Sensata Technologies Holding plc 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations supplements, and should be read in conjunction with, the discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Annual Report. The following discussion should also be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto (the "Financial Statements") included elsewhere in this Report. Amounts and percentages in the following discussions and tables have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding. Overview Net revenue for the three months ended September 30, 2024 was $982.8 million, a decrease of 1.8% on a reported and organic basis compared to $1,001.3 million in the prior period. Net revenue for the nine months ended September 30, 2024 was $3,025.1 million, a decrease of 1.2% compared to $3,061.6 million in the prior period. Excluding a decrease of 0.9% attributed to changes in foreign currency exchange rates, net revenue decreased 0.3% on an organic basis. Organic revenue growth (or decline), discussed throughout this Item 2: 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. GAAP. Refer to Non-GAAP Financial Measures included elsewhere in this MD&A for additional information regarding our use of organic revenue growth (or decline). Operating loss for the three months ended September 30, 2024 was $199.2 million (20.3% of net revenue), a decrease of $315.5 million, or 271.4% compared to operating income of $116.3 million (11.6% of net revenue) in the three months ended September 30, 2023.Operating income for the nine months ended September 30, 2024 decreased $307.6 million, or 80.3%, to $75.5 million (2.5% of net revenue) from $383.1 million (12.5% of net revenue) in the nine months ended September 30, 2023. Refer to Results of Operations included elsewhere in this MD&A for additional discussion of our earnings results for the three and nine months ended September 30, 2024 compared to the prior year periods. We generated $380.8 million of operating cash flows in the nine months ended September 30, 2024, ending the quarter with $506.2 million in cash and cash equivalents. In the nine months ended September 30, 2024, we used cash of approximately $126.8 million for capital expenditures, $54.3 million for payment of cash dividends, and $47.3 million for share repurchases as part of our share repurchase plan. In the third quarter of 2024, impairment indicators were identified that suggested the carrying value of the Dynapower reporting unit could exceed its fair value. We determined that this reporting unit was impaired, and we recorded a $150.1 million non- 23 Table of Contents cash impairment charge. Refer to Note 13: Fair Value Measures of the Financial Statements, included elsewhere in this Report, for additional information. In August 2024, we executed a purchase agreement whereby we agreed to sell the Insights Business to an affiliate of Balmoral Funds. The total purchase price of the Insights Business was $165.0 million, with approximately $155.0 million before adjustments received and $10.0 million to be received twelve months after the closing of the transaction. In both the three months and nine months ended September 30, 2024, we recognized a loss on sale of approximately $110.1 million presented in restructuring and other charges, net in our condensed consolidated statements of operations, and approximately $11.2 million of transaction-related expenses, which were presented in SG&A in our condensed consolidated statements of operations. See Note 16: Disposal of the Financial Statements included elsewhere in this Report for additional information. In June 2024, our indirect, wholly-owned subsidiary, STI, completed the issuance and sale of the 6.625% Senior Notes. We used the proceeds from this issuance, together with cash on hand, for the redemption in full of the 5.0% Senior Notes, which were issued by our indirect, wholly-owned subsidiary, STBV. This redemption was completed in July 2024. Refer to Note 10: Debt of the Financial Statements included elsewhere in this Report, for additional information regarding these debt transactions. We executed the issuance of the 6.625% Senior Notes and the subsequent redemption of the 5.0% Senior Notes to eliminate the near-term uncertainty related to the 5.0% Senior Notes, which would have been due in October 2025, to extend the maturity horizon of our capital structure, and to add flexibility to our liquidity position. On September 30, 2024, our net leverage ratio was 3.0x, compared to 3.2x at both June 30, 2024 and December 31, 2023. In the three months ended March 31, 2024, we realigned our business as a result of organizational changes that better allocate our resources to support changes to our business strategy. The most significant changes include combining our Automotive and HVOR businesses (with the combined business remaining in Performance Sensing) and moving the Insights Business out of Performance Sensing to a new operating segment, which is not aggregated within either of our reportable segments. We combined the Automotive and HVOR businesses to better leverage our core capabilities and prioritize product focus. We also moved certain shorter-cycle businesses from Performance Sensing to Sensing Solutions, which will benefit from organizing our predominantly shorter-cycle businesses together, by allowing us to scale core capabilities and better serve our customers. Prior year amounts in this Report have been recast to reflect this realignment. Refer to Note 1: Basis of Presentation and Note 15: Segment Reporting of the Financial Statements included elsewhere in this Report for additional information. Results of Operations The table below presents our historical results of operations, in millions of dollars and as a percentage of net revenue, for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023. We have derived the results of operations from the Financial Statements included elsewhere in this Report. Prior year periods have been recast to reflect the reorganization of segments as detailed in Note 1: Basis of Presentation of the Financial Statements included elsewhere in this Report. Amounts and percentages in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding. For the three months ended For the nine months ended September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 Amount Percent (1) Amount Percent (1) Amount Percent (1) Amount Percent (1) Net revenue: Performance Sensing $ 659.7 67.1 % $ 696.8 69.6 % $ 2,096.9 69.3 % $ 2,058.2 67.2 % Sensing Solutions 274.4 27.9 275.1 27.5 800.3 26.5 889.6 29.1 Other 48.8 5.0 29.3 2.9 127.9 4.2 113.8 3.7 Net revenue 982.8 100.0 1,001.3 100.0 3,025.1 100.0 3,061.6 100.0 Operating costs and expenses 1,182.1 120.3 885.0 88.4 2,949.6 97.5 2,678.5 87.5 Operating (loss)/income (199.2) (20.3) 116.3 11.6 75.5 2.5 383.1 12.5 Interest expense (38.9) (4.0) (44.3) (4.4) (118.2) (3.9) (138.9) (4.5) Interest income 5.9 0.6 7.4 0.7 15.4 0.5 23.8 0.8 Other, net (12.3) (1.3) 1.3 0.1 (19.7) (0.7) (8.2) (0.3) (Loss)/income before taxes (244.6) (24.9) 80.7 8.1 (47.0) (1.6) 259.8 8.5 (Benefit from)/provision for income taxes (219.6) (22.3) 17.9 1.8 (169.7) (5.6) 61.5 2.0 Net (loss)/income $ (25.0) (2.5) % $ 62.8 6.3 % $ 122.7 4.1 % $ 198.3 6.5 % ___________________________________ (1) Represents the amount presented divided by total net revenue. 24 Table of Contents Net Revenue Net revenue for the three months ended September 30, 2024 decreased 1.8% compared to the prior period. Net revenue for the nine months ended September 30, 2024 decreased 1.2% compared to the prior period. Net revenue decreased 0.3% on an organic basis, which excludes a decrease of 0.9% attributed to changes in foreign currency exchange rates. Performance Sensing Performance Sensing net revenue for the three months ended September 30, 2024 decreased 5.3% on a reported and organic basis compared to the prior period, which was primarily due to market decline across our vehicle end markets. Performance Sensing net revenue for the nine months ended September 30, 2024 increased 1.9% compared to the prior period. Excluding a decrease of 1.2% attributed to changes in foreign currency exchange rates, Performance Sensing net revenue increased 3.1% on an organic basis, which was primarily due to content growth across our vehicle end markets, partially offset by market declines. Sensing Solutions Sensing Solutions net revenue for the three months ended September 30, 2024 decreased 0.3% on a reported and organic basis compared to the prior period, which is primarily due to inventory destocking in our aerospace and industrial markets, partially offset by market growth in our industrial market. Sensing Solutions net revenue for the nine months ended September 30, 2024 decreased 10.0% compared to the prior period. Excluding a decline of 0.5% attributed to changes in foreign currency exchange rates, Sensing Solutions net revenue declined 9.5% on an organic basis, which is primarily due to the non-recurrence of one-time pass-through revenue in 2023 and inventory destocking in the industrial and aerospace markets, partially offset by growth in our aerospace and industrial markets. Operating costs and expenses Operating costs and expenses for the three and nine months ended September 30, 2024 and 2023 are presented, in millions of dollars and as a percentage of net revenue, in the following table. Amounts and percentages in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding. For the three months ended For the nine months ended September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 Amount Percent (1) Amount Percent (1) Amount Percent (1) Amount Percent (1) Operating costs and expenses: Cost of revenue $ 701.5 71.4 % $ 688.0 68.7 % $ 2,115.1 69.9 % $ 2,090.5 68.3 % Research and development 42.7 4.3 45.4 4.5 133.3 4.4 136.2 4.5 Selling, general and administrative 102.5 10.4 85.7 8.6 283.8 9.4 263.1 8.6 Amortization of intangible assets 44.7 4.6 40.0 4.0 122.3 4.0 135.3 4.4 Goodwill impairment charge 150.1 15.3 — — 150.1 5.0 — — Restructuring and other charges, net 140.6 14.3 26.0 2.6 144.9 4.8 53.3 1.7 Total operating costs and expenses $ 1,182.1 120.3 % $ 885.0 88.4 % $ 2,949.6 97.5 % $ 2,678.5 87.5 % ___________________________________ (1) Represents the amount presented divided by total net revenue. Cost of revenue For the three months ended September 30, 2024, cost of revenue as a percentage of net revenue increased from the prior period, primarily due to (1) the impact of $27.3 million of contract termination costs and inventory charges related to product line lifecycle management, primarily in Sensing Solutions, and (2) the net impacts of customer pricing and manufacturing efficiencies, partially offset by (1) the impact of certain actions taken in the third quarter of 2023 as part of the Q3 2023 Plan and (2) the favorable effect of changes in foreign currency exchange rates. Refer to Note 5: Restructuring and Other Charges, Net of the Financial Statements, included elsewhere in this Report for additional information regarding the write-downs related 25 Table of Contents to product line lifecycle management. Refer to Note 5: Restructuring and Other Charges, Net of our 2023 Annual Report for additional information regarding the Q3 2023 Plan. For the nine months ended September 30, 2024, cost of revenue as a percentage of net revenue increased from the prior period, primarily due to (1) the impact of $40.5 million of contract termination costs and inventory charges related to product line lifecycle management, primarily in Sensing Solutions, and (2) the net impacts of customer pricing and manufacturing efficiencies, partially offset by the nonrecurrence of a $10.5 million write-down of inventory in the three months ended June 30, 2023 as a result of our decision to exit the Spear Marine Business. Refer to Note 5: Restructuring and Other Charges, Net of the Financial Statements, included elsewhere in this Report for additional information regarding exit of the Spear Marine Business. Research and development expense For the three and nine months ended September 30, 2024, research and development expense did not fluctuate materially from the prior year periods. Selling, general and administrative expense For the three months ended September 30, 2024, SG&A expense increased primarily due to costs and charges related to the sale of the Insights Business (including $5.8 million of accelerated vesting of restricted securities granted to employees of the Insights Business). Refer to Note 16: Disposal and Note 4: Share-Based Payment Plans of the Financial Statements, included elsewhere in this Report, for additional information on the sale of the Insights Business and share-based compensation related to restricted securities, respectively. For the nine months ended September 30, 2024, SG&A expense increased primarily due to (1) costs and charges related to the sale of the Insights Business (including accelerated vesting of restricted securities granted to employees of the Insights Business), (2) higher compensation costs, and (3) additional costs to remediate the material weaknesses identified in our internal controls over financial reporting for the year ended December 31, 2023, partially offset by cost savings as a result of actions taken as part of the Q3 2023 Plan. Amortization of intangible assets For the three months ended September 30, 2024, amortization of intangible assets increased from the prior periods, primarily due to $9.6 million of accelerated amortization related to our decision to exit the Spear aerospace and defense business in the third quarter of 2024. For the nine months ended September 30, 2024, amortization of intangible assets decreased from the prior periods, primarily due to (1) the non-recurrence of a $13.5 million charge for accelerated amortization of intangible assets in the nine months ended September 30, 2023 as a result of our exit from the Spear Marine Business and (2) the effect of amortization of intangible assets in accordance with their expected economic benefit, which generally results in acceleration of amortization expense in the early years of the life of an intangible asset, partially offset by $9.6 million of accelerated amortization related to our decision to exit the Spear aerospace and defense business in the third quarter of 2024. Goodwill impairment charge In the third quarter of 2024, we recorded a $150.1 million non-cash impairment charge for our Dynapower reporting unit within the Sensing Solutions segment. The primary indicator of impairment was revised projections of future cash flows that were lower than previous projections, including future cash flows that were delayed beyond management's initial expectations. Refer to Note 13: Fair Value Measures of the Financial Statements, included elsewhere in this Report, for additional information Restructuring and other charges, net In the three months ended September 30, 2024, restructuring and other charges, net increased from the prior year period, primarily due to (1) the loss on the sale of the Insights Business in the third quarter of 2024 and (2) charges related to our decision to exit the Spear aerospace and defense business in the third quarter of 2024, partially offset by the nonrecurrence of severance charges incurred in the third quarter of 2023 related to the Q3 2023 Plan. In the nine months ended September 30, 2024, restructuring and other charges, net increased from the prior year period, primarily due to (1) the loss on the sale of the Insights Business in the third quarter of 2024, (2) charges related to our decision to exit the Spear aerospace and defense business in the third quarter of 2024, and (3) contract termination costs related to certain product lifecycle management activities, primarily within Sensing Solutions, partially offset by (1) the nonrecurrence of severance charges incurred in the third quarter of 2023 related to the Q3 2023 Plan, (2) the non-recurrence of charges incurred 26 Table of Contents in the second quarter of 2023 related to our decision to exit the Spear Marine Business, and (3) lower acquisition-related deferred compensation . Refer to Note 5: Restructuring and Other Charges, Net of the Financial Statements, included elsewhere in this Report, for additional information regarding the components of restructuring and other charges, net. Operating loss/income For the three months ended September 30, 2024, operating loss was $199.2 million, compared to operating income of $116.3 million in the prior period. This unfavorable impact was driven primarily by (1) a $150.1 million goodwill impairment charge related to the Dynapower business, (2) the loss on the sale of the Insights Business in the third quarter of 2024, (3) the impact of $27.3 million of contract termination costs and inventory charges related to product line discontinuations, primarily in Sensing Solutions, (4) charges related to our decision to exit the Spear aerospace and defense business in the third quarter of 2024, and (5) costs and charges related to the sale of the Insights Business (including accelerated vesting of restricted securities granted to employees of the Insights Business), partially offset by the nonrecurrence of severance charges incurred in the third quarter of 2023 related to the Q3 2023 Plan. For the nine months ended September 30, 2024, operating income decreased from the prior year period, primarily due to (1) a $150.1 million goodwill impairment charge related to the Dynapower business, (2) the loss on the sale of the Insights Business in the third quarter of 2024, (3) the impact of $40.5 million of contract termination costs and inventory charges related to product line discontinuations, primarily in Sensing Solutions, (4) charges related to our decision to exit the Spear aerospace and defense business in the third quarter of 2024, (5) costs and charges related to the sale of the Insights Business (including accelerated vesting of restricted securities granted to employees of the Insights Business), and (6) higher compensation costs, partially offset by (1) the non-recurrence of charges incurred in the second quarter of 2023 related to our decision to exit the Spear Marine Business, (2) the nonrecurrence of severance charges incurred in the third quarter of 2023 related to the Q3 2023 Plan, and (3) cost savings as a result of actions taken as part of the Q3 2023 Plan. Interest expense For the three months ended September 30, 2024, interest expense decreased from the prior periods, primarily due to lower interest expense on (1) the 5.0% Senior Notes, which were redeemed in July 2024, and (2) the 5.625% Senior Notes, which were redeemed in the fourth quarter of 2023, partially offset by higher interest expense related to the 6.625% Senior Notes, which were issued in June 2024. For the nine months ended September 30, 2024, interest expense decreased from the prior periods, primarily due to lower interest expense on (1) the 5.625% Senior Notes, (2) the 5.0% Senior Notes, and (3) the Term Loan, which was paid in full in the second quarter of 2023, partially offset by higher interest expense related to the 6.625% Senior Notes. Refer to Note 10: Debt of the Financial Statements, included elsewhere in this Report, and Note 14: Debt of our Annual Report on Form 10-K for additional information regarding these debt transactions. Interest income For the three and nine months ended September 30, 2024, interest income decreased from the prior periods, primarily due to lower average cash equivalent balances in the respective periods compared to the prior periods. Other, net Other, net primarily includes currency remeasurement gains and losses on net monetary assets, gains and losses on foreign currency and commodity forward contracts not designated as hedging instruments, mark-to-market gains and losses on investments, losses related to debt refinancing, and the portion of our net periodic benefit cost excluding service cost. For the three months ended September 30, 2024, other, net represented a net loss of $12.3 million, an unfavorable impact on earnings of $13.6 million compared to a net gain of $1.3 million in the prior period. This unfavorable impact was primarily due to the loss on the redemption of the 5.0% Senior Notes. For the nine months ended September 30, 2024, other, net represented a net loss of $19.7 million, an unfavorable impact on earnings of $11.5 million compared to a net loss of $8.2 million in the prior period. This unfavorable impact was primarily due to (1) a loss of $14.8 million recognized in the first quarter of 2024 as a result of observable price changes related to an equity investment held using the measurement alternative, (2) the loss on the redemption of the 5.0% Senior Notes, and (3) losses on foreign currency forward contracts that are not designated as accounting hedges, partially offset by (1) gains on foreign 27 Table of Contents currency remeasurement of net monetary assets and (2) gains on commodity forward contracts that are not designated as accounting hedges. Refer to Note 13: Fair Value Measures and Note 6: Other, Net of the Financial Statements, included elsewhere in this Report, for additional details of our hedge accounting contracts and the components of other, net, respectively. (Benefit from)/provision for income taxes The (benefit from)/provision for income taxes consists of (1) current tax expense, which relates primarily to our profitable operations in tax jurisdictions with limited or no net operating loss carryforwards and withholding taxes related to management fees, royalties, and the repatriation of foreign earnings; and (2) deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to (a) book versus tax basis in intangible assets, (b) changes in net operating loss carryforwards, and (c) changes in withholding taxes on unremitted earnings. Other items impacting deferred tax expense include changes in tax rates, changes in our assessment of the realizability of our deferred tax assets, and other items as discussed below. For the three and nine months ended September 30, 2024, the (benefit from)/provision for income taxes was impacted by (1) a deferred tax benefit of approximately $257.7 million due to a tax strategy to secure the future tax deductibility of certain Intellectual property which had a valuation allowance against it at December 31, 2023; (2) a $12.8 million tax expense on the sale of the Insights Business; and (3) deferred tax expense of $11.1 million on the settlement of the U.S. qualified pension plan. 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, 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, net cash provided by operating activities, corporate and other expenses, or total debt and finance lease obligations, respectively, calculated in accordance with U.S. GAAP. 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. GAAP, excluding the period-over-period impact of foreign currency exchange rate differences as well as the net impact of material acquisitions and divestitures for the 12-month period following the respective transaction date(s). We believe that organic revenue growth (or decline) provides investors with helpful information with respect to our operating performance, and we use organic revenue growth (or decline) to evaluate our ongoing operations as well as for internal planning and forecasting purposes. 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 (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 28 Table of Contents U.S. GAAP. 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 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. 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. These non-GAAP financial measures are not measures of liquidity. Free cash flow Free cash flow is defined as net cash provided by operating activities less additions to property, plant and equipment and capitalized software. We believe free cash flow is useful to management and investors as a measure of cash generated by business operations that will be used to repay scheduled debt maturities and can be used to, among other things, fund acquisitions, repurchase ordinary shares, or accelerate the repayment of debt obligations. Adjusted corporate and other expenses Adjusted corporate and other expenses is defined as corporate and other expenses calculated in accordance with U.S. GAAP, excluding the portion of non-GAAP adjustments described below that relate to corporate and other expenses. We believe adjusted corporate and other expenses is useful to management and investors in understanding the impact of non-GAAP adjustments on operating expenses not allocated to our segments. Adjusted EBITDA Adjusted EBITDA is defined as net income (or loss), determined in accordance with U.S. 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, and (3) deferred loss or gain on derivative instruments. Refer to Non-GAAP Adjustments below for additional discussion of these adjustments. We believe that this measure is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends. 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 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. Non-GAAP adjustments Many of our non-GAAP adjustments relate to a series of strategic initiatives developed by our management aimed at better positioning us for future revenue growth and an improved cost structure. These initiatives have been modified from time to time to reflect changes in overall market conditions and the competitive environment facing our business. These initiatives include, among other items, acquisitions, divestitures, restructurings of certain business, supply chain or corporate activities, and various 29 Table of Contents financing transactions. We describe these adjustments in more detail below, each of which is net of current tax impacts, as applicable. • Restructuring related and other : 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. This type of activity occurs periodically, however each action is unique, discrete, and driven by various facts and circumstances. Such amounts are excluded from internal financial statements and analyses that management uses in connection with financial planning and in its review and assessment of our operating and financial performance, including the performance of our segments. • Financing and other transaction costs : 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 adjustments related to changes in the fair value of acquisition-related contingent consideration amounts. • Deferred loss or gain on derivative instruments : includes unrealized losses or gains on derivative instruments that do not qualify for hedge accounting as well as the impact of commodity prices on our raw material costs relative to the strike price on our commodity forward contracts. • Step-up depreciation and amortization : includes depreciation expense associated with the step-up in fair value of assets acquired in connection with a business combination (e.g., property, plant and equipment and inventories) and amortization of intangible assets. Such amounts are excluded from internal financial statements and analyses that management uses in connection with financial planning and in its review and assessment of our operating and financial performance, including the performance of our segments. These exclusions are made to allow for comparison to prior period operating results and to ensure that internal financial statements reflect depreciation and amortization on ordinary capital expenditures, rather than acquisition-related adjustments. • Deferred taxes and other tax related : includes adjustments for book-to-tax basis differences due primarily to the step-up in fair value of fixed and intangible assets and goodwill, the utilization of net operating losses, and adjustments to our valuation allowance in connection with certain transactions and tax law changes. Other tax related items include certain adjustments to unrecognized tax benefits and withholding tax on repatriation of foreign earnings. • Amortization of debt issuance costs: represents interest expense related to the amortization of deferred financing costs as well as debt discounts, net of premiums . • Where applicable, the current income tax effect of non-GAAP adjustments. Our definition of adjusted net income excludes the deferred provision for (or benefit from) income taxes and other tax related items described above. As we treat deferred income taxes as an adjustment to compute adjusted net income, the deferred income tax effect associated with the reconciling items presented below would not change adjusted net income for any period presented. 30 Table of Contents Non-GAAP reconciliations The following tables present reconciliations of certain financial measures calculated in accordance with U.S. GAAP to the related non-GAAP financial measures for the three months ended September 30, 2024 and 2023. Refer to the Non-GAAP Adjustments section above for additional information regarding these adjustments. Amounts and percentages in the tables below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding. For the three months ended September 30, 2024 (Dollars in millions, except per share amounts) Operating (Loss)/Income Operating Margin Income Taxes Net (Loss)/Income Diluted EPS Reported (GAAP) $ (199.2) (20.3) % $ (219.6) $ (25.0) $ (0.17) Non-GAAP adjustments: Restructuring related and other (a) 210.2 21.4 (0.9) 209.3 1.39 Financing and other transaction costs (b) 131.9 13.4 (0.5) 139.5 0.92 Step-up depreciation and amortization 43.8 4.5 — 43.8 0.29 Deferred loss on derivative instruments 1.7 0.2 (0.1) 0.4 0.00 Amortization of debt issuance costs — — — 1.3 0.01 Deferred taxes and other tax related — — (239.2) (239.2) (1.58) Total adjustments 387.6 39.4 (240.7) 155.1 1.03 Adjusted (non-GAAP) $ 188.4 19.2 % $ 21.1 $ 130.1 $ 0.86 For the three months ended September 30, 2023 (Dollars in millions, except per share amounts) Operating Income Operating Margin Income Taxes Net Income Diluted EPS Reported (GAAP) $ 116.3 11.6 % $ 17.9 $ 62.8 $ 0.41 Non-GAAP adjustments: Restructuring related and other (a) 31.5 3.2 (1.4) 30.2 0.20 Financing and other transaction costs (b) 5.7 0.6 — 6.0 0.04 Step-up depreciation and amortization 38.8 3.9 — 38.8 0.25 Deferred gain on derivative instruments (0.7) (0.1) 0.0 (0.1) 0.00 Amortization of debt issuance costs — — — 1.7 0.01 Deferred taxes and other tax related — — (1.1) (1.1) (0.01) Total adjustments 75.4 7.5 (2.4) 75.5 0.50 Adjusted (non-GAAP) $ 191.6 19.1 % $ 20.3 $ 138.3 $ 0.91 The following tables present reconciliations of certain financial measures calculated in accordance with U.S. GAAP to the related non-GAAP financial measures for the nine months ended September 30, 2024 and 2023. For the nine months ended September 30, 2024 (Dollars in millions, except per share amounts) Operating Income Operating Margin Income Taxes Net Income Diluted EPS Reported (GAAP) $ 75.5 2.5 % $ (169.7) $ 122.7 $ 0.81 Non-GAAP adjustments: Restructuring related and other (a) 239.4 7.9 (2.2) 237.1 1.57 Financing and other transaction costs (b) 138.7 4.6 (1.4) 159.8 1.06 Step-up depreciation and amortization 118.7 3.9 — 118.7 0.79 Deferred loss/(gain) on derivative instruments 1.3 0.0 1.6 (4.4) (0.03) Amortization of debt issuance costs — — — 4.5 0.03 Deferred taxes and other tax related — — (233.8) (233.8) (1.55) Total adjustments 498.1 16.5 (235.8) 281.9 1.87 Adjusted (non-GAAP) $ 573.6 19.0 % $ 66.1 $ 404.6 $ 2.68 31 Table of Contents For the nine months ended September 30, 2023 (Dollars in millions, except per share amounts) Operating Income Operating Margin Income Taxes Net Income Diluted EPS Reported (GAAP) $ 383.1 12.5 % $ 61.5 $ 198.3 $ 1.30 Non-GAAP adjustments: Restructuring related and other (a) 65.6 2.1 (2.7) 62.9 0.41 Financing and other transaction costs (b) 14.2 0.5 2.8 17.6 0.11 Step-up depreciation and amortization 131.3 4.3 — 131.3 0.86 Deferred (gain)/loss on derivative instruments (3.9) (0.1) (0.2) 0.8 0.01 Amortization of debt issuance costs — — — 5.1 0.03 Deferred taxes and other tax related — — 12.1 12.1 0.08 Total adjustments 207.2 6.8 12.0 229.7 1.50 Adjusted (non-GAAP) $ 590.3 19.3 % $ 49.5 $ 428.1 $ 2.80 (a) The following table presents the components of our restructuring related and other non-GAAP adjustment to net income for the three and nine months ended September 30, 2024 and 2023. (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding): For the three months ended September 30, For the nine months ended September 30, (In millions) 2024 2023 2024 2023 Business and corporate repositioning (i) $ 60.1 $ 30.7 $ 89.3 $ 66.0 Other (ii) 150.1 0.8 150.1 (0.8) Income tax effect (iii) (0.9) (1.4) (2.2) (2.7) Total non-GAAP restructuring related and other (iv) $ 209.3 $ 30.2 $ 237.1 $ 62.9 __________________________ i. Primarily includes charges related to repositioning our business and corporate functions to more effectively respond to the challenges that face the business. 1. The three and nine months ended September 30, 2024 primarily includes (1) certain actions related to restructuring of our IT operations and product lifecycle management including product line discontinuations within the Sensing Solutions segment, resulting in total costs of $ 32.5 million and $ 48.4 million, respectively, including severance, contract termination costs, and charges related to asset write-downs, (2) approximately $5.3 million and $19.9 million, respectively, of other various restructuring-related charges, (3) approximately $15.0 million in both periods of costs associated with exiting Spear, primarily recorded in restructuring and other charges, net, and (4) a $6.0 million pension settlement charge in both periods, recorded in restructuring and other charges, net. 2. The three and nine months ended September 30, 2023 primarily includes (1) $1.8 million and $28.4 million, respectively, of charges related to the exit the Spear Marine Business, $0.8 million and $14.4 million of which was recorded in restructuring and other charges, net, and $0.5 million and $13.0 million of which was recorded in cost of revenue, with the remainder recorded in selling general and administrative, (2) $21.4 million of charges incurred in both the three and nine months ended September 30, 2023, as part of the Q3 2023 Plan, recorded in restructuring and other charges, net, and (3) $8.2 million and $10.4 million of charges arising as an indirect result of actions taken in the Q3 2023 Plan, of which approximately $0.7 million and $2.7 million were recorded in restructuring and other charges, net, with the remainder primarily in cost of revenue. ii. Relates primarily to a $ 150.1 million non-cash goodwill impairment charge recognized in the third quarter of 2024 related to the Dynapower reporting unit. Also includes costs related to optimization of our manufacturing processes to increase productivity and rationalize our manufacturing footprint and supply chain workforce rationalization and 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. iii. We treat deferred taxes as a non-GAAP adjustment. Accordingly, the income tax effect of the restructuring related and other non-GAAP adjustment refers only to the current income tax effect. iv. Total presented is the non-GAAP adjustment to net income. Certain portions of these adjustments are non-operating and are excluded from the non-GAAP adjustments to operating income. 32 Table of Contents (b) The following table presents the components of our financing and other transaction costs non-GAAP adjustment to net income for the three and nine months ended September 30, 2024 and 2023. (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding): For the three months ended September 30, For the nine months ended September 30, (In millions) 2024 2023 2024 2023 Transaction (gain) / loss (i) $ 123.4 $ 1.5 $ 126.2 (3.0) Merger and acquisition compensation arrangements (ii) 8.5 4.2 12.6 16.2 Loss on debt financing (iii) 9.2 — 9.2 0.9 Loss/(gain) on investments (iv) (1.1) 0.4 13.2 0.7 Income tax effect (v) (0.5) — (1.4) 2.8 Total financing and other transaction costs (vi) $ 139.5 $ 6.0 $ 159.8 $ 17.6 __________________________ i. Primarily includes 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 other transaction. In the three and nine months ended September 30, 2024, this line includes a loss of $ 110.1 million on the sale of the Insights business. Refer to Note 16: Disposal for further information on this transaction. ii. Primarily relates to earnout compensation arrangements entered into concurrent with the closing of an acquisition. iii. Relates primarily to the loss on the redemption of the 5.0 % Senior Notes. Refer to Note 10: Deb t for additional information on financing transactions. iv. Represents mark-to-market losses or gains on our equity investments v. We treat deferred taxes as a non-GAAP adjustment. Accordingly, the income tax effect of financing and transaction related and other non-GAAP adjustment refers only to the current income tax effect. vi. Total presented is the non-GAAP adjustment to net income. Certain portions of these adjustments are non-operating and are excluded from the non-GAAP adjustments to operating income. The following table provides a reconciliation of net cash provided by operating activities in accordance with U.S. GAAP to free cash flow. For the nine months ended September 30, (In millions) 2024 2023 Net cash provided by operating activities (GAAP) $ 380.8 $ 351.6 Additions to property, plant and equipment and capitalized software (126.8) (136.2) Free cash flow (non-GAAP) $ 254.1 $ 215.4 The following table provides a reconciliation of corporate and other expenses in accordance with U.S. GAAP to adjusted corporate and other expenses. For the three months ended September 30, For the nine months ended September 30, (In millions) 2024 2023 2024 2023 Corporate and other expenses (GAAP) $ (268.8) $ (75.1) $ (442.7) $ (219.0) Restructuring related and other 182.5 9.2 209.4 20.9 Financing and other transaction costs 18.9 2.0 23.8 5.6 Step-up depreciation and amortization 0.2 0.4 0.8 0.7 Deferred loss/(gain) on derivative instruments 1.7 (0.7) 1.3 (3.9) Total adjustments 203.5 10.9 235.2 23.3 Adjusted corporate and other expenses (non-GAAP) $ (65.4) $ (64.2) $ (207.4) $ (195.7) 33 Table of Contents The following table provides a reconciliation of net (loss)/income in accordance with U.S. GAAP to adjusted EBITDA. For the three months ended September 30, For the nine months ended September 30, (In millions) LTM 2024 2023 2024 2023 Net (loss)/income $ (79.5) $ (25.0) $ 62.8 $ 122.7 $ 198.3 Interest expense, net 138.6 33.1 36.9 102.8 115.1 (Benefit from)/provision for income taxes (209.4) (219.6) 17.9 (169.7) 61.5 Depreciation expense 136.9 33.7 33.3 100.7 96.9 Amortization of intangible assets 160.9 44.7 40.0 122.3 135.3 EBITDA 147.4 (133.1) 190.9 278.8 607.1 Non-GAAP adjustments Restructuring related and other 585.3 210.2 31.5 239.4 65.6 Financing and other transaction costs 167.8 140.0 6.0 161.1 14.8 Deferred (gain)/loss on derivative instruments (9.0) 0.5 (0.2) (6.0) 1.0 Adjusted EBITDA $ 891.5 $ 217.6 $ 228.3 $ 673.3 $ 688.4 The following table provides a reconciliation of total debt and finance lease obligations in accordance with U.S. GAAP to gross and net leverage ratios. (Dollars in millions) September 30, 2024 December 31, 2023 Current portion of long-term debt and finance lease obligations $ 2.1 $ 2.3 Finance lease obligations, less current portion 21.7 22.9 Long-term debt, net 3,174.4 3,374.0 Total debt and finance lease obligations 3,198.1 3,399.2 Less: debt premium, net of discount (debt discount, net of premium) 0.8 (1.6) Less: deferred financing costs (26.4) (24.4) Total gross indebtedness $ 3,223.8 $ 3,425.2 Adjusted EBITDA (LTM) $ 891.5 $ 906.6 Gross leverage ratio 3.6 3.8 Total gross indebtedness $ 3,223.8 $ 3,425.2 Less: cash and cash equivalents 506.2 508.1 Net debt $ 2,717.6 $ 2,917.1 Adjusted EBITDA (LTM) $ 891.5 $ 906.6 Net leverage ratio 3.0 3.2 Liquidity and Capital Resources As of September 30, 2024 and December 31, 2023, we held cash and cash equivalents in the following regions (amounts have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding): (In millions) September 30, 2024 December 31, 2023 United Kingdom $ 12.4 $ 12.6 United States 8.3 12.9 The Netherlands 201.6 158.2 China 219.1 250.8 Other 64.7 73.7 Total $ 506.2 $ 508.1 The amount of cash and cash equivalents held in these geographic regions fluctuates throughout the year due to a variety of factors, such as our use of intercompany loans and dividends and the timing of cash receipts and disbursements in the normal course of business. Our earnings are not considered to be permanently reinvested in certain jurisdictions in which they were 34 Table of Contents earned. We recognize a deferred tax liability on these unremitted earnings to the extent the remittance of such earnings cannot be recovered in a tax-free manner. In certain jurisdictions, our cash balances are subject to withholding taxes immediately upon withdrawal of funds to a different jurisdiction. In addition, in order to take advantage of incentive programs offered by various jurisdictions, including tax incentives, we are required to maintain minimum cash balances in these jurisdictions. The transfer of cash from these jurisdictions could result in loss of incentives or higher cash tax expense, but those impacts are not expected to be material. Our cash and cash equivalents balances are held in the following significant currencies (amounts in the tables below have been calculated based on unrounded numbers, accordingly, certain amounts may not appear to recalculate due to the effect of rounding): As of September 30, 2024 (In millions) USD EUR GBP CNY Other United Kingdom $ 1.5 € 0.4 £ 7.8 ¥ — United States 8.2 0.1 — — The Netherlands 197.1 3.9 0.1 — China 71.0 — — 1,038.8 Other 51.0 1.7 — — Total $ 328.8 € 6.1 £ 7.9 ¥ 1,038.8 USD Equivalent $ 6.8 $ 10.6 $ 148.2 $ 11.8 As of December 31, 2023 (In millions) USD EUR GBP CNY Other United Kingdom $ 0.4 € 0.0 £ 11.9 ¥ — United States 12.9 0.0 — — The Netherlands 143.9 12.2 0.3 — China 155.2 — — 679.4 Other 58.3 2.5 — — Total $ 370.7 € 14.7 £ 12.2 ¥ 679.4 USD Equivalent $ 16.2 $ 15.6 $ 95.6 $ 10.0 Cash Flows: The table below summarizes our primary sources and uses of cash for the nine months ended September 30, 2024 and 2023. We have derived these summarized statements of cash flows from the Financial Statements included elsewhere in this Report. Amounts in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding. For the nine months ended (In millions) September 30, 2024 September 30, 2023 Net cash provided by/(used in): Operating activities: Net income adjusted for non-cash items $ 423.3 $ 483.8 Changes in operating assets and liabilities, net (37.2) (109.6) Cash operating activities (5.2) (22.6) Operating activities 380.8 351.6 Investing activities 15.2 (117.6) Financing activities (400.3) (569.8) Effects of exchange rate differences 2.4 — Net change $ (1.9) $ (335.8) Operating activities. Net cash provided by operating activities for the nine months ended September 30, 2024 increased compared to the corresponding period of the prior year, primarily due to favorable changes in working capital, partially offset by lower cash provided by earnings. 35 Table of Contents Investing activities. Net cash provided by investing activities for the nine months ended September 30, 2024 was $15.2 million compared to a use of cash of $117.6 million for the corresponding period of the prior year. This change was primarily due to the proceeds from the sale of our Insights business of $138.3 million in the nine months ended September 30, 2024. For fiscal year 2024, we anticipate capital expenditures of approximately $165.0 million, which we expect to fund with cash on hand. Financing activities . Net cash used in financing activities for the nine months ended September 30, 2024 decreased compared to the corresponding period of the prior year, primarily due to $500.0 million cash received from the issuance of the 6.625% Senior Notes in the second quarter of 2024, partially offset by higher payments on debt of approximately $252.2 million (reflecting the early redemption of our $700 million 5.0% Senior Notes in the third quarter of 2024 as compared to the prepayment of the Term Loan in the first half of 2023) and the payment of $79.4 million to repurchase the remaining equity interest in a former joint venture in the nine months ended September 30, 2024. Refer to Note 12: Shareholders' Equity for additional information. Indebtedness and Liquidity As of September 30, 2024, we had $3.2 billion in gross indebtedness, which includes finance lease obligations and excludes debt discounts, premiums, and deferred financing costs. In June 2024, our indirect, wholly-owned subsidiary, STI, completed the issuance and sale of the 6.625% Senior Notes. In July 2024, we used the proceeds from this issuance, together with cash on hand, for the redemption in full of the 5.0% Senior Notes, which were issued by our indirect, wholly-owned subsidiary, STBV. Refer to Note 10: Debt of the Financial Statements included elsewhere in this Report for additional information on these transactions and our overall debt. Capital Resources Senior Secured Credit Facilities The credit agreement governing our secured credit facility (as amended, supplemented, waived, or otherwise modified, the "Credit Agreement") provides for the Senior Secured Credit Facilities, which consist of the Term Loan, the Revolving Credit Facility, and incremental availability (the "Accordion") under which additional secured credit facilities could be issued under certain circumstances. In the first and second quarters of 2023, we repaid the Term Loan balance in full. Sources of liquidity Our sources of liquidity include cash on hand, cash flows from operations, and available capacity under the Revolving Credit Facility. As of September 30, 2024, we had $745.8 million available under the Revolving Credit Facility, net of $4.2 million of obligations in respect of outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of September 30, 2024, no amounts had been drawn against these outstanding letters of credit. Availability under the Accordion varies each period based on our attainment of certain financial metrics as set forth in the terms of the Credit Agreement and the indentures under which our senior notes were issued (the "Senior Notes Indentures"). As of September 30, 2024, availability under the Accordion was approximately $2.8 billion. We believe, based on our current level of operations and taking into consideration the restrictions and covenants included in the Credit Agreement and Senior Notes Indentures, that the sources of liquidity described above will be sufficient to fund our operations, capital expenditures, dividend payments, ordinary share repurchases, and debt service for at least the next twelve months. 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 October 18, 2024, Moody’s Investors Service’s corporate credit rating for STBV was Ba2 with a positive outlook, and Standard & Poor’s corporate credit rating for STBV was BB+ with a stable outlook. Any future downgrades to STBV's credit ratings may increase our future borrowing costs but will not reduce availability under the Credit Agreement. 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. The Credit Agreement also requires mandatory prepayments of the outstanding borrowings under the Senior Secured Credit Facilities upon certain asset 36 Table of Contents dispositions and casualty events, in each case subject to certain reinvestment rights, and upon the incurrence of certain indebtedness (excluding any permitted indebtedness). These provisions were not triggered during the nine months ended September 30, 2024. The Credit Agreement and the Senior Notes Indentures contain restrictions and covenants that limit the ability of our wholly-owned subsidiary, STBV, and certain of its subsidiaries to, among other things, incur subsequent indebtedness, sell assets, pay dividends, and make other restricted payments. For a full discussion of these restrictions and covenants, refer to Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources included in our 2023 Annual Report. These restrictions and covenants, which are subject to important exceptions and qualifications set forth in the Credit Agreement and Senior Notes Indentures, were taken into consideration when we established our share repurchase programs and will be evaluated periodically with respect to future potential funding of those programs. As of September 30, 2024, we believe we were in compliance with all covenants and default provisions under our credit arrangements. Share repurchase programs From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or terminated by our Board at any time. We currently have authorization for the September 2023 Program, under which approximately $423.1 million remained available as of September 30, 2024. In the nine months ended September 30, 2024, we repurchased 1.3 million ordinary shares under the September 2023 Program. In the nine months ended September 30, 2023, we repurchased 1.5 million ordinary shares under the January 2022 Program Dividends In the nine months ended September 30, 2024 and 2023, we paid aggregate cash dividends of $54.3 million and $53.4 million, respectively. On October 28, 2024, we announced that our Board of Directors approved a quarterly dividend of $0.12 per share, payable on November 27, 2024 to shareholders of record as of November 13, 2024. Recently Issued Accounting Pronouncements In November 2023, the FASB issued 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. There is no change to the guidance for identification or aggregation of operating or reportable segments. Other requirements of the guidance are not expected to be material. FASB ASU No. 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 will be applied retrospectively to all prior periods presented. We adopted 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 do not expect the adoption of FASB ASU No. 2023-09 to have an impact on our results of operations or financial condition, but it is expected to increase the amount of disclosures required in the notes to the consolidated financial statements. Critical Accounting Policies and Estimates For a discussion of the critical accounting policies that require the use of significant judgments and estimates by management, refer to Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates included in our 2023 Annual Report. The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to exercise judgment in the process of applying our accounting policies. 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. No material changes to our critical accounting policies and estimates, as previously disclosed, have occurred during the first nine months of 2024. 37 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk. No significant changes to our market risk have occurred since December 31, 2023. For a discussion of market risks affecting us, refer to Part II, Item 7A: Quantitative and Qualitative Disclosures About Market Risk included in our 2023 Annual Report.