.5 million, primarily related to reductions-in-force.

The majority of the actions under the Q3 2023 Plan are expected to be completed on or before June 30, 2024.

In the three months ended September 30, 2023, we accrued $21.4 million of charges related to this program.

Refer to the discussion on restructuring and other related charges in Results of Operations below for further information.

As of September 30, 2023, our severance liability related to the Q3 2023 Plan was $17.2 million.

Refer to Note 5:

Restructuring and Other Charges, Net , of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information regarding the exit of the Marine Business.

Operating income for the six months ended June 30, 2023 increased $2.0 million, or 0.7%, to $266.9 million (13.0% of net revenue) compared to $264.9 million (13.3% of net revenue) in the six months ended June 30, 2022, as the charges incurred related to the Marine Business were more than offset by the net impacts of pricing recoveries from customers, inflation on material and logistics costs, and volume leverage.

Refer to Results of Operations included elsewhere in this MD&A for additional discussion of our earnings results for the three and six months ended June 30, 2023 compared to the prior year period.

We generated $212.6 million of operating cash flows in the six months ended June 30, 2023, ending the quarter with $857.3 million in cash and cash equivalents.

In the six months ended June 30, 2023, we used approximately $448.4 million to pay down the remaining balance on our variable-rate Term Loan, bringing our gross indebtedness to $3.8 billion as of June 30, 2023 (a net leverage ratio of 3.2x) compared to $4.3 billion as of December 31, 2022 (a net leverage ratio of 3.4x).

In the six months ended June 30, 2023, we used cash of approximately $84.4 million for capital expenditures, $35.1 million for payment of dividends, and $25.1 million for share repurchases as part of our share repurchase plan.

In the three months ended June 30, 2023, we increased our cash dividends to $0.12 per share, first paid to shareholders of record in May 2023.

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.

Restructuring and Other Charges, Net , of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

We expect that the actions taken in the Q3 2023 Plan will result in annualized savings of approximately $40 million to $50 million and we expect savings of personnel-related costs of approximately $4 million to $6 million in the fourth quarter of 2023.

Results of Operations

The table below presents our historical results of operations, in millions of dollars and as a percentage of net revenue, for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022.

The table below presents our historical results of operations, in millions of dollars and as a percentage of net revenue, for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022.

We have derived the results of operations from the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

1 unchanged sentence

Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

For the three months ended For the six months ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

For the three months ended For the nine months ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Amount Margin (1)

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(1) Represents the amount presented divided by total net revenue.

Net revenue for the three months ended June 30, 2023 increased 4.1% compared to the prior period.

Net revenue increased 3.4% on an organic basis, which excludes a decrease of 1.4% attributed to changes in foreign currency exchange rates and an increase of 2.1% due to the net effect of acquisitions and divestitures.

Net revenue for the six months ended June 30, 2023 increased 3.2% compared to the prior period.

Net revenue for the three months ended September 30, 2023 decreased 1.7% compared to the prior period.

Net revenue decreased 0.7% on an organic basis, which excludes a decrease of 1.0% attributed to changes in foreign currency exchange rates.

Net revenue for the nine months ended September 30, 2023 increased 1.6% compared to the prior period.

Net revenue increased 2.4% on an organic basis, which excludes a decrease of 1.5% attributed to changes in foreign currency exchange rates and an increase of 0.7% due to the net effect of acquisitions and divestitures.

Effective April 1, 2023, we moved our material handling products from the HVOR operating segment (in the Performance Sensing reportable segment) to the Sensing Solutions operating segment to align with new management reporting.

In the table above and the discussion below, the revenue previously reported for our Performance Sensing and Sensing Solutions reportable segments for the three and six months ended June 30, 2022 have been retrospectively recast to reflect this change.

In addition, the six months ended June 30, 2023 includes amounts for the three months ended March 31, 2023 that have been retrospectively adjusted for this change.

In the table above and the discussion below, the revenue previously reported for our Performance Sensing and Sensing Solutions reportable segments for the three and nine months ended September 30, 2022 have been retrospectively recast to reflect this change.

In addition, the nine months ended September 30, 2023 includes amounts for the three months ended March 31, 2023 that have been retrospectively adjusted for this change.

Performance Sensing

Performance Sensing net revenue for the three months ended June 30, 2023 increased 3.5% compared to the prior period.

Performance Sensing net revenue for the three months ended September 30, 2023 increased 2.0% compared to the prior period.

Excluding a decrease of 1.1% attributed to changes in foreign currency exchange rates, Performance Sensing net revenue increased 3.1% on an organic basis.

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

Automotive net revenue for the three months ended June 30, 2023 grew 4.7% compared to the prior period.

Excluding a decline of 2.0% attributed to changes in foreign currency exchange rates, automotive net revenue grew 6.7% on an organic basis, primarily due to market growth and improved pricing.

HVOR net revenue for the three months ended June 30, 2023 grew 0.8% compared to the prior period.

Excluding a decline of 1.0% attributed to changes in foreign currency exchange rates, HVOR net revenue grew 1.8% on an organic basis, primarily due to market growth, partially offset by channel inventory de-stocking.

Performance Sensing net revenue for the six months ended June 30, 2023 increased 4.3% compared to the prior period.

Automotive net revenue for the three months ended September 30, 2023 grew 4.5% compared to the prior period.

Excluding a decline of 1.4% attributed to changes in foreign currency exchange rates, Automotive net revenue grew 5.9% on an organic basis, primarily due to content growth and higher pricing, partially offset by unfavorable revenue mix.

HVOR net revenue for the three months ended September 30, 2023 declined 4.2% compared to the prior period.

Excluding a decline of 0.4% attributed to changes in foreign currency exchange rates, HVOR net revenue declined 3.8% on an organic basis, primarily due to market contraction.

Performance Sensing net revenue for the nine months ended September 30, 2023 increased 3.5% compared to the prior period.

Excluding a decrease of 1.8% attributed to changes in foreign currency exchange rates and an increase of 0.1% due to the effect of acquisitions, Performance Sensing net revenue increased 5.2% on an organic basis.

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

Automotive net revenue for the six months ended June 30, 2023 grew 3.8% compared to the prior period.

Excluding a decrease of 2.5% attributed to changes in foreign currency exchange rates, automotive net revenue grew 6.3% on an organic basis, primarily due to market growth and improved pricing.

HVOR net revenue for the six months ended June 30, 2023 grew 5.4% compared to the prior period.

Automotive net revenue for the nine months ended September 30, 2023 grew 4.0% compared to the prior period.

Excluding a decrease of 2.2% attributed to changes in foreign currency exchange rates, Automotive net revenue grew 6.2% on an organic basis, primarily due to market growth and higher pricing.

HVOR net revenue for the nine months ended September 30, 2023 grew 2.2% compared to the prior period.

Excluding a decrease of 1.0% attributed to changes in foreign currency exchange rates and an increase of 0.4% due to the effect of acquisitions, HVOR net revenue grew 2.8% on an organic basis, primarily due to market growth and outgrowth, partially offset by channel inventory de-stocking.

Sensing Solutions

Sensing Solutions net revenue for the three months ended June 30, 2023 increased 5.5% compared to the prior period.

Excluding a decline of 0.9% attributed to changes in foreign currency exchange rates and an increase of 7.6% due to the net effect of acquisitions and divestitures, Sensing Solutions net revenue declined 1.2% on an organic basis, which primarily reflects weakness in our appliance and HVAC markets, partially offset by growth in the aerospace markets.

Sensing Solutions net revenue for the six months ended June 30, 2023 increased 0.5% compared to the prior period.

Excluding a decline of 1.2% attributed to changes in foreign currency exchange rates and an increase of 3.3% due to the net effect of acquisitions and divestitures, Sensing Solutions net revenue declined 1.6% on an organic basis, which primarily reflects weakness in our appliance and HVAC markets, partially offset by growth in the aerospace markets.

Sensing Solutions net revenue for the three months ended September 30, 2023 decreased 11.3% compared to the prior period.

Excluding a decline of 0.4% attributed to changes in foreign currency exchange rates, Sensing Solutions net revenue declined 10.9% on an organic basis, which primarily reflects weakness in various markets, including appliance, HVAC, and IT/Telecom, partially offset by growth in the aerospace business, driven by market and content growth.

Sensing Solutions net revenue for the nine months ended September 30, 2023 decreased 3.4% compared to the prior period.

Excluding a decline of 1.0% attributed to changes in foreign currency exchange rates and an increase of 2.3% due to the net effect of acquisitions and divestitures, Sensing Solutions net revenue declined 4.7% on an organic basis, which primarily reflects weakness in our industrial markets, partially offset by growth in the aerospace business, driven by market and content growth.

Operating costs and expenses

Operating costs and expenses for the three and six months ended June 30, 2023 and 2022 are presented, in millions of dollars and as a percentage of net revenue, in the following table.

Operating costs and expenses for the three and nine months ended September 30, 2023 and 2022 are presented, in millions of dollars and as a percentage of net revenue, in the following table.

Amounts and percentages in the table below have been calculated based on unrounded numbers.

Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

For the three months ended For the six months ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

For the three months ended For the nine months ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Amount Margin (1)

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Cost of revenue

For the three months ended June 30, 2023, cost of revenue as a percentage of net revenue increased from the prior period, primarily due to (1) the $10.5 million write-down of inventory as a result of our decision to exit the Marine Business, (2) the unfavorable effect of acquisitions and divestitures on gross margin, (3) the unfavorable effect of product mix, and (4) the unfavorable effect of changes in foreign currency exchange rates, partially offset by the net impacts of pricing recoveries from customers, inflation on material and logistics costs, and volume leverage.

For the three months ended September 30, 2023, cost of revenue as a percentage of net revenue increased from the prior period, primarily due to (1) the unfavorable effect of changes in foreign currency exchange rates, (2) the impact of certain actions taken as part of the Q3 2023 Plan, (3) unfavorable product mix, (4) the net impacts of inflation on material and logistics costs and pricing recoveries from customers, and (5) volume leverage.

These drivers of higher cost of revenue as a percentage of net revenue were partially offset by cost savings as a result of repositioning actions taken in fiscal year 2022.

For the nine months ended September 30, 2023, cost of revenue as a percentage of net revenue increased from the prior period, primarily due to (1) unfavorable product mix, (2) the unfavorable effect of changes in foreign currency exchange rates, (3) the net unfavorable impacts of acquisitions and divestitures on gross margin, (4) the $10.5 million write-down of inventory as a result of our decision to exit the Spear Marine Business, and (5) the impact of certain actions taken as part of the Q3 2023 Plan, partially offset by (1) the net impacts of pricing recoveries from customers, inflation on material and logistics costs, and volume leverage, and (2) cost savings as a result of repositioning actions taken in fiscal year 2022.

Refer to Note 5:

Restructuring and Other Charges, Net , of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional details regarding the charges related to the exit of the Marine Business.

For the six months ended June 30, 2023, cost of revenue as a percentage of net revenue increased from the prior period, primarily due to (1) the unfavorable effect of product mix, (2) the $10.5 million write-down of inventory as a result of our decision to exit the Marine Business, (3) the unfavorable effect of acquisitions and divestitures on gross margin, and (4) the unfavorable effect of changes in foreign currency exchange rates, partially offset by the net impacts of pricing recoveries, inflation, and volume leverage.

Restructuring and Other Charges, Net , of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional details regarding our exit of the Spear Marine Business and actions taken as part of the Q3 2023 Plan.

Research and development expense

For the three months ended June 30, 2023, research and development ("R&D") expense decreased from the prior period, primarily due to lower costs as a result of repositioning actions taken in fiscal year 2022, partially offset by higher spend to support increased revenue.

For the six months ended June 30, 2023, R&D expense decreased from the prior period, primarily due to (1) lower costs as a result of repositioning actions taken in fiscal year 2022 and (2) the favorable effect of changes in foreign currency exchange rates, partially offset by higher spend to support increased revenue.

For the three months ended September 30, 2023, research and development ("R&D") expense decreased from the prior period, primarily due to cost savings as a result of repositioning actions taken in fiscal year 2022, partially offset by the unfavorable effect of changes in foreign currency exchange rates.

For the nine months ended September 30, 2023, R&D expense decreased from the prior period, primarily due to lower costs as a result of repositioning actions taken in fiscal year 2022, partially offset by higher spend to support increased revenue.

Selling, general and administrative expense

For the three months ended June 30, 2023, selling, general and administrative ("SG&A") expense decreased from the prior period, primarily as a result of (1) cost savings as a result of repositioning actions taken in fiscal year 2022, and (2) lower transaction costs as a result of reduced mergers and acquisitions activity, partially offset by (1) increased SG&A expense from our acquisitions (net of divestitures) and (2) increased share-based compensation expense.

For the three months ended September 30, 2023, selling, general and administrative ("SG&A") expense decreased from the prior period, primarily as a result of (1) cost savings as a result of repositioning actions taken in fiscal year 2022 and (2) lower compensation expense, partially offset by the unfavorable effect of changes in foreign currency exchange rates.

For the nine months ended September 30, 2023, SG&A expense decreased from the prior period, primarily as a result of (1) cost savings as a result of repositioning actions taken in fiscal year 2022, (2) lower compensation expense, and (3) lower transaction costs as a result of reduced mergers and acquisitions activity, partially offset by increased SG&A expense from our acquisitions (net of divestitures).

Refer to Note 15:

Acquisitions and Divestitures and Note 4:

Share-Based Payment Plans of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information regarding acquired businesses and share-based compensation.

For the six months ended June 30, 2023, SG&A expense decreased from the prior period, primarily as a result of (1) cost savings as a result of repositioning actions taken in fiscal year 2022, (2) lower transaction costs as a result of reduced mergers and acquisitions activity, and (3) the favorable effect of changes in foreign currency exchange rates, partially offset by increased SG&A expense from our acquisitions (net of divestitures).

Acquisitions and Divestitures of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information regarding our acquisitions and divestitures.

Amortization of intangible assets

For the three and six months ended June 30, 2023, amortization of intangible assets increased from the prior period, primarily due to (1) a charge of $13.5 million for accelerated amortization of intangible assets as a result of our exit from the Marine Business and (2) increased amortization due to newly acquired intangible assets.

For the three months ended September 30, 2023, amortization of intangible assets decreased from the prior period, primarily due to (1) lower amortization in the third quarter of 2023 as a result of the acceleration of amortization in the second quarter of 2023 due to our exit from the Spear Marine Business and (2) the effect of amortization of intangible assets in accordance with their expected economic benefit, which generally results in acceleration of amortization expense in the early years of the life of an intangible asset.

These impacts were partially offset by increased amortization due to newly acquired intangible assets.

For the nine months ended September 30, 2023, amortization of intangible assets increased from the prior period, primarily due to (1) increased amortization due to newly acquired intangible assets and (2) a charge of $13.5 million in the second quarter of 2023 for accelerated amortization of intangible assets due to our exit from the Spear Marine Business, partially offset by the effect of amortization of intangible assets in accordance with their expected economic benefit.

Refer to Note 5:

Restructuring and Other Charges, Net , of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional details regarding the charges regarding the exit of the Marine Business.

Restructuring and Other Charges, Net , of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional details regarding the charges related to the exit of the Spear Marine Business.

Restructuring and other charges, net

For the three months ended June 30, 2023, restructuring and other charges, net increased from the prior period, primarily due to (1) charges incurred as a result of our exit from the Marine Business and (2) an increase in severance charges that were not the result of initiation of a larger restructuring plan, partially offset by lower acquisition-related deferred compensation.

In the three months ended September 30, 2023, restructuring and other charges, net resulted in a net charge of $26.0 million, an unfavorable impact on earnings compared to a net gain of $(107.4) million in the three months ended September 30, 2022.

This change was primarily driven by (1) the non-recurrence of the $135.1 million gain on the sale of the Qinex Business in the third quarter of 2022, net of $13.5 million of transaction-related charges to sell the Qinex Business, and (2) charges incurred in the third quarter of 2023 as a result of the entry into the Q3 2023 Plan.

For the nine months ended September 30, 2023, restructuring and other charges, net resulted in a net charge of $53.3 million, an unfavorable impact on earnings compared to a net gain of $(80.8) million in the nine months ended September 30, 2022.

This change was primarily driven by the non-recurrence of the $135.1 million gain on the sale of the Qinex Business in the third quarter of 2022, net of $15.6 million of transaction-related charges to sell the Qinex Business, (2) charges incurred in the third quarter of 2023 as a result of the entry into the Q3 2023 Plan, and (3) charges incurred in the second quarter of 2023 as a result of our exit from the Spear Marine Business, partially offset by a reduction in expense for acquisition-related compensation arrangements.

Refer to Note 5:

Restructuring and Other Charges, Net of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information regarding the components of restructuring and other charges, net, including the exit of the Marine Business.

For the six months ended June 30, 2023, restructuring and other charges, net increased slightly from the prior period, as negative factors such as (1) charges incurred as a result of our exit from the Marine Business, (2) the non-recurrence of a gain recognized in the first quarter of 2022 related to the reduction of the liability for contingent consideration for Spear, and (3) an increase in severance charges that were not the result of initiation of a larger restructuring plan, were largely offset by positive factors such as (1) a reduction in expense for acquisition-related compensation arrangements and (2) the gain on sale of a business in the first quarter of 2023.

Operating income

For the three months ended June 30, 2023, operating income decreased compared to the prior period, primarily due to (1) $38.3 million of charges incurred as a result of our exit from the Marine Business, (2) the unfavorable effect of changes in foreign currency exchange rates, (3) the dilutive impact of acquisitions and divestitures, and (4) unfavorable product mix, partially offset by (1) the net impacts of pricing recoveries, inflation, and volume leverage, (2) cost savings as a result of repositioning actions taken in fiscal year 2022, and (3) lower acquisition-related deferred compensation.

For the six months ended June 30, 2023, operating income increased compared to the prior period, primarily due to (1) the net impacts of pricing recoveries, inflation, and volume leverage, (2) cost savings as a result of repositioning actions taken in fiscal year 2022, (3) lower acquisition-related deferred compensation, and (4) the gain on the sale of a business in the first quarter of 2023.

These drivers were partially offset by (1) $38.3 million of charges incurred as a result of our exit from the Marine Business, (2) the dilutive impact of acquisitions and divestitures, (3) the unfavorable effect of changes in foreign currency exchange rates, (4) unfavorable product mix, (5) the impact of the non-recurrence of a gain recognized in the first quarter of 2022 related to the reduction of the liability for contingent consideration for Spear, and (6) an increase in severance charges that were not the result of initiation of a larger restructuring plan.

For the three months ended September 30, 2023, operating income decreased compared to the prior period, primarily due to (1) the non-recurrence of the gain on the sale of the Qinex Business in the third quarter of 2022, net of transaction-related charges to sell the Qinex Business, (2) charges incurred related to the Q3 2023 Plan, and (3) the unfavorable effect of changes in foreign currency exchange rates, partially offset by (1) cost savings as a result of repositioning actions taken in fiscal year 2022 and (2) the net impacts of pricing recoveries from customers, inflation on material and logistics costs, and volume leverage.

For the nine months ended September 30, 2023, operating income decreased compared to the prior period, primarily due to (1) the non-recurrence of the gain on the sale of the Qinex Business in the third quarter of 2022, net of transaction-related charges to sell the Qinex Business, (2) $39.2 million of charges incurred as a result of our exit from the Spear Marine Business, (3) the unfavorable effect of changes in foreign currency exchange rates, (4) charges incurred related to the Q3 2023 Plan, (5) unfavorable product mix, and (6) increased amortization of intangible assets, partially offset by (1) the net impacts of pricing recoveries from customers, inflation on material and logistics costs, and volume leverage, (2) cost savings as a result of repositioning actions taken in fiscal year 2022, and (3) lower expense for acquisition-related compensation arrangements.

Interest expense, net

For the three months ended June 30, 2023, interest expense, net decreased $6.7 million from the prior period, primarily due to (1) increased interest income as a result of increasing interest rates and (2) lower interest expense on the Term Loan due to the early payment on the Term Loan in the first and second quarters of 2023, partially offset by increased interest expense due to the net impact of the early redemption of the 4.875% Senior Notes and the issuance of the 5.875% Senior Notes in the third quarter of 2022.

For the three months ended September 30, 2023, interest expense, net decreased $7.9 million from the prior period, primarily due to (1) lower interest expense on the Term Loan due to the early payment on the Term Loan in the first and second quarters of 2023, (2) increased interest income as a result of increasing interest rates, and (3) lower interest expense due to the early redemption of the 4.875% Senior Notes on September 28, 2022, partially offset by higher interest expense on the 5.875% Senior Notes, which were issued on August 29, 2022.

For the nine months ended September 30, 2023, interest expense, net decreased $20.0 million from the prior period, primarily due to (1) increased interest income as a result of increasing interest rates and (2) lower interest expense on the Term Loan due to the early payment on the Term Loan in the first and second quarters of 2023.

Refer to Note 14:

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Debt , of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information regarding these debt transactions.

For the six months ended June 30, 2023, interest expense, net decreased $12.1 million from the prior period, primarily due to increased interest income as a result of increasing interest rates, partially offset by increased interest expense due to the net impact of the early redemption of the 4.875% Senior Notes and the issuance of the 5.875% Senior Notes in the third quarter of 2022.

Other, net primarily includes currency remeasurement gains and losses on net monetary assets, gains and losses on foreign currency and commodity forward contracts not designated as hedging instruments, mark-to-market gains and losses on investments, losses related to debt refinancing, and the portion of our net periodic benefit cost excluding service cost.

For the three months ended September 30, 2023, other, net represented a net gain of $1.3 million, a favorable impact on earnings of $22.7 million compared to a net loss of $21.4 million in the prior period.

This favorable impact was primarily due to (1) the non-recurrence of a loss on debt financing recognized in the third quarter of 2022 related to the redemption of the 4.875% Senior Notes, (2) lower losses on commodity forward contracts, and (3) lower losses on equity investments, primarily related to the non-recurrence of mark-to-market losses on our investment in Quanergy Systems Inc.

("Quanergy"), in the third quarter of 2022.

For the nine months ended September 30, 2023, other, net represented a net loss of $8.2 million, a favorable impact on earnings of $102.9 million compared to a net loss of $111.1 million in the prior period.

This favorable impact was primarily due to (1) lower losses on equity investments, primarily related to the non-recurrence of mark-to-market losses on our investment in Quanergy, (2) lower losses on commodity forward contracts, (3) the combined impact of lower currency remeasurement loss on net monetary assets and higher gains on foreign currency forward contracts, and (4) the non-recurrence of a loss on debt financing related to the redemption of the 4.875% Senior Notes recognized in the third quarter of 2022.

Refer to Note 6:

Other, Net of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for more details regarding the components of other, net.

For the three months ended June 30, 2023, other, net represented a net loss of $10.9 million, a favorable impact on earnings of $28.3 million compared to a net loss of $39.2 million in the prior period.

This favorable impact was primarily due to (1) the non-recurrence of mark-to-market losses on equity investments, primarily our investment in Quanergy Systems Inc.

("Quanergy"), in the second quarter of 2022, (2) lower losses on commodity forward contracts, and (3) lower currency remeasurement loss on net monetary assets.

For the six months ended June 30, 2023, other, net represented a net loss of $9.5 million, a favorable impact on earnings of $80.2 million compared to a net loss of $89.7 million in the prior period.

This was largely due to (1) the non-recurrence of mark-to-market losses on equity investments, primarily our investment in Quanergy, in the six months ended June 30, 2022, (2) the combined impact of lower currency remeasurement loss on net monetary assets and higher gains on foreign currency forward contracts, and (3) lower losses on commodity forward contracts.

Provision for income taxes

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Other items impacting deferred tax expense include changes in tax rates and changes in our assessment of the realizability of our deferred tax assets.

For the three months ended June 30, 2023, the provision for income taxes decreased $0.1 million from the prior period, predominantly due to the inability to benefit the 2022 mark-to-market loss on our investment in Quanergy.

For the six months ended June 30, 2023, the provision for income taxes increased $16.0 million from the prior period, predominantly due to the increase in profit before tax and the inability to benefit the 2022 mark-to-market loss on our investment in Quanergy.

For the three months ended September 30, 2023, the provision for income taxes decreased $28.6 million from the prior period, predominantly due to lower profit before tax.

For the nine months ended September 30, 2023, the provision for income taxes decreased $12.6 million from the prior period, predominantly due to lower profit before tax and the inability to benefit the 2022 mark-to-market loss on our investment in Quanergy in the prior year.

Non-GAAP Financial Measures

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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, net cash provided by operating activities, or total debt, finance lease and other financing obligations, 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.

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.

Organic revenue growth (or decline) and market outgrowth

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The following tables present reconciliations of certain financial measures calculated in accordance with U.S.

GAAP to the related non-GAAP financial measures for the three months ended June 30, 2023 and 2022.

GAAP to the related non-GAAP financial measures for the three months ended September 30, 2023 and 2022.

Refer to the Non-GAAP Adjustments section above for additional information regarding these adjustments.

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

For the three months ended June 30, 2023

For the three months ended September 30, 2023

(Dollars in millions, except per share amounts) Operating Income Operating Margin Income Taxes Net Income Diluted EPS

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Step-up depreciation and amortization 38.8 3.9 — 38.8 0.25

Deferred (gain)/loss on derivative instruments (0.9) (0.1) (1.1) 4.2 0.03

Deferred gain on derivative instruments

(0.7) (0.1) 0.0 (0.1) 0.00

Amortization of debt issuance costs — — — 1.7 0.01

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Adjusted (non-GAAP) $ 191.6 19.1 % $ 20.3 $ 138.3 $ 0.91

For the three months ended June 30, 2022

For the three months ended September 30, 2022

(Dollars in millions, except per share amounts) Operating Income Operating Margin Income Taxes Net Income Diluted EPS

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Step-up depreciation and amortization 39.0 3.8 — 39.0 0.25

Deferred loss on derivative instruments 1.2 0.1 (4.0) 15.4 0.10

Deferred (gain)/loss on derivative instruments

(0.1) (0.0) (1.2) 4.5 0.03

Amortization of debt issuance costs — — — 1.8 0.01

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The following tables present reconciliations of certain financial measures calculated in accordance with U.S.

GAAP to the related non-GAAP financial measures for the six months ended June 30, 2023 and 2022.

For the six months ended June 30, 2023

GAAP to the related non-GAAP financial measures for the nine months ended September 30, 2023 and 2022.

For the nine months ended September 30, 2023

(Dollars in millions, except per share amounts) Operating Income Operating Margin Income Taxes Net Income Diluted EPS

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Adjusted (non-GAAP) $ 590.3 19.3 % $ 49.5 $ 428.1 $ 2.80

For the six months ended June 30, 2022

For the nine months ended September 30, 2022

(Dollars in millions, except per share amounts) Operating Income Operating Margin Income Taxes Net Income Diluted EPS

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GAAP to free cash flow.

For the six months ended June 30,

For the nine months ended September 30,

(In millions) 2023 2022

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GAAP to adjusted corporate and other expenses.

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

(In millions) 2023 2022 2023 2022

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GAAP to adjusted EBITDA.

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

(In millions) LTM 2023 2022 2023 2022

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GAAP to net leverage ratio.

(Dollars in millions) June 30,

(Dollars in millions) September 30,

2023 December 31,

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Liquidity and Capital Resources

As of June 30, 2023 and December 31, 2022, we held cash and cash equivalents in the following regions:

(In millions) June 30,

As of September 30, 2023 and December 31, 2022, we held cash and cash equivalents in the following regions (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

(In millions) September 30,

2023 December 31,

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Our cash and cash equivalents balances are held in the following significant currencies (amounts in the tables below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

As of June 30, 2023

As of September 30, 2023

(In millions) USD EUR GBP CNY Other

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USD Equivalent $ 14.0 $ 13.2 $ 115.2 $ 20.8

The table below summarizes our primary sources and uses of cash for the six months ended June 30, 2023 and 2022.

The table below summarizes our primary sources and uses of cash for the nine months ended September 30, 2023 and 2022.

We have derived these summarized statements of cash flows from the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.

For the six months ended

(In millions) June 30, 2023 June 30, 2022

For the nine months ended

(In millions) September 30, 2023 September 30, 2022

Net cash provided by/(used in):

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Operating activities.

Net cash provided by operating activities for the six months ended June 30, 2023 increased compared to the corresponding period of the prior year, primarily due to higher net income and timing of supplier payments and customer receipts.

The increase was partially offset by additional cash paid on interest of $15.2 million in the six months ended June 30, 2023 compared to the prior period.

Net cash provided by operating activities for the nine months ended September 30, 2023 increased compared to the corresponding period of the prior year, primarily due to higher cash generated from earnings and timing of supplier payments and customer receipts.

Investing activities.

Net cash used in investing activities for the six months ended June 30, 2023 decreased compared to the corresponding period of the prior year, primarily due to (1) the fact that there were no acquisitions in the six months ended June 30, 2023 (compared to $49.0 million paid for Elastic M2M in the prior period) and (2) we paid $0.4 million to invest in debt and equity securities (compared to $6.9 million in the prior period), partially offset by an increase in capital expenditures of $10.4 million.

In addition, we received cash proceeds of $19.0 million from the sale of businesses in the six months ended June 30, 2023.

Net cash used in investing activities for the nine months ended September 30, 2023 decreased compared to the corresponding period of the prior year, primarily due to (1) lower cash paid for acquisitions (there were no acquisitions in the nine months ended September 30, 2023, while in the prior period we acquired Elastic M2M and Dynapower) and (2) lower cash paid for investments in debt and equity securities, partially offset by (1) lower cash received from sales of businesses and (2) an increase in cash paid for capital expenditures.

In the nine months ended September 30, 2023, we received cash proceeds of $19.0 million from the sale of a business, compared to $198.8 million in the nine months ended September 30, 2022.

For fiscal year 2023, we anticipate capital expenditures of approximately $170.0 million to $180.0 million, which we expect to fund with cash on hand.

Financing activities .

Net cash used in financing activities for the six months ended June 30, 2023 increased primarily due to (1) the early payment of the entire Term Loan balance made in the six months ended June 30, 2023 and (2) an increase in cash paid to shareholders in the form of cash dividends of $17.9 million, partially offset by lower cash paid to repurchase ordinary shares as part of our share repurchase program.

Net cash used in financing activities for the nine months ended September 30, 2023 increased primarily due to (1) the early payment of the entire Term Loan balance in the nine months ended September 30, 2023 and (2) an increase in cash paid to shareholders in the form of cash dividends, partially offset by lower cash paid to repurchase ordinary shares as part of our share repurchase program.

Indebtedness and Liquidity

As of June 30, 2023, we had $3.8 billion in gross indebtedness, which includes finance lease and other financing obligations and excludes debt discounts, premiums, and deferred financing costs.

As of September 30, 2023, we had $3.8 billion in gross indebtedness, which includes finance lease and other financing obligations and excludes debt discounts, premiums, and deferred financing costs.

Capital Resources

Senior Secured Credit Facilities

The Credit Agreement provides for Senior Secured Credit Facilities consisting of the Term Loan, the Revolving Credit Facility, and incremental availability (the "Accordion") under which additional secured credit facilities could be issued under certain circumstances.

In the six months ended June 30, 2023, we repaid the Term Loan balance in full.

On August 22, 2023, we entered into the Thirteenth Amendment of the Credit Agreement, which (i) released the Specified Foreign Guarantors from all of their remaining obligations as guarantors and securing parties under the Credit Agreement, subject to an obligation to reinstate the guarantees under certain conditions, and (ii) modified certain of the operational and restrictive covenants and other terms and conditions of the Credit Agreement to provide us increased flexibility and permissions thereunder.

The Credit Agreement provides for the Senior Secured Credit Facilities, which consist of the Term Loan, the Revolving Credit Facility, and incremental availability (the "Accordion") under which additional secured credit facilities could be issued under certain circumstances.

In the first and second quarters of 2023, we repaid the Term Loan balance in full.

Sources of liquidity

Our sources of liquidity include cash on hand, cash flows from operations, and available capacity under the Revolving Credit Facility.

As of June 30, 2023, we had $746.1 million available under the Revolving Credit Facility, net of $3.9 million of obligations in respect of outstanding letters of credit issued thereunder.

As of September 30, 2023, we had $746.1 million available under the Revolving Credit Facility, net of $3.9 million of obligations in respect of outstanding letters of credit issued thereunder.

Outstanding letters of credit are issued primarily for the benefit of certain operating activities.

As of June 30, 2023, no amounts had been drawn against these outstanding letters of credit.

As of September 30, 2023, no amounts had been drawn against these outstanding letters of credit.

Availability under the Accordion varies each period based on our attainment of certain financial metrics as set forth in the terms of the Credit Agreement and the indentures under which our senior notes were issued (the "Senior Notes Indentures").

As of June 30, 2023, availability under the Accordion was approximately $1.2 billion.

As of September 30, 2023, availability under the Accordion was approximately $1.2 billion.

We believe, based on our current level of operations and taking into consideration the restrictions and covenants included in the Credit Agreement and Senior Notes Indentures, that the sources of liquidity described above will be sufficient to fund our operations, capital expenditures, dividend payments, ordinary share repurchases, and debt service for at least the next twelve months.

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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 July 21, 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.

As of October 20, 2023, Moody’s Investors Service’s corporate credit rating for STBV was Ba2 with a positive 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.

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The Credit Agreement also requires mandatory prepayments of the outstanding borrowings under the Senior Secured Credit Facilities upon certain asset dispositions and casualty events, in each case subject to certain reinvestment rights, and upon the incurrence of certain indebtedness (excluding any permitted indebtedness).

These provisions were not triggered during the six months ended June 30, 2023.

These provisions were not triggered during the nine months ended September 30, 2023.

The Credit Agreement and the Senior Notes Indentures contain restrictions and covenants that limit the ability of our wholly-owned subsidiary, STBV, and certain of its subsidiaries to, among other things, incur subsequent indebtedness, sell assets, pay dividends, and make other restricted payments.

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These restrictions and covenants, which are subject to important exceptions and qualifications set forth in the Credit Agreement and Senior Notes Indentures, were taken into consideration when we established our share repurchase programs and will be evaluated periodically with respect to future potential funding of those programs.

As of June 30, 2023, we believe we were in compliance with all covenants and default provisions under our credit arrangements.

These restrictions and covenants were not materially modified in the Thirteenth Amendment.

As of September 30, 2023, we believe we were in compliance with all covenants and default provisions under our credit arrangements.

Share repurchase programs

From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or terminated by our Board at any time.

We currently have authorization for the January 2022 Program, under which approximately $199.4 million remained available as of June 30, 2023.

In the six months ended June 30, 2023 and 2022, we repurchased 0.6 million and 2.8 million ordinary shares, respectively, under the January 2022 Program.

We currently have authorization for the January 2022 Program, under which

approximately $164.2 million remained available as of September 30, 2023.

In the nine months ended September 30, 2023 and 2022, we repurchased 1.5 million and 5.2 million ordinary shares, respectively, under the January 2022 Program.

On September 26, 2023, our Board of Directors authorized a new $500.0 million ordinary share repurchase program (the “September 2023 Program”), which replaced the January 2022 Program, effective October 1, 2023.

In the second quarter of 2022, we began paying cash dividends of $0.11 per share to our shareholders.

In the second quarter of 2023, we increased the dividends to $0.12 per share.

In the six months ended June 30, 2023 and 2022, we paid aggregate cash dividends of $35.1 million and $17.2 million, respectively.

On July 20, 2023, we announced that our Board of Directors approved a quarterly dividend of $0.12 per share, payable on August 23, 2023 to shareholders of record as of August 9, 2023.

In the nine months ended September 30, 2023 and 2022, we paid aggregate cash dividends of $53.4 million and $34.3 million, respectively.

On October 26, 2023, we announced that our Board of Directors approved a quarterly dividend of $0.12 per share, payable on November 22, 2023 to shareholders of record as of November 8, 2023.

Recently Issued Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis