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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-02-13 · 339 added, 332 removed, 607 unchanged (53% of the section changed)

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

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

Business and our Financial Statements, each included elsewhere in this Annual Report on Form 10-K (this "Report").

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

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

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

We innovate on behalf of our broad array of customers, solving some of their most difficult engineering challenges by providing sensors and sensor-rich solutions, electrical protection components and systems, and other products.

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

Refer to Item 1:

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

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

("Elastic M2M"), respectively.

Refer to Item 1:

Business – Business Combinations and Note 21:

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

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

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

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

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

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

During fiscal year 2023, we recognized Electrification revenue of approximately $673 million.

New business wins ("NBOs") were approximately $657 million in fiscal year 2023, of which more than half were in Electrification.

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

Accordingly, NBOs are an indicator of future revenue potential.

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

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

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

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

("SmartWitness").

Refer to Item 1:

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

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

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

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

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

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

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

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

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

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

In fiscal year 2023, according to third party data, global production of light vehicles increased approximately 9% and global production in the heavy vehicle and off-road ("HVOR") markets we serve increased approximately 1% to 2%, each from the prior year.

Fiscal year 2023 highlights

In the fourth quarter of 2023, we determined that, as of October 1, 2023, our Insights reporting unit was impaired.

As a result, we recorded a $321.7 million non-cash impairment charge, representing the entire goodwill balance allocated to Insights.

This impairment was primarily driven by reprioritization of our investments into electrification.

This reprioritization evolved from an assessment of our business strategy, beginning in the second half of 2023.

With electrification as the clear future of our company and the best area of focus for management, in the fourth quarter of 2023, we decided to narrow our investment in Insights.

Our assessment of the potential of the business has not changed, but our focus has moved from growth of the business to profitability.

These decisions resulted in significant cost restructuring and a lower long-range financial forecast for the reporting unit, impacting the valuation of the business with respect to the goodwill impairment analysis.

Other valuation assumptions for the Insights reporting unit valuation that are impacted by macroeconomic factors also contributed to the impairment.

We are considering strategic alternatives for this business as we continue to focus our investment priorities in line with our strategy.

In the year ended December 31, 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 NBOs.

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 466 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 year ended December 31, 2023, we recognized approximately $23.5 million of charges related to the Q3 2023 Plan.

As of December 31, 2023, our severance liability related to the Q3 2023 Plan was $6.0 million.

Refer to Note 5:

Restructuring and Other Charges, Net , of our Financial Statements included elsewhere in this Report 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.

On June 6, 2023, we announced that we had made the decision to exit the marine energy storage business (the "Marine Business") of Spear Power Systems (“Spear”).

The exit of the Spear Marine Business was the result of a change in strategy with respect to the business and involved ceasing sales, marketing, and business operations.

It resulted in the elimination of certain positions, primarily in the U.S.

and the closure of operations in Belgium.

The Spear Marine Business had been included in the Sensing Solutions reportable segment.

Exiting the Spear Marine Business resulted in charges in the year ended December 31, 2023 of approximately $38.5 million, consisting of accelerated amortization, inventory and property, plant and equipment ("PP&E") write-downs, severance charges, and other charges, including contract termination costs.

Refer to Note 5:

Restructuring and Other Charges, Net , of our Financial Statements included elsewhere in this Report for additional information on the Q3 2023 Plan and our exit from the Spear Marine Business.

In fiscal year 2023, we used $848.9 million of cash to pay debt, including prepaying the entire remaining outstanding principal on our variable-rate term loan facility ("Term Loan") balance in the first half of 2023 and the early redemption of the full $400.0 million aggregate principal amount outstanding on our 5.625% senior notes due 2024 (the "5.625% Senior Notes") in accordance with the terms of the indenture under which the 5.625% Senior Notes were issued.

These repayments brought our gross outstanding indebtedness at December 31, 2023 to $3.4 billion, representing a net leverage ratio of 3.2x, compared to gross indebtedness of $4.3 billion as of December 31, 2022 (representing a net leverage ratio of 3.4x).

Net leverage ratio, discussed throughout this Item 7:

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

generally accepted accounting principles ("GAAP").

Refer to Non-GAAP Financial Measures included elsewhere in this MD&A for additional information related to our use of net leverage ratio.

Fiscal year 2023 financial summary

Our consolidated revenue increased 0.6% in fiscal year 2023 from the prior year.

Excluding a decrease of 1.4% attributed to changes in foreign currency exchange rates and an increase of 0.5% due to the net effect of acquisitions and divestitures, net revenue increased 1.5% on an organic basis.

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

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

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

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

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

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

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

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

Organic revenue growth was primarily driven by an increase in demand in markets we serve in the Automotive, HVOR, and Aerospace businesses, content

growth, and the impact of pricing recoveries, partially offset by revenue mix, market declines, and inventory destocking in our Industrial business.

Operating income for fiscal year 2023 decreased $488.5 million, or 72.9%, to $181.7 million (4.5% of net revenue) compared to $670.1 million (16.6% of net revenue) in the prior year.

This decrease was primarily due to the $321.7 million impairment of the Insights reporting unit in the fourth quarter.

In addition, operating income in the prior year included $135.1 million of gain on sale of various assets and liabilities comprising our semiconductor test and thermal business (collectively, the "Qinex Business"), for which there was no comparable amount in fiscal year 2023.

Other charges during the year, such as those related to our exit from the Spear Marine Business and the entry into the Q3 2023 Plan, and the unfavorable effect of changes in foreign currency exchange rates, were partially offset by the net impacts of pricing recoveries from customers with inflation on material and logistics costs, volume leverage, and cost savings during the year resulting from repositioning actions taken in fiscal year 2022.

Refer to Results of Operations included elsewhere in this MD&A for additional discussion of our earnings results for the year ended December 31, 2023.

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

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

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

We also paid approximately $51.1 million in cash dividends.

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

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

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

That payment was completed on February 6, 2023.

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

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

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

We generated $456.7 million of operating cash flows in fiscal year 2023, ending the year with $508.1 million in cash.

In fiscal year 2023, in addition to paying $848.9 million on debt as discussed elsewhere, we used cash of approximately $88.4 million for share repurchases and $71.5 million for payment of cash dividends.

In fiscal year 2024, we will continue to execute our capital allocation strategy that is currently designed to reduce our 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 net leverage to decline and returns on invested capital to improve over time.

Selected Segment Information

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Set forth below is selected information for each of these segments for the periods presented.

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.

The amounts previously reported in the tables below for the years ended December 31, 2022 and 2021 have been retrospectively recast to reflect this change.

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.

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Segment Reporting of our Financial Statements included elsewhere in this Report.

Effective February 1, 2024, we combined our Automotive and HVOR businesses to better leverage core capabilities and prioritize product focus into one business, Vehicles, under the Performance Sensing reportable segment.

The Sensing Solutions reportable segment will benefit from organizing our predominantly shorter-cycle businesses together, by allowing us to scale core capabilities and better serve our customers.

We are still evaluating what impact this reorganization will have on our reportable segments, operating segments, and reporting units in the first quarter of 2024.

Selected Geographic Information

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

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

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

PP&E, net as of December 31,

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(1) Heating, ventilation, and air conditioning

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

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

Factors Affecting Our Operating Results

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

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

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

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

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

• changes in sales volume, as higher volumes enable us to spread the fixed portion of our selling, marketing, and administrative expense over higher revenue (e.g.

expenses relating to our sales and marketing personnel can fluctuate due to prolonged trends in sales volume, while expenses relating to administrative personnel generally do not increase or decrease directly with changes in sales volume);

• changes in sales volume, as higher volumes enable us to spread the fixed portion of our selling, marketing, and administrative expense over higher revenue (e.g., expenses relating to our sales and marketing personnel can fluctuate due to prolonged trends in sales volume, while expenses relating to administrative personnel generally do not increase or decrease directly with changes in sales volume);

• changes in customer prices and surcharges;

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Restructuring and other charges, net

Restructuring and other charges, net consists of severance, outplacement, other separation benefits, and facility and other exit costs.

Restructuring charges consist of severance, outplacement, other separation benefits, and facility and other exit costs.

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

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

Interest expense, net

Interest expense

As of December 31, 2023 and 2022, we had gross outstanding indebtedness of $3,425.2 million and $4,273.4 million, respectively.

This indebtedness consists of a secured credit facility and senior unsecured notes.

This indebtedness consists of a secured credit facility and various tranches of senior unsecured notes (together, the "Senior Notes").

Refer to Note 14:

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

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

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

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

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

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

The Senior Notes accrue interest at fixed rates.

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

As of December 31, 2023, we had no amounts outstanding on the Term Loan or Revolving Credit Facility.

Refer to Item 7A:

Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this Report for more information regarding our exposure to potential changes in variable interest rates.

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

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

Interest income

Interest income relates to interest earned on our cash and cash equivalent balances, and varies according to the balances in, and the interest rates provided by, these investments.

service cost.

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

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The provision for (or benefit from) income taxes consists of:

current tax expense, which relates primarily to our profitable operations in non-U.S.

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

current tax expense, which relates primarily to our profitable operations in jurisdictions outside the U.S.

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

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

Our current tax expense is favorably impacted by the amortization of definite-lived intangible assets and other tax benefits derived from our operating and capital structure, including tax incentives in both the United Kingdom (the "U.K.") and China as well as favorable tax status in Mexico.

and China as well as favorable tax status in Mexico.

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

While the extent of our future tax liability is uncertain, the impact of purchase accounting for past and future acquisitions, changes to debt and equity capitalization of our subsidiaries, and the realignment of the functions performed and risks assumed by our various subsidiaries are among the factors that will determine the future book and taxable income of each of our subsidiaries and of Sensata as a whole.

Our effective tax rate will generally not equal the U.S.

Our effective tax rate will generally not equal either the U.K.

statutory tax rate due to various factors, the most significant of which are described below.

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• establishing or releasing a portion of the valuation allowance related to our gross deferred tax assets;

• foreign tax rate differential - we operate in locations outside the U.S., including Belgium, Bulgaria, China, Malaysia, Malta, the Netherlands, South Korea, and the U.K., that historically have had statutory tax rates different than the U.S.

statutory tax rate.

• foreign tax rate differential - we operate in multiple jurisdictions including but not limited to Bulgaria, China, Malaysia, Malta, the Netherlands, South Korea, the U.S., and the U.K.

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

This foreign tax rate differential can change from year to year based upon the jurisdictional mix of earnings and changes in current and future enacted tax rates, tax holidays, and favorable tax regimes available to certain of our foreign subsidiaries;

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

• changes in tax laws and rates, including the potential or actual impact of activities by the Organization for Economic Co-operation and Development ("OECD") related to the European Union's ("EU's") Pillar Two directive and the European Commission ("EC") challenges to sovereign EU member states;

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

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We have derived these results of operations from our Financial Statements.

The amounts previously reported in the tables below for the years ended December 31, 2022 and 2021 have been retrospectively recast to reflect this change.

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.

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Operating income 181.7 4.5 670.1 16.6 633.2 16.6

Interest expense, net (178.8) (4.4) (179.3) (4.7) (171.8) (5.6)

Interest expense

(182.2) (4.5) (195.6) (4.9) (182.6) (4.8)

Interest income

31.3 0.8 16.7 0.4 3.3 0.1

Other, net (13.0) (0.3) (94.6) (2.3) (40.0) (1.0)

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Provision for income taxes

Net income $ 310.7 7.7 % $ 363.6 9.5 % $ 164.3 5.4 %

Net revenue - Overall

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

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

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

Excluding an increase of 2.3% attributed to changes in foreign currency exchange rates and an increase of 2.5% due to the effect of acquisitions, net revenue increased 20.7% on an organic basis, which represented market outgrowth of 960 basis points.

Net Revenue - Performance Sensing

Fiscal year 2022 vs.

fiscal year 2021

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

21.8 0.5 86.0 2.1 50.3 1.3

Net (loss)/income

$ (3.9) (0.1) % $ 310.7 7.7 % $ 363.6 9.5 %

The discussion that follows compares operating results for fiscal year 2023 to fiscal year 2022.

For a discussion of our fiscal year 2022 operating results compared to fiscal year 2021, refer to Item 7:

Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 13, 2023.

Refer to Item 1:

Business included elsewhere in this Report for more detailed discussion of our reportable segments, including discussion of major products and market drivers.

Refer to discussion under the heading Factors Affecting Our Operating Results included elsewhere in this MD&A for a detailed discussion of the various factors that may drive changes in our operating results.

The below discussion provides information on the material factors impacting fiscal year 2023 compared to fiscal year 2022.

Net revenue for the year ended December 31, 2023 increased 0.6% compared to the prior year.

Net revenue increased 1.5% on an organic basis, which excludes a decrease of 1.4% attributed to changes in foreign currency exchange rates and an increase of 0.5% due to the net effect of acquisitions and divestitures.

Performance Sensing

Performance Sensing net revenue for the year ended December 31, 2023 increased 2.8% compared to the prior year.

Excluding a decrease of 1.6% 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 4.3% on an organic basis.

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

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

Automotive net revenue for the year ended December 31, 2023 increased 3.3% compared to the prior year.

Excluding a decrease of 1.8% attributed to changes in foreign currency exchange rates, automotive net revenue increased 5.1% on an organic basis.

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

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

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

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

Fiscal year 2021 vs.

fiscal year 2020

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

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

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

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

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

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

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

Excluding an increase of 2.1% attributed to changes in foreign currency exchange rates and an increase of 14.8% due to the effect of acquisitions, HVOR net revenue increased 46.4% on an organic basis.

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

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

Net Revenue - Sensing Solutions

Fiscal year 2022 vs.

fiscal year 2021

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

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

Fiscal year 2021 vs.

fiscal year 2020

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

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

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

This organic revenue growth was primarily due to market growth, partially offset by unfavorable revenue mix.

HVOR net revenue for the year ended December 31, 2023 increased 1.8% compared to the prior year.

Excluding a decrease of 0.9% attributed to changes in foreign currency exchange rates and an increase of 0.3% due to the effect of acquisitions, HVOR net revenue increased 2.4% on an organic basis.

This organic revenue growth was primarily due to market and content growth, partially offset by channel inventory de-stocking.

Sensing Solutions

Sensing Solutions net revenue for the year ended December 31, 2023 decreased 5.2% compared to the prior year.

Excluding a decrease of 0.9% attributed to changes in foreign currency exchange rates and an increase of 1.7% due to the net effect of acquisitions and divestitures, Sensing Solutions net revenue decreased 6.0% on an organic basis, which primarily reflects weakness in our industrial markets and inventory destocking, partially offset by market and content growth in the aerospace business and pricing.

Operating costs and expenses

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Amortization of intangible assets 173.9 4.3 153.8 3.8 134.1 3.5

Goodwill impairment charge

321.7 7.9 — — — —

Restructuring and other charges, net 54.5 1.3 (66.7) (1.7) 14.9 0.4

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Cost of revenue

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

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

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

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

Cost of revenue as a percentage of net revenue increased in the year ended December 31, 2023, primarily due to (1) unfavorable product mix, (2) the unfavorable effect of changes in foreign currency exchange rates, (3) the impact of certain actions taken in relation to the Q3 2023 Plan, (4) the net unfavorable impacts of acquisitions and divestitures on gross margin, and (5) the $10.5 million write-down of inventory as a result of our decision to exit the Spear Marine Business, 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 Financial Statements included elsewhere in this Report 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

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

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

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

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

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

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

R&D expense decreased in the year ended December 31, 2023, primarily as a result of lower costs as a result of certain repositioning actions taken in fiscal year 2022 that were not part of a larger restructuring plan.

Selling, general and administrative expense

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

SG&A expense decreased in the year ended December 31, 2023, primarily as a result of (1) cost savings as a result of repositioning actions taken in fiscal year 2022, (2) lower selling expenses, (3) lower compensation expense, and (4) 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 21:

Acquisitions and Divestitures and Note 4:

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

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

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

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

Amortization of intangible assets

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

Refer to Note 21:

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

Amortization expense increased in the year ended December 31, 2023, 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.

We expect amortization expense to be approximately $147.4 million in fiscal year 2024.

Refer to Note 5:

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

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

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

Restructuring and Other Charges, Net and Note 11:

Goodwill and Other Intangible Assets, Net of our Financial Statements included elsewhere in this Report for additional information regarding the charges related to the exit of the Spear Marine Business and amortization on our intangible assets, respectively.

Goodwill impairment charge

In the year ended December 31, 2023, we recorded a $321.7 million non-cash goodwill impairment charge in the fourth quarter of 2023, representing the entire goodwill balance allocated to Insights.

This impairment was primarily driven by reprioritization of our investments into electrification in accordance with our business strategy.

With electrification as the clear future of our company and the best area of focus for management, we narrowed our investment in Insights.

Other valuation assumptions for the Insights reporting unit valuation that are impacted by macroeconomic factors also contributed to the impairment.

Restructuring and other charges, net

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

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

We recorded a net charge of $54.5 million in restructuring and other charges, net in the year ended December 31, 2023, an unfavorable change in earnings compared to a net gain of $66.7 million in the prior year.

This change was primarily driven by (1) the non-recurrence of the $135.1 million gain on the sale of the Qinex Business in fiscal year 2022, (2) charges incurred as a result of the entry into the Q3 2023 Plan, and (3) charges incurred as a result of our exit from the Spear Marine Business, partially offset by (1) a reduction in expense for acquisition-related compensation arrangements, and (2) the non-recurrence of $15.6 million of transaction-related charges to sell the Qinex Business in fiscal year 2022.

Refer to Note 5:

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

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

Refer to Note 5:

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

Operating income

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

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

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

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

Interest expense, net

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

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

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

That payment was completed on February 6, 2023.

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

In the year ended December 31, 2023, operating income decreased $488.4 million or 72.9%, to $181.7 million (4.5% of net revenue) compared to $670.1 million (16.6% of net revenue) in the prior year, primarily due to (1) the $321.7 million goodwill impairment charge related to the Insights reporting unit, (2) the non-recurrence of the $119.5 million gain on the sale of the Qinex Business in fiscal year 2022, net of the related transaction costs, (3) $38.5 million of charges incurred as a result of our exit from the Spear Marine Business, (4) the unfavorable effect of changes in foreign currency exchange rates, (5) charges incurred related to the Q3 2023 Plan, (6) unfavorable product mix, and (7) increased amortization of intangible assets as a result of new acquisitions, partially offset by (1) cost savings as a result of repositioning actions taken in fiscal year 2022, (2) the net impacts of pricing recoveries from customers, inflation on material and logistics costs, and volume leverage, and (3) lower expense for acquisition-related compensation arrangements.

Interest expense

In the year ended December 31, 2023, interest expense decreased $13.4 million from the prior period, primarily due to the early payment on the Term Loan in the first half of 2023.

Refer to Note 14:

Debt of our Financial Statements included elsewhere in this Report for additional information regarding the early payment on the Term Loan.

Interest income

In the year ended December 31, 2023, interest income increased $14.6 million compared to the prior period, primarily due to higher interest rates, partially offset by lower cash balances.

Other, net for the years ended December 31, 2023, 2022, and 2021 consisted of the following (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

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4.2 4.3 (7.6)

(Loss)/gain on commodity forward contracts (2)

Loss on commodity forward contracts (2)

(2.8) (3.4) (3.0)

1 unchanged sentence

(5.4) (5.5) (30.1)

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

Loss on equity investments, net (4)

(0.7) (75.6) —

Net periodic benefit cost, excluding service cost (3.9) (5.1) (7.5)

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

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

(4) The year ended December 31, 2022 primarily relates to mark-to-market losses on our investment in Quanergy Systems, Inc.

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

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Provision for income taxes

The components of provision for income taxes for the years ended December 31, 2022, 2021, and 2020 are described in more detail in the table below (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

The components of provision for income taxes for the years ended December 31, 2023, 2022, and 2021 are described in more detail in the table below, reconciled to the U.S.

statutory rate for each year (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

For the year ended December 31,

(In millions) 2023 2022 2021

Tax computed at statutory rate of 21% (1)

Tax computed at U.S.

statutory rate of 21% (1)

$ 3.7 $ 83.3 $ 86.9

Foreign tax rate differential (2)

Dispositions and capital restructurings (6)

(286.4) 4.5 —

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278.5 15.7 20.5

Goodwill impairment (3)

Foreign tax rate differential (2)

(17.3) (44.3) (30.5)

Withholding taxes not creditable 14.1 12.3 13.3

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(9.0) (10.8) (11.1)

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

Dispositions and capital restructurings (5)

Change in tax laws or rates 2.6 (7.1) 11.2

Unrealized foreign currency exchange losses/(gains), net 1.5 9.3 (6.1)

Reserve for tax exposure 1.1 1.3 (16.3)

Changes in tax laws or rates (0.3) 2.6 (7.1)

(5.2) 12.1 0.7

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$ 21.8 $ 86.0 $ 50.3

__________________________

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

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

statutory tax rate.

(2) We operate in multiple jurisdictions, including but not limited to Bulgaria, China, Malaysia, Malta, Mexico, the Netherlands, South Korea, the U.S., and the U.K.

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

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

(3) During the year ended December 31, 2023, we incurred a non-cash impairment charge for goodwill that is nondeductible for tax purposes.

(4) During the years ended December 31, 2023, 2022, and 2021, we established an additional valuation allowance and recognized a deferred tax expense.

The valuation allowance as of December 31, 2023 and 2022 was $569.6 million and $249.5 million, respectively.

A significant portion of our valuation allowance is against interest carryforwards due to our assessment of our inability to utilize these carryforwards based on our forecasts of future taxable income.

The increase in valuation allowance during the year ended December 31, 2023 is principally due to our inability to recognize the future tax benefits associated with a $300.0 million deferred tax asset created upon the transfer of certain intellectual property rights.

A large portion of our valuation allowance is against interest carryforwards due to our assessment of our inability to utilize these carryforwards based on our forecasts of future taxable income.

The remaining valuation allowance primarily relates to foreign tax credits, capital loss carryforwards, goodwill tax basis, and net operating losses in jurisdictions outside the U.S.

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

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

In the U.S., we benefit from the federal R&D credit.

(6) During the year ended December 31, 2023, we recorded a deferred tax benefit related to the intercompany transfer of certain intellectual property rights.

Based on our corporate structure at December 31, 2023, it is more likely than not that the future tax benefits associated with this intercompany transfer will not be realized.

As such, this benefit has been fully offset by a valuation allowance.

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

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

(7) Refer to Note 7:

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Non-GAAP Financial Measures

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

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

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

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

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

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

Organic revenue growth (or decline)

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, corporate and other expenses, or total debt and finance lease obligations, calculated in accordance with U.S.

In addition, our measures of organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted EPS, free cash flow, adjusted corporate and other expenses, gross and 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

Organic revenue growth (or decline) is defined as the reported percentage change in net revenue, calculated in accordance with U.S.

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We believe that organic revenue growth (or decline) provides useful information in evaluating the results of our business because it excludes items that we believe are not indicative of ongoing performance or that we believe impact comparability with the prior-year period.

Market outgrowth is calculated as organic revenue growth less our weighted market growth.

Our weighted market growth is calculated using our regional and platform sales mix, as applicable, in the corresponding prior period.

Market outgrowth is used to describe the impact of an increasing quantity and value of our products used in customer systems and applications above market growth.

We believe this provides a more meaningful comparison of our revenue growth relative to the markets we serve.

Adjusted operating income, adjusted operating margin, adjusted net income, and adjusted EPS

We define adjusted operating income as operating income, determined in accordance with U.S.

GAAP, excluding certain non-GAAP adjustments which are described below.

Adjusted operating margin is calculated by dividing adjusted operating income by net revenue determined in accordance with U.S.

We define adjusted operating income as operating income (or loss), determined in accordance with U.S.

GAAP, adjusted to exclude certain non-GAAP adjustments which are described under the heading Non-GAAP adjustments below.

Adjusted operating margin is calculated by dividing adjusted operating income (or loss) by net revenue determined in accordance with U.S.

We define adjusted net income as follows:

net income (or loss) determined in accordance with U.S.

GAAP, excluding certain non-GAAP adjustments which are described in Non-GAAP adjustments below.

GAAP, excluding certain non-GAAP adjustments which are described under the heading Non-GAAP adjustments below.

Adjusted EPS is calculated by dividing adjusted net income by the number of diluted weighted-average ordinary shares outstanding in the period.

Management uses adjusted operating income, adjusted operating margin, adjusted net income, and adjusted EPS as measures of operating performance, for planning purposes (including the preparation of our annual operating budget), to allocate resources to enhance the financial performance of our business, to evaluate the effectiveness of our business strategies, in communications with our Board of Directors and investors concerning our financial performance, and as factors in determining compensation for certain employees.

We may also refer to certain of these measures, or changes in these measures, on a constant currency basis.

Adjusted operating margin calculated on a constant currency basis is determined by stating revenues and expenses at prior period foreign currency exchange rates and excludes the impact of foreign currency exchange rates on all hedges.

Adjusted EPS on a constant currency basis is determined in the same manner as adjusted operating margin, but also excludes the change in gain or loss on the remeasurement of monetary assets and liabilities.

Management uses adjusted operating income, adjusted operating margin, adjusted net income, and adjusted EPS (and the constant currency equivalent of each) as measures of operating performance, for planning purposes (including the preparation of our annual operating budget), to allocate resources to enhance the financial performance of our business, to evaluate the effectiveness of our business strategies, in communications with our Board of Directors and investors concerning our financial performance, and as factors in determining compensation for certain employees.

We believe investors and securities analysts also use these non-GAAP financial measures in their evaluation of our performance and the performance of other similar companies.

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GAAP, excluding interest expense, net, provision for (or benefit from) income taxes, depreciation expense, amortization of intangible assets, and the following non-GAAP adjustments, if applicable:

(1) restructuring related and other, (2) financing and other transaction costs, (3) deferred loss or gain on derivative instruments, and (4) step-up inventory amortization.

(1) restructuring related and other, (2) financing and other transaction costs, and (3) deferred loss or gain on derivative instruments.

Refer to Non-GAAP adjustments below for additional discussion of these adjustments.

Gross leverage ratio

Gross leverage ratio represents gross debt (total debt and finance lease obligations) divided by last twelve months ("LTM") adjusted EBITDA.

We believe that gross leverage ratio is a useful measure to management and investors in understanding trends in our overall financial condition.

Net leverage ratio

Net leverage ratio represents net debt (total debt, finance lease, and other financing obligations less cash and cash equivalents) divided by last twelve months ("LTM") adjusted EBITDA.

Net leverage ratio represents net debt (total debt and finance lease obligations less cash and cash equivalents) divided by LTM adjusted EBITDA.

We believe that the net leverage ratio is a useful measure to management and investors in understanding trends in our overall financial condition.

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• Restructuring related and other :

includes charges, net related to certain restructuring and other exit activities as well as other costs (or income) that we believe are either unique or unusual to the identified reporting period, and that we believe impact comparisons to prior period operating results.

includes net charges related to certain restructuring and other exit activities as well as other costs (or income) that we believe are either unique or unusual to the identified reporting period, and that we believe impact comparisons to prior period operating results.

Such costs include charges related to optimization of our manufacturing processes to increase productivity.

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• Financing and other transaction costs :

includes losses or gains related to debt financing transactions, losses or gains related to the divestiture of a business, and costs incurred, including for legal, accounting, and other professional services, that are directly related to an acquisition, divestiture, or equity financing transaction.

includes losses or gains related to debt financing transactions, losses or gains related to the divestiture of a business, costs incurred, including for legal, accounting, and other professional services, that are directly related to an acquisition, divestiture, or equity financing transaction, mark-to-market losses or gains on our equity investments, expenses related to compensation arrangements entered into concurrent with the closing of an acquisition, and gains related to changes in the fair value of acquisition-related contingent consideration amounts.

• Deferred loss or gain on derivative instruments :

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• Step-up depreciation and amortization :

includes depreciation and amortization expense associated with the step-up in fair value of assets acquired in connection with a business combination (e.g., PP&E, definite-lived intangible assets, and inventories).

includes depreciation expense associated with the step-up in fair value of assets acquired in connection with a business combination (e.g., PP&E and inventories) and amortization of intangible assets.

• Deferred taxes and other tax related :

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• Amortization of debt issuance costs:

We adjust our results recorded in accordance with U.S.

GAAP by the amortization of debt issuance costs, which are deferred as a contra-liability against our long-term debt, net on the consolidated balance sheets and which are reflected in interest expense on the consolidated statements of operations.

represents interest expense related to the amortization of deferred financing costs and debt discounts, net of premiums.

• Where applicable, the current income tax effect of non-GAAP adjustments.

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GAAP to the related non-GAAP financial measures for the periods presented.

Refer to Non-GAAP adjustments section above for additional information related to these adjustments.

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.

Refer to the discussion under the heading Non-GAAP adjustments above for additional information related to 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 year ended December 31, 2023

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

($ in millions, except per share amounts) Operating Income Operating Margin Income

Reported (GAAP) $ 181.7 4.5 % $ 21.8 $ (3.9) $ (0.03)

$ 670.1 16.6 % $ 310.7 $ 1.99

Non-GAAP adjustments:

Restructuring related and other (e)

Restructuring related and other (a)

411.5 10.2 (3.7) 407.8 2.67

Financing and other transaction costs (a)

Financing and other transaction costs

16.3 0.4 2.7 24.2 0.16

Step-up depreciation and amortization 148.3 3.7 148.3 0.95

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

Step-up depreciation and amortization (b)

168.6 4.2 — 168.6 1.11

Deferred gain on derivative instruments

(4.1) (0.1) 0.3 (1.7) (0.01)

Amortization of debt issuance costs — — — 6.8 0.04

Deferred taxes and other tax related (c)

Deferred taxes and other tax related

— — (50.4) (50.4) (0.33)

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Adjusted (non-GAAP) $ 774.0 19.1 % $ 72.8 $ 551.4 $ 3.61

$ 777.9 19.3 % $ 530.5 $ 3.40

For the year ended December 31, 2022

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

($ in millions, except per share amounts) Operating Income Operating Margin Income

Reported (GAAP) $ 670.1 16.6 % $ 86.0 $ 310.7 $ 1.99

$ 663.2 16.6 % $ 363.6 $ 2.28

Non-GAAP adjustments:

Restructuring related and other (e)

Restructuring related and other (a)

36.5 0.9 (3.5) 34.5 0.22

Financing and other transaction costs (b)

Financing and other transaction costs (c)

(75.6) (1.9) 2.8 10.7 0.07

Step-up depreciation and amortization 148.3 3.7 — 148.3 0.95

Deferred loss on derivative instruments 8.3 0.2 11.3 0.07

Deferred (gain)/loss on derivative instruments

(1.5) 0.0 (0.4) 1.5 0.01

Amortization of debt issuance costs — — — 7.0 0.04

Deferred taxes and other tax related (c)

Deferred taxes and other tax related (d)

— — 17.8 17.8 0.11

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Adjusted (non-GAAP) $ 777.9 19.3 % $ 69.3 $ 530.5 $ 3.40

$ 806.0 21.1 % $ 566.8 $ 3.56

For the year ended December 31, 2021

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

($ in millions, except per share amounts) Operating Income Operating Margin Income

Reported (GAAP) $ 663.2 16.6 % $ 50.3 $ 363.6 $ 2.28

$ 337.7 11.1 % $ 164.3 $ 1.04

Non-GAAP adjustments:

Restructuring related and other (e)

Restructuring related and other (a)

23.6 0.6 (3.5) 21.4 0.13

Financing and other transaction costs 8.2 0.3 6.4 0.04

Financing and other transaction costs (e)

13.2 0.3 (0.1) 41.0 0.26

Step-up depreciation and amortization

127.6 3.3 — 127.6 0.80

Deferred loss/(gain) on derivative instruments

Deferred loss on derivative instruments

8.3 0.2 — 11.3 0.07

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__________________________

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

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

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

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

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

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

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

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

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

(a) The following table presents the components of our restructuring related and other non-GAAP adjustment to net income for fiscal years 2023, 2022, and 2021 (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

For the year ended December 31,

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Pre-acquisition legal matters (iii)

Income tax effect (iv)

(1.5) 6.4 6.0

Total non-GAAP restructuring related and other (v)

Income tax effect (v)

(3.7) (3.5) (3.5)

Total non-GAAP restructuring related and other (vi)

$ 407.8 $ 34.5 $ 21.4

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

__________________________

Primarily includes charges related to repositioning our business and corporate functions to more effectively respond to the challenges that face the business.

Fiscal year 2023 includes (1) $28.8 million of charges related to the exit the Spear Marine Business, $14.4 million of which was recorded in restructuring and other charges, net, with the remainder primarily in cost of revenue, (2) $23.5 million of charges incurred as part of the Q3 2023 Plan, recorded in restructuring and other charges, net, and (3) $18.8 million of charges arising as an indirect result of actions taken in the Q3 2023 Plan, of which approximately $2.1 million was recorded in restructuring and other charges, net, with the remainder primarily in cost of revenue.

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

Represents charges incurred related to legal matters associated with acquired businesses, for which new information is brought to light after the measurement period for the business combination is closed, but for which the liability relates to events or activities that occurred prior to our acquisition of the business.

Fiscal year 2020 primarily includes the settlement of intellectual property litigation brought against Schrader by Wasica.

Relates primarily to a $321.7 million non-cash goodwill impairment charge recognized in the fourth quarter of 2023 related to the Insights reporting unit.

We treat deferred taxes as a non-GAAP adjustment.

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Certain portions of these adjustments are non-operating and are excluded from the non-GAAP adjustments to operating income.

(b) Step-up depreciation and amortization in the year ended December 31, 2023 includes $13.5 million of accelerated amortization related to the exit of the Spear Marine Business in the second quarter of 2023.

(c) Financing and other transaction costs in the year ended December 31, 2022 includes gains of $135.1 million and $9.4 million on the sale of the Qinex Business and changes in the fair value of acquisition-related contingent consideration, respectively, partially offset by $48.9 million of expense related to compensation arrangements entered into concurrent with the closing of acquisitions, each of which were recorded in restructuring and other charges, net.

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

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

(e) Financing and other transaction costs in the year ended December 31, 2021 includes a $30.1 million loss related to the early redemption of the $750.0 million aggregate principal amount outstanding on the 6.25% senior notes due 2026 (the "6.25% Senior Notes").

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

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

The following table presents a reconciliation of net cash provided by operating activities calculated in accordance with U.S.

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Total adjustments

370.1 27.3 31.8

Adjusted corporate and other expenses (non-GAAP) $ (263.1) $ (267.1) $ (256.3)

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

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

GAAP to adjusted EBITDA.

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(In millions) 2023 2022 2021

Net income $ 310.7 $ 363.6 $ 164.3

Net (loss)/income

$ (3.9) $ 310.7 $ 363.6

Interest expense, net 150.9 178.8 179.3

Provision for income taxes

21.8 86.0 50.3

Depreciation expense 133.1 127.2 125.0

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Financing and other transaction costs 21.5 7.5 41.0

Deferred loss/(gain) on derivative instruments 1.9 11.3 (7.0)

Deferred (gain)/loss on derivative instruments

(2.0) 1.9 11.3

Adjusted EBITDA $ 906.6 $ 903.9 $ 928.3

The following table presents a reconciliation of total debt, finance lease, and other financing obligations calculated in accordance with U.S.

GAAP to net leverage ratio.

The following table presents a reconciliation of total debt and finance lease obligations calculated in accordance with U.S.

GAAP to net and gross leverage ratio.

For the year ended December 31,

($ in millions) 2023 2022 2021

Current portion of long-term debt, finance lease and other financing obligations $ 256.5 $ 6.8 $ 757.2

Finance lease and other financing obligations, less current portion 24.7 26.6 27.9

Current portion of long-term debt and finance lease obligations

$ 2.3 $ 256.5 $ 6.8

Finance lease obligations, less current portion

22.9 24.7 26.6

Long-term debt, net 3,374.0 3,958.9 4,214.9

Total debt, finance lease, and other financing obligations 4,240.1 4,248.3 3,998.9

Total debt and finance lease obligations

3,399.2 4,240.1 4,248.3

debt discount, net of premium (1.6) (3.4) (5.2)

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Total gross indebtedness $ 3,425.2 $ 4,273.4 $ 4,280.2

Adjusted EBITDA (LTM) $ 906.6 $ 903.9 $ 928.3

Gross leverage ratio

Total gross indebtedness $ 3,425.2 $ 4,273.4 $ 4,280.2

cash and cash equivalents 508.1 1,225.5 1,709.0

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Operating activities:

Net income adjusted for non-cash items $ 586.4 $ 678.2 $ 405.3

Net (loss)/income adjusted for non-cash items

$ 639.6 $ 609.9 $ 693.8

Changes in operating assets and liabilities, net (160.3) (125.8) (124.0)

Cash operating activities

(22.6) (23.5) (15.6)

Operating activities 456.7 460.6 554.2

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Financing activities (1,016.6) (353.5) 174.9

Effects of exchange rate differences

Net change in cash and cash equivalents $ (717.4) $ (483.4) $ (153.0)

Operating Activities

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

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

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

The terms of these agreements are fixed and determinable.

We have cash commitments under these agreements of $77.7 million and $11.2 million in fiscal years 2023 and 2024, respectively.

Refer to Note 15:

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

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

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

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

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

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

Refer to Results of Operations included elsewhere in this MD&A for discussion of the drivers of changes in net (loss)/income in fiscal years 2023 and 2022.

Net cash provided by operating activities for the year ended December 31, 2023 decreased from the prior year as higher cash generated from earnings was more than offset by inventory build and a negative impact from the timing of supplier payments and customer receipts.

Investing Activities

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

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

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

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

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

Net cash used in investing activities for the year ended December 31, 2023 decreased compared to the corresponding period of the prior year, primarily due to lower cash paid for acquisitions (there were no acquisitions in the year ended December 31,

2023, while in the prior period we acquired Elastic M2M and Dynapower), partially offset by (1) lower cash received from sale of businesses and (2) an increase in cash paid for capital expenditures.

In the year ended December 31, 2023, we received cash proceeds of $19.0 million from the sale of a business, compared to $198.8 million in the year ended December 31, 2022.

In fiscal year 2024, we anticipate additions to PP&E and capitalized software of approximately $175.0 million, which we expect to be funded with cash flows from operations.

Financing Activities

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

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

We used $292.3 million of cash for share

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

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

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

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

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

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

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

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

Net cash used in financing activities for the year ended December 31, 2023 increased primarily due to (1) the early payment of the entire Term Loan balance and the 5.625% Senior Notes in the year ended December 31, 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

The following table details our gross outstanding indebtedness as of December 31, 2023 and the associated interest expense for the year then ended (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding):

(In millions) Balance as of December 31, 2022 Interest Expense, net for the year ended December 31, 2022

(In millions) Balance as of December 31, 2023

Interest Expense for the year ended December 31, 2023

Term Loan (1)

$ 446.8 $ 17.0

5.625% Senior Notes (2)

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5.875% Senior Notes

5.875% Senior Notes (3)

Finance lease and other financing obligations 26.6 2.3

Finance lease obligations

Total gross outstanding indebtedness $ 3,425.2

Other interest expense, net (4)

Interest expense, net $ 178.8

Amortization of debt issuance costs

Capitalized interest costs (3)

Other interest expense (4)

Interest expense

__________________________

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

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

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

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

(1) On May 3, 2023, we prepaid the remaining balance on our outstanding variable rate Term Loan.

(2) On December 18, 2023, we redeemed in full the $400.0 million aggregate principal amount outstanding on our 5.625% Senior Notes.

(3) Relates to interest costs capitalized as PP&E in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Subtopic 835-20, Capitalization of Interest.

(4) Primarily relates to fees on the unused balance on our Revolving Credit Facility.

Debt Instruments

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

On June 23, 2022, we entered into an amendment (the “Eleventh Amendment”) to (i) the credit agreement, dated as of May 12, 2011 (as amended, supplemented, waived, or otherwise modified, the “Credit Agreement”), and (ii) the Foreign Guaranty, dated as of May 12, 2011.

The Eleventh Amendment, among other things:

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

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

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

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

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

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

On September 28, 2022, we redeemed in full the $500.0 million aggregate principal amount outstanding on the 4.875% Senior Notes due 2023 in accordance with the terms of the indenture under which the 4.875% Senior Notes were issued, at a price of 101.0% of the aggregate principal amount of the outstanding 4.875% Senior Notes (which includes the applicable premium), plus accrued and unpaid interest to (but not including) the redemption date.

As of December 31, 2023, our debt instruments included $700.0 million aggregate principal amount of 5.0% senior notes due 2025 (the "5.0% Senior Notes"), $450.0 million aggregate principal amount of 4.375% senior notes due 2030 (the "4.375% Senior Notes"), $750 million aggregate principal amount of 3.75% senior notes due 2031 (the "3.75% Senior Notes"), $1.0 billion aggregate principal amount of 4.0% senior notes due 2029 (the "4.0% Senior Notes"), and $500.0 million aggregate principal amount of 5.875% senior notes due 2030 (the "5.875% Senior Notes").

In the year ended December 31, 2023, we prepaid the entire principal outstanding on our Term Loan.

Per the terms of the Senior Secured Credit Facilities, balances outstanding on the Term Loan, once repaid, may not be re-borrowed.

There are no outstanding borrowings on the Revolving Credit Facility as of December 31, 2023.

In August 2023, we entered into an amendment (the “Thirteenth Amendment”) to (i) the Credit Agreement, and (ii) the Foreign Guaranty, dated as of May 12, 2011 (as amended, supplemented, waived, or otherwise modified prior to the Thirteenth Amendment).

Among other changes to the Credit Agreement, the Thirteenth Amendment, (i) released the Foreign Guarantors

(excluding STBV) (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 Specified Foreign Guarantors were released from their guaranty obligations with respect the 5.625% Senior Notes (collectively with the 5.0% Senior Notes, the 4.375% Senior Notes, the 3.75% Senior Notes, the 4.0% Senior Notes, and the 5.875% Senior Notes, the “Senior Notes”), the 5.0% Senior Notes, the 4.0% Senior Notes, the 5.875% Senior Notes, the 4.375% Senior Notes, and the 3.75% Senior Notes, in each case in accordance with the terms of the relevant indenture pursuant to which the Senior Notes were issued (the "Senior Notes Indentures").

On December 18, 2023, we redeemed in full the $400.0 million aggregate principal amount outstanding on the 5.625% Senior Notes in accordance with the terms of the indenture under which the 5.625% Senior Notes were issued, at a redemption price of 100.0% of the aggregate principal amount of the outstanding 5.625% Senior Notes, plus a $4.0 million "make-whole" premium, plus accrued and unpaid interest to (but not including) the redemption date.

Refer to Note 14:

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

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

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

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

The Term Loan must be repaid in full on or prior to its final maturity date.

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

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

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

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

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

The following table presents the remaining mandatory principal repayments of long-term debt, in millions, excluding finance lease payments and discretionary repurchases of debt, in each of the years ended December 31, 2024 through 2028 and thereafter.

For the year ended December 31, Aggregate Maturities

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Capital Resources

The Credit Agreement provides for the Senior Secured Credit Facilities consisting of the Term Loan, the Revolving Credit Facility, and the Accordion.

Senior Secured Credit Facilities

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 consisting of the Term Loan, the Revolving Credit Facility, and 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.

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As of December 31, 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").

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 Senior Notes Indentures.

As of December 31, 2023, availability under the Accordion was approximately $2.0 billion.

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

We believe, based on our current level of operations for the year ended December 31, 2023, and taking into consideration the restrictions and covenants included in the Credit Agreement and Senior Notes Indentures discussed below and in Note 14:

Debt of our Financial Statements included elsewhere in this Report, that these sources of liquidity will be sufficient to fund our operations, capital expenditures, ordinary share repurchases, and debt service for at least the next twelve months.

Debt of our Financial Statements included elsewhere in this Report, 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 the short and long term.

However, we cannot make assurances that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

Further, our highly-leveraged nature may limit our ability to procure additional financing in the future.

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

As of January 26, 2024, Moody’s Investors Service’s corporate credit rating for STBV was Ba2 with a positive outlook, and S&P's corporate credit rating for STBV was BB+ with a stable outlook.

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

Restrictions and Covenants

The Credit Agreement provides that if our senior secured net leverage ratio exceeds a specified level, we are required to use a portion of our excess cash flow, as defined in the Credit Agreement, generated by operating, investing, or financing activities to prepay some or all of the outstanding borrowings under the Senior Secured Credit Facilities.

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These provisions were not triggered during the year ended December 31, 2023.

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

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

("STBV"), and the Guarantors.

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

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

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

Debt of our Financial Statements included elsewhere in this Report) that limit the ability of STBV and certain of its subsidiaries to, among other things, incur subsequent indebtedness, sell assets, pay dividends, and make other restricted payments.

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 program.

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

We do not believe that these restrictions and covenants will prevent us from funding share repurchases under our share repurchase programs with available cash and cash flows from operations.

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

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

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

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

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

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

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

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

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

In January 2022, our Board of Directors authorized the January 2022 Program, which replaced the July 2019 Program.

On September 26, 2023, our Board of Directors authorized the September 2023 Program, which replaced the January 2022 Program, effective October 1, 2023.

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

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

During the year ended December 31, 2023, we repurchased approximately 2.3 million ordinary shares at a weighted average price per share of $38.31.

These purchases were made under the January 2022 Program and the September 2023 Program.

As of December 31, 2023, approximately $471.9 million remained available under the September 2023 Program.

In the second quarter of 2022, we began paying quarterly 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 years ended December 31, 2023 and 2022, we paid

aggregate cash dividends of $71.5 million and $51.1 million, respectively.

On January 25, 2024, we announced that our Board of Directors approved a quarterly dividend of $0.12 per share, payable on February 28, 2024 to shareholders of record as of February 14, 2024.

Critical Accounting Policies and Estimates

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

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

condition and results of operations are listed below.

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

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

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However, should our judgments and estimates regarding variable consideration change, it could result in a material change to the amount of net revenue recognized in a period.

Goodwill, Intangible Assets, and Long-Lived Assets

Businesses acquired are recognized at their fair value on the date of acquisition, with the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed recognized as goodwill.

Intangible assets acquired may include either definite-lived or indefinite-lived intangible assets, or both.

In accordance with FASB ASC Topic 350, Intangibles—Goodwill and Other , goodwill and intangible assets determined to have an indefinite useful life are not amortized.

In accordance with FASB ASC Topic 350, Intangibles—Goodwill and Other , goodwill is not amortized.

Instead these assets are evaluated for impairment on an annual basis, and whenever events or business conditions change that could indicate that the asset is impaired.

Our judgments regarding the existence of indicators of goodwill impairment are based on several factors, including the performance of the end markets served by our customers, as well as the actual financial performance of our reporting units and their respective financial forecasts over the long-term.

We evaluate goodwill and indefinite-lived intangible assets for impairment in the fourth quarter of each fiscal year, unless events occur which trigger the need for an earlier impairment review.

We evaluate goodwill for impairment in the fourth quarter of each fiscal year, unless events occur which trigger the need for an earlier impairment review.

Identification of reporting units.

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

As of October 1, 2023, we had seven reporting units, Automotive, HVOR, Insights, Industrial Solutions, Aerospace, Clean Energy Solutions, and Dynapower.

Upon acquisition of Dynapower in the third quarter of 2022, it was included in the Clean Energy Solutions reporting unit for external reporting purposes.

As of October 1, 2023, we determined to continue to separately review the results of Dynapower for decision-making purposes, and, accordingly, created a

new reporting unit.

There have been no subsequent changes to our reporting units as of December 31, 2023.

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

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

Other assets and liabilities, such as

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

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

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

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Evaluation of goodwill for impairment.

We have the option to first assess qualitative factors to determine whether a quantitative analysis must be performed.

We have the option to first assess qualitative factors to determine whether a quantitative goodwill impairment analysis must be performed.

The objective of a qualitative analysis is to assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

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We evaluated the goodwill of each reporting unit for impairment as of October 1, 2023, using a quantitative method.

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

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

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

We estimated the value of the net cash flows beyond the fifth fiscal year (the "Terminal Year") by applying a multiple to the projected Terminal Year EBITDA.

In performing our evaluation under the quantitative method, we estimated the fair values of our reporting units using the discounted cash flow method, and, when applicable, a market multiples approach (the "Market Approach") using comparable companies appropriate to the reporting unit.

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

We estimated the value of the net cash flows beyond the tenth fiscal year (the "Terminal Year") by using either the Gordon Growth Model or the H-Model.

The net cash flows from the Discrete Projection Period and the Terminal Year were discounted at an estimated weighted-average cost of capital ("WACC") appropriate for each reporting unit.

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We believe that our procedures for estimating discounted future net cash flows, including the Terminal Year valuation, were reasonable and consistent with accepted valuation practices.

The preparation of forecasts of revenue growth and profitability for use in the long-range forecasts, the selection of the discount rates, and the estimation of the multiples used in valuing the Terminal Year involve significant judgments.

Based on this evaluation, we determined that goodwill in our Insights reporting unit was impaired, driven primarily by a lower long-range financial forecast resulting from the impact of restructuring actions taken in the third and fourth quarters of 2023 and consequent business decisions regarding our level of investment in Insights in future years considering Sensata’s focus on electrification.

Other valuation assumptions for the Insights reporting unit valuation that are impacted by macroeconomic factors also contributed to the impairment.

Accordingly, we recorded a $321.7 million non-cash impairment charge in the fourth quarter of 2023, representing the entire goodwill balance allocated to Insights.

Refer to Note 11:

Goodwill and Other Intangible Assets, Net of our Financial Statements included elsewhere in this Report for additional information.

Changes to these assumptions could affect the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period.

Types of events that could result in a goodwill impairment.

Types of events that could result in an additional goodwill impairment.

As noted above, the assumptions used in the quantitative calculation of fair value of our reporting units, including the long-range forecasts, the selection of the discount rates, and the estimation of the multiples or long-term growth rates used in valuing the Terminal Year involve significant judgments.

Changes to these assumptions could affect the estimated fair values of our reporting units calculated in prior years and could result in a goodwill impairment charge in a future period.

We believe that certain factors, such as a future recession, any material adverse conditions in the automotive industry and other industries in which we operate, and other factors identified in Item 1A:

Risk Factors included elsewhere in this Report could cause us to revise our long-term projections and could reduce the multiples used to determine Terminal Year value.

We believe that certain factors, such as a future recession, any material adverse conditions in the automotive industry and other industries in which we operate, and other factors identified

Risk Factors included elsewhere in this Report could cause us to revise our long-term projections.

Such revisions could result in a goodwill impairment charge in the future.

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

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

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

Evaluation of other intangible assets for impairment

Indefinite-lived intangible assets.

Similar to goodwill, we perform an annual impairment review of our indefinite-lived intangible assets in the fourth quarter of each fiscal year, unless events occur that trigger the need for an earlier impairment review.

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

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

asset and compare that amount to its carrying value.

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

Impairment, if any, is based on the excess of the carrying value over the fair value of these assets.

We evaluated our indefinite-lived intangible assets for impairment as of October 1, 2022 (using the quantitative method) and determined that the estimated fair values of these assets exceeded their carrying values at that date.

Should certain assumptions used in the development of the fair values of our indefinite-lived intangible assets change, we may be required to recognize an impairment charge in the future.

Definite-lived intangible assets.

Reviews are regularly performed to determine whether facts or circumstances exist that indicate that the carrying values of our definite-lived intangible assets to be held and used are impaired.

If we determine that such facts or circumstances exist, we estimate the recoverability of these assets by comparing the projected undiscounted net cash flows associated with these assets to their respective carrying values.

If the sum of the projected undiscounted net cash flows falls below the carrying value of an asset, the impairment charge is measured as the excess of the carrying value over the fair value of that asset.

We determine fair value by using the appropriate income approach valuation methodology depending on the nature of the definite-lived intangible asset.

Evaluation of long-lived assets for impairment

We periodically re-evaluate the carrying values and estimated useful lives of long-lived assets whenever events or changes in circumstances indicate that the carrying values of these assets may not be recoverable.

We use estimates of undiscounted net cash flows from long-lived assets to determine whether the carrying values of such assets are recoverable over the assets’ remaining useful lives.

These estimates include assumptions about our future performance and the performance of the end markets we serve.

If an asset is determined to be impaired, the impairment is the amount by which its carrying value exceeds its fair value.

These evaluations are performed at a level where discrete net cash flows may be attributed to either an individual asset or a group of assets.

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

Based on the results of this analysis, we do not consider any of our reporting units outside of Insights, which was already fully impaired, to be at risk of failing the goodwill impairment test.

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

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

Share-Based Compensation

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

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

This assessment is based on management's judgment using internally developed forecasts and is assessed at each reporting period.

Compensation expense is recognized if it is probable that the performance condition will be achieved.

We elect to recognize share-based compensation expense net of estimated forfeitures as permitted by FASB ASC Topic 718, and therefore only recognize compensation expense for those awards expected to vest over the requisite service period.

The forfeiture rate is based on our estimate of forfeitures by plan participants after consideration of historical forfeiture rates.

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

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

Recently Issued Accounting Standards

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

In November 2023, the FASB issued Accounting Standards Update ("ASU") No.

2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures , to improve disclosures about a public entity's reportable segments.

This guidance requires that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss and an amount for "other segment items" included in the determination of segment operating income.

The guidance also requires that a public entity provide all annual disclosures about a reportable segment's profit or loss and assets currently required by FASB ASC Topic 280, Segment Reporting , in interim periods, and that a public entity provide the title and position of the chief operating decision-maker.

Other requirements of the guidance are not expected to be material.

There is no change to the guidance for identification or aggregation of operating or reportable segments.

2023-07 will be effective for

annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

The guidance must be applied retrospectively to all prior periods presented.

We will adopt the guidance in FASB ASU No.

2023-07 on January 1, 2024 and will include the required new annual and quarterly disclosures in our Annual Report on Form 10-K for the period ended December 31, 2024 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2025, respectively.

In December 2023, the FASB issued ASU No.

2023-09, Income taxes (Topic 740):

Improvements to Income Tax Disclosures , to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction.

The guidance also includes certain other amendments to improve the effectiveness of income tax disclosures.

For public business entities, the standard is effective for annual periods beginning after December 15, 2024.

We are currently evaluating the impact on our income tax related disclosures.

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What changed 10-K

Item 7. Management’s Discussion and Analysis