UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________________________
FORM 10-Q
_________________________________________________________________________________
(Mark One)
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20212022
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-34652
_________________________________________________________________________________
SENSATA TECHNOLOGIES HOLDING PLC
(Exact name of registrant as specified in its charter)
_________________________________________________________________________________
| | | | | | | | | | | | | | | |
England and Wales | | 98-1386780 | |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
| |
| | | | |
| | | | |
| | | | |
| | | | |
| |
529 Pleasant Street
Attleboro, Massachusetts, 02703, United States
(Address of principal executive offices, including zip code)
+1 (508) 236 3800
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
_____________________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of exchange on which registered |
Ordinary Shares - nominal value €0.01 per share | ST | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☒ | | Accelerated filer | ☐ |
| | | | |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | | |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of OctoberJuly 15, 2021, 158,472,8712022, 155,251,755 ordinary shares were outstanding.
TABLE OF CONTENTS
| | | | | | | | | | | |
PART I | |
| Item 1. | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| |
PART II | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 3. | | |
| | | |
| Item 6. | | |
| | | |
PART I—FINANCIAL INFORMATION
Item 1.Financial Statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(unaudited)
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Assets | Assets | | | | Assets | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 1,958,144 | | | $ | 1,861,980 | | Cash and cash equivalents | $ | 1,558,578 | | | $ | 1,708,955 | |
Accounts receivable, net of allowances of $20,709 and $19,033 as of September 30, 2021 and December 31, 2020, respectively | 662,751 | | | 576,647 | | |
Accounts receivable, net of allowances of $26,448 and $17,003 as of June 30, 2022 and December 31, 2021, respectively | | Accounts receivable, net of allowances of $26,448 and $17,003 as of June 30, 2022 and December 31, 2021, respectively | 743,048 | | | 653,438 | |
Inventories | Inventories | 551,628 | | | 451,005 | | Inventories | 656,736 | | | 588,231 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 130,141 | | | 90,340 | | Prepaid expenses and other current assets | 161,367 | | | 126,370 | |
| Total current assets | Total current assets | 3,302,664 | | | 2,979,972 | | Total current assets | 3,119,729 | | | 3,076,994 | |
Property, plant and equipment, net | Property, plant and equipment, net | 805,202 | | | 803,825 | | Property, plant and equipment, net | 825,862 | | | 820,933 | |
Goodwill | Goodwill | 3,301,947 | | | 3,111,349 | | Goodwill | 3,534,438 | | | 3,502,063 | |
Other intangible assets, net of accumulated amortization of $2,245,877 and $2,145,634 as of September 30, 2021 and December 31, 2020, respectively | 859,367 | | | 691,549 | | |
Other intangible assets, net of accumulated amortization of $2,351,560 and $2,277,393 as of June 30, 2022 and December 31, 2021, respectively | | Other intangible assets, net of accumulated amortization of $2,351,560 and $2,277,393 as of June 30, 2022 and December 31, 2021, respectively | 904,929 | | | 946,731 | |
Deferred income tax assets | Deferred income tax assets | 78,597 | | | 84,785 | | Deferred income tax assets | 101,899 | | | 105,028 | |
Other assets | Other assets | 156,981 | | | 172,722 | | Other assets | 119,820 | | | 162,017 | |
Total assets | Total assets | $ | 8,504,758 | | | $ | 7,844,202 | | Total assets | $ | 8,606,677 | | | $ | 8,613,766 | |
Liabilities and shareholders' equity | Liabilities and shareholders' equity | | | | Liabilities and shareholders' equity | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Current portion of long-term debt, finance lease and other financing obligations | Current portion of long-term debt, finance lease and other financing obligations | $ | 6,632 | | | $ | 757,205 | | Current portion of long-term debt, finance lease and other financing obligations | $ | 6,566 | | | $ | 6,833 | |
Accounts payable | Accounts payable | 427,271 | | | 393,907 | | Accounts payable | 537,261 | | | 459,093 | |
Income taxes payable | Income taxes payable | 32,830 | | | 19,215 | | Income taxes payable | 15,309 | | | 26,517 | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 363,087 | | | 324,830 | | Accrued expenses and other current liabilities | 327,993 | | | 343,816 | |
| Total current liabilities | Total current liabilities | 829,820 | | | 1,495,157 | | Total current liabilities | 887,129 | | | 836,259 | |
Deferred income tax liabilities | Deferred income tax liabilities | 306,703 | | | 259,857 | | Deferred income tax liabilities | 341,383 | | | 339,273 | |
Pension and other post-retirement benefit obligations | Pension and other post-retirement benefit obligations | 43,621 | | | 48,002 | | Pension and other post-retirement benefit obligations | 37,863 | | | 38,758 | |
Finance lease and other financing obligations, less current portion | Finance lease and other financing obligations, less current portion | 27,000 | | | 27,931 | | Finance lease and other financing obligations, less current portion | 25,623 | | | 26,564 | |
Long-term debt, net | Long-term debt, net | 4,214,388 | | | 3,213,747 | | Long-term debt, net | 4,213,512 | | | 4,214,946 | |
Other long-term liabilities | Other long-term liabilities | 73,603 | | | 94,022 | | Other long-term liabilities | 77,583 | | | 63,232 | |
Total liabilities | Total liabilities | 5,495,135 | | | 5,138,716 | | Total liabilities | 5,583,093 | | | 5,519,032 | |
Commitments and contingencies (Note 12) | Commitments and contingencies (Note 12) | 0 | | 0 | Commitments and contingencies (Note 12) | 0 | | 0 |
Shareholders’ equity: | Shareholders’ equity: | | Shareholders’ equity: | |
Ordinary shares, €0.01 nominal value per share, 177,069 shares authorized, and 174,079 and 173,266 shares issued as of September 30, 2021 and December 31, 2020, respectively | 2,230 | | | 2,220 | | |
Treasury shares, at cost, 15,631 shares as of September 30, 2021 and December 31, 2020 | (784,596) | | | (784,596) | | |
Ordinary shares, €0.01 nominal value per share, 177,069 shares authorized, and 174,924 and 174,287 shares issued as of June 30, 2022 and December 31, 2021, respectively | | Ordinary shares, €0.01 nominal value per share, 177,069 shares authorized, and 174,924 and 174,287 shares issued as of June 30, 2022 and December 31, 2021, respectively | 2,239 | | | 2,232 | |
Treasury shares, at cost, 19,269 and 16,438 shares as of June 30, 2022 and December 31, 2021, respectively | | Treasury shares, at cost, 19,269 and 16,438 shares as of June 30, 2022 and December 31, 2021, respectively | (978,595) | | | (832,439) | |
Additional paid-in capital | Additional paid-in capital | 1,798,549 | | | 1,759,668 | | Additional paid-in capital | 1,841,925 | | | 1,812,244 | |
Retained earnings | Retained earnings | 2,020,346 | | | 1,777,729 | | Retained earnings | 2,164,734 | | | 2,132,257 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (26,906) | | | (49,535) | | Accumulated other comprehensive loss | (6,719) | | | (19,560) | |
| Total shareholders' equity | Total shareholders' equity | 3,009,623 | | | 2,705,486 | | Total shareholders' equity | 3,023,584 | | | 3,094,734 | |
Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | $ | 8,504,758 | | | $ | 7,844,202 | | Total liabilities and shareholders' equity | $ | 8,606,677 | | | $ | 8,613,766 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
| | | For the three months ended | | For the nine months ended | | For the three months ended | | For the six months ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Net revenue | Net revenue | $ | 951,021 | | | $ | 788,313 | | | $ | 2,886,209 | | | $ | 2,139,087 | | Net revenue | $ | 1,020,548 | | | $ | 992,660 | | | $ | 1,996,318 | | | $ | 1,935,188 | |
Operating costs and expenses: | Operating costs and expenses: | | Operating costs and expenses: | |
Cost of revenue | Cost of revenue | 628,922 | | | 530,255 | | | 1,922,556 | | | 1,509,104 | | Cost of revenue | 686,603 | | | 658,285 | | | 1,343,683 | | | 1,293,634 | |
Research and development | Research and development | 40,060 | | | 33,423 | | | 118,929 | | | 98,115 | | Research and development | 47,971 | | | 42,913 | | | 93,951 | | | 78,869 | |
Selling, general and administrative | Selling, general and administrative | 85,784 | | | 75,747 | | | 249,728 | | | 217,698 | | Selling, general and administrative | 97,329 | | | 86,821 | | | 193,009 | | | 163,944 | |
Amortization of intangible assets | Amortization of intangible assets | 34,571 | | | 32,562 | | | 101,492 | | | 98,397 | | Amortization of intangible assets | 36,805 | | | 34,857 | | | 74,172 | | | 66,921 | |
Restructuring and other charges, net | Restructuring and other charges, net | 345 | | | (10,519) | | | 9,956 | | | 32,197 | | Restructuring and other charges, net | 12,897 | | | 5,029 | | | 26,630 | | | 9,611 | |
Total operating costs and expenses | Total operating costs and expenses | 789,682 | | | 661,468 | | | 2,402,661 | | | 1,955,511 | | Total operating costs and expenses | 881,605 | | | 827,905 | | | 1,731,445 | | | 1,612,979 | |
Operating income | Operating income | 161,339 | | | 126,845 | | | 483,548 | | | 183,576 | | Operating income | 138,943 | | | 164,755 | | | 264,873 | | | 322,209 | |
Interest expense, net | Interest expense, net | (45,137) | | | (44,129) | | | (134,393) | | | (124,340) | | Interest expense, net | (44,842) | | | (45,213) | | | (90,287) | | | (89,256) | |
Other, net | Other, net | (9,403) | | | 9,194 | | | (47,788) | | | (1,511) | | Other, net | (39,240) | | | 1,012 | | | (89,696) | | | (38,385) | |
Income before taxes | Income before taxes | 106,799 | | | 91,910 | | | 301,367 | | | 57,725 | | Income before taxes | 54,861 | | | 120,554 | | | 84,890 | | | 194,568 | |
Provision for income taxes | Provision for income taxes | 21,840 | | | 15,181 | | | 49,759 | | | 15,106 | | Provision for income taxes | 20,020 | | | 7,638 | | | 27,608 | | | 27,919 | |
Net income | Net income | $ | 84,959 | | | $ | 76,729 | | | $ | 251,608 | | | $ | 42,619 | | Net income | $ | 34,841 | | | $ | 112,916 | | | $ | 57,282 | | | $ | 166,649 | |
Basic net income per share | Basic net income per share | $ | 0.54 | | | $ | 0.49 | | | $ | 1.59 | | | $ | 0.27 | | Basic net income per share | $ | 0.22 | | | $ | 0.71 | | | $ | 0.36 | | | $ | 1.05 | |
Diluted net income per share | Diluted net income per share | $ | 0.53 | | | $ | 0.49 | | | $ | 1.58 | | | $ | 0.27 | | Diluted net income per share | $ | 0.22 | | | $ | 0.71 | | | $ | 0.36 | | | $ | 1.05 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)
| | | For the three months ended | | For the nine months ended | | For the three months ended | | For the six months ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Net income | Net income | $ | 84,959 | | | $ | 76,729 | | | $ | 251,608 | | | $ | 42,619 | | Net income | $ | 34,841 | | | $ | 112,916 | | | $ | 57,282 | | | $ | 166,649 | |
Other comprehensive income/(loss): | | |
Other comprehensive income: | | Other comprehensive income: | |
Cash flow hedges | Cash flow hedges | 2,975 | | | (2,197) | | | 18,651 | | | (26,698) | | Cash flow hedges | 9,183 | | | 1,398 | | | 12,033 | | | 15,676 | |
Defined benefit and retiree healthcare plans | Defined benefit and retiree healthcare plans | 594 | | | 1,015 | | | 3,978 | | | 6,029 | | Defined benefit and retiree healthcare plans | 380 | | | 1,672 | | | 808 | | | 3,384 | |
Other comprehensive income/(loss) | 3,569 | | | (1,182) | | | 22,629 | | | (20,669) | | |
Other comprehensive income | | Other comprehensive income | 9,563 | | | 3,070 | | | 12,841 | | | 19,060 | |
Comprehensive income | Comprehensive income | $ | 88,528 | | | $ | 75,547 | | | $ | 274,237 | | | $ | 21,950 | | Comprehensive income | $ | 44,404 | | | $ | 115,986 | | | $ | 70,123 | | | $ | 185,709 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
| | | For the nine months ended | | For the six months ended |
| | September 30, 2021 | | September 30, 2020 | | June 30, 2022 | | June 30, 2021 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income | Net income | $ | 251,608 | | | $ | 42,619 | | Net income | $ | 57,282 | | | $ | 166,649 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation | Depreciation | 94,361 | | | 94,216 | | Depreciation | 62,882 | | | 62,833 | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 5,142 | | | 5,026 | | Amortization of debt issuance costs | 3,433 | | | 3,426 | |
| Share-based compensation | Share-based compensation | 18,871 | | | 14,212 | | Share-based compensation | 15,739 | | | 11,475 | |
Loss on debt financing | Loss on debt financing | 30,066 | | | — | | Loss on debt financing | — | | | 30,066 | |
Amortization of intangible assets | Amortization of intangible assets | 101,492 | | | 98,397 | | Amortization of intangible assets | 74,172 | | | 66,921 | |
Deferred income taxes | Deferred income taxes | (2,070) | | | (11,600) | | Deferred income taxes | (5,211) | | | (7,070) | |
| Acquisition-related compensation payments | | Acquisition-related compensation payments | (15,000) | | | — | |
Mark-to-market loss on equity investments, net | | Mark-to-market loss on equity investments, net | 71,100 | | | — | |
Unrealized loss on derivative instruments and other | Unrealized loss on derivative instruments and other | 17,359 | | | 5,876 | | Unrealized loss on derivative instruments and other | 20,669 | | | 12,700 | |
Changes in operating assets and liabilities, net of the effects of acquisitions: | Changes in operating assets and liabilities, net of the effects of acquisitions: | | Changes in operating assets and liabilities, net of the effects of acquisitions: | |
Accounts receivable, net | Accounts receivable, net | (66,340) | | | (5,205) | | Accounts receivable, net | (102,845) | | | (97,906) | |
Inventories | Inventories | (93,651) | | | 71,207 | | Inventories | (69,379) | | | (45,664) | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | (18,390) | | | 15,689 | | Prepaid expenses and other current assets | (17,762) | | | (8,280) | |
Accounts payable and accrued expenses | Accounts payable and accrued expenses | 44,879 | | | (10,939) | | Accounts payable and accrued expenses | 56,767 | | | 68,764 | |
Income taxes payable | Income taxes payable | 13,615 | | | (23,806) | | Income taxes payable | (11,384) | | | 6,448 | |
Other | Other | (3,716) | | | (2,354) | | Other | 1,425 | | | (2,431) | |
Net cash provided by operating activities | Net cash provided by operating activities | 393,226 | | | 293,338 | | Net cash provided by operating activities | 141,888 | | | 267,931 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Acquisitions, net of cash received | Acquisitions, net of cash received | (414,959) | | | (64,452) | | Acquisitions, net of cash received | (48,989) | | | (421,951) | |
Additions to property, plant and equipment and capitalized software | Additions to property, plant and equipment and capitalized software | (100,410) | | | (79,939) | | Additions to property, plant and equipment and capitalized software | (74,069) | | | (63,572) | |
Investment in debt and equity securities | Investment in debt and equity securities | (4,655) | | | (24,794) | | Investment in debt and equity securities | (6,878) | | | (6,444) | |
| Other | Other | 3,919 | | | 10,717 | | Other | 152 | | | 2,862 | |
Net cash used in investing activities | Net cash used in investing activities | (516,105) | | | (158,468) | | Net cash used in investing activities | (129,784) | | | (489,105) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Proceeds from exercise of stock options and issuance of ordinary shares | Proceeds from exercise of stock options and issuance of ordinary shares | 20,016 | | | 2,237 | | Proceeds from exercise of stock options and issuance of ordinary shares | 14,577 | | | 17,957 | |
Payment of employee restricted stock tax withholdings | Payment of employee restricted stock tax withholdings | (8,987) | | | (2,335) | | Payment of employee restricted stock tax withholdings | (7,577) | | | (7,948) | |
Proceeds from borrowings on debt | Proceeds from borrowings on debt | 1,001,875 | | | 1,150,000 | | Proceeds from borrowings on debt | — | | | 1,001,875 | |
Payments on debt | | Payments on debt | (5,664) | | | (757,889) | |
Dividends paid | | Dividends paid | (17,225) | | | — | |
Payments to repurchase ordinary shares | | Payments to repurchase ordinary shares | (144,279) | | | — | |
| Payments on debt | (760,768) | | | (406,568) | | |
Payments to repurchase ordinary shares | — | | | (35,175) | | |
Payments of debt financing costs | Payments of debt financing costs | (33,093) | | | (6,957) | | Payments of debt financing costs | (2,313) | | | (33,032) | |
| Net cash provided by financing activities | 219,043 | | | 701,202 | | |
Net cash (used in)/provided by financing activities | | Net cash (used in)/provided by financing activities | (162,481) | | | 220,963 | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | 96,164 | | | 836,072 | | Net change in cash and cash equivalents | (150,377) | | | (211) | |
Cash and cash equivalents, beginning of period | 1,861,980 | | | 774,119 | | |
Cash and cash equivalents, beginning of year | | Cash and cash equivalents, beginning of year | 1,708,955 | | | 1,861,980 | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 1,958,144 | | | $ | 1,610,191 | | Cash and cash equivalents, end of period | $ | 1,558,578 | | | $ | 1,861,769 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Changes in Shareholders' Equity
(In thousands)
(unaudited)
| | | Ordinary Shares | | Treasury Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total Shareholders' Equity | | Ordinary Shares | | Treasury Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total Shareholders' Equity |
| | Number | | Amount | | Number | | Amount | | | | Total Shareholders' Equity | | Number | | Amount | | Number | | Amount | | Additional Paid-In Capital | | Retained Earnings |
Balance as of June 30, 2021 | 174,005 | | | $ | 2,229 | | | (15,631) | | | $ | (784,596) | | | $ | 1,789,863 | | | $ | 1,936,427 | | | $ | (30,475) | | | | $ | 2,913,448 | | |
Balance as of March 31, 2022 | | Balance as of March 31, 2022 | 174,583 | | | $ | 2,236 | | | (17,576) | | | $ | (899,697) | | | $ | 1,831,497 | | | $ | 2,154,563 | | | $ | (16,282) | | | | $ | 3,072,317 | |
Surrender of shares for tax withholding | Surrender of shares for tax withholding | — | | | — | | | (18) | | | (1,039) | | | — | | | — | | | — | | | | (1,039) | | Surrender of shares for tax withholding | — | | | — | | | (148) | | | (7,442) | | | — | | | — | | | — | | | | (7,442) | |
Stock options exercised | Stock options exercised | 34 | | | — | | | — | | | — | | | 1,290 | | | — | | | — | | | | 1,290 | | Stock options exercised | 39 | | | — | | | — | | | — | | | 1,229 | | | — | | | — | | | | 1,229 | |
Vesting of restricted securities | Vesting of restricted securities | 58 | | | 1 | | | — | | | — | | | — | | | (1) | | | — | | | | — | | Vesting of restricted securities | 450 | | | 5 | | | — | | | — | | | — | | | (5) | | | — | | | | — | |
| Cash dividends paid | | Cash dividends paid | — | | | — | | | — | | | — | | | — | | | (17,225) | | | — | | | | (17,225) | |
Repurchase of ordinary shares | | Repurchase of ordinary shares | — | | | — | | | (1,693) | | | (78,898) | | | — | | | — | | | — | | | | (78,898) | |
Retirement of ordinary shares | Retirement of ordinary shares | (18) | | | — | | | 18 | | | 1,039 | | | — | | | (1,039) | | | — | | | | — | | Retirement of ordinary shares | (148) | | | (2) | | | 148 | | | 7,442 | | | — | | | (7,440) | | | — | | | | — | |
Share-based compensation | Share-based compensation | — | | | — | | | — | | | — | | | 7,396 | | | — | | | — | | | | 7,396 | | Share-based compensation | — | | | — | | | — | | | — | | | 9,199 | | | — | | | — | | | | 9,199 | |
| Net income | Net income | — | | | — | | | — | | | — | | | — | | | 84,959 | | | — | | | | 84,959 | | Net income | — | | | — | | | — | | | — | | | — | | | 34,841 | | | — | | | | 34,841 | |
Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 3,569 | | | | 3,569 | | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 9,563 | | | | 9,563 | |
Balance as of September 30, 2021 | 174,079 | | | $ | 2,230 | | | (15,631) | | | $ | (784,596) | | | $ | 1,798,549 | | | $ | 2,020,346 | | | $ | (26,906) | | | | $ | 3,009,623 | | |
Balance as of June 30, 2022 | | Balance as of June 30, 2022 | 174,924 | | | $ | 2,239 | | | (19,269) | | | $ | (978,595) | | | $ | 1,841,925 | | | $ | 2,164,734 | | | $ | (6,719) | | | | $ | 3,023,584 | |
| | | | Ordinary Shares | | Treasury Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total Shareholders' Equity | | Ordinary Shares | | Treasury Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total Shareholders' Equity |
| | Number | | Amount | | Number | | Amount | | | | Total Shareholders' Equity | | Amount | | Number | | Amount | | Additional Paid-In Capital | | Total Shareholders' Equity |
Balance as of December 31, 2020 | 173,266 | | | $ | 2,220 | | | (15,631) | | | $ | (784,596) | | | $ | 1,759,668 | | | $ | 1,777,729 | | | $ | (49,535) | | | | $ | 2,705,486 | | |
Balance as of December 31, 2021 | | Balance as of December 31, 2021 | 174,287 | | | $ | 2,232 | | | (16,438) | | | $ | (832,439) | | | $ | 1,812,244 | | | $ | 2,132,257 | | | $ | (19,560) | | | | $ | 3,094,734 | |
Surrender of shares for tax withholding | Surrender of shares for tax withholding | — | | | — | | | (154) | | | (8,987) | | | — | | | — | | | — | | | | (8,987) | | Surrender of shares for tax withholding | — | | | — | | | (151) | | | (7,577) | | | — | | | — | | | — | | | | (7,577) | |
Stock options exercised | Stock options exercised | 501 | | | 6 | | | — | | | — | | | 20,010 | | | — | | | — | | | | 20,016 | | Stock options exercised | 329 | | | 4 | | | — | | | — | | | 13,942 | | | — | | | — | | | | 13,946 | |
Vesting of restricted securities | Vesting of restricted securities | 466 | | | 6 | | | — | | | — | | | — | | | (6) | | | — | | | | — | | Vesting of restricted securities | 459 | | | 5 | | | — | | | — | | | — | | | (5) | | | — | | | | — | |
| Cash dividends paid | | Cash dividends paid | — | | | — | | | — | | | — | | | — | | | (17,225) | | | — | | | | (17,225) | |
Repurchase of ordinary shares | | Repurchase of ordinary shares | — | | | — | | | (2,831) | | | (146,156) | | | — | | | — | | | — | | | | (146,156) | |
Retirement of ordinary shares | Retirement of ordinary shares | (154) | | | (2) | | | 154 | | | 8,987 | | | — | | | (8,985) | | | — | | | | — | | Retirement of ordinary shares | (151) | | | (2) | | | 151 | | | 7,577 | | | — | | | (7,575) | | | — | | | | — | |
Share-based compensation | Share-based compensation | — | | | — | | | — | | | — | | | 18,871 | | | — | | | — | | | | 18,871 | | Share-based compensation | — | | | — | | | — | | | — | | | 15,739 | | | — | | | — | | | | 15,739 | |
| Net income | Net income | — | | | — | | | — | | | — | | | — | | | 251,608 | | | — | | | | 251,608 | | Net income | — | | | — | | | — | | | — | | | — | | | 57,282 | | | — | | | | 57,282 | |
Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 22,629 | | | | 22,629 | | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 12,841 | | | | 12,841 | |
Balance as of September 30, 2021 | 174,079 | | | $ | 2,230 | | | (15,631) | | | $ | (784,596) | | | $ | 1,798,549 | | | $ | 2,020,346 | | | $ | (26,906) | | | | $ | 3,009,623 | | |
Balance as of June 30, 2022 | | Balance as of June 30, 2022 | 174,924 | | | $ | 2,239 | | | (19,269) | | | $ | (978,595) | | | $ | 1,841,925 | | | $ | 2,164,734 | | | $ | (6,719) | | | | $ | 3,023,584 | |
| | | Ordinary Shares | | Treasury Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total Shareholders' Equity | | Ordinary Shares | | Treasury Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total Shareholders' Equity |
| | Number | | Amount | | Number | | Amount | | | | Total Shareholders' Equity | | Amount | | Number | | Amount | | Additional Paid-In Capital | | Total Shareholders' Equity |
Balance as of June 30, 2020 | 172,844 | | | $ | 2,215 | | | (15,631) | | | $ | (784,596) | | | $ | 1,735,826 | | | $ | 1,579,931 | | | $ | (39,971) | | | | $ | 2,493,405 | | |
Balance as of March 31, 2021 | | Balance as of March 31, 2021 | 173,533 | | | $ | 2,223 | | | (15,631) | | | $ | (784,596) | | | $ | 1,775,320 | | | $ | 1,831,241 | | | $ | (33,545) | | | | $ | 2,790,643 | |
Surrender of shares for tax withholding | Surrender of shares for tax withholding | — | | | — | | | — | | | (21) | | | — | | | — | | | — | | | | (21) | | Surrender of shares for tax withholding | — | | | — | | | (132) | | | (7,727) | | | — | | | — | | | — | | | | (7,727) | |
Stock options exercised | Stock options exercised | 29 | | | 1 | | | — | | | — | | | 1,090 | | | — | | | — | | | | 1,091 | | Stock options exercised | 208 | | | 3 | | | — | | | — | | | 8,167 | | | — | | | — | | | | 8,170 | |
Vesting of restricted securities | Vesting of restricted securities | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | Vesting of restricted securities | 396 | | | 5 | | | — | | | — | | | — | | | (5) | | | — | | | | — | |
| Retirement of ordinary shares | Retirement of ordinary shares | — | | | — | | | — | | | 21 | | | — | | | (21) | | | — | | | | — | | Retirement of ordinary shares | (132) | | | (2) | | | 132 | | | 7,727 | | | — | | | (7,725) | | | — | | | | — | |
Share-based compensation | Share-based compensation | — | | | — | | | — | | | — | | | 4,622 | | | — | | | — | | | | 4,622 | | Share-based compensation | — | | | — | | | — | | | — | | | 6,376 | | | — | | | — | | | | 6,376 | |
| Net income | Net income | — | | | — | | | — | | | — | | | — | | | 76,729 | | | — | | | | 76,729 | | Net income | — | | | — | | | — | | | — | | | — | | | 112,916 | | | — | | | | 112,916 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (1,182) | | | | (1,182) | | |
Balance as of September 30, 2020 | 172,875 | | | $ | 2,216 | | | (15,631) | | | $ | (784,596) | | | $ | 1,741,538 | | | $ | 1,656,639 | | | $ | (41,153) | | | | $ | 2,574,644 | | |
Other comprehensive income | | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 3,070 | | | | 3,070 | |
Balance as of June 30, 2021 | | Balance as of June 30, 2021 | 174,005 | | | $ | 2,229 | | | (15,631) | | | $ | (784,596) | | | $ | 1,789,863 | | | $ | 1,936,427 | | | $ | (30,475) | | | | $ | 2,913,448 | |
| | | | Ordinary Shares | | Treasury Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total Shareholders' Equity | | Ordinary Shares | | Treasury Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total Shareholders' Equity |
| | Number | | Amount | | Number | | Amount | | | | Total Shareholders' Equity | | Amount | | Number | | Amount | | Additional Paid-In Capital | | Total Shareholders' Equity |
Balance as of December 31, 2019 | 172,561 | | | $ | 2,212 | | | (14,733) | | | $ | (749,421) | | | $ | 1,725,091 | | | $ | 1,616,357 | | | $ | (20,484) | | | | $ | 2,573,755 | | |
Balance as of December 31, 2020 | | Balance as of December 31, 2020 | 173,266 | | | $ | 2,220 | | | (15,631) | | | $ | (784,596) | | | $ | 1,759,668 | | | $ | 1,777,729 | | | $ | (49,535) | | | | $ | 2,705,486 | |
Surrender of shares for tax withholding | Surrender of shares for tax withholding | — | | | — | | | (83) | | | (2,335) | | | — | | | — | | | — | | | | (2,335) | | Surrender of shares for tax withholding | — | | | — | | | (136) | | | (7,948) | | | — | | | — | | | — | | | | (7,948) | |
Stock options exercised | Stock options exercised | 84 | | | 2 | | | — | | | — | | | 2,235 | | | — | | | — | | | | 2,237 | | Stock options exercised | 467 | | | 6 | | | — | | | — | | | 18,720 | | | — | | | — | | | | 18,726 | |
Vesting of restricted securities | Vesting of restricted securities | 313 | | | 3 | | | — | | | — | | | — | | | (3) | | | — | | | | — | | Vesting of restricted securities | 408 | | | 5 | | | — | | | — | | | — | | | (5) | | | — | | | | — | |
Repurchase of ordinary shares | — | | | — | | | (898) | | | (35,175) | | | — | | | — | | | — | | | | (35,175) | | |
| Retirement of ordinary shares | Retirement of ordinary shares | (83) | | | (1) | | | 83 | | | 2,335 | | | — | | | (2,334) | | | — | | | | — | | Retirement of ordinary shares | (136) | | | (2) | | | 136 | | | 7,948 | | | — | | | (7,946) | | | — | | | | — | |
Share-based compensation | Share-based compensation | — | | | — | | | — | | | — | | | 14,212 | | | — | | | — | | | | 14,212 | | Share-based compensation | — | | | — | | | — | | | — | | | 11,475 | | | — | | | — | | | | 11,475 | |
| Net income | Net income | — | | | — | | | — | | | — | | | — | | | 42,619 | | | — | | | | 42,619 | | Net income | — | | | — | | | — | | | — | | | — | | | 166,649 | | | — | | | | 166,649 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (20,669) | | | | (20,669) | | |
Balance as of September 30, 2020 | 172,875 | | | $ | 2,216 | | | (15,631) | | | $ | (784,596) | | | $ | 1,741,538 | | | $ | 1,656,639 | | | $ | (41,153) | | | | $ | 2,574,644 | | |
Other comprehensive income | | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 19,060 | | | | 19,060 | |
Balance as of June 30, 2021 | | Balance as of June 30, 2021 | 174,005 | | | $ | 2,229 | | | (15,631) | | | $ | (784,596) | | | $ | 1,789,863 | | | $ | 1,936,427 | | | $ | (30,475) | | | | $ | 2,913,448 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SENSATA TECHNOLOGIES HOLDING PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements reflect the financial position, results of operations, comprehensive income, cash flows, and changes in shareholders' equity of Sensata Technologies Holding plc, ("Sensata plc"), a public limited company incorporated under the laws of England and Wales, and its consolidated subsidiaries, collectively referred to as the "Company," "Sensata," "we," "our," or "us."
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q. Accordingly, these interim financial statements do not include all of the information and note disclosures required by U.S. GAAP for complete financial statements. The accompanying financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the interim period results. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 20202021 filed with the U.S. Securities and Exchange Commission (the "2020"SEC") on February 10, 2022 (the "2021 Annual Report").
All U.S. dollar ("USD") and share amounts presented, except per share amounts, are stated in thousands, unless otherwise indicated.
2. New Accounting Standards
There are no recently issued accounting standards that have been adopted in the current period or will be adopted in future periods that have had or are expected to have a material impact on our consolidated financial position or results of operations.
3. Revenue Recognition
The following tablestable presents net revenue disaggregated by segment and end market for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | For the three months ended September 30, 2021 | | For the three months ended September 30, 2020 | | For the three months ended June 30, 2022 | | For the three months ended June 30, 2021 |
| | Performance Sensing | | Sensing Solutions | | Total | | Performance Sensing | | Sensing Solutions | | Total | | Performance Sensing | | Sensing Solutions | | Total | | Performance Sensing | | Sensing Solutions | | Total |
Automotive | Automotive | | $ | 488,041 | | | $ | 9,451 | | | $ | 497,492 | | | $ | 456,200 | | | $ | 7,801 | | | $ | 464,001 | | Automotive | | $ | 506,232 | | | $ | 9,932 | | | $ | 516,164 | | | $ | 518,367 | | | $ | 12,052 | | | $ | 530,419 | |
HVOR (1) | HVOR (1) | | 218,425 | | | — | | | 218,425 | | | 124,736 | | | — | | | 124,736 | | HVOR (1) | | 240,650 | | | — | | | 240,650 | | | 223,485 | | | — | | | 223,485 | |
Industrial | Industrial | | — | | | 106,809 | | | 106,809 | | | — | | | 87,174 | | | 87,174 | | Industrial | | — | | | 122,094 | | | 122,094 | | | — | | | 105,474 | | | 105,474 | |
Appliance and HVAC (2) | Appliance and HVAC (2) | | — | | | 62,793 | | | 62,793 | | | — | | | 47,618 | | | 47,618 | | Appliance and HVAC (2) | | — | | | 57,675 | | | 57,675 | | | — | | | 63,187 | | | 63,187 | |
Aerospace | Aerospace | | — | | | 34,377 | | | 34,377 | | | — | | | 31,740 | | | 31,740 | | Aerospace | | — | | | 38,558 | | | 38,558 | | | — | | | 32,793 | | | 32,793 | |
Other | Other | | — | | | 31,125 | | | 31,125 | | | — | | | 33,044 | | | 33,044 | | Other | | — | | | 45,407 | | | 45,407 | | | — | | | 37,302 | | | 37,302 | |
Total | Total | | $ | 706,466 | | | $ | 244,555 | | | $ | 951,021 | | | $ | 580,936 | | | $ | 207,377 | | | $ | 788,313 | | Total | | $ | 746,882 | | | $ | 273,666 | | | $ | 1,020,548 | | | $ | 741,852 | | | $ | 250,808 | | | $ | 992,660 | |
________________________
(1) Heavy vehicle and off-road
(2) Heating, ventilation and air conditioning
| | | For the nine months ended September 30, 2021 | | For the nine months ended September 30, 2020 | | For the six months ended June 30, 2022 | | For the six months ended June 30, 2021 |
| | Performance Sensing | | Sensing Solutions | | Total | | Performance Sensing | | Sensing Solutions | | Total | | Performance Sensing | | Sensing Solutions | | Total | | Performance Sensing | | Sensing Solutions | | Total |
Automotive | Automotive | | $ | 1,543,121 | | | $ | 33,003 | | | $ | 1,576,124 | | | $ | 1,180,402 | | | $ | 23,316 | | | $ | 1,203,718 | | Automotive | | $ | 1,008,594 | | | $ | 19,217 | | | $ | 1,027,811 | | | $ | 1,055,080 | | | $ | 23,552 | | | $ | 1,078,632 | |
HVOR | HVOR | | 619,709 | | | — | | | 619,709 | | | 354,430 | | | — | | | 354,430 | | HVOR | | 455,985 | | | — | | | 455,985 | | | 401,284 | | | — | | | 401,284 | |
Industrial | Industrial | | — | | | 302,758 | | | 302,758 | | | — | | | 247,037 | | | 247,037 | | Industrial | | — | | | 236,713 | | | 236,713 | | | — | | | 195,949 | | | 195,949 | |
Appliance and HVAC | Appliance and HVAC | | — | | | 185,896 | | | 185,896 | | | — | | | 136,703 | | | 136,703 | | Appliance and HVAC | | — | | | 116,500 | | | 116,500 | | | — | | | 123,103 | | | 123,103 | |
Aerospace | Aerospace | | — | | | 99,847 | | | 99,847 | | | — | | | 101,057 | | | 101,057 | | Aerospace | | — | | | 71,828 | | | 71,828 | | | — | | | 65,470 | | | 65,470 | |
Other | Other | | — | | | 101,875 | | | 101,875 | | | — | | | 96,142 | | | 96,142 | | Other | | — | | | 87,481 | | | 87,481 | | | — | | | 70,750 | | | 70,750 | |
Total | Total | | $ | 2,162,830 | | | $ | 723,379 | | | $ | 2,886,209 | | | $ | 1,534,832 | | | $ | 604,255 | | | $ | 2,139,087 | | Total | | $ | 1,464,579 | | | $ | 531,739 | | | $ | 1,996,318 | | | $ | 1,456,364 | | | $ | 478,824 | | | $ | 1,935,188 | |
4. Share-Based Payment Plans
The following table presents the components of non-cash compensation expense related to our equity awards for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | For the three months ended | | For the nine months ended | | For the three months ended | | For the six months ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Stock options | Stock options | $ | 307 | | | $ | 179 | | | $ | 1,072 | | | $ | 2,721 | | Stock options | $ | 2 | | | $ | 305 | | | $ | 309 | | | $ | 765 | |
Restricted securities | Restricted securities | 7,089 | | | 4,443 | | | 17,799 | | | 11,491 | | Restricted securities | 9,197 | | | 6,071 | | | 15,430 | | | 10,710 | |
Share-based compensation expense | Share-based compensation expense | $ | 7,396 | | | $ | 4,622 | | | $ | 18,871 | | | $ | 14,212 | | Share-based compensation expense | $ | 9,199 | | | $ | 6,376 | | | $ | 15,739 | | | $ | 11,475 | |
Equity Awards
At our Annual General Meeting held on May 27, 2021, our shareholders approved the Sensata Technologies Holding plc 2021 Equity Incentive Plan (the "2021 Equity Plan"), which replaced the Sensata Technologies Holding plc First Amended and Restated 2010 Equity Incentive Plan (the "2010 Equity Plan"). The 2021 Equity Plan is substantially similar to the 2010 Equity Plan with some updates based on changes in law and current practices. The purpose of the 2021 Equity Plan is to promote the long-term growth, profitability, and interests of the Company and its shareholders by aiding us in attracting and retaining employees, officers, consultants, advisors, and non-employee directors capable of assuring our future success. All awards granted subsequent to this approval were made under the 2021 Equity Plan.
We granted the following restricted stock units ("RSUs" and each, an "RSU") and performance-based restricted stock units ("PRSUs" and each, a "PRSU") under the Sensata Technologies Holding plc 2021 Equity Plan and 2010 EquityIncentive Plan during the ninesix months ended SeptemberJune 30, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Awards Granted To: | | Type of Award | | Number of Units Granted (in thousands) | | Percentage of PRSUs Awarded that May Vest | | Weighted Average Grant Date Fair Value |
| | | | | | | | |
Directors | | RSU (1)(5) | | 27 | | | N/A | | $ | 58.63 | |
Various executives and employees | | RSU (2)(4) | | 373 | | | N/A | | $ | 58.37 | |
Various executives and employees | | PRSU (3)(4) | | 236 | | | 0.0% - 200.0% | | $ | 58.20 | |
________________________ | | | | | | | | | | | | | | | | | | | | | | | | | | |
Awards Granted To: | | Type of Award | | Number of Units Granted (in thousands) | | Percentage of PRSUs Awarded that May Vest | | Weighted Average Grant Date Fair Value |
| | | | | | | | |
Directors | | RSU (1) | | 29 | | | N/A | | $ | 46.30 | |
Various executives and employees | | RSU (2) | | 518 | | | N/A | | $ | 50.72 | |
Various executives and employees | | PRSU (3) | | 349 | | | 0.0% - 200.0% | | $ | 50.52 | |
(1) These RSUs cliff vest one year from the grant date (May 2022)2023).
(2) These RSUs vest ratably over three years, one-third per year beginning on the first anniversary of the grant date. These RSUs will fully vest on various dates between February 2024January 2025 and August 2024.June 2025.
(3) These PRSUs vest on various dates between April 20242025 and May 2024.June 2025. The number of units that ultimately vest is dependent on the achievement of certain performance criteria.
(4) Primarily granted under the 2010 Equity Plan.
(5) Primarily granted under the 2021 Equity Plan.
5. Restructuring and Other Charges, Net
On June 30, 2020, in response to the potential long-term impact of the global financial and health crisis caused by the coronavirus ("COVID-19") pandemic on our business, we committed to a plan to reorganize our business (the “Q2 2020 Global Restructure Program”), consisting of voluntary and involuntary reductions-in-force and certain site closures. The Q2 2020 Global Restructure Program was commenced in order to align our cost structure to the then anticipated future demand outlook, and as of September 30, 2021, we have completed all actions contemplated thereunder, with approximately 840 positions impacted. Since inception of the Q2 2020 Global Restructure Program, we have recognized cumulative costs of $33.2 million, of which $28.4 million related to severance charges and $4.8 million related to facility and exit costs. As of September 30, 2021, we have a liability of approximately $7.5 million related to actions taken under this plan. We expect to settle these remaining liabilities with cash on hand.
Restructuring actions taken under the Q2 2020 Global Restructure Program impacted our business segments and corporate functions as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Reductions-in-Force | | Site Closures |
(Dollars in millions) | Positions | | Minimum | | Maximum | | Minimum | | Maximum |
Performance Sensing | 170 | | | $ | 9.3 | | | $ | 10.0 | | | $ | 3.0 | | | $ | 4.0 | |
Sensing Solutions | 280 | | | 8.0 | | | 8.0 | | | 3.0 | | | 4.0 | |
Corporate and other (1) | 390 | | | 9.7 | | | 11.0 | | | — | | | — | |
Total | 840 | | | $ | 27.0 | | | $ | 29.0 | | | $ | 6.0 | | | $ | 8.0 | |
(1) The majority of these positions relate to engineering and manufacturing operations, which are allocated to corporate and other. However, these restructuring actions will benefit the results of Performance Sensing and Sensing Solutions as well.
Charges recognized in the three and nine months ended September 30, 2021 and 2020 resulting from the Q2 2020 Global Restructure Program are presented by impacted segment below. However, as discussed in Note 17: Segment Reporting, restructuring and other charges, net are excluded from segment operating income.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the nine months ended |
| September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
Performance Sensing | $ | 1,106 | | | $ | — | | | $ | 1,909 | | | $ | 7,609 | |
Sensing Solutions | 1,992 | | | — | | | 5,132 | | | 7,181 | |
Corporate and other | — | | | — | | | 1,711 | | | 9,330 | |
Restructuring and other charges | $ | 3,098 | | | $ | — | | | $ | 8,752 | | | $ | 24,120 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Approximately $1.3 million and $3.0 million of these charges in the three and nine months ended September 30, 2021, respectively, relate to site closures in Sensing Solutions. Approximately $0.9 million and $1.2 million of these charges in the three and nine months ended September 30, 2021, respectively, relate to site closures in Performance Sensing. None of the charges recognized in 2020 relate to site closures.
The following table presents the components of restructuring and other charges, net for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | For the three months ended | | For the nine months ended | | For the three months ended | | For the six months ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Q2 2020 Global Restructure Program charges | Q2 2020 Global Restructure Program charges | $ | 3,098 | | | $ | — | | | $ | 8,752 | | | $ | 24,120 | | Q2 2020 Global Restructure Program charges | $ | — | | | $ | 3,830 | | | $ | — | | | $ | 5,654 | |
Other restructuring charges | | |
Other restructuring and other charges, net | | Other restructuring and other charges, net | |
Severance costs, net (1) | Severance costs, net (1) | 133 | | | 206 | | | 726 | | | 4,103 | | Severance costs, net (1) | — | | | 407 | | | 587 | | | 593 | |
Facility and other exit costs | Facility and other exit costs | 541 | | | 423 | | | 1,832 | | | 423 | | Facility and other exit costs | 1,241 | | | 625 | | | 2,289 | | | 1,291 | |
| Other (2)(1) | Other (2)(1) | (3,427) | | | (11,148) | | | (1,354) | | | 3,551 | | Other (2)(1) | 11,656 | | | 167 | | | 23,754 | | | 2,073 | |
Restructuring and other charges, net | Restructuring and other charges, net | $ | 345 | | | $ | (10,519) | | | $ | 9,956 | | | $ | 32,197 | | Restructuring and other charges, net | $ | 12,897 | | | $ | 5,029 | | | $ | 26,630 | | | $ | 9,611 | |
|
(1) Severance costs, net (excluding thosePrimarily includes expenses related to compensation arrangements entered into concurrent with the Q2 2020 Global Restructure Program) for the nine months ended September 30, 2020 were relatedclosing of acquisitions, partially offset by gains relating to termination benefits arising from the shutdown and relocation of an operating site in Northern Ireland.
(2) In the three months ended September 30, 2020, we settled a patent infringement case brought by Wasica Finance GmbH ("Wasica") against Schrader, and released $11.7 million of the related liability, which is presented in restructuring and other charges, net. For the nine months ended September 30, 2020, this release largely offset a charge of $12.1 million resulting from a prejudgment interest-related award granted by the court on behalf of Wasica in intellectual property litigationchanges in the second quarterfair value of 2020.acquisition-related contingent consideration amounts. Refer to Note 16: Acquisitions and Divestitures for additional information.
The following table presents a rollforward of the severance portion of our restructuring obligations for the ninesix months ended SeptemberJune 30, 2021.2022.
| | | Q2 2020 Global Restructure Program | | Other | | Total | | Q2 2020 Global Restructure Program | | Other | | Total |
Balance at December 31, 2020 | $ | 10,842 | | | $ | 4,037 | | | $ | 14,879 | | |
Balance as of December 31, 2021 | | Balance as of December 31, 2021 | $ | 3,853 | | | $ | 3,380 | | | $ | 7,233 | |
Charges, net of reversals | Charges, net of reversals | 4,579 | | | 726 | | | 5,305 | | Charges, net of reversals | — | | | 587 | | | 587 | |
Payments | Payments | (7,736) | | | (3,239) | | | (10,975) | | Payments | (3,018) | | | (1,383) | | | (4,401) | |
Foreign currency remeasurement | Foreign currency remeasurement | (171) | | | (10) | | | (181) | | Foreign currency remeasurement | (14) | | | (159) | | | (173) | |
Balance at September 30, 2021 | $ | 7,514 | | | $ | 1,514 | | | $ | 9,028 | | |
Balance as of June 30, 2022 | | Balance as of June 30, 2022 | $ | 821 | | | $ | 2,425 | | | $ | 3,246 | |
The severance liability as of SeptemberJune 30, 20212022 was entirely recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheet.
6. Other, Net
The following table presents the components of other, net for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | For the three months ended | | For the nine months ended | | For the three months ended | | For the six months ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Currency remeasurement (loss)/gain on net monetary assets | Currency remeasurement (loss)/gain on net monetary assets | $ | (324) | | | $ | 5,422 | | | $ | 187 | | | $ | 5,878 | | Currency remeasurement (loss)/gain on net monetary assets | $ | (14,090) | | | $ | 1,988 | | | $ | (14,157) | | | $ | 511 | |
Loss on foreign currency forward contracts | (2,414) | | | (1,060) | | | (4,791) | | | (4,424) | | |
Gain/(loss) on foreign currency forward contracts | | Gain/(loss) on foreign currency forward contracts | 3,165 | | | (1,419) | | | 1,922 | | | (2,377) | |
(Loss)/gain on commodity forward contracts | (Loss)/gain on commodity forward contracts | (6,495) | | | 6,138 | | | (6,462) | | | 5,990 | | (Loss)/gain on commodity forward contracts | (18,254) | | | 1,186 | | | (8,830) | | | 33 | |
Loss on debt refinancing | — | | | — | | | (30,066) | | | — | | |
Loss on debt financing | | Loss on debt financing | — | | | — | | | — | | | (30,066) | |
Mark-to-market loss on investments, net | | Mark-to-market loss on investments, net | (11,821) | | | — | | | (71,100) | | | — | |
Net periodic benefit cost, excluding service cost | Net periodic benefit cost, excluding service cost | (1,053) | | | (1,506) | | | (5,731) | | | (8,403) | | Net periodic benefit cost, excluding service cost | (639) | | | (2,268) | | | (1,394) | | | (4,678) | |
Other | Other | 883 | | | 200 | | | (925) | | | (552) | | Other | 2,399 | | | 1,525 | | | 3,863 | | | (1,808) | |
Other, net | Other, net | $ | (9,403) | | | $ | 9,194 | | | $ | (47,788) | | | $ | (1,511) | | Other, net | $ | (39,240) | | | $ | 1,012 | | | $ | (89,696) | | | $ | (38,385) | |
7. Income Taxes
The following table presents the provision for income taxes for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the nine months ended |
| September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
| | | | | | | |
| | | | | | | |
Provision for income taxes | $ | 21,840 | | | $ | 15,181 | | | $ | 49,759 | | | $ | 15,106 | |
The increase in total tax for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was primarily due to the increase in income before taxes. The increase in total tax for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was predominantly due to the increase in income before taxes as impacted by the mix of profits in the various jurisdictions in which we operate as well as the nonrecurrence of the benefit recognized in the first quarter of 2020 as a result of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").
In response to the global financial and health crisis caused by COVID-19, the U.S. federal government enacted the CARES Act on March 27, 2020. Federal limitations on interest deductions were reduced in connection with this legislation, and we recognized a deferred tax benefit of $7.5 million in the three months ended March 31, 2020, as we were able to utilize additional interest expense that was previously subject to a valuation allowance. | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | | For the six months ended |
| June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| | | | | | | |
| | | | | | | |
Provision for income taxes | $ | 20,020 | | | $ | 7,638 | | | $ | 27,608 | | | $ | 27,919 | |
The provision for income taxes consists of (1) current tax expense, which relates primarily to our profitable operations in tax jurisdictions with limited or no net operating loss carryforwards and withholding taxes related to management fees, royalties, and the repatriation of foreign earnings; and (2) deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to (a) book versus tax basis in intangible assets, (b) changes in net operating loss carryforwards, and (c) changes in withholding taxes on unremitted earnings. Other items impacting deferred tax expense include changes in tax rates and (d) changes in our assessment of the realizability of our deferred tax assets.
8. Net Income per Share
Basic and diluted net income per share are calculated by dividing net income by the number of basic and diluted weighted-average ordinary shares outstanding during the period. For the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 the weighted-average ordinary shares outstanding used to calculate basic and diluted net income per share were as follows:
| | | For the three months ended | | For the nine months ended | | For the three months ended | | For the six months ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Basic weighted-average ordinary shares outstanding | Basic weighted-average ordinary shares outstanding | 158,394 | | | 157,220 | | | 158,122 | | | 157,335 | | Basic weighted-average ordinary shares outstanding | 156,477 | | | 158,208 | | | 156,950 | | | 157,986 | |
Dilutive effect of stock options | Dilutive effect of stock options | 603 | | | 233 | | | 660 | | | 211 | | Dilutive effect of stock options | 190 | | | 670 | | | 331 | | | 689 | |
Dilutive effect of unvested restricted securities | Dilutive effect of unvested restricted securities | 482 | | | 526 | | | 569 | | | 444 | | Dilutive effect of unvested restricted securities | 327 | | | 466 | | | 531 | | | 612 | |
Diluted weighted-average ordinary shares outstanding | Diluted weighted-average ordinary shares outstanding | 159,479 | | | 157,979 | | | 159,351 | | | 157,990 | | Diluted weighted-average ordinary shares outstanding | 156,994 | | | 159,344 | | | 157,812 | | | 159,287 | |
Certain potential ordinary shares were excluded from our calculation of diluted weighted-average ordinary shares outstanding because either they would have had an anti–dilutiveanti-dilutive effect on net income per share or they related to equity awards that were contingently issuable for which the contingency had not been satisfied. These potential ordinary shares were as follows:
| | | For the three months ended | | For the nine months ended | | For the three months ended | | For the six months ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Anti-dilutive shares excluded | Anti-dilutive shares excluded | 9 | | | 1,680 | | | 8 | | | 1,868 | | Anti-dilutive shares excluded | 1,426 | | | 8 | | | 715 | | | 7 | |
Contingently issuable shares excluded | Contingently issuable shares excluded | 1,072 | | | 1,183 | | | 1,037 | | | 1,010 | | Contingently issuable shares excluded | 1,383 | | | 1,089 | | | 1,192 | | | 1,020 | |
9. Inventories
The following table presents the components of inventories as of SeptemberJune 30, 20212022 and December 31, 2020:2021:
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Finished goods | Finished goods | $ | 185,044 | | | $ | 170,488 | | Finished goods | $ | 223,919 | | | $ | 201,424 | |
Work-in-process | Work-in-process | 102,671 | | | 87,006 | | Work-in-process | 114,277 | | | 101,558 | |
Raw materials | Raw materials | 263,913 | | | 193,511 | | Raw materials | 318,540 | | | 285,249 | |
Inventories | Inventories | $ | 551,628 | | | $ | 451,005 | | Inventories | $ | 656,736 | | | $ | 588,231 | |
10. Pension and Other Post-Retirement Benefits
The following table presents the components of net periodic benefit cost/(credit) associated with our defined benefit and retiree healthcare plans for the three months ended SeptemberJune 30, 20212022 and 2020 were as follows:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Plans | | Non-U.S. Plans | | |
| Defined Benefit | | Retiree Healthcare | | Defined Benefit | | Total |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Service cost | $ | — | | | $ | — | | | $ | 2 | | | $ | 2 | | | $ | 725 | | | $ | 777 | | | $ | 727 | | | $ | 779 | |
Interest cost | 167 | | | 206 | | | 21 | | | 37 | | | 405 | | | 294 | | | 593 | | | 537 | |
Expected return on plan assets | (226) | | | (292) | | | — | | | — | | | (177) | | | (177) | | | (403) | | | (469) | |
Amortization of net loss | 243 | | | 311 | | | — | | | (1) | | | 461 | | | 257 | | | 704 | | | 567 | |
Amortization of prior service (credit)/cost | — | | | — | | | (159) | | | (196) | | | 3 | | | 2 | | | (156) | | | (194) | |
Loss on settlement | 315 | | | 31 | | | — | | | — | | | — | | | 785 | | | 315 | | | 816 | |
Loss on curtailment | — | | | — | | | — | | | 249 | | | — | | | — | | | — | | | 249 | |
Net periodic benefit cost/(credit) | $ | 499 | | | $ | 256 | | | $ | (136) | | | $ | 91 | | | $ | 1,417 | | | $ | 1,938 | | | $ | 1,780 | | | $ | 2,285 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Plans | | Non-U.S. Plans | | |
| Defined Benefit | | Retiree Healthcare | | Defined Benefit | | Total |
| 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Service cost | $ | — | | | $ | — | | | $ | 2 | | | $ | 2 | | | $ | 982 | | | $ | 1,325 | | | $ | 984 | | | $ | 1,327 | |
Interest cost | 113 | | | 120 | | | 18 | | | 21 | | | 426 | | | 401 | | | 557 | | | 542 | |
Expected return on plan assets | (195) | | | (226) | | | — | | | — | | | (242) | | | (179) | | | (437) | | | (405) | |
Amortization of net loss/(gain) | 226 | | | 401 | | | (43) | | | — | | | 330 | | | 462 | | | 513 | | | 863 | |
Amortization of prior service (credit)/cost | — | | | — | | | (100) | | | (159) | | | 3 | | | 13 | | | (97) | | | (146) | |
Loss on settlement | 103 | | | 1,414 | | | — | | | — | | | — | | | — | | | 103 | | | 1,414 | |
| | | | | | | | | | | | | | | |
Net periodic benefit cost/(credit) | $ | 247 | | | $ | 1,709 | | | $ | (123) | | | $ | (136) | | | $ | 1,499 | | | $ | 2,022 | | | $ | 1,623 | | | $ | 3,595 | |
The following table presents the components of net periodic benefit cost/(credit) associated with our defined benefit and retiree healthcare plans for the ninesix months ended SeptemberJune 30, 20212022 and 2020 were as follows:2021:
| | | U.S. Plans | | Non-U.S. Plans | | | | U.S. Plans | | Non-U.S. Plans | | |
| | Defined Benefit | | Retiree Healthcare | | Defined Benefit | | Total | | Defined Benefit | | Retiree Healthcare | | Defined Benefit | | Total |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Service cost | Service cost | $ | — | | | $ | — | | | $ | 6 | | | $ | 7 | | | $ | 3,028 | | | $ | 2,485 | | | $ | 3,034 | | | $ | 2,492 | | Service cost | $ | — | | | $ | — | | | $ | 4 | | | $ | 4 | | | $ | 1,938 | | | $ | 2,303 | | | $ | 1,942 | | | $ | 2,307 | |
Interest cost | Interest cost | 407 | | | 679 | | | 63 | | | 110 | | | 1,210 | | | 1,005 | | | 1,680 | | | 1,794 | | Interest cost | 226 | | | 240 | | | 64 | | | 42 | | | 850 | | | 805 | | | 1,140 | | | 1,087 | |
Expected return on plan assets | Expected return on plan assets | (678) | | | (1,018) | | | — | | | — | | | (534) | | | (523) | | | (1,212) | | | (1,541) | | Expected return on plan assets | (390) | | | (452) | | | — | | | — | | | (486) | | | (357) | | | (876) | | | (809) | |
Amortization of net loss | 1,045 | | | 906 | | | — | | | 18 | | | 1,382 | | | 852 | | | 2,427 | | | 1,776 | | |
Amortization of net loss/(gain) | | Amortization of net loss/(gain) | 367 | | | 802 | | | (43) | | | — | | | 608 | | | 921 | | | 932 | | | 1,723 | |
Amortization of prior service (credit)/cost | Amortization of prior service (credit)/cost | — | | | — | | | (477) | | | (589) | | | 19 | | | 7 | | | (458) | | | (582) | | Amortization of prior service (credit)/cost | — | | | — | | | (200) | | | (318) | | | 5 | | | 16 | | | (195) | | | (302) | |
Loss on settlement | Loss on settlement | 3,294 | | | 4,363 | | | — | | | — | | | — | | | 2,344 | | | 3,294 | | | 6,707 | | Loss on settlement | 393 | | | 2,979 | | | — | | | — | | | — | | | — | | | 393 | | | 2,979 | |
Loss on curtailment | — | | | — | | | — | | | 249 | | | — | | | — | | | — | | | 249 | | |
| Net periodic benefit cost/(credit) | Net periodic benefit cost/(credit) | $ | 4,068 | | | $ | 4,930 | | | $ | (408) | | | $ | (205) | | | $ | 5,105 | | | $ | 6,170 | | | $ | 8,765 | | | $ | 10,895 | | Net periodic benefit cost/(credit) | $ | 596 | | | $ | 3,569 | | | $ | (175) | | | $ | (272) | | | $ | 2,915 | | | $ | 3,688 | | | $ | 3,336 | | | $ | 6,985 | |
Components of net periodic benefit cost/(credit) other than service cost are presented in other, net in the condensed consolidated statements of operations. Refer to Note 6: Other, Net.
11. Debt
OurThe following table presents the components of long-term debt, finance lease and other financing obligations as of SeptemberJune 30, 20212022 and December 31, 2020 consisted2021:
| | | | | | | | | | | | | | | | | | | | |
| | Maturity Date | | June 30, 2022 | | December 31, 2021 |
Term Loan | | September 20, 2026 | | $ | 449,150 | | | $ | 451,465 | |
4.875% Senior Notes | | October 15, 2023 | | 500,000 | | | 500,000 | |
5.625% Senior Notes | | November 1, 2024 | | 400,000 | | | 400,000 | |
5.0% Senior Notes | | October 1, 2025 | | 700,000 | | | 700,000 | |
| | | | | | |
4.375% Senior Notes | | February 15, 2030 | | 450,000 | | | 450,000 | |
3.75% Senior Notes | | February 15, 2031 | | 750,000 | | | 750,000 | |
4.0% Senior Notes | | April 15, 2029 | | 1,000,000 | | | 1,000,000 | |
| | | | | | |
| | | | | | |
Less: debt discount, net of premium | | | | (4,317) | | | (5,207) | |
Less: deferred financing costs | | | | (26,691) | | | (26,682) | |
Less: current portion | | | | (4,630) | | | (4,630) | |
Long-term debt, net | | | | $ | 4,213,512 | | | $ | 4,214,946 | |
| | | | | | |
Finance lease and other financing obligations | | | | $ | 27,559 | | | $ | 28,767 | |
Less: current portion | | | | (1,936) | | | (2,203) | |
Finance lease and other financing obligations, less current portion | | | | $ | 25,623 | | | $ | 26,564 | |
Our debt consists of secured credit facilities and various tranches of senior unsecured notes. Refer to Note 14: Debt of our 2021 Annual Report for additional information related to our existing indebtedness.
Secured Credit Facilities
On June 23, 2022, certain of our indirect, wholly-owned subsidiaries, including Sensata Technologies, Inc. ("STI"), Sensata Technologies Intermediate Holding B.V. ("STIHBV"), and Sensata Technologies B.V. (“STBV”), 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.
Among other changes to the Credit Agreement, the Eleventh Amendment (i) increased the aggregate principal amount of the following:
| | | | | | | | | | | | | | | | | | | | |
| | Maturity Date | | September 30, 2021 | | December 31, 2020 |
Term Loan | | September 20, 2026 | | $ | 452,623 | | | $ | 456,096 | |
4.875% Senior Notes | | October 15, 2023 | | 500,000 | | | 500,000 | |
5.625% Senior Notes | | November 1, 2024 | | 400,000 | | | 400,000 | |
5.0% Senior Notes | | October 1, 2025 | | 700,000 | | | 700,000 | |
6.25% Senior Notes | | February 15, 2026 | | — | | | 750,000 | |
4.375% Senior Notes | | February 15, 2030 | | 450,000 | | | 450,000 | |
3.75% Senior Notes | | February 15, 2031 | | 750,000 | | | 750,000 | |
4.0% Senior Notes | | April 15, 2029 | | 1,000,000 | | | — | |
| | | | | | |
| | | | | | |
Less: discount, net of premium | | | | (5,652) | | | (9,605) | |
Less: deferred financing costs | | | | (27,953) | | | (28,114) | |
Less: current portion | | | | (4,630) | | | (754,630) | |
Long-term debt, net | | | | $ | 4,214,388 | | | $ | 3,213,747 | |
| | | | | | |
Finance lease and other financing obligations | | | | $ | 29,002 | | | $ | 30,506 | |
Less: current portion | | | | (2,002) | | | (2,575) | |
Finance lease and other financing obligations, less current portion | | | | $ | 27,000 | | | $ | 27,931 | |
revolving credit facility under the Credit Agreement (the "Revolving Credit Facility") to $750.0 million; (ii) extended the maturity date of the Revolving Credit Facility to June 23, 2027 (which could be accelerated to June 22, 2026 if, prior to June 22, 2026, the term loan under the Credit Agreement (the "Term Loan") is not refinanced with a maturity date that is on or after June 23, 2027); (iii) released the Foreign Guarantors (as defined in the Credit Agreement), excluding STBV, from their obligations to guarantee the obligations of STI and the other Loan Parties (as defined in the Credit Agreement) relating to the Revolving Credit Facility and certain related obligations, subject to an obligation to reinstate such guaranties under certain conditions; (iv) replaced the LIBOR-based interest rates referenced by the Credit Agreement regarding revolving credit loans to (a) for revolving credit loans denominated in U.S. dollars, an interest rate based on the secured overnight financing rate ("SOFR") published by the Federal Reserve Bank of New York and (b) for revolving credit loans denominated in pounds sterling, an interest rate based on the Sterling Overnight Index Average ("SONIA"); and (v) certain of the operational and restrictive covenants and other terms and conditions of the Credit Agreement were modified to provide STI and its affiliates increased flexibility and permissions thereunder.
As of SeptemberJune 30, 2021,2022, we had $416.1$746.1 million available under our $420.0$750.0 million revolving credit facility (the "RevolvingRevolving Credit Facility"),Facility, net of $3.9 million of obligations in respect of outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of SeptemberJune 30, 2021,2022, no amounts had been drawn against these outstanding letters of credit.
6.25% Senior Notes redemptionAccounting for Debt Financing Transactions
On February 3, 2021,In the six months ended June 30, 2022, in connection with the entry into the Eleventh Amendment, we announced that we intended to redeem in full the $750.0recognized $2.6 million aggregate principal amount outstandingof deferred financing costs, which are presented as a reduction of long-term debt on our 6.25% senior notes due 2026 (the "6.25% Senior Notes"). On February 15, 2021, the “make-whole” premium with respect to the 6.25% Senior Notes expired. Accordingly, we reflected the 6.25% Senior Notes as a current liability on ourcondensed consolidated balance sheet as of December 31, 2020.
We redeemed the 6.25% Senior Notes on March 5, 2021 in accordance with the terms of the indenture under which the 6.25% Senior Notes were issued and the terms of the notice of redemption at a redemption price equal to 103.125% of the aggregatesheets.
principal amount of the outstanding 6.25% Senior Notes, plus accrued and unpaid interest to (but not including) the redemption date. In addition to the $750.0 million aggregate principal amount outstanding, at redemption we paid the $23.4 million premium and $2.6 million accrued interest.
4.0% Senior Notes
On March 29, 2021, our indirect, wholly-owned subsidiary, Sensata Technologies B.V. ("STBV"), completed the issuance and sale of $750.0 million aggregate principal amount of 4.0% senior notes due 2029 (the "4.0% Senior Notes"). The 4.0% Senior Notes were issued under an indenture dated as of March 29, 2021 among STBV, as issuer, The Bank of New York Mellon, as trustee (the "Trustee"), and our guarantor subsidiaries (the "Guarantors") named therein (the "4.0% Senior Notes Indenture").
The 4.0% Senior Notes Indenture contains covenants that limit the ability of STBV and its subsidiaries to, among other things: incur liens; engage in sale and leaseback transactions; with respect to any subsidiary of STBV, incur indebtedness without such subsidiary’s guaranteeing the 4.0% Senior Notes; or consolidate, merge with, or sell, assign, convey, transfer, lease, or otherwise dispose of all or substantially all of their properties or assets to, another person. These covenants are subject to important exceptions and qualifications set forth in the 4.0% Senior Notes Indenture.
The 4.0% Senior Notes bear interest at 4.0% per year and mature on April 15, 2029. Interest is payable semi-annually on April 15 and October 15 of each year, commencing on October 15, 2021. The 4.0% Senior Notes are guaranteed by each of STBV's wholly-owned subsidiaries that is a borrower or guarantor under the senior secured credit facilities (the "Senior Secured Credit Facilities") of STBV's wholly-owned subsidiary Sensata Technologies, Inc. ("STI") and the issuer or a guarantor under our existing senior notes as follows: STBV's 4.875% Senior Notes due 2023, 5.625% Senior Notes due 2024, and 5.0% Senior Notes due 2025; and STI's 4.375% Senior Notes due 2030 and 3.75% Senior Notes due 2031.
At any time, and from time to time, prior to April 15, 2024, STBV may redeem the 4.0% Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 4.0% Senior Notes being redeemed, plus a “make whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time on or after April 15, 2024, STBV may redeem the 4.0% Senior Notes, in whole or in part, at the following prices (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, up to but excluding the redemption date.
| | | | | | | | |
Period beginning April 15, | | Price |
2024 | | 102.000 | % |
2025 | | 101.000 | % |
2026 and thereafter | | 100.000 | % |
In addition, at any time prior to April 15, 2024, STBV may redeem up to 40% of the principal amount of the outstanding 4.0% Senior Notes (including additional 4.0% Senior Notes, if any, that may be issued after March 29, 2021) with the net cash proceeds of certain equity offerings at a redemption price (expressed as a percentage of principal amount) of 104.00%, plus accrued and unpaid interest, if any, up to but excluding the redemption date, provided that at least 60% of the aggregate principal amount of the 4.0% Senior Notes (including additional 4.0% Senior Notes, if any) remains outstanding immediately after each such redemption.
Upon the occurrence of certain changes in control, each holder of the 4.0% Senior Notes will have the right to require STBV to repurchase the 4.0% Senior Notes at 101% of their principal amount plus accrued and unpaid interest, if any, up to but excluding the date of repurchase.
Upon changes in certain tax laws or treaties, or any change in the official application, administration, or interpretation thereof, STBV may, at its option, redeem the 4.0% Senior Notes, in whole but not in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, up to but excluding the redemption date, premium, if any, and all Additional Amounts (as defined in the 4.0% Senior Notes Indenture), if any, then due and which will become due on the date of redemption.
On April 8, 2021, STBV completed the issuance and sale of an additional $250.0 million in aggregate principal amount of 4.0% Senior Notes (the “Additional Notes”). The Additional Notes were priced at 100.75% and were issued pursuant to the 4.0% Senior Notes Indenture, as supplemented by the First Supplemental Indenture, dated as of April 8, 2021, among STBV, the Guarantors, and the Trustee. The Additional Notes are consolidated and form a single class with the $750.0 million aggregate principal amount of 4.0% Senior Notes issued by STBV on March 29, 2021 (the “Initial Notes”). The Additional Notes have the same terms as the Initial Notes, other than with respect to the date of issuance and the issue price.
We intend to use the net proceeds from the issuance and sale of the 4.0% Senior Notes and the Additional Notes for general corporate purposes, which may include working capital, capital expenditures, the acquisition of other companies, businesses, or assets, strategic investments, the refinancing or repayment of debt, and share repurchases.
Accounting for Debt Financing Transactions
We account for our debt financing transactions as disclosed in Note 2: Significant Accounting Policies of the audited consolidated financial statements and notes thereto included in our 2020 Annual Report.
In the ninesix months ended SeptemberJune 30, 2021, in connection with the redemption of the$750.0 million aggregate principal amount of 6.25% senior notes due 2026 (the "6.25% Senior Notes,Notes"), we recognized a loss of $30.1 million, which included $23.4 million in premiums paid, with the remaining loss representing write-off of debt discounts and deferred financing costs. In addition, in connection with the issuance of the 4.0% Senior Notes, we recognized $9.6 million of deferred financing costs, which are presented as a reduction of long-term debt on our condensed consolidated balance sheets and $1.7 million of issuance premiums, which are presented as an addition to long-term debt on our condensed consolidated balance sheets.
Accrued Interest
Accrued interest associated with our outstanding debt is included as a component of accrued expenses and other current liabilities in the condensed consolidated balance sheets. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, accrued interest totaled $64.7$44.5 million and $53.6$45.1 million, respectively.
12. Commitments and Contingencies
We are regularly involved in a number of claims and litigation matters that arise in the ordinary course of business. Although it is not feasible to predict the outcome of these matters, based upon our experience and current information known to us, we do not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on our results of operations, financial position,condition, and/or cash flows.
13. Shareholders' Equity
Ordinary and Cash Dividends
On May 25, 2022, we paid a cash dividend of $0.11 per share, or $17.2 million in aggregate, to shareholders of record as of May 11, 2022.
Treasury Shares
Our authorized share capital consists of 177,069 ordinary shares with a nominal value of €0.01 per share. From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or terminated by the Board at any time. We currently have anOn January 20, 2022, we announced that our Board of Directors had authorized a new $500.0 million ordinary share repurchase program under(the “January 2022 Program”), which approximately $302.3replaced the previous $500.0 million program approved in July 2019, which had availability of $254.5 million as of December 31, 2021. As of June 30, 2022, $370.6 million remained available as of September 30, 2021. On April 2, 2020, we announced a temporary suspension of this sharefor repurchase program. We intend to resume our share repurchase program inunder the fourth quarter.January 2022 Program.
Accumulated Other Comprehensive Loss
The following table presents the components of accumulated other comprehensive loss for the ninesix months ended SeptemberJune 30, 2021 were as follows:2022:
| | | Cash Flow Hedges | | Defined Benefit and Retiree Healthcare Plans | | Accumulated Other Comprehensive Loss | | Cash Flow Hedges | | Defined Benefit and Retiree Healthcare Plans | | Accumulated Other Comprehensive Loss |
Balance at December 31, 2020 | | $ | (6,733) | | | $ | (42,802) | | | $ | (49,535) | | |
Balance as of December 31, 2021 | | Balance as of December 31, 2021 | | $ | 16,831 | | | $ | (36,391) | | | $ | (19,560) | |
Other comprehensive income before reclassifications, net of tax | Other comprehensive income before reclassifications, net of tax | | 16,032 | | | — | | | 16,032 | | Other comprehensive income before reclassifications, net of tax | | 26,111 | | | — | | | 26,111 | |
Reclassifications from accumulated other comprehensive loss, net of tax | Reclassifications from accumulated other comprehensive loss, net of tax | | 2,619 | | | 3,978 | | | 6,597 | | Reclassifications from accumulated other comprehensive loss, net of tax | | (14,078) | | | 808 | | | (13,270) | |
Other comprehensive income | Other comprehensive income | | 18,651 | | | 3,978 | | | 22,629 | | Other comprehensive income | | 12,033 | | | 808 | | | 12,841 | |
Balance at September 30, 2021 | | $ | 11,918 | | | $ | (38,824) | | | $ | (26,906) | | |
Balance as of June 30, 2022 | | Balance as of June 30, 2022 | | $ | 28,864 | | | $ | (35,583) | | | $ | (6,719) | |
The following table presents the amounts reclassified from accumulated other comprehensive loss for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020 were as follows:2021:
| | | For the three months ended September 30, | | For the nine months ended September 30, | | Affected Line in Condensed Consolidated Statements of Operations | | For the three months ended June 30, | | For the six months ended June 30, | | Affected Line in Condensed Consolidated Statements of Operations |
Component | Component | | 2021 | | 2020 | | 2021 | | 2020 | | Component | | 2022 | | 2021 | | 2022 | | 2021 | |
Derivative instruments designated and qualifying as cash flow hedges: | Derivative instruments designated and qualifying as cash flow hedges: | | | | | | | | | | | Derivative instruments designated and qualifying as cash flow hedges: | | | | | | | | | | |
Foreign currency forward contracts | Foreign currency forward contracts | | $ | 1,976 | | | $ | (625) | | | $ | 9,816 | | | $ | (13,640) | | | Net revenue (1) | Foreign currency forward contracts | | $ | (9,476) | | | $ | 3,433 | | | $ | (13,740) | | | $ | 7,840 | | | Net revenue (1) |
Foreign currency forward contracts | Foreign currency forward contracts | | (3,557) | | | 3,371 | | | (6,324) | | | 1,796 | | | Cost of revenue (1) | Foreign currency forward contracts | | (2,603) | | | (2,024) | | | (5,232) | | | (2,767) | | | Cost of revenue (1) |
| Total, before taxes | Total, before taxes | | (1,581) | | | 2,746 | | | 3,492 | | | (11,844) | | | Income before taxes | Total, before taxes | | (12,079) | | | 1,409 | | | (18,972) | | | 5,073 | | | Income before taxes |
Income tax effect | Income tax effect | | 395 | | | (687) | | | (873) | | | 2,961 | | | Provision for income taxes | Income tax effect | | 3,116 | | | (352) | | | 4,894 | | | (1,268) | | | Provision for income taxes |
Total, net of taxes | Total, net of taxes | | $ | (1,186) | | | $ | 2,059 | | | $ | 2,619 | | | $ | (8,883) | | | Net income | Total, net of taxes | | $ | (8,963) | | | $ | 1,057 | | | $ | (14,078) | | | $ | 3,805 | | | Net income |
| Defined benefit and retiree healthcare plans | Defined benefit and retiree healthcare plans | | $ | 863 | | | $ | 1,438 | | | $ | 5,263 | | | $ | 8,150 | | | Other, net (2) | Defined benefit and retiree healthcare plans | | $ | 519 | | | $ | 2,131 | | | $ | 1,130 | | | $ | 4,400 | | | Other, net (2) |
| Income tax effect | Income tax effect | | (269) | | | (423) | | | (1,285) | | | (2,121) | | | Provision for income taxes | Income tax effect | | (139) | | | (459) | | | (322) | | | (1,016) | | | Provision for income taxes |
Total, net of taxes | Total, net of taxes | | $ | 594 | | | $ | 1,015 | | | $ | 3,978 | | | $ | 6,029 | | | Net income | Total, net of taxes | | $ | 380 | | | $ | 1,672 | | | $ | 808 | | | $ | 3,384 | | | Net income |
__________________________
(1) Refer to Note 15: Derivative Instruments and Hedging Activities for additional information on amounts to be reclassified from accumulated other comprehensive loss in future periods.
(2) Refer to Note 10: Pension and Other Post-Retirement Benefits for additional information on net periodic benefit cost/(credit).
14. Fair Value Measures
Measured on a Recurring Basis
The fair values of our derivative assets and liabilities measured at fair value on a recurring basis as of SeptemberJune 30, 20212022 and December 31, 20202021 are shown in the below table. All fair value measures presented are categorized in Level 2 of the fair value hierarchy.
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Assets | Assets | | | | Assets | | | |
Foreign currency forward contracts | Foreign currency forward contracts | $ | 19,070 | | | $ | 16,163 | | Foreign currency forward contracts | $ | 45,074 | | | $ | 25,112 | |
Commodity forward contracts | Commodity forward contracts | 2,625 | | | 8,902 | | Commodity forward contracts | 616 | | | 2,979 | |
Total | Total | $ | 21,695 | | | $ | 25,065 | | Total | $ | 45,690 | | | $ | 28,091 | |
| Liabilities | Liabilities | | | | Liabilities | | | |
Foreign currency forward contracts | Foreign currency forward contracts | $ | 5,014 | | | $ | 24,660 | | Foreign currency forward contracts | $ | 6,270 | | | $ | 3,073 | |
Commodity forward contracts | Commodity forward contracts | 6,983 | | | 310 | | Commodity forward contracts | 12,047 | | | 4,492 | |
Total | Total | $ | 11,997 | | | $ | 24,970 | | Total | $ | 18,317 | | | $ | 7,565 | |
Refer to Note 15: Derivative Instruments and Hedging Activities for additional information related to our forward contracts.
Measured on a Nonrecurring BasisQuanergy
We evaluated our goodwill and other indefinite-lived intangible assets for impairment asAs of October 1, 2020 and determined that they were not impaired. During the nine months ended September 30, 2021, no events or changes in circumstances occurred that would have triggered the need for an additional impairment review of these assets.
In the third quarter ofDecember 31, 2021, we reorganized our Sensing Solutions operating segment, moving the portion of our electrical protection product category that includes high voltage contactors, inverters, and battery management systems from the industrial business unit toheld a new business unit, Clean Energy Solutions. We$50.0 million investment in Quanergy Systems, Inc. ("Quanergy") Series B Preferred Stock (the "Series B Investment"). The Series B Investment did not have concluded that this reorganization has not impacted our reportable or operating segment evaluations. Clean Energy Solutions will focus on electric vehicle infrastructure, energy storage, smart grid, and renewable energy applications. The reorganization was effective beginning July 1, 2021. We evaluated our goodwill and other indefinite-lived intangible assets for impairment before and after the reorganization and determined that they were not impaired.
Financial Instruments Not Recorded at Fair Value
The following table presents the carrying values and fair values of financial instruments not recorded at fair value in the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020. All fair value measures presented are categorized in Level 2 of the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| Carrying Value (1) | | Fair Value | | Carrying Value (1) | | Fair Value |
Liabilities | | | | | | | |
Term Loan | $ | 452,623 | | | $ | 452,057 | | | $ | 456,096 | | | $ | 454,955 | |
4.875% Senior Notes | $ | 500,000 | | | $ | 532,500 | | | $ | 500,000 | | | $ | 538,750 | |
5.625% Senior Notes | $ | 400,000 | | | $ | 444,000 | | | $ | 400,000 | | | $ | 448,000 | |
5.0% Senior Notes | $ | 700,000 | | | $ | 771,750 | | | $ | 700,000 | | | $ | 777,000 | |
6.25% Senior Notes | $ | — | | | $ | — | | | $ | 750,000 | | | $ | 778,125 | |
4.375% Senior Notes | $ | 450,000 | | | $ | 483,750 | | | $ | 450,000 | | | $ | 487,125 | |
3.75% Senior Notes | $ | 750,000 | | | $ | 750,000 | | | $ | 750,000 | | | $ | 776,250 | |
4.0% Senior Notes | $ | 1,000,000 | | | $ | 1,012,500 | | | $ | — | | | $ | — | |
| | | | | | | |
(1) Excluding any related debt discounts, or premiums, and deferred financing costs.
Cash and cash equivalents are carried at cost, which approximates fair value because of their short-term nature.
In addition to the above, we hold certain equity investments that do not havea readily determinable fair values for which we usevalue and was held using the measurement alternative prescribed in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 321, Investments - Equity Securities. Such investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.
On June 22, 2021, Quanergy announced that it had entered into a definitive business combination agreement (the "Merger Agreement") with CITIC Capital Acquisition Corp ("CITIC") (NYSE: CCAC). On July 16, 2021, CITIC filed a Registration Statement on Form S-4 (together with subsequent amendments, the "SPAC Form S-4") with the SEC, the effectiveness of which was a condition to closing of the business combination (the "SPAC Merger"). At December 31, 2021, we assessed our investment in Quanergy based on the proposed terms of the Merger Agreement and concluded that there were no indicators of impairment.
On January 6, 2022, the SPAC Form S-4 was declared effective by the SEC. An extraordinary general meeting of shareholders of CITIC was held on January 31, 2022, at which time the SPAC Merger was approved. The SPAC Merger closed on February 8, 2022. Beginning on February 9, 2022, the combined company, which retained the name "Quanergy Systems, Inc.," was listed on the New York Stock Exchange (the "NYSE") under the ticker symbol QNGY.
Upon closing of the SPAC Merger, our investment in Quanergy comprised the following:
•5.0 million common shares, which represented the conversion of the $50.0 million Series B Investment (at a $10.00 per common share implied valuation);
•750 thousand common shares, purchased in exchange for a $7.5 million contribution as part of a private investment in public equity ("PIPE") subscription agreement; and
•2.5 million warrants (the "Warrants"), each of which represent the right to purchase 1 common share at a price of $0.01 per share, received from Quanergy as up-front consideration for a four-year technical and marketing support agreement (the "Support Agreement").
The 5.75 million common share investment in Quanergy (including the investment in the PIPE) has a historical cost basis of $57.5 million. The fair value of the Warrants was determined to be equal to their intrinsic value at closing of the SPAC Merger in accordance with the guidance in FASB ASC Topic 815, Derivatives and Hedging. At closing of the SPAC Merger, the common shares underlying the Warrants were valued at $7.05 per share (the closing market price on February 8, 2022). The intrinsic value of the Warrants, reflecting the $0.01 exercise price, was $17.6 million, which was recorded as deferred income.
A summary of our investment in Quanergy is presented in the table below, as of June 30, 2022 (at $0.41 per share), March 31, 2022 (at $1.84 per share), February 8, 2022 (at $7.05 per share), and December 31, 2021. Our investment in Quanergy is presented in other assets on our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | June 30, 2022 | | March 31, 2022 | | February 8, 2022 | | December 31, 2021 |
Series B Investment | | $ | — | | | $ | — | | | $ | — | | | $ | 50,000 | |
Common shares (1) | | 3,075 | | | 9,200 | | | 50,000 | | | — | |
PIPE investment | | 308 | | | 1,380 | | | 7,500 | | | — | |
Warrants (1) | | — | | | 4,575 | | | 17,600 | | | — | |
Total equity investment in Quanergy | | $ | 3,383 | | | $ | 15,155 | | | $ | 75,100 | | | $ | 50,000 | |
(1) In the three months ended June 30, 2022, we converted the Warrants into common shares. Accordingly, as of June 30, 2022, we had 7.5 million common shares outstanding (excluding the PIPE investment), compared to 5.0 million common shares outstanding as of March 31, 2022.
For the three and six months ended June 30, 2022, we recorded losses (presented in in other, net on our condensed consolidated statements of operations) to adjust the carrying value of our aggregate investment in Quanergy to its fair value at June 30, 2022 as follows:
| | | | | | | | | | | | | | |
| | For the three months ended June 30, 2022 | | For the six months ended June 30, 2022 |
Mark-to-market loss | | $ | (11,772) | | | $ | (71,717) | |
As noted above, in exchange for the Warrants, we entered into the Support Agreement, whereby we agreed to provide technical and business development services to Quanergy for a term of four years from the effective date of February 8, 2022. This transaction is an exchange of noncash consideration for services and was accounted for under FASB ASC Topic 845, Nonmonetary Transactions, using the fair value of the Warrants at February 8, 2022 ($17.6 million) as the measure of compensation received. We have deferred this consideration and are recognizing it in earnings on a straight-line basis over the term of the agreement (48 months).
Measured on a Nonrecurring Basis
We evaluated our goodwill and other indefinite-lived intangible assets for impairment as of October 1, 2021 and determined that they were not impaired. No events or changes in circumstances occurred in the six months ended June 30, 2022 that would have triggered the need for an additional impairment review of our goodwill and other indefinite-lived intangible assets.
Financial Instruments Not Recorded at Fair Value
The following table presents the carrying values and fair values of financial instruments not recorded at fair value in the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021. All fair value measures presented are categorized in Level 2 of the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Carrying Value(1) | | Fair Value | | Carrying Value(1) | | Fair Value |
Liabilities | | | | | | | |
Term Loan | $ | 449,150 | | | $ | 443,535 | | | $ | 451,465 | | | $ | 450,901 | |
4.875% Senior Notes | $ | 500,000 | | | $ | 491,250 | | | $ | 500,000 | | | $ | 526,250 | |
5.625% Senior Notes | $ | 400,000 | | | $ | 395,000 | | | $ | 400,000 | | | $ | 438,000 | |
5.0% Senior Notes | $ | 700,000 | | | $ | 672,000 | | | $ | 700,000 | | | $ | 759,500 | |
| | | | | | | |
4.375% Senior Notes | $ | 450,000 | | | $ | 383,625 | | | $ | 450,000 | | | $ | 479,250 | |
3.75% Senior Notes | $ | 750,000 | | | $ | 601,875 | | | $ | 750,000 | | | $ | 747,188 | |
4.0% Senior Notes | $ | 1,000,000 | | | $ | 850,000 | | | $ | 1,000,000 | | | $ | 1,022,500 | |
| | | | | | | |
(1) Excluding any related debt discounts, premiums, and deferred financing costs.
Cash and cash equivalents are carried at cost, which approximates fair value because of their short-term nature.
In addition to the above, we hold certain equity investments that do not have readily determinable fair values for which we use the measurement alternative prescribed in FASB ASC Topic 321. There were no impairments or changes resulting from observable transactions for any of these investments and no adjustments were made to their carrying values.
Refer to the table below for the carrying values of equity investments using the measurement alternative, which are presented as a component of other assets in the condensed consolidated balance sheets.
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Quanergy | $ | 50,000 | | | $ | 50,000 | | |
Quanergy Systems, Inc. (1) | | Quanergy Systems, Inc. (1) | $ | — | | | $ | 50,000 | |
Other | Other | 15,000 | | | 15,000 | | Other | 15,000 | | | 15,000 | |
| Total | Total | $ | 65,000 | | | $ | 65,000 | | Total | $ | 15,000 | | | $ | 65,000 | |
On(1) As of June 22, 2021,30, 2022, Quanergy Systems, Inc. ("Quanergy") announced that it had entered intois no longer classified as an equity investment without a definitive business combination agreement with CITIC Capital Acquisition Corp (NYSE: CCAC). Upon closing of the business combination, which is expected to be in the fourth quarter of 2021, subject to customary closing conditions and the effectiveness of a Registration Statement on Form S-4, the combined company is expected to be listed on the New York Stock Exchange ("NYSE")readily determinable fair value. See additional discussion under the ticker symbol QNGY. We have assessed our investmentheading Quanergy elsewhere in Quanergy based on the proposed terms of the business combination agreement and concluded that there were no indicators of impairment as of September 30, 2021. Subsequent to closing, we will mark our investment to market each reporting period.this Note.
15. Derivative Instruments and Hedging Activities
Hedges of Foreign Currency Risk
For the three and ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, amounts excluded from the assessment of effectiveness of our foreign currency forward contracts that are designated as cash flow hedges were not material. As of SeptemberJune 30, 2021,2022, we estimated that $14.0$34.8 million of net gains will be reclassified from accumulated other comprehensive loss to earnings during the twelve-month period ending SeptemberJune 30, 2022.2023.
As of SeptemberJune 30, 2021,2022, we had the following outstanding foreign currency forward contracts:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notional (in millions) | | Effective Date(s) | | Maturity Date(s) | | Index (Exchange Rates) | | Weighted-Average Strike Rate | | Hedge Designation (1) |
13.021.0 EUR | | SeptemberJune 28, 20212022 | | OctoberJuly 29, 20212022 | | Euro ("EUR") to USD | | 1.171.05 USD | | Not designated |
383.8358.9 EUR | | Various from November 19, 2019August 2020 to September 23, 2021June 2022 | | Various from October 29, 2021July 2022 to September 29, 2023June 2024 | | EUR to USD | | 1.191.17 USD | | Cash flow hedge |
881.0388.0 CNY | | SeptemberJune 27, 20212022 | | OctoberJuly 29, 20212022 | | USD to Chinese Renminbi ("CNY") | | 6.496.70 CNY | | Not designated |
260.4756.2 CNY | | Various from November 5, 2020October 2021 to January 5, 2021March 2022 | | Various from 10/19/21July 2022 to December 31, 20212022 | | USD to CNY | | 6.686.46 CNY | | Cash flow hedge |
518.060.0 JPY | | SeptemberJune 28, 20212022 | | OctoberJuly 29, 20212022 | | USD to Japanese Yen ("JPY") | | 111.59135.93 JPY | | Not designated |
| | | | | | | | | | |
21,416.724,760.0 KRW | | Various from November 19, 2019August 2020 to September 23, 2021June 2022 | | Various from October 29, 2021July 2022 to August 31, 2023May 2024 | | USD to Korean Won ("KRW") | | 1,149.751,191.72 KRW | | Cash flow hedge |
| | | | | | | | | | |
26.022.0 MYR | | SeptemberJune 27, 20212022 | | OctoberJuly 29, 20212022 | | USD to Malaysian Ringgit ("MYR") | | 4.194.40 MYR | | Not designated |
| | | | | | | | | | |
408.070.0 MXN | | SeptemberJune 28, 20212022 | | OctoberJuly 29, 20212022 | | USD to Mexican Peso ("MXN") | | 20.3920.13 MXN | | Not designated |
3,290.03,458.7 MXN | | Various from November 19, 2019August 2020 to September 23, 2019June 2022 | | Various from October 29, 2021July 2022 to September 29, 2023June 2024 | | USD to MXN | | 22.2822.15 MXN | | Cash flow hedge |
3.210.0 GBP | | SeptemberJune 28, 20212022 | | OctoberJuly 29, 20212022 | | British Pound Sterling ("GBP") to USD | | 1.351.22 USD | | Not Designated |
52.460.0 GBP | | Various from November 19, 2019August 2020 to September 23, 2021June 2022 | | Various from October 29, 2021July 2022 to September 29, 2023June 2024 | | GBP to USD | | 1.341.33 USD | | Cash flow hedge |
_________________________
(1) Derivative financial instruments not designated as hedges are used to manage our exposure to currency exchange rate risk. They are intended to preserve economic value, and they are not used for trading or speculative purposes.
Hedges of Commodity Risk
As of SeptemberJune 30, 2021,2022, we had the following outstanding commodity forward contracts, none of which were designated for hedge accounting treatment in accordance with FASB ASC Topic 815, Derivatives and Hedging:815:
| | | | | | | | | | | | | | | | | | | | |
Commodity | | Notional | | Remaining Contracted Periods | | Weighted-Average Strike Price Per Unit |
Silver | | 1,144,1551,092,999 troy oz. | | October 2021July 2022 - September 2023May 2024 | | $24.6824.58 |
Gold | | 10,2478,443 troy oz. | | October 2021July 2022 - September 2023May 2024 | | $1,822.431,862.15 |
Nickel | | 247,207273,088 pounds | | October 2021July 2022 - September 2023May 2024 | | $7.919.94 |
Aluminum | | 3,482,3434,353,117 pounds | | October 2021July 2022 - September 2023May 2024 | | $1.061.23 |
Copper | | 4,355,7078,450,120 pounds | | October 2021July 2022 - September 2023May 2024 | | $4.014.32 |
Platinum | | 12,88012,141 troy oz. | | October 2021July 2022 - September 2023May 2024 | | $1,032.881,023.00 |
Palladium | | 1,6781,429 troy oz. | | October 2021July 2022 - September 2023May 2024 | | $2,434.272,344.77 |
Financial Instrument Presentation
The following table presents the fair values of our derivative financial instruments and their classification in the condensed consolidated balance sheets as of SeptemberJune 30, 20212022 and December 31, 2020:2021:
| | | Asset Derivatives | | Liability Derivatives | | Asset Derivatives | | Liability Derivatives |
| | Balance Sheet Location | | September 30, 2021 | | December 31, 2020 | | Balance Sheet Location | | September 30, 2021 | | December 31, 2020 | | Balance Sheet Location | | June 30, 2022 | | December 31, 2021 | | Balance Sheet Location | | June 30, 2022 | | December 31, 2021 |
Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | | | | | | | Derivatives designated as hedging instruments | | | | | | |
Foreign currency forward contracts | Foreign currency forward contracts | Prepaid expenses and other current assets | | $ | 15,613 | | | $ | 11,281 | | | Accrued expenses and other current liabilities | | $ | 3,756 | | | $ | 18,834 | | Foreign currency forward contracts | Prepaid expenses and other current assets | | $ | 38,849 | | | $ | 20,562 | | | Accrued expenses and other current liabilities | | $ | 4,991 | | | $ | 1,981 | |
Foreign currency forward contracts | Foreign currency forward contracts | Other assets | | 3,424 | | | 4,728 | | | Other long-term liabilities | | 880 | | | 5,182 | | Foreign currency forward contracts | Other assets | | 6,152 | | | 4,391 | | | Other long-term liabilities | | 1,238 | | | 904 | |
Total | Total | | $ | 19,037 | | | $ | 16,009 | | | $ | 4,636 | | | $ | 24,016 | | Total | | $ | 45,001 | | | $ | 24,953 | | | $ | 6,229 | | | $ | 2,885 | |
Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | | | | | | Derivatives not designated as hedging instruments | | | | | | |
Commodity forward contracts | Commodity forward contracts | Prepaid expenses and other current assets | | $ | 2,441 | | | $ | 7,598 | | | Accrued expenses and other current liabilities | | $ | 4,712 | | | $ | 149 | | Commodity forward contracts | Prepaid expenses and other current assets | | $ | 482 | | | $ | 2,583 | | | Accrued expenses and other current liabilities | | $ | 7,778 | | | $ | 3,422 | |
Commodity forward contracts | Commodity forward contracts | Other assets | | 184 | | | 1,304 | | | Other long-term liabilities | | 2,271 | | | 161 | | Commodity forward contracts | Other assets | | 134 | | | 396 | | | Other long-term liabilities | | 4,269 | | | 1,070 | |
Foreign currency forward contracts | Foreign currency forward contracts | Prepaid expenses and other current assets | | 33 | | | 154 | | | Accrued expenses and other current liabilities | | 378 | | | 644 | | Foreign currency forward contracts | Prepaid expenses and other current assets | | 73 | | | 159 | | | Accrued expenses and other current liabilities | | 41 | | | 188 | |
Total | Total | | $ | 2,658 | | | $ | 9,056 | | | $ | 7,361 | | | $ | 954 | | Total | | $ | 689 | | | $ | 3,138 | | | $ | 12,088 | | | $ | 4,680 | |
These fair value measurements were all categorized within Level 2 of the fair value hierarchy.
The following tables present the effect of our derivative financial instruments on the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income for the three months ended SeptemberJune 30, 20212022 and 2020:2021:
| Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | | Amount of Deferred Gain/(Loss) Recognized in Other Comprehensive Income/(Loss) | | Location of Net (Loss)/Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income | | Amount of Net (Loss)/Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income | Derivatives designated as hedging instruments | | Amount of Deferred Gain/(Loss) Recognized in Other Comprehensive Income | | Location of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income | | Amount of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income |
| 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Foreign currency forward contracts | Foreign currency forward contracts | | $ | 9,379 | | | $ | (12,666) | | | Net revenue | | $ | (1,976) | | | $ | 625 | | Foreign currency forward contracts | | $ | 28,192 | | | $ | (6,353) | | | Net revenue | | $ | 9,476 | | | $ | (3,433) | |
Foreign currency forward contracts | Foreign currency forward contracts | | $ | (3,832) | | | $ | 7,021 | | | Cost of revenue | | $ | 3,557 | | | $ | (3,371) | | Foreign currency forward contracts | | $ | (3,765) | | | $ | 6,808 | | | Cost of revenue | | $ | 2,603 | | | $ | 2,024 | |
|
| Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | Amount of (Loss)/Gain Recognized in Net Income | | Location of (Loss)/Gain Recognized in Net Income | Derivatives not designated as hedging instruments | | Amount of (Loss)/Gain Recognized in Net Income | | Location of (Loss)/Gain Recognized in Net Income |
| 2021 | | 2020 | | | 2022 | | 2021 | |
Commodity forward contracts | Commodity forward contracts | | $ | (6,495) | | | $ | 6,138 | | | Other, net | Commodity forward contracts | | $ | (18,254) | | | $ | 1,186 | | | Other, net |
Foreign currency forward contracts | Foreign currency forward contracts | | $ | (2,414) | | | $ | (1,060) | | | Other, net | Foreign currency forward contracts | | $ | 3,165 | | | $ | (1,419) | | | Other, net |
The following tables present the effect of our derivative financial instruments on the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income for the ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | | Amount of Deferred Gain/(Loss) Recognized in Other Comprehensive Income/(Loss) | | Location of Net (Loss)/Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income | | Amount of Net (Loss)/Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income | Derivatives designated as hedging instruments | | Amount of Deferred Gain Recognized in Other Comprehensive Income | | Location of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income | | Amount of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income |
| 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Foreign currency forward contracts | Foreign currency forward contracts | | $ | 21,825 | | | $ | (6,076) | | | Net revenue | | $ | (9,816) | | | $ | 13,640 | | Foreign currency forward contracts | | $ | 33,778 | | | $ | 12,446 | | | Net revenue | | $ | 13,740 | | | $ | (7,840) | |
Foreign currency forward contracts | Foreign currency forward contracts | | $ | (449) | | | $ | (17,342) | | | Cost of revenue | | $ | 6,324 | | | $ | (1,796) | | Foreign currency forward contracts | | $ | 1,380 | | | $ | 3,383 | | | Cost of revenue | | $ | 5,232 | | | $ | 2,767 | |
|
| Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | Amount of (Loss)/Gain Recognized in Net Income | | Location of (Loss)/Gain Recognized in Net Income | Derivatives not designated as hedging instruments | | Amount of (Loss)/Gain Recognized in Net Income | | Location of (Loss)/Gain Recognized in Net Income |
| 2021 | | 2020 | | | 2022 | | 2021 | |
Commodity forward contracts | Commodity forward contracts | | $ | (6,462) | | | $ | 5,990 | | | Other, net | Commodity forward contracts | | $ | (8,830) | | | $ | 33 | | | Other, net |
Foreign currency forward contracts | Foreign currency forward contracts | | $ | (4,791) | | | $ | (4,424) | | | Other, net | Foreign currency forward contracts | | $ | 1,922 | | | $ | (2,377) | | | Other, net |
Credit Risk Related Contingent Features
We have agreements with our derivative counterparties that contain a provision whereby if we default on our indebtedness and repayment of the indebtedness has been accelerated by the lender, then we could also be declared in default on our derivative obligations.
As of SeptemberJune 30, 2021,2022, the termination value of outstanding derivatives in a liability position, excluding any adjustment for non-performance risk, was $12.1$18.6 million. As of SeptemberJune 30, 2021,2022, we had not posted any cash collateral related to these agreements. If we breach any of the default provisions on any of our indebtedness as described above, we could be required to settle our obligations under the derivative agreements at their termination values.
16. Acquisitions and Divestitures
Xirgo Technologies, LLCAcquisitions
Spear Power Systems
On November 19, 2021, we acquired all of the equity interests of Spear Power Systems ("Spear"), a leader in electrification solutions that supports our newly-established Clean Energy Solutions business unit, for an aggregate purchase price of $113.7 million, subject to certain post-closing items, including a contingent consideration arrangement whereby we may be required to pay up to an additional $30.0 million to the selling shareholders. Using a present value technique, we estimated the acquisition-date fair value of the contingent consideration arrangement to be $8.6 million, which is reflected in the aggregate purchase price. As of June 30, 2022, having evaluated updated financial forecasts, we determined that the fair value of the contingent consideration arrangement was $0.0 million. Changes to the fair value of this contingent consideration arrangement, subsequent to its acquisition-date fair value, are recognized in earnings and presented in restructuring and other charges, net. We are integrating Spear into the Sensing Solutions reportable segment.
As of June 30, 2022, the allocation of purchase price of Spear is preliminary and is based on management’s judgments after evaluating several factors, including preliminary valuation assessments of tangible and intangible assets. The final allocation of the purchase price to the assets acquired will be completed when the final valuations are completed. Refer to Note 21: Acquisitions of the audited consolidated financial statements and notes thereto included in our 2021 Annual Report for detailed information regarding the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of December 31, 2021.
SmartWitness Holdings, Inc.
On November 19, 2021, we acquired all of the equity interests of SmartWitness Holdings, Inc. ("SmartWitness"), a privately held innovator of video telematics technology for heavy- and light-duty fleets, for an aggregate purchase price of $206.4 million, including $204.2 million of cash paid at closing, subject to certain post-closing items. In addition to the aggregate purchase price, we paid $8.6 million of cash at closing related to an employee retention arrangement. We are integrating SmartWitness into the Performance Sensing reportable segment.
As of June 30, 2022, the allocation of purchase price of SmartWitness is preliminary and is based on management’s judgments after evaluating several factors, including preliminary valuation assessments of tangible and intangible assets. The final allocation of the purchase price to the assets acquired will be completed when the final valuations are completed. Refer to Note 21: Acquisitions of the audited consolidated financial statements and notes thereto included in our 2021 Annual Report for detailed information regarding the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of December 31, 2021.
Elastic M2M Inc.
On February 11, 2021,2022, we entered into a securities purchase agreement (the "Xirgo SPA") to acquireacquired all of the outstanding equity interests of Xirgo Technologies, LLCElastic M2M Inc. ("Xirgo"Elastic M2M"), a leading provider of telematics and data insight, headquartered in Camarillo, California. The transaction contemplated by the Xirgo SPA closed on April 1, 2021 for an aggregate cash purchase price of $401.7$51.4 million, subject to certain post-closing items. TheIn addition to the aggregate cash purchase price, the previous shareholders of Elastic M2M are entitled to up to $30.0 million of additional acquisition-related incentive compensation, pending the completion of certain technical milestones in fiscal year 2022 and achievement of financial targets
in fiscal years 2022 and 2023. In three and six months ended June 30, 2022, we recognized $3.4 million and $18.4 million, respectively, of that acquisition-related incentive compensation. This incentive compensation is netrecorded in restructuring and other charges, net. We paid $15.0 million of $7.0 million related to employee retention,this acquisition-related incentive compensation in the six months ended June 30, 2022, which is reflected inas an operating cash flows. The product offeringsoutflow on our condensed consolidated statement of cash flows for the six months ended June 30, 2022.
Elastic M2M is a privately-held innovator of connected intelligence for operational assets across heavy-duty transport, warehouse, supply chain and technologylogistics, industrial, light-duty passenger car, and a variety of Xirgo will augmentother industry segments. Elastic M2M primarily serves telematics service providers and resellers, enabling them to leverage Elastic M2M’s cloud platform and analytics capabilities to deliver sensor-based operational insights to their end users. This acquisition augments our existing portfoliocloud capabilities critical to delivering actionable sensor-based insights, an increasingly important capability in advancing our Insights megatrend initiative.this fast-growing industry segment. We are integrating XirgoElastic M2M into ourthe Performance Sensing reportable segment.
The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed:
| | | | | | | | |
Net working capital, excluding cash | | $ | 11,536 | |
Property, plant and equipment | | 1,427 (156) | |
Goodwill | | 177,26824,708 | |
Other intangible assets | | 249,612 | |
Other assets | | 50833,500 | |
Deferred income tax liabilities | | (45,506) | |
Other long-term liabilities | | (292)(8,222) | |
Fair value of net assets acquired, excluding cash and cash equivalents | | 394,55349,830 | |
Cash and cash equivalents | | 7,1171,597 | |
Fair value of net assets acquired | | $ | 401,67051,427 | |
The allocation of purchase price of Xirgo is preliminary, and is based on management’s judgments after evaluating several factors, including preliminary valuation assessments of tangible and intangible assets. The final allocation of the purchase price to the assets acquired will be completed when the final valuations are completed. The preliminary goodwill recognized as a result of this acquisition was approximately $177.3 million, which represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. The amount of goodwill recognized that is expected to be deductible for tax purposes is not material.
In connection with the allocation of purchase price to the assets acquired and liabilities assumed, we identified certain definite-lived intangible assets. The following table presents the acquired intangible assets, their preliminary estimated fair values, and weighted-average lives:
| | | Acquisition Date Fair Value | | Weighted-Average Lives (years) | | Acquisition Date Fair Value | | Weighted-Average Lives (years) |
Acquired definite-lived intangible assets | Acquired definite-lived intangible assets | | | | | Acquired definite-lived intangible assets | | | | |
Customer relationships | Customer relationships | | $ | 198,540 | | | 15 | Customer relationships | | $ | 23,300 | | | 13 |
Completed technologies | Completed technologies | | 44,130 | | | 10 | Completed technologies | | 10,200 | | | 10 |
Tradenames | | 6,930 | | | 11 | |
Other | | 12 | | | 1 | |
| Total definite-lived intangible assets acquired | Total definite-lived intangible assets acquired | | $ | 249,612 | | | 14 | Total definite-lived intangible assets acquired | | $ | 33,500 | | | 12 |
The definite-lived intangible assets were valued using the income approach. We primarily used the relief-from-royalty method to value completed technologies, and tradenames, and we used the multi-period excess earnings method to value customer relationships. These valuation methods incorporate assumptions including expected discounted future net cash flows resulting from either the future estimated after-tax royalty payments avoided as a result of owning the completed technologies or the future earnings related to existing customer relationships.
Spear Power SystemsThe allocation of purchase price of Elastic M2M is preliminary and is based on management’s judgments after evaluating several factors, including preliminary valuation assessments of intangible assets. The final allocation of the purchase price to the assets acquired will be completed when the final valuations are completed. The preliminary goodwill of $24.7 million recognized as a result of this acquisition represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. The goodwill recognized in this acquisition will not be deductible for tax purposes.
Dynapower Company, LLC
On August 23, 2021,April 22, 2022, we entered into a securitiesstock purchase agreement ("SPA"(the "SPA") to acquire all of the outstanding equity interests of Spear Power SystemsDynapower Company, LLC ("Spear"Dynapower") for $100 million plus $30 million of contingent consideration. Spear is headquartered in Grandview, Missouri, and is, a leader in electrification solutions, developing nextpower conversion systems including inverters, converters, and rectifiers for renewable energy generation, scalable lithium-ion battery storage systems for demanding land, sea,green hydrogen production, electric vehicle charging stations, and airmicrogrid applications, as well as industrial and defense applications. Dynapower also provides aftermarket sales and service to maintain its equipment in the field. Dynapower will be a foundational addition to our Clean Energy Solutions strategy and will complement our recent acquisitions of GIGAVAC, Lithium Balance, and Spear.
We expect to integrate Dynapower into our Sensing Solutions reportable segment. The transaction contemplated by thisthe SPA isclosed on July 12, 2022 for an aggregate purchase price of $580 million of cash consideration, subject to clearance undercertain post-closing
items. Due to the Hart-Scott-Rodino Actrecent closing of this acquisition, the initial accounting for this acquisition is incomplete, and other customary closing conditions, and is expectedwe are not able to be completed inprovide the fourth quarter of 2021. The acquisition of Spear advances Sensata’s electrification portfolio and strategy into new clean energy markets. Spear expands on Sensata’s acquisition of Lithium Balance in battery management systems and provides energy storage solutions for original equipment manufacturers ("OEMs") and system integrators in fast-growing end markets that offer significant growth opportunities. Spear will be integrated into our Sensing Solutions Segment.disclosures otherwise required by FASB ASC Topic 805, Business Combinations.
SmartWitness Holdings, Inc.Divestiture - Qinex Business
On October 4, 2021,May 27, 2022, we entered into an SPAasset purchase agreement with Boyd Corporation to acquire allsell our semiconductor test and thermal business (the "Qinex Business") for total consideration of approximately $219.0 million, subject to working capital and other adjustments. The transaction closed in July 2022.
The assets and liabilities of the outstanding equity interestsQinex Business constitute a disposal group that meets the held for sale criteria described in FASB ASC Topic 360, Property, Plant and Equipment as of SmartWitness Holdings, Inc. ("SmartWitness")June 30, 2022. However, total assets held for $191.4 million. SmartWitness is headquartered in Schaumburg, Illinoissale of approximately $70 million (including allocated goodwill of approximately $45 million based on preliminary valuation assessments) and expands the capabilitiestotal liabilities held for sale of Sensata Insights into high growth video telematics applications, providing access to applications that will drive adoptionapproximately $2 million were not deemed material for separate presentation on our condensed consolidated balance sheet as of traditional and video telematics solutions. SmartWitnessJune 30, 2022. The final allocation of goodwill will be integrated intocompleted when the Performancefinal valuations are completed. We have not finalized the calculation of gain on the transaction but preliminarily expect it to be between approximately $125 million and $150 million.
The Qinex Business manufactures semiconductor burn-in test sockets and thermal control solutions and was formed through the combination of Sensata’s semiconductor interconnect business with Wells-CTI in 2012. The Qinex Business is included in our Sensing reportable segment.Solutions segment (and Industrial Solutions reporting unit). We allocated goodwill to the Qinex Business based on its fair value relative to the fair value of the remaining Industrial Solutions reporting unit. We determined that the fair value of the Qinex Business, less costs to sell, exceeded the carrying amount of the related disposal group.
17. Segment Reporting
We operate in, and reportpresent financial information for the following 2 reportable segments:segments, Performance Sensing and Sensing Solutions. The Performance Sensing reportable segment consists of 2 operating segments, Automotive and HVOR, each of which meet the criteria for aggregation in FASB ASC Topic 280, Reportable SegmentsSegment Reporting. The Sensing Solutions reportable segment is also an operating segment.
Our operating segments are businesses that we manage as components of an enterprise, for which separate financial information is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and assess performance.
An operating segment’s performance is primarily evaluated based on segment operating income, which excludes amortization of intangible assets, restructuring and other charges, net, certain costs associated with our strategic megatrend initiatives, and certain corporate costs or credits not associated with the operations of the segment, including share-based compensation expense and a portion of depreciation expense associated with assets recognized in connection with acquisitions. Corporate and other costs excluded from an operating (and reportable) segment’s performance are separately stated below and also include costs that are related to functional areas such as finance, information technology, legal, and human resources.
We believe that segment operating income, as defined above, is an appropriate measure for evaluating the operating performance of our segments. However, this measure should be considered in addition to, and not as a substitute for, or superior to, operating income or other measures of financial performance prepared in accordance with U.S. GAAP. The accounting policies of each of our reportingoperating and reportable segments are materially consistent with those in the summary of significant accounting policies as described in Note 2: Significant Accounting Policies of the audited consolidated financial statements and notes thereto included in our 20202021 Annual Report.
The following table presents net revenue and segment operating income for theour reportable segments and other operating results not allocated to theour reportable segments for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | For the three months ended | | For the nine months ended | | For the three months ended | | For the six months ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Net revenue: | Net revenue: | | | | | | | | Net revenue: | | | | | | | |
Performance Sensing | Performance Sensing | $ | 706,466 | | | $ | 580,936 | | | $ | 2,162,830 | | | $ | 1,534,832 | | Performance Sensing | $ | 746,882 | | | $ | 741,852 | | | $ | 1,464,579 | | | $ | 1,456,364 | |
Sensing Solutions | Sensing Solutions | 244,555 | | | 207,377 | | | 723,379 | | | 604,255 | | Sensing Solutions | 273,666 | | | 250,808 | | | 531,739 | | | 478,824 | |
Total net revenue | Total net revenue | $ | 951,021 | | | $ | 788,313 | | | $ | 2,886,209 | | | $ | 2,139,087 | | Total net revenue | $ | 1,020,548 | | | $ | 992,660 | | | $ | 1,996,318 | | | $ | 1,935,188 | |
Segment operating income (as defined above): | Segment operating income (as defined above): | | | | | | | | Segment operating income (as defined above): | | | | | | | |
Performance Sensing | Performance Sensing | $ | 193,742 | | | $ | 151,626 | | | $ | 591,650 | | | $ | 347,428 | | Performance Sensing | $ | 185,519 | | | $ | 202,064 | | | $ | 366,157 | | | $ | 397,908 | |
Sensing Solutions | Sensing Solutions | 75,262 | | | 58,229 | | | 218,705 | | | 170,545 | | Sensing Solutions | 79,488 | | | 76,549 | | | 152,003 | | | 143,443 | |
Total segment operating income | Total segment operating income | 269,004 | | | 209,855 | | | 810,355 | | | 517,973 | | Total segment operating income | 265,007 | | | 278,613 | | | 518,160 | | | 541,351 | |
Corporate and other | Corporate and other | (72,749) | | | (60,967) | | | (215,359) | | | (203,803) | | Corporate and other | (76,362) | | | (73,972) | | | (152,485) | | | (142,610) | |
Amortization of intangible assets | Amortization of intangible assets | (34,571) | | | (32,562) | | | (101,492) | | | (98,397) | | Amortization of intangible assets | (36,805) | | | (34,857) | | | (74,172) | | | (66,921) | |
Restructuring and other charges, net | Restructuring and other charges, net | (345) | | | 10,519 | | | (9,956) | | | (32,197) | | Restructuring and other charges, net | (12,897) | | | (5,029) | | | (26,630) | | | (9,611) | |
Operating income | Operating income | 161,339 | | | 126,845 | | | 483,548 | | | 183,576 | | Operating income | 138,943 | | | 164,755 | | | 264,873 | | | 322,209 | |
Interest expense, net | Interest expense, net | (45,137) | | | (44,129) | | | (134,393) | | | (124,340) | | Interest expense, net | (44,842) | | | (45,213) | | | (90,287) | | | (89,256) | |
Other, net | Other, net | (9,403) | | | 9,194 | | | (47,788) | | | (1,511) | | Other, net | (39,240) | | | 1,012 | | | (89,696) | | | (38,385) | |
Income before taxes | Income before taxes | $ | 106,799 | | | $ | 91,910 | | | $ | 301,367 | | | $ | 57,725 | | Income before taxes | $ | 54,861 | | | $ | 120,554 | | | $ | 84,890 | | | $ | 194,568 | |
18. Subsequent Events
On October 4, 2021,In July 2022, we entered intocompleted the SmartWitness SPA to acquire allsale of the outstanding equity interestsQinex Business and the acquisition of SmartWitness for $191.4 million.Dynapower. Refer to Note 16: Acquisitions and Divestitures for additional information.information on these transactions.
Cautionary Statements Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q including any documents incorporated by reference herein, includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These forward-looking statements also relate to our future prospects, developments, and business strategies. These forward-looking statements may be identified by terminology such as "may," "will," "could," "should," "expect," "anticipate," "believe," "estimate," "predict," "project," "forecast," "continue," "intend," "plan," "potential," "opportunity," "guidance," and similar terms or phrases, orphrases. Forward-looking statements involve, among other things, expectations, projections, and assumptions about future financial and operating results, objectives, business and market outlook, megatrends, priorities, growth, shareholder value, capital expenditures, cash flows, demand for products and services, share repurchases, and Sensata’s strategic initiatives, including those relating to acquisitions and dispositions and the negativeimpact of such terminology, including references to assumptions. However, these terms are not the exclusive means of identifying such statements.
Forward-looking statements contained herein, or in other statements made by us, are made basedtransactions on management’s expectationsour strategic and beliefs concerning future events impacting us.operational plans and financial results. These statements are subject to risks, uncertainties, and other important factors relating to our operations and business environment, all of which are difficult to predict, and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in, or suggested by, such forward-looking statements are reasonable, we can give no assurances that anythese forward-looking statements will prove to be correct.
A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the events anticipatedresults either expressed or implied by these forward-looking statements, will occur or, if any of them do, what impact they will have on our results of operations and financial condition.
We believe that the following important factors, among others (including those described in Item 1A: Risk Factors, included in our 2020 Annual Report), could affect our future performance and the liquidity and value of our securities and cause our actual resultsincluding, but not limited to, differ materially from those expressed or implied by forward-looking statements made by us or on our behalf:
•Future risks and existing uncertainties associated with the COVID-19 pandemic, which continuesrelated to have a significant adverse impact on our business and operations including: (i) full or partial shutdowns of our facilities as mandated by government decrees, (ii) limited ability to adjust certain costs due to government actions, (iii) significant travel restrictions and “work-from-home” orders limiting the availability of our workforce, (iv) supplier constraints and supply-chain interruptions, (v) logistics challenges and limitations, (vi) reduced demand from certain customers, (vii) uncertainties associated with a protracted economic slowdown that could negatively affect the financial condition of our customers and suppliers, and (viii) uncertainties and volatility in the global capital markets;
•public health crises, instability and changes in the global markets, including regulatory, political, economic, governmental, and military matters, such assupplier interruption or non-performance, the exitacquisition or disposition of the United Kingdom (the "U.K.") from the European Union (the "EU");
•businesses, adverse conditions or competition in the industries upon which we are dependent, including the automotive industry;
•losses and costs as a result of intellectual property, product liability, warranty and recall claims;
•claims, market acceptance of new product introductions and product innovations;
•inability to realize all of the revenue or achieve anticipated gross margins from products subject to existing purchase orders for which we are currently engaged in development;
•supplier interruption or non-performance, limiting our access to manufactured components or raw materials;
•risks related to the acquisition or disposition of businesses, or the restructuring of our business;
•innovations, labor disruptions or increased labor costs;costs, and changes in existing environmental or safety laws, regulations, and programs.
•competitive pressure from customers that could require us to reduce prices or result in reduced demand;
•security breaches, cyber theft of our intellectual property,Investors and others should carefully consider the foregoing factors and other disruptionsuncertainties, risks, and potential events including, but not limited to, those described in Item 1A: Risk Factors included in our information technology infrastructure,2021 Annual Report and as may be updated from time to time in Item 1A: Risk Factors included in our quarterly reports on Form 10-Q or improper disclosure of confidential, personal, or proprietary data;
•our ability to attract and retain key senior management and qualified technical, sales, and other personnel;
•foreign currency risks, changes in socioeconomic conditions, or changes to monetary and fiscal policies;
•our level of indebtedness, or our inability to meet debt service obligations or complysubsequent filings with the covenants contained in the credit agreement and senior notes indentures;
•changes to current policies,SEC. All such as trade tariffs, by various governments worldwide;
•risks related to the potential for goodwill impairment;
•the impact of challenges by taxing authorities of our historical and future tax positions or our allocation of taxable income among our subsidiaries, unfavorable developments in taxation sentiments in countries where we do business, and challenges to the sovereign taxation regimes of EU member states by the European Commission and the Organization for Economic Co-operation and Development;
•changes to, or inability to comply with, various regulations, including tax laws, import/export regulations, anti-bribery laws, environmental, health, and safety laws, and other governmental regulations; and
•risks related to our domicile in the U.K.
In addition, the extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments, such as the length and severity of the crisis, the potential resurgence of the crisis, future government actions in response to the crisis and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable.
All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this Quarterly Report on Form 10-Qthey are made, and are expressly qualified in their entirety by the cautionary statements contained in this Quarterly Report on Form 10-Q. Wewe do not undertake noany obligation to update or revise forward-lookingthese statements that may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. We urge readers to review carefully the risk factors described in our 2020 Annual Report and in the other documents that we file with the U.S. Securities and Exchange Commission (the "SEC"). You can read these documents at www.sec.gov or on our website at www.sensata.com.than as required by law.
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 audited consolidated financial statementsdiscussion in Item 7: Management's Discussion and notes theretoAnalysis of Financial Condition and Results of Operations included in our 20202021 Annual Report, filedReport. The following discussion should also be read in conjunction with the SEC on February 12, 2021, and the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Amounts and percentages in the following discussions have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
Overview
During the third quarter of 2021, we experienced continued positive momentum from the business and economic growth that began in the second half of 2020 and continued through the first half of 2021. Sensata responded well to the rapid changes in many of our end markets, demonstrating the strength, resiliency, and reliability of our business and organizational model, enabling us to capitalize on the recovery in end-market demand and deliver on customers’ orders. However, as we continue to see elevated costs related to the worldwide supply chain shortages and logistics costs, we are working to diminish those effects, including commercial actions with our customers.
Sensata has benefited from its resilient, flexible, and focused organization, which continues to successfully navigate the ever-changing supply chain landscape and deliver on our customers’ needs. We will continue to focus on delivering industry-leading margins for our shareholders, while also increasing investments in our growth opportunities and our people. Additionally, we believe that the overall business environment provides opportunities to further strengthen our portfolio through strategically important, value-creating acquisitions and/or joint ventures. We are also pursuing new technology collaborations and partnerships with third parties to expand our capabilities and accelerate our megatrend-driven growth potential.
2021 interim results
Improved market results, combined with our response to increased demand, drove net revenue growth of 20.6% and 34.9% in the three and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020. In the three months ended September 30, 2021, Performance Sensing net revenue increased 21.6% and Sensing Solutions net revenue increased 17.9% from the three months ended September 30, 2020. In the nine months ended September 30, 2021, Performance Sensing net revenue increased 40.9% and Sensing Solutions net revenue increased 19.7% from the nine months ended September 30, 2020.
We continue to produce strong market outgrowth, above our target ranges. For the three and ninesix months ended SeptemberJune 30, 2021,2022, net revenue increased 2.8% and 3.2%, respectively, from the corresponding periods of fiscal year 2021. This revenue growth was primarily driven by outgrowth to market and revenue from recent acquisitions. In addition, we delivered 1,190 basis pointscontinued to drive new business wins, with a significant portion coming in areas representing our megatrend initiatives of Electrification and 1,040 basis points,Insights, and which will help drive future revenue growth.
For the three and six months ended June 30, 2022, operating income decreased 15.7% and 17.8%, respectively, to $138.9 million (13.6% of market outgrowth. We use the term "market outgrowth"net revenue) and $264.9 million (13.3% of net revenue), respectively, compared to describe the impact$164.8 million (16.6% of an increasing quantitynet revenue) and value$322.2 million (16.7% of our products used in customer systems and applications. It is only loosely correlated to normal unit demand fluctuations in the markets we serve.
Our automotive and HVOR businesses delivered market outgrowth of 1,150 basis points and 2,400 basis points,net revenue), respectively, in the corresponding periods of fiscal year 2021. For the three and six months ended SeptemberJune 30, 20212022, income before taxes decreased to $54.9 million and market outgrowth of 1,020 basis points$84.9 million, respectively, compared to $120.6 million and 2,030 basis points,$194.6 million, respectively, in the nine months ended September 30,corresponding periods of fiscal year 2021.
Refer to discussion of the drivers of these changes under the heading Results of Operations—Net RevenueOperations included elsewhere in this Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").
Acquisitions and Dispositions
In the first quarter of 2022, we completed the strategic acquisition of Elastic M2M for additional discussion.$51.4 million. Elastic M2M is a privately-held innovator of connected intelligence for operational assets across heavy-duty transport, warehouse, supply chain and logistics, industrial, light-duty passenger car, and a variety of other industry segments. Elastic M2M primarily serves telematics service providers and resellers, enabling them to leverage Elastic M2M’s cloud platform and analytics capabilities to deliver sensor-based operational insights to their end users. This acquisition augments our cloud capabilities critical to delivering actionable sensor-based insights, an increasingly important capability in this fast-growing industry segment.
On July 12, 2022, we completed the acquisition of Dynapower, a leading provider of high-voltage power conversion solutions for clean energy segments, for an aggregate cash purchase price of $580 million, subject to working capital and other
We continue to see elevated costs related to the worldwide supply chain shortages and logistics costs, and we are working to diminish those effects, including commercial actions with our customers. Despite these elevated costs, in the three months ended September 30, 2021, operating income increased $34.5 million to $161.3 million, compared to $126.8 million in the three months ended September 30, 2020. In the nine months ended September 30, 2021, operating income increased $300.0 million to $483.5 million, compared to $183.6 million in the nine months ended September 30, 2020. These improved results were due in large part to higher revenues, partially offset by increased costs related to industry-wide supply chain shortages, higher spend to support megatrend growth initiatives and higher incentive compensation aligned to improved financial performance. Refer to Results of Operations—Operating costs and expenses included elsewhere in this MD&A for additional discussion of our improved operating costs and expenses.
In the three months ended September 30, 2021, net income increased $8.2 million to $85.0 million, compared to $76.7 million in the three months ended September 30, 2020. In the nine months ended September 30, 2021, net income increased $209.0 million to $251.6 million, compared to $42.6 million in the nine months ended September 30, 2020. These increases were primarily a result of improved operating results, partially offset by (1) higher taxes, (2) losses from our commodity forward contracts, and (3) foreign currency remeasurement on net monetary assets, each as discussed elsewhere in our Results of Operations. For the nine months ended September 30, 2021 net income also reflected the loss on redemption of the 6.25% Senior Notes as discussed at Results of Operations—Other, net.
Forward-looking information
For the fourth quarter of 2021, we expect automotive production to be down approximately 28% compared to the prior year, given ongoing production slowdowns caused by global supply chain shortages. We do not see production constraints from the global supply chain shortages lifting in the near term.
Our revenue outgrowth to market will be increasingly driven by enhanced positioning in our megatrend areas of Electrification (across our markets) and Insights. We continue to invest in these growth initiatives both organically and inorganically, with Xirgo, and now the pending acquisitions of Spear and SmartWitness, expanding not only our capabilities, but also our access to end markets and product portfolios in these pivotal areas. We expect continued significant growth in these megatrend areas over the coming years, driven by electrification trends, the infrastructure requirements to support electrification, and the proliferation of Internet of Things on stationary and mobile equipment.
Since 2018, we have delivered average market outgrowth of 570 basis points as a company, including 1,050 basis points in our HVOR business and 650 basis points in our automotive business. Our revenue by end market should grow consistent with each market’s production growth plus our targeted outgrowth of approximately 400 to 500 basis points across the entire company. In addition, we intend to continue to make acquisitions to further expand our market position in our megatrend areas and we aim to have this activity add a material amount to revenue growth each year.
One headwind affecting our outlook is the expected impact from the global supply chain shortages and logistics costs, due in part to large-scale shutdowns early in 2020 caused by the COVID-19 pandemic. These shortages have resulted in paused production on certain vehicles and increased procurement costs. These shortages have impacted our margins in the first nine months of 2021, and we believe that impacts from the supply chain shortages will continue throughout next year.
Electrification
Our automotive addressable market is large today and growing, with expectations that it will continue to grow over the next 10 years. Applications in internal combustion vehicles make up most of our current automotive addressable market. While the Electrification applications that we serve represent a smaller market today, these applications are expected to grow very rapidly until they become an even larger opportunity for us than internal combustion engines by 2030.
Our content in electric vehicles represents, on average, a 20% uplift in content value as compared to internal combustion vehicles of a similar class. This content uplift is derived from the broad array of our sensors and other components that we design into battery electric vehicles. Our design win activity within Electrification has been growing rapidly; including an 80% increase in Electrification wins last year. In addition, approximately 50% of our automotive design wins for the nine months ended September 30, 2021 are with electric vehicles. Looking forward, based on the business wins we’re gaining and the products we are developing, we estimate that our battery-electric content per vehicle is on a path to double that of an internal combustion engine vehicle within five years.
We provide many of our innovative and differentiated components such as braking, tire, and environmental control from traditional vehicles for use in electrical vehicle applications. Specific to electric vehicles, we also provide and are developing several components that enable safe and efficient operation of electrified platforms such as high voltage electrical protection, advanced temperature sensing, highly sensitive electric motor position, and next-generation current sensing.
In addition, we achieved a meaningful milestone in our Electrification megatrend initiative when we agreed to a joint venture with Churod Electronics ("Churod") on April 8, 2021, which will contribute access to its ceramic, high-levitation contactor intellectual property. This joint venture extends our electrical protection capabilities to mass-market electric vehicles and other electrified equipment worldwide and expands our contactor capabilities in the automotive market to vehicles that operate with lower voltage while maintaining differentiated technology, which are more common in Asia. This enables us to offer a broader Electrification solution set for electric vehicle manufacturers globally.
In the third quarter of 2021, we reorganized our Sensing Solutions operating segment, moving the portion of our electrical protection product category that includes high voltage contactors, inverters, and battery management systems from the industrial business unit to a new business unit, Clean Energy Solutions. This business unit will focus on electric vehicle infrastructure, energy storage, smart grid, and renewable energy applications.
Electrification technology is expanding in many markets, not just in passenger vehicles. Manufacturers of bikes, heavy trucks, material handling equipment, marine vessels, aircraft, and spacecraft are addressing ever-tightening greenhouse gas emissions regulations and taking advantage of falling battery costs to provide electrified solutions to their customers. However, not all customers can design all aspects of an electrified solution in house. Thanks to capabilities we have added, or are pending addition via acquisition, we will be able to provide either the subsystem of assembled components to manage battery charging in the form of a power distribution unit or, using technology from Lithium Balance and the pending acquisition of Spear, we will be able to provide the full energy storage system including battery management and a customized battery pack.
In addition, our Electrification megatrend initiative represents a market opportunity in the charging infrastructure necessary to support this ecosystem. We see additional opportunities in industrial and grid applications, some of which are more nascent today. Sensata is already a leading provider of high-voltage protection on electric vehicles and charging infrastructure and we seek to be the partner of choice for heavy vehicle and industrial OEMs transitioning to electrified solutions as well. We also intend to participate in other areas of the evolving market that enable Electrification to become more widespread.
In support of the Clean Energy Solutions business unit, on August 23, 2021, we entered into an SPA to acquire all of the outstanding equity interests of Spear for $100 million plus $30 million of contingent consideration. Spear is headquartered in Grandview, Missouri, andadjustments. Dynapower is a leader in electrification solutions, developing nextpower conversion systems including inverters, converters, and rectifiers for renewable energy generation, scalable lithium-ion battery storage systems for demanding land, seagreen hydrogen production, electric vehicle charging stations, and airmicrogrid applications, as well as industrial and defense applications. The transaction contemplated by this SPA is subjectDynapower also provides aftermarket sales and service to clearance undermaintain its equipment in the Hart-Scott-Rodino Actfield. We acquired Dynapower as a foundational addition to our Clean Energy Solutions strategy and other customary closing conditions,complement to our recent acquisitions of GIGAVAC, Lithium Balance, and Spear. Dynapower's revenue is expected to be completedexceed $100 million on an annualized basis in 2022 with projected revenue growth in excess of 30% over the fourth quarternext several years.
In July 2022, we sold the Qinex Business to Boyd Corporation for total consideration of 2021.approximately $219.0 million, subject to working capital and other adjustments. The acquisitionQinex Business manufactures semiconductor burn-in test sockets and thermal control solutions and was formed through the combination of Spear advances Sensata’s Electrification portfolio and strategy into new clean energy markets. Spear expands on Sensata’s acquisition of Lithium Balancesemiconductor interconnect business with Wells-CTI in battery management systems and GIGAVAC in high voltage contactors, and provides energy storage solutions for OEMs and system integrators in fast-growing end markets that offer significant growth opportunities. With this pending acquisition, we will be able to provide full battery energy storage systems for a variety of specialty transportation markets. These are highly demanding solutions that include very robust safety features.
Sensata Insights
2012. The Insights megatrend initiative addresses a large and fast-growing market, and we are gaining traction with both current and new customers across various sectors.
On April 1, 2021, we completed the acquisition of Xirgo, a leading telematics and data insights provider for fleet management across the transportation and logistics segments, for $408.7 million, which includes $7.0 million related to employee retention, reflected in operating cash flows. This acquisition represented a meaningful milestoneQinex Business is included in our Insights megatrend initiative, greatly expanding our ability to provide data insights to transportation and logistics customers, as well as adding a new customer base for these solutions. Xirgo brings a comprehensive suite of telematics and asset tracking devices, cloud-based data insight solutions, as well as emerging sensing applications and data services. This acquisition is consistent with our strategy to move beyond serving vehicle OEMs and engage with the broader transportation and logistics ecosystem. Xirgo is complementary to, and meaningfully extends, our organic Insights solutions for commercial fleet managers, adding cargo, container, and light-vehicle fleet management to our heavy vehicle OEM and fleet focus.Sensing Solutions segment (and Industrial Solutions reporting unit). We have branded these offerings, which serve our Insights megatrend initiative, as Sensata Insights.
In addition, on October 4, 2021, we entered into an SPA to acquire all of the outstanding equity interests of SmartWitness, a privately held innovator of video telematics technology for heavy and light duty fleets, for $191.4 million. SmartWitness is headquartered in Schaumburg, Illinois and expands the capabilities of Sensata Insights into high growth video telematics applications, providing access to applications that will drive adoption of traditional and video telematics solutions. SmartWitness’ solutions comprise proprietary software and hardware purpose-built for telematics service providers, providing a complementary fit with our Insights business. Since its founding in 2007, SmartWitness has been a pioneer in video telematics that expands on traditional offerings to include contextually aware data capture that enhances the monitoring of vehicles and their surroundings to increase safety and lower insurance costs for fleets. SmartWitness will be integrated into the Performance Sensing reportable segment and will be included in Sensata Insights.
Refer to Note 16: Acquisitions of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information in the acquisitions of Xirgo, Spear, and SmartWitness.
Liquidity
We have sufficient cash to take advantage of strategic opportunities as they arise. At December 31, 2020, we had cash and cash equivalents of $1,862.0 million. In the nine months ended September 30, 2021, we generated operating cash flows of $393.2 million, ending the quarter on September 30, 2021 with cash and cash equivalents of $1,958.1 million. This enables us to continue to acquire targeted, innovative businesses that will expand our presence in our targeted growth vectors.
In the first quarter of 2021, we used the flexibility provided by our large cash balance to lower our cost of capital and extend our debt maturity by redeeming the 6.25% Senior Notes and issuing the 4.0% Senior Notes. Refer to Overview—Debt Transactions below for additional discussion of these transactions. On April 1, 2021, we used $408.7 million, net of $7.1 million of cash received, to acquire Xirgo, which will help advance our Insights megatrend initiative. Cash paid to acquire Xirgo includes $7.0 million related to employee retention and which is reflected in operating cash flows. Refer to Overview—Sensata Insights above for additional discussion of this acquisition. In addition, on April 8, 2021, we took advantage of continued favorability in the capital markets and issued an additional $250.0 million of 4.0% Senior Notes, priced at 100.75%.
Debt Transactions
On March 5, 2021, we redeemed the $750.0 million aggregate principal amount outstandinggain on the 6.25% Senior Notes. The redemption was at a price of 103.125% of principal, resulting in additional payment of $23.4transaction but preliminarily expect it to be between approximately $125 million upon redemption. We recognized a loss of $30.1 million as a result of this transaction, consisting primarily of the premium payment and write-off of deferred financing costs. Subsequently, on March 29, 2021, we issued $750.0 million aggregate principal amount of 4.0% Senior Notes, at par, and on April 8, 2021, we issued an additional $250.0 million of 4.0% Senior Notes at a price of 100.75%. The combined effect of these transactions was to extend the average maturity of our debt profile and lower our total cost of fixed debt. Refer to Note 11: Debt of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information on these transactions and our overall debt. Proceeds from the 4.0% Senior Notes will be used for general corporate purposes, to fund future acquisitions and our capital deployment strategy, and for future debt repayments.$150 million.
Q2 2020 Global Restructure Program
On June 30, 2020, in response to the potential long-term impact of the COVID-19 pandemic on our business, we commenced the Q2 2020 Global Restructure Program, consisting of voluntary and involuntary reductions-in-force and certain site closures, in order to align our cost structure to the then anticipated future demand outlook. As of September 30, 2021, we have completed all actions contemplated under the Q2 2020 Global Restructure Program, with approximately 840 positions impacted. Since inception of the Q2 2020 Global Restructure Program, we have recognized cumulative costs of $33.2 million, of which $28.4 million related to severance charges and $4.8 million related to facility and exit costs. As of September 30, 2021, we have a liability of approximately $7.5 million related to actions taken under this plan. We expect to settle these remaining liabilities with cash on hand. Refer to Note 5: Restructuring and Other Charges, Net of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information on this plan.
Sustainability Report
In September 2021, we published our first Sustainability Report, which shares our environmental, social, and governance ("ESG") strategies, performance, and goals that support our vision of creating a cleaner, more efficient, electrified, and connected world.
Our sustainability efforts focus on four key areas of prioritization against which we will measure progress:
•Empowering our workforce: We promote a culture that values inclusion and diversity and prioritizes employee well-being and safety, while supporting our communities and suppliers.
•Innovating for Sustainability: We develop products and technology solutions that help create a safer, cleaner, more efficient and connected world.
•Protecting the Environment: We focus on building products that reduce environmental impact and improve technological efficiencies while optimizing and reducing our operational footprint through energy, water, and waste reduction.
•Operating Responsibly: We consider transparency and accountability as fundamental in everything that we do, guiding our approach to governance, risk management, and ESG.
As described in the Sustainability Report, we conducted a materiality assessment to identify the ESG issues that were most important to our business and stakeholders. We identified the following key issues and set corresponding goals as follows:
◦Diversity, Equity, and Inclusion: Our goal is to reach (1) 30% female representation in manager and above roles worldwide and (2) 25% racial/ethically diverse representation in manager and above roles in the U.S. by 2026.
◦Energy and Emissions: Our goal is to achieve carbon neutrality by 2050 and reduce greenhouse gas emissions intensity by 10% by 2026.
◦Responsible Sourcing: Our goals in this area are by 2026 to (1) achieve 75% response rate on our responsible sourcing campaigns and (2) achieve 100% sourcing of conflict minerals and Cobalt from smelters that are conformant with the Responsible Minerals Assurance Process ("RMAP") or equivalent standard.
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 ninesix months ended SeptemberJune 30, 20212022 compared to the three and ninesix months ended SeptemberJune 30, 2020.2021. We have derived the results of operations from the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 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 | | For the three months ended | | For the six months ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| | Amount | | Margin* | | Amount | | Margin* | | Amount | | Margin* | | Amount | | Margin* | | Amount | | Margin* | | Amount | | Margin* | | Amount | | Margin* | | Amount | | Margin* |
Net revenue: | Net revenue: | | | | | | | | | | | | | | | | Net revenue: | | | | | | | | | | | | | | | |
Performance Sensing | Performance Sensing | $ | 706.5 | | | 74.3 | % | | $ | 580.9 | | | 73.7 | % | | $ | 2,162.8 | | | 74.9 | % | | $ | 1,534.8 | | | 71.8 | % | Performance Sensing | $ | 746.9 | | | 73.2 | % | | $ | 741.9 | | | 74.7 | % | | $ | 1,464.6 | | | 73.4 | % | | $ | 1,456.4 | | | 75.3 | % |
Sensing Solutions | Sensing Solutions | 244.6 | | | 25.7 | | | 207.4 | | | 26.3 | | | 723.4 | | | 25.1 | | | 604.3 | | | 28.2 | | Sensing Solutions | 273.7 | | | 26.8 | | | 250.8 | | | 25.3 | | | 531.7 | | | 26.6 | | | 478.8 | | | 24.7 | |
Net revenue | Net revenue | 951.0 | | | 100.0 | | | 788.3 | | | 100.0 | | | 2,886.2 | | | 100.0 | | | 2,139.1 | | | 100.0 | | Net revenue | 1,020.5 | | | 100.0 | | | 992.7 | | | 100.0 | | | 1,996.3 | | | 100.0 | | | 1,935.2 | | | 100.0 | |
| Operating costs and expenses | Operating costs and expenses | 789.7 | | | 83.0 | | | 661.5 | | | 83.9 | | | 2,402.7 | | | 83.2 | | | 1,955.5 | | | 91.4 | | Operating costs and expenses | 881.6 | | | 86.4 | | | 827.9 | | | 83.4 | | | 1,731.4 | | | 86.7 | | | 1,613.0 | | | 83.3 | |
Operating income | Operating income | 161.3 | | | 17.0 | | | 126.8 | | | 16.1 | | | 483.5 | | | 16.8 | | | 183.6 | | | 8.6 | | Operating income | 138.9 | | | 13.6 | | | 164.8 | | | 16.6 | | | 264.9 | | | 13.3 | | | 322.2 | | | 16.7 | |
Interest expense, net | Interest expense, net | (45.1) | | | (4.7) | | | (44.1) | | | (5.6) | | | (134.4) | | | (4.7) | | | (124.3) | | | (5.8) | | Interest expense, net | (44.8) | | | (4.4) | | | (45.2) | | | (4.6) | | | (90.3) | | | (4.5) | | | (89.3) | | | (4.6) | |
Other, net | Other, net | (9.4) | | | (1.0) | | | 9.2 | | | 1.2 | | | (47.8) | | | (1.7) | | | (1.5) | | | (0.1) | | Other, net | (39.2) | | | (3.8) | | | 1.0 | | | 0.1 | | | (89.7) | | | (4.5) | | | (38.4) | | | (2.0) | |
Income before taxes | Income before taxes | 106.8 | | | 11.2 | | | 91.9 | | | 11.7 | | | 301.4 | | | 10.4 | | | 57.7 | | | 2.7 | | Income before taxes | 54.9 | | | 5.4 | | | 120.6 | | | 12.1 | | | 84.9 | | | 4.3 | | | 194.6 | | | 10.1 | |
Provision for income taxes | Provision for income taxes | 21.8 | | | 2.3 | | | 15.2 | | | 1.9 | | | 49.8 | | | 1.7 | | | 15.1 | | | 0.7 | | Provision for income taxes | 20.0 | | | 2.0 | | | 7.6 | | | 0.8 | | | 27.6 | | | 1.4 | | | 27.9 | | | 1.4 | |
Net income | Net income | $ | 85.0 | | | 8.9 | % | | $ | 76.7 | | | 9.7 | % | | $ | 251.6 | | | 8.7 | % | | $ | 42.6 | | | 2.0 | % | Net income | $ | 34.8 | | | 3.4 | % | | $ | 112.9 | | | 11.4 | % | | $ | 57.3 | | | 2.9 | % | | $ | 166.6 | | | 8.6 | % |
__________________________
* Represents the amount presented divided by total net revenue.
Net Revenue
Net revenue for the three months ended SeptemberJune 30, 20212022 increased 20.6%2.8% compared to the three months ended SeptemberJune 30, 2020 largely due to improved market results and our continued outperformance relative to those markets.2021. Excluding an increasea decrease of 1.7%2.2% attributed to changes in foreign currency exchange rates and an increase of 2.3%2.8% due to the effect of the acquisition of Xirgo,acquisitions, net revenue for the three months ended SeptemberJune 30, 20212022 increased 16.6%2.2% on an organic basis. This organic revenue growth reflects increased customer demand and representsbasis, representing market outgrowth of 1,190650 basis points.
Net revenue for the six months ended June 30, 2022 increased 3.2% compared to the six months ended June 30, 2021. Excluding a decrease of 1.3% attributed to changes in foreign currency exchange rates and an increase of 3.4% due to the effect of acquisitions, net revenue for the six months ended June 30, 2022 increased 1.1% on an organic basis, representing market outgrowth of 720 basis points.
Organic revenue growth (or decline), discussed throughout this MD&A, is a financial measure not presented in accordance with U.S. GAAP. Refer to the section entitled Non-GAAP Financial Measures below for additional information related to our use of organic revenue growth (or decline). Our continued investment in megatrend initiatives is playing a part in revenue growth by expanding our capabilities, as well as our access to end markets and product portfolios. We are continuing to monitor all of our end markets and customers to ensure that our resources are balanced against forecasts and prioritized against critical growth opportunities.
Net revenue for the nine months ended September 30, 2021 increased 34.9% compared to the nine months ended September 30, 2020 largely due to improved market results and our continued outperformance relative to those markets. Excluding an increase of 3.0% attributed to changes in foreign currency exchange rates and an increase of 2.0% due to the effect of the acquisition of Xirgo, net revenue for the nine months ended September 30, 2021 increased 29.9% on an organic basis. This organic revenue growth reflects increased customer demand and represents market outgrowth of 1,040 basis points.
Performance Sensing
Performance Sensing net revenue for the three months ended SeptemberJune 30, 20212022 increased 21.6%0.7% compared to the three months ended SeptemberJune 30, 2020.2021. Excluding an increasea decrease of 1.8%2.2% attributed to changes in foreign currency exchange rates and an increase of 3.1%
3.0% due to the effect of the acquisition of Xirgo,acquisitions, Performance Sensing net revenue for the three months ended SeptemberJune 30, 2021 increased 16.7%2022 was flat on an organic basis. Both automotive and HVOR contributed to these results as discussed below.
Automotive net revenue for the three months ended SeptemberJune 30, 2021 grew 7.0%2022 declined 2.3% compared to the three months ended SeptemberJune 30, 2020.2021. Excluding growtha decline of 1.8%2.4% attributed to changes in foreign currency exchange rates, automotiveAutomotive net revenue for the three months ended SeptemberJune 30, 20212022 grew 5.2%0.1% on an organic basis. Although automotive production was constrained due to supply chain shortages, resulting in end-market contraction of 21.6%, it increased significantly from the abnormally low levels experienced in the third quarter of 2020, which contributed to the organic revenue growth. In addition, our automotive business benefited from new product launches in powertrain and emissions, safety, and electrification-related applications and systems. We continued to outperform the automotive end market, delivering 1,150 basis points of market outgrowth, excluding the effects of OEM efforts to replenish inventory channels.
HVOR net revenue for the three months ended SeptemberJune 30, 20212022 grew 75.1%7.7% compared to the three months ended SeptemberJune 30, 2020.2021. Excluding growtha decline of 1.8% attributed to changes in foreign currency exchange rates and growth of 14.4% due to the effect of the acquisition of Xirgo, HVOR net revenue for the three months ended September 30, 2021 grew 58.9% on an organic basis. Similar to automotive, HVOR market production improved significantly from the prior year period despite being adversely impacted by the global supply chain shortages and logistics costs. Our China on-road truck business continued to post better than expected growth from the adoption of NS6 emissions regulations, and we are also benefiting from a wave of electromechanical operator controls being installed in new off-road equipment. In addition, HVOR delivered 2,400 basis points of market outgrowth in the quarter, excluding the effects of OEM efforts to replenish inventory channels.
Performance Sensing net revenue for the nine months ended September 30, 2021 increased 40.9% compared to the nine months ended September 30, 2020. Excluding an increase of 3.3%1.7% attributed to changes in foreign currency exchange rates and an increase of 2.9%10.0% due to the effect of acquisitions, HVOR net revenue for the acquisition of Xirgo, three months ended June 30, 2022 declined 0.6% on an organic basis.
Performance Sensing net revenue for the ninesix months ended SeptemberJune 30, 20212022 increased 34.7%0.6% compared to the six months ended June 30, 2021. Excluding a decrease of 1.4% attributed to changes in foreign currency exchange rates and an increase of 3.9% due to the effect of acquisitions, Performance Sensing net revenue for the six months ended June 30, 2022 decreased 1.9% on an organic basis. Both automotive and HVOR contributed to these results as discussed below.
Automotive net revenue for the ninesix months ended SeptemberJune 30, 2021 grew 30.7%2022 declined 4.4% compared to the the ninesix months ended SeptemberJune 30, 2020.2021. Excluding growtha decrease of 3.4%1.5% attributed to changes in foreign currency exchange rates, automotive net revenue for the ninesix months ended SeptemberJune 30, 2021 grew 27.3%2022 declined 2.9% on an organic basis. Although automotive production was constrained due to supply chain shortages, we delivered organic revenue growth due to recoverybasis, primarily as a result of customer production combined with our continued outperformance relative to the automotive market, which was led by new product launches in powertrain and emissions, safety, and electrification-related applications and systems. Excluding the effectsimpacts of OEMoriginal equipment manufacturer efforts to replenish inventory channels automotive outgrew its end markets by 1,020 basis points in the nine months ended September 30, 2021.
HVOR net revenue for the ninesix months ended SeptemberJune 30, 20212022 grew 74.8%13.6% compared to the ninesix months ended SeptemberJune 30, 2020.2021. Excluding growtha decrease of 3.1%1.2% attributed to changes in foreign currency exchange rates and growthan increase of 12.2%14.0% due to the effect of the acquisition of Xirgo,acquisitions, HVOR net revenue for the ninesix months ended SeptemberJune 30, 20212022 grew 59.5%0.8% 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 continued to post better than expected growth 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. Excluding the effects of OEM efforts to replenish inventory channels, HVOR outgrew its end markets by 2,030 basis points in the nine months ended September 30, 2021.
Sensing Solutions
Sensing Solutions net revenue for the three months ended SeptemberJune 30, 20212022 increased 17.9%9.1% compared to the three months ended SeptemberJune 30, 2020.2021. Excluding growtha decline of 1.5%1.9% attributed to changes in foreign currency exchange rates and an increase of 2.0% due to the effect of acquisitions, Sensing Solutions net revenue for the three months ended SeptemberJune 30, 20212022 grew 16.4%9.0% on an organic basis. The increase in netorganic revenue was drivengrowth primarily reflects the launch of new industrial electrification applications, partially offset by the continued recovery of global and industrial end marketsdeclines in the third quarter, as well as new electrification launches and strong growth in our HVAC business. Aerospace saw growth in the quarter reflecting somewhat improved OEM production and air traffic, which drives our aerospace aftermarket business. In addition, new product launches, primarily in defense and improvements in aftermarket, enabled our aerospace business to grow faster than market this quarter.Industrial market.
Sensing Solutions net revenue for the ninesix months ended SeptemberJune 30, 20212022 increased 19.7%11.1% compared to the ninesix months ended SeptemberJune 30, 2020.2021. Excluding growtha decline of 2.2%1.2% attributed to changes in foreign currency exchange rates and an increase of 2.0% due to the effect of acquisitions, Sensing Solutions net revenue for the ninesix months ended SeptemberJune 30, 20212022 grew 17.5%10.3% on an organic basis. The increaseorganic revenue growth primarily reflects the launch of new industrial electrification applications, partially offset by declines in net revenue was mainly driven by the continued recovery of global and industrial end markets, as well as new electrification launches and strong growth in our HVAC business.Aerospace market.
Operating costs and expenses
Operating costs and expenses for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 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 | | For the three months ended | | For the six months ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| | Amount | | Margin* | | Amount | | Margin* | | Amount | | Margin* | | Amount | | Margin* | | Amount | | Margin* | | Amount | | Margin* | | Amount | | Margin* | | Amount | | Margin* |
Operating costs and expenses: | Operating costs and expenses: | | | | | | | | | | | | | | | | Operating costs and expenses: | | | | | | | | | | | | | | | |
Cost of revenue | Cost of revenue | $ | 628.9 | | | 66.1 | % | | $ | 530.3 | | | 67.3 | % | | $ | 1,922.6 | | | 66.6 | % | | $ | 1,509.1 | | | 70.5 | % | Cost of revenue | $ | 686.6 | | | 67.3 | % | | $ | 658.3 | | | 66.3 | % | | $ | 1,343.7 | | | 67.3 | % | | $ | 1,293.6 | | | 66.8 | % |
Research and development | Research and development | 40.1 | | | 4.2 | | | 33.4 | | | 4.2 | | | 118.9 | | | 4.1 | | | 98.1 | | | 4.6 | | Research and development | 48.0 | | | 4.7 | | | 42.9 | | | 4.3 | | | 94.0 | | | 4.7 | | | 78.9 | | | 4.1 | |
Selling, general and administrative | Selling, general and administrative | 85.8 | | | 9.0 | | | 75.7 | | | 9.6 | | | 249.7 | | | 8.7 | | | 217.7 | | | 10.2 | | Selling, general and administrative | 97.3 | | | 9.5 | | | 86.8 | | | 8.7 | | | 193.0 | | | 9.7 | | | 163.9 | | | 8.5 | |
Amortization of intangible assets | Amortization of intangible assets | 34.6 | | | 3.6 | | | 32.6 | | | 4.1 | | | 101.5 | | | 3.5 | | | 98.4 | | | 4.6 | | Amortization of intangible assets | 36.8 | | | 3.6 | | | 34.9 | | | 3.5 | | | 74.2 | | | 3.7 | | | 66.9 | | | 3.5 | |
Restructuring and other charges, net | Restructuring and other charges, net | 0.3 | | | 0.0 | | | (10.5) | | | (1.3) | | | 10.0 | | | 0.3 | | | 32.2 | | | 1.5 | | Restructuring and other charges, net | 12.9 | | | 1.3 | | | 5.0 | | | 0.5 | | | 26.6 | | | 1.3 | | | 9.6 | | | 0.5 | |
Total operating costs and expenses | Total operating costs and expenses | $ | 789.7 | | | 83.0 | % | | $ | 661.5 | | | 83.9 | % | | $ | 2,402.7 | | | 83.2 | % | | $ | 1,955.5 | | | 91.4 | % | Total operating costs and expenses | $ | 881.6 | | | 86.4 | % | | $ | 827.9 | | | 83.4 | % | | $ | 1,731.4 | | | 86.7 | % | | $ | 1,613.0 | | | 83.3 | % |
__________________________
* Represents the amount presented divided by total net revenue.
Cost of revenue
For the three months ended SeptemberJune 30, 2021,2022, cost of revenue as a percentage of net revenue decreasedincreased from the three months ended SeptemberJune 30, 2020,2021, primarily as a result of (1) improvement of various factors that drove cost of revenue as a percentage of revenue up in the third quarter of 2020 (primarily relateddue to the COVID-19 pandemic) such as volume declinesimpacts of inflation on material and productivity headwinds from our manufacturing facilities running at lower than normal capacity, (2) the impact in the third quarter of 2021 of ongoing savings resulting from cost reduction activities taken in fiscal year 2020, and (3) the favorable effect of changes in foreign currency exchange rates. These favorable impacts on cost of revenue as a percentage of revenue were partially offset by increased costs related to industry-wide supply chain shortages.logistics costs.
For the ninesix months ended SeptemberJune 30, 2021,2022, cost of revenue as a percentage of net revenue decreasedincreased from the ninesix months ended SeptemberJune 30, 2020,2021, primarily as a result of (1) improvement of various factors that drove cost of revenue as a percentage of revenue up in the nine months ended September 30, 2020 (primarily relateddue to the COVID-19 pandemic) such as volume declinesimpacts of inflation on material and productivity headwinds from our manufacturing facilities running at lower than normal capacity and (2) the impact in the nine months ended September 30, 2021 of ongoing savings resulting from cost reduction activities taken in fiscal year 2020. In addition, the nine months ended September 30, 2020 included a $29.2 million loss related to a judgment against us in intellectual property litigation with Wasica, which we settled in the third quarter of 2020. These favorable impacts on cost of revenue as a percentage of revenue werelogistics costs, partially offset by (1) increased costs related to industry-wide supply chain shortages, (2) the turnaround of the positive impact in the first nine months of 2020 of temporary salary and furlough cost savings implemented in the second quarter of 2020 in response to the COVID-19 pandemic, and (3) the unfavorablefavorable effect of changes in foreign currency exchange rates.
Research and development expense
For the three and six months ended SeptemberJune 30, 2021,2022, research and development ("R&D") expense increased $6.6 million (19.9%) from the three and six months ended SeptemberJune 30, 2020,2021, primarily as a result of (1) higher spend to support megatrend growth initiatives (2)and 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 the third quarter of 2021 of ongoing savings resulting from cost reduction activities taken in fiscal year 2020.
For the nine months ended September 30, 2021, R&D expense increased $20.8 million (21.2%) from the nine months ended September 30, 2020, primarily as a result of (1) higher spend to support megatrend growth initiatives, (2) incremental R&D expense related to acquired businesses, (3) the unfavorablefavorable effect of changes in foreign currency exchange rates, and (4) the turnaround impact of cost savings actions taken in the second quarter of 2020, including temporary salary reductions and furloughs, partially offset by the impact on the nine months ended September 30, 2021 of ongoing savings resulting from cost reduction activities taken in fiscal year 2020.rates.
R&D expense related to megatrends during the three and ninesix months ended SeptemberJune 30, 20212022 was $12.9$17.6 million and $36.7$34.0 million, respectively, an increaseincreases of $5.3$5.0 million and $18.2$10.1 million, respectively, from the three and ninesix months ended SeptemberJune 30, 2020.2021.
Selling, general and administrative expense
For the three and six months ended SeptemberJune 30, 2021,2022, selling, general and administrative ("SG&A") expense increased $10.0 million to $85.8 million (9.0% of revenue) from $75.7 million (9.6% of revenue) in the three and six months ended SeptemberJune 30, 2020. The increase in SG&A expense is2021, primarily as a result of (1) incremental SG&A expense related to acquired businesses, including related transaction costs, (2) higher incentive compensation alignedselling costs to improved financial performance, (3) increased selling expenses attributed to organic revenuesupport growth and (4)our ability to execute for our customers, and (3) higher share-based compensation, partially offset by the unfavorable impactfavorable effect of changes in foreign currency exchange rates. These increases were partially offset by (1) the impactRefer to Note 4: Share-Based Payment Plans of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on the third quarter of 2021 of ongoing savings resulting from cost reduction activities taken in fiscal year 2020 and (2) the 2020 completion of a projectForm 10-Q, for additional information related to enhancements and improvements of our global operating processes to increase productivity and the resulting reduction in professional fees.
For the nine months ended September 30, 2021, SG&A expense increased $32.0 million to $249.7 million (8.7% of revenue) from $217.7 million (10.2% of revenue) in the nine months ended September 30, 2020. The increase in SG&A expense is primarily 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, (4) the unfavorable impact of changes in foreign currency exchange rates, and (5) the turnaround impact of cost savings actions taken in the second quarter of 2020, including temporary salary reductions, furloughs, and savings from repositioning actions. These increases were partially offset by (1) the impact on the nine months ended September 30, 2021 of ongoing savings resulting from cost reduction activities taken in fiscal year 2020 and (2) the 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.share-based compensation.
Amortization of intangible assets
For the three and ninesix months ended SeptemberJune 30, 2021,2022, amortization expense increased 6.2% and 3.1%, respectively, from the three and ninesix months ended SeptemberJune 30, 20202021, primarily due to increased intangibles from recent acquisitions partially offset by the effect of the economic benefit amortization method.
Restructuring and other charges, net
For the three and six months ended SeptemberJune 30, 2021, we incurred2022, restructuring and other charges, net of $0.3 million, an increase of $10.9 million (103.3%)increased from a net credit of $(10.5) million for the three and six months ended SeptemberJune 30, 2020. In the three months ended September 30, 2020, we settled2021, primarily due to acquisition-related incentive compensation partially offset by a patent infringement case brought by Wasica against Schrader and released $11.7 milliongain resulting from reduction of the liability for contingent consideration for Spear. In addition, we did not incur restructuring charges related liability, which is presented in restructuring and other charges, net. Refer toOverview—Q2 2020 Global Restructure Program elsewhere in this MD&A for additional discussion on the Q2 2020 Global Restructure Program.
For the nine months ended September 30, 2021, we incurred restructuring and other charges, net of $10.0 million, a decrease of $22.2 million (69.1%) from $32.2 million for the nine months ended September 30, 2020. This includes a decrease of $15.4 million in charges incurred in connection with the Q2 2020 Global Restructure Program fromin the prior year period. In addition, for the ninethree and six months ended SeptemberJune 30, 2020, the release of the liability related2022, compared to the Wasica settlement$3.8 million and $5.7 million in the third quarter of 2020 largely offset a charge of $12.1 million resulting from a prejudgment interest-related award granted by the court on behalf of Wasica in intellectual property litigation in the second quarter of 2020.
three and six months ended June 30, 2021, respectively. Refer to Note 5: Restructuring and Other Charges, Net of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information on ourthe components of restructuring and other charges, net.
Operating income
InFor the three months ended SeptemberJune 30, 2021,2022, operating income increased $34.5 million to $161.3 million (17.0% of net revenue)decreased compared to $126.8 million (16.1% of net revenue) in the three months ended SeptemberJune 30, 2020. The increase was2021, primarily due to (1) increase in volume from depressed levels experienced last year due to the COVID-19 pandemic and (2) improved gross margins, which were somewhat tempered by increased costs related to industry-wide supply chain shortages. These improvements were partially offset by increases in other operating costs and expenses, driven primarily by (1) higheracquisition-related incentive compensation, aligned to improved financial performance, (2) higher spend to support megatrend growthour megatrends initiatives, and (3) the releaseimpacts of the liabilitylower volume, (4) increased transaction-related costs, (5) higher amortization due to acquired intangibles, (6) higher selling costs to support growth and our ability to execute for our customers, and (7) higher share-based compensation, partially offset by (1) a reduction in restructuring charges related to the Wasica settlementQ2 2020 Global Restructure Program and (2) a gain recorded as a result of a reduction in the third quarter of 2021.liability for contingent consideration due to Spear.
InFor the ninesix months ended SeptemberJune 30, 2021,2022, operating income increased $300.0 million to $483.5 million (16.8% of net revenue)decreased compared to $183.6 million (8.6% of net revenue) in the ninesix months ended SeptemberJune 30, 2020. The increase was2021, primarily due to (1) increase in volume from depressed levels experienced last yearincreased acquisition-related incentive compensation, (2) higher amortization due to acquired intangibles, (3) the COVID-19 pandemic, (2) improved gross margins, which were somewhat tempered byimpacts of inflation, (4) higher spend to support our megatrends initiatives, (5) the impacts of lower volume, (6) higher selling costs to support growth and our ability to execute for our customers, (7) increased transaction-related costs, related to industry-wide supply chain shortages, and (3) lower restructuring costs. These improvements were(8) higher share-based compensation, partially offset by (1) higher incentive compensation aligneda gain recorded as a result of a reduction in the liability for contingent consideration due to improved financial performance,Spear, (2) higher spenda reduction in restructuring charges related to support megatrend growth initiatives,the Q2 2020 Global Restructure Program, and (3) the turnaroundfavorable effect of temporary salary reductions and furloughs takenchanges in the second quarter 2020.
We expect that the supply chain shortages will increase our operating costs in the fourth quarter of 2021, compared to the fourth quarter of 2020, and that it will continue to impact our operating results into 2022. If the impacts of this shortage are more severe than we expect, it could result in deterioration of our results, potentially for a longer period than currently anticipated.foreign currency exchange rates.
Interest expense, net
For the three months ended SeptemberJune 30, 2022, interest expense, net decreased $0.4 million from the three months ended June 30, 2021, as increased interest rates impacted interest income earned on our cash equivalents balances slightly more than interest expense on our variable rate debt (the Term Loan).
For the six months ended June 30, 2022, interest expense, net increased $1.0 million (2.3%) from the threesix months ended SeptemberJune 30, 2020,2021, primarily as a result of (1) a full six months of interest expense on the 4.0% Senior Notes in the six months ended June 30, 2022, which were issued on March 29, 2021 and April 8, 2021, and (2) increased interest expense on our variable rate debt resulting from higher interest rates in the 3.75% Senior Notes, which were issued on August 17, 2020,period, partially offset by the(1) reduced interest expense resulting from our March 5, 2021 redemption of the 6.25% Senior Notes.
For the nine months ended September 30, 2021, interest expense, net increased $10.1 million (8.1%) from the nine months ended September 30, 2020, primarily as a result of (1) interest expense on the 3.75% Senior Notes and (2) increased interest expenseincome earned on the 4.0% Senior Notes, partially offset by the reduced interest impact of our redemption of the 6.25% Senior Notes.
Refer to Overview—Debt Transactions elsewhere in this MD&A for additional information related to these transactions.cash equivalents balances.
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. In the three months ended September 30, 2021, other, net represented a net loss of $9.4 million, an unfavorable change of $18.6 million compared to a net gain of $9.2 million in the three months ended September 30, 2020. This was primarily due to increased losses from our commodity forward contracts and increased foreign currency remeasurement losses on net monetary assets.
In the nine months ended September 30, 2021, other, net represented a net loss of $47.8 million, an increase of $46.3 million compared to a net loss of $1.5 million in the nine months ended September 30, 2020. This was primarily due to the loss of $30.1 million recognized in the first quarter of 2021 related to the redemption of the 6.25% Senior Notes, increased losses from our commodity forward contracts, and increased foreign currency remeasurement losses on net monetary assets.
Refer to Overview—Debt Transactions included elsewhere in this MD&A for additional information related to the redemption of the 6.25% Senior Notes. Refer to Note 6: Other, Netof our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for more details related to the components of other, net.
For the three months ended June 30, 2022, other, net represented a net loss of $39.2 million, an unfavorable impact on earnings of $40.3 million compared to a net gain of $1.0 million in the three months ended June 30, 2021. This was primarily due to (1) increased losses on commodity forward contracts, (2) increased currency remeasurement losses on net monetary assets, primarily related to CNY, and (3) $11.8 million in mark-to-market losses on equity investments, primarily related to Quanergy. Refer to Note 14: Fair Value Measures of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, for detailed information on amounts includedour investment in Quanergy.
For the six months ended June 30, 2022, other, net.net represented a net loss of $89.7 million, an unfavorable impact on earnings of $51.3 million compared to a net loss of $38.4 million in the six months ended June 30, 2021. This was largely due to (1) $71.1 million in mark-to-market losses on equity investments, primarily related to Quanergy, (2) increased losses on net monetary assets, primarily related to CNY, and (3) increased losses on commodity forward contracts, partially offset by the non-recurrence of a $30.1 million loss on debt financing related to the redemption of our 6.25% Senior Notes on March 5, 2021.
Provision for income taxes
For the three months ended SeptemberJune 30, 2021,2022, the provision for income taxes increased $6.7$12.4 million from the three months ended SeptemberJune 30, 2020,2021, predominantly related to the jurisdictional mix of profits, the impacts of nondeductible earnout and compensation expenses resulting from recent acquisitions, and the inability to benefit the mark-to market loss on our investment in Quanergy.
For the six months ended June 30, 2022, the provision for income taxes decreased $0.3 million from the six months ended June 30, 2021, predominantly related to the overall increase in income before tax as impacted by the mix of profits in the various jurisdictions in which we operate.
For the nine months ended September 30, 2021, the provision for income taxes increased $34.7 million from the nine months ended September 30, 2020, predominantly related to the overall increasedecrease in income before tax as impacted by the mix of profits in the various jurisdictions in which we operate, as well as the nonrecurrence of the benefit recognized in the first quarter of 2020 as a result of the enactment of the CARES Act, which was enactedoffset by the U.S. federal governmentimpacts of nondeductible expenses resulting from our recent acquisitions and the inability to benefit the mark-to-market loss on March 27, 2020our investment in response to the global financial and health crisis caused by the COVID-19 pandemic. In connection with this legislation, federal limitations on interest deductions were reduced and we recognized a deferred tax benefit of $7.5 million in the nine months ended September 30, 2020, as we were able to utilize additional interest expense that was previously subject to a valuation allowance.Quanergy.
The provision for income taxes consists of (1) current tax expense, which relates primarily to our profitable operations in tax jurisdictions with limited or no net operating loss carryforwards and withholding taxes related to management fees, royalties, and the repatriation of foreign earnings; and (2) deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to (a) book versus tax basis in intangible assets, (b) changes in net operating loss carryforwards, and (c) changes in withholding taxes on unremitted earnings. Other items impacting deferred tax expense include changes in tax rates and (d) changes in our assessment of the realizability of our deferred tax assets.
Non-GAAP Financial Measures
This section provides additional information regarding certain non-GAAP financial measures, including organic revenue growth (or decline), adjusted operating income, adjusted operating margin, adjusted net income, adjusted earnings per share ("EPS"), free cash flow, net leverage ratio, and adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA"), which are used by our management, Board of Directors, and investors. 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 havehas 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 cash flows, segment operating margin,activities, total debt, finance lease and other financing obligations, or EBITDA, 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,
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)
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.
Adjusted operating income, (or loss), adjusted operating margin, adjusted net income, (or loss), and adjusted EPS
We define adjusted operating income (or loss) as operating income, (or loss), 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 (or loss) by net revenue calculateddetermined in accordance with U.S. GAAP. We define adjusted net income (or loss) 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. Adjusted EPS is calculated by dividing adjusted net income (or loss) by the number of diluted weighted-average ordinary shares outstanding in the period.
Management uses adjusted operating income, (or loss), adjusted operating margin, adjusted net income, (or loss), 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 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/(used in)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, and (or) accelerate the repayment of debt obligations.
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, (3) deferred lossgain or gainloss on derivative instruments, and (4) step-up inventory amortization. Refer to Non-GAAP Adjustments below for additional discussion of these adjustments.
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. 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 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 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. 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. Restructuring related and other does not, however, include charges related to the integration of acquired businesses, including such charges that are recognized as restructuring and other charges, net in the consolidated statements of operations.
•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.
•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 and amortization expense associated with the step-up in fair value of assets acquired in connection with a business combination (e.g., property, plant and equipment, definite-lived intangible assets, and inventory)inventories).
•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 acquisitions and tax law changes. Other tax related items include certain adjustments to unrecognized tax positionsbenefits and withholding tax on repatriation of foreign earnings.
•Amortization of debt issuance costscosts:. We adjust our results recorded in accordance with U.S. GAAP byrepresents interest expense related to the amortization of deferred financing costs as well as debt issuance costs, which are deferred as a contra-liability against our long-term debt,discounts, net on the consolidated balance sheets and which are reflected in interest expense on our consolidated statements of operations.premiums.
•Where applicable, the current income tax effect of non-GAAP adjustments.
Our definition of adjusted net income (or loss) 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, (or loss), the deferred income tax effect associated with the reconciling items presented below would not change adjusted net income for any period presented.
Non-GAAP reconciliations
The following tables providepresent reconciliations of certain financial measures calculated in accordance with U.S. GAAP to the related non-GAAP financial measures for the periods presented. Refer to Non-GAAP Adjustmentsadjustments section above for additional information onrelated 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 three months ended September 30, 2021 | | For the three months ended September 30, 2020 |
(Dollars in millions, except per share amounts) | | Operating Income | | Operating Margin | | Net Income | | Diluted EPS | | Operating Income | | Operating Margin | | Net Income | | Diluted EPS |
Reported (GAAP) | | $ | 161.3 | | | 17.0 | % | | $ | 85.0 | | | $ | 0.53 | | | $ | 126.8 | | | 16.1 | % | | $ | 76.7 | | | $ | 0.49 | |
Non-GAAP adjustments: | | | | | | | | | | | | | | | | |
Restructuring related and other | | 5.4 | | | 0.6 | | | 5.4 | | | 0.03 | | | (5.6) | | | (0.7) | | | 5.0 | | | 0.03 | |
Financing and other transaction costs | | (1.0) | | | (0.1) | | | 1.7 | | | 0.01 | | | 1.8 | | | 0.2 | | | 1.8 | | | 0.01 | |
Step-up depreciation and amortization | | 32.7 | | | 3.4 | | | 32.7 | | | 0.20 | | | 31.5 | | | 4.0 | | | 31.5 | | | 0.20 | |
Deferred loss/(gain) on derivative instruments | | 2.6 | | | 0.3 | | | 10.2 | | | 0.06 | | | 0.2 | | | 0.0 | | | (5.9) | | | (0.04) | |
Amortization of debt issuance costs | | — | | | — | | | 1.7 | | | 0.01 | | | — | | | — | | | 1.8 | | | 0.01 | |
Deferred taxes and other tax related | | — | | | — | | | 2.0 | | | 0.01 | | | — | | | — | | | (7.3) | | | (0.05) | |
Total adjustments | | 39.7 | | | 4.2 | | | 53.6 | | | 0.34 | | | 28.0 | | | 3.5 | | | 26.9 | | | 0.17 | |
Adjusted (non-GAAP) | | $ | 201.0 | | | 21.1 | % | | $ | 138.6 | | | $ | 0.87 | | | $ | 154.8 | | | 19.6 | % | | $ | 103.6 | | | $ | 0.66 | |
| | | | For the nine months ended September 30, 2021 | | For the nine months ended September 30, 2020 | | | For the three months ended June 30, 2022 | | For the three months ended June 30, 2021 |
(Dollars in millions, except per share amounts) | (Dollars in millions, except per share amounts) | | Operating Income | | Operating Margin | | Net Income | | Diluted EPS | | Operating Income | | Operating Margin | | Net Income | | Diluted EPS | (Dollars in millions, except per share amounts) | | Operating Income | | Operating Margin | | Net Income | | Diluted EPS | | Operating Income | | Operating Margin | | Net Income | | Diluted EPS |
Reported (GAAP) | Reported (GAAP) | | $ | 483.5 | | | 16.8 | % | | $ | 251.6 | | | $ | 1.58 | | | $ | 183.6 | | | 8.6 | % | | $ | 42.6 | | | $ | 0.27 | | Reported (GAAP) | | $ | 138.9 | | | 13.6 | % | | $ | 34.8 | | | $ | 0.22 | | | $ | 164.8 | | | 16.6 | % | | $ | 112.9 | | | $ | 0.71 | |
Non-GAAP adjustments: | Non-GAAP adjustments: | | Non-GAAP adjustments: | |
Restructuring related and other | Restructuring related and other | | 15.7 | | | 0.5 | | | 19.6 | | | 0.12 | | | 79.0 | | | 3.7 | | | 76.8 | | | 0.49 | | Restructuring related and other | | 3.9 | | | 0.4 | | | 4.3 | | | 0.03 | | | 5.7 | | | 0.6 | | | 6.9 | | | 0.04 | |
Financing and other transaction costs | Financing and other transaction costs | | 6.1 | | | 0.2 | | | 35.8 | | | 0.22 | | | 7.2 | | | 0.3 | | | 7.2 | | | 0.05 | | Financing and other transaction costs | | 14.4 | | | 1.4 | | | 28.3 | | | 0.18 | | | 2.5 | | | 0.3 | | | 1.3 | | | 0.01 | |
Step-up depreciation and amortization | Step-up depreciation and amortization | | 96.0 | | | 3.3 | | | 96.0 | | | 0.60 | | | 95.6 | | | 4.5 | | | 95.6 | | | 0.61 | | Step-up depreciation and amortization | | 35.3 | | | 3.5 | | | 35.3 | | | 0.22 | | | 33.7 | | | 3.4 | | | 33.7 | | | 0.21 | |
Deferred loss/(gain) on derivative instruments | | 7.0 | | | 0.2 | | | 13.5 | | | 0.08 | | | 1.0 | | | 0.0 | | | (5.0) | | | (0.03) | | |
Deferred loss on derivative instruments | | Deferred loss on derivative instruments | | 1.2 | | | 0.1 | | | 15.4 | | | 0.10 | | | 2.6 | | | 0.3 | | | 1.1 | | | 0.01 | |
Amortization of debt issuance costs | Amortization of debt issuance costs | | — | | | — | | | 5.1 | | | 0.03 | | | — | | | — | | | 5.0 | | | 0.03 | | Amortization of debt issuance costs | | — | | | — | | | 1.7 | | | 0.01 | | | — | | | — | | | 1.7 | | | 0.01 | |
Deferred taxes and other tax related | Deferred taxes and other tax related | | — | | | — | | | 5.9 | | | 0.04 | | | — | | | — | | | (7.8) | | | (0.05) | | Deferred taxes and other tax related | | — | | | — | | | 9.7 | | | 0.06 | | | — | | | — | | | (6.2) | | | (0.04) | |
Total adjustments | Total adjustments | | 124.9 | | | 4.3 | | | 175.9 | | | 1.10 | | | 182.9 | | | 8.6 | | | 171.9 | | | 1.09 | | Total adjustments | | 54.8 | | | 5.4 | | | 94.7 | | | 0.60 | | | 44.6 | | | 4.5 | | | 38.4 | | | 0.24 | |
Adjusted (non-GAAP) | Adjusted (non-GAAP) | | $ | 608.4 | | | 21.1 | % | | $ | 427.5 | | | $ | 2.68 | | | $ | 366.5 | | | 17.1 | % | | $ | 214.5 | | | $ | 1.36 | | Adjusted (non-GAAP) | | $ | 193.8 | | | 19.0 | % | | $ | 129.5 | | | $ | 0.83 | | | $ | 209.3 | | | 21.1 | % | | $ | 151.4 | | | $ | 0.95 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, 2022 | | For the six months ended June 30, 2021 |
(Dollars in millions, except per share amounts) | | Operating Income | | Operating Margin | | Net Income | | Diluted EPS | | Operating Income | | Operating Margin | | Net Income | | Diluted EPS |
Reported (GAAP) | | $ | 264.9 | | | 13.3 | % | | $ | 57.3 | | | $ | 0.36 | | | $ | 322.2 | | | 16.7 | % | | $ | 166.6 | | | $ | 1.05 | |
Non-GAAP adjustments: | | | | | | | | | | | | | | | | |
Restructuring related and other | | 8.0 | | | 0.4 | | | 8.3 | | | 0.05 | | | 10.3 | | | 0.5 | | | 14.2 | | | 0.09 | |
Financing and other transaction costs | | 30.3 | | | 1.5 | | | 102.8 | | | 0.65 | | | 7.1 | | | 0.4 | | | 34.1 | | | 0.21 | |
Step-up depreciation and amortization | | 71.3 | | | 3.6 | | | 71.3 | | | 0.45 | | | 63.4 | | | 3.3 | | | 63.4 | | | 0.40 | |
Deferred loss on derivative instruments | | 1.8 | | | 0.1 | | | 8.5 | | | 0.05 | | | 4.4 | | | 0.2 | | | 3.3 | | | 0.02 | |
Amortization of debt issuance costs | | — | | | — | | | 3.4 | | | 0.02 | | | — | | | — | | | 3.4 | | | 0.02 | |
Deferred taxes and other tax related | | — | | | — | | | 1.3 | | | 0.01 | | | — | | | — | | | 3.9 | | | 0.02 | |
Total adjustments | | 111.4 | | | 5.6 | | | 195.7 | | | 1.24 | | | 85.2 | | | 4.4 | | | 122.3 | | | 0.77 | |
Adjusted (non-GAAP) | | $ | 376.3 | | | 18.8 | % | | $ | 253.0 | | | $ | 1.60 | | | $ | 407.4 | | | 21.1 | % | | $ | 289.0 | | | $ | 1.81 | |
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, | | For the six months ended June 30, |
(in millions) | (in millions) | | 2021 | | 2020 | | (in millions) | | 2022 | | 2021 | |
Net cash provided by operating activities | | $ | 393.2 | | | $ | 293.3 | | | |
Net cash provided by operating activities (GAAP) | | Net cash provided by operating activities (GAAP) | | $ | 141.9 | | | $ | 267.9 | | |
Additions to property, plant and equipment and capitalized software | Additions to property, plant and equipment and capitalized software | | (100.4) | | | (79.9) | | | Additions to property, plant and equipment and capitalized software | | (74.1) | | | (63.6) | | |
Free cash flow | | $ | 292.8 | | | $ | 213.4 | | | |
Free cash flow (non-GAAP) | | Free cash flow (non-GAAP) | | $ | 67.8 | | | $ | 204.4 | | |
The following table provides a reconciliation of net income in accordance with U.S. GAAP to Adjusted EBITDA.
| | | For the three months ended September 30, | | For the nine months ended September 30, | | For the three months ended June 30, | | For the six months ended June 30, |
(in millions) | (in millions) | | LTM | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | LTM (1) | | 2022 | | 2021 | | 2022 | | 2021 |
Net income | Net income | | $ | 373.3 | | | $ | 85.0 | | | $ | 76.7 | | | $ | 251.6 | | | $ | 42.6 | | Net income | | $ | 254.2 | | | $ | 34.8 | | | $ | 112.9 | | | $ | 57.3 | | | $ | 166.6 | |
Interest expense, net | Interest expense, net | | 181.8 | | | 45.1 | | | 44.1 | | | 134.4 | | | 124.3 | | Interest expense, net | | 180.3 | | | 44.8 | | | 45.2 | | | 90.3 | | | 89.3 | |
Provision for income taxes | Provision for income taxes | | 36.0 | | | 21.8 | | | 15.2 | | | 49.8 | | | 15.1 | | Provision for income taxes | | 50.0 | | | 20.0 | | | 7.6 | | | 27.6 | | | 27.9 | |
Depreciation expense | Depreciation expense | | 125.8 | | | 31.5 | | | 28.9 | | | 94.4 | | | 94.2 | | Depreciation expense | | 125.0 | | | 31.4 | | | 31.6 | | | 62.9 | | | 62.8 | |
Amortization of intangible assets | Amortization of intangible assets | | 132.6 | | | 34.6 | | | 32.6 | | | 101.5 | | | 98.4 | | Amortization of intangible assets | | 141.4 | | | 36.8 | | | 34.9 | | | 74.2 | | | 66.9 | |
EBITDA | EBITDA | | 849.6 | | | 218.0 | | | 197.5 | | | 631.6 | | | 374.7 | | EBITDA | | 750.9 | | | 167.9 | | | 232.3 | | | 312.2 | | | 413.6 | |
Non-GAAP Adjustments | | |
Non-GAAP adjustments | | Non-GAAP adjustments | |
Restructuring related and other | Restructuring related and other | | 31.6 | | | 4.3 | | | (5.1) | | | 18.7 | | | 80.2 | | Restructuring related and other | | 17.7 | | | 4.3 | | | 7.0 | | | 8.5 | | | 14.4 | |
Financing and other transaction costs | Financing and other transaction costs | | 35.0 | | | (1.8) | | | 1.8 | | | 35.8 | | | 7.2 | | Financing and other transaction costs | | 107.3 | | | 28.7 | | | 1.7 | | | 103.8 | | | 37.6 | |
Deferred loss/(gain) on derivative instruments | | 11.5 | | | 9.1 | | | (5.9) | | | 13.5 | | | (5.0) | | |
Deferred loss on derivative instruments | | Deferred loss on derivative instruments | | 17.6 | | | 19.4 | | | 1.4 | | | 10.7 | | | 4.4 | |
Adjusted EBITDA | Adjusted EBITDA | | $ | 927.6 | | | $ | 229.6 | | | $ | 188.4 | | | $ | 699.6 | | | $ | 457.1 | | Adjusted EBITDA | | $ | 893.5 | | | $ | 220.4 | | | $ | 242.4 | | | $ | 435.2 | | | $ | 470.0 | |
(1) Last twelve months
The following table provides a reconciliation of total debt, finance lease and other financing obligations in accordance with U.S. GAAP to net leverage ratio.
| (Dollars in millions) | (Dollars in millions) | | September 30, 2021 | | December 31, 2020 | | (Dollars in millions) | | June 30, 2022 | | December 31, 2021 | |
Current portion of long-term debt, finance lease and other financing obligations | Current portion of long-term debt, finance lease and other financing obligations | | $ | 6.6 | | | $ | 757.2 | | | Current portion of long-term debt, finance lease and other financing obligations | | $ | 6.6 | | | $ | 6.8 | | |
Finance lease and other financing obligations, less current portion | Finance lease and other financing obligations, less current portion | | 27.0 | | | 27.9 | | | Finance lease and other financing obligations, less current portion | | 25.6 | | | 26.6 | | |
Long-term debt, net | Long-term debt, net | | 4,214.4 | | | 3,213.7 | | | Long-term debt, net | | 4,213.5 | | | 4,214.9 | | |
Total debt, finance lease, and other financing obligations | | 4,248.0 | | | 3,998.9 | | | |
Less: discount | | (5.7) | | | (9.6) | | | |
Total debt, finance lease and other financing obligations | | Total debt, finance lease and other financing obligations | | 4,245.7 | | | 4,248.3 | | |
Less: discount, net of premium | | Less: discount, net of premium | | (4.3) | | | (5.2) | | |
Less: deferred financing costs | Less: deferred financing costs | | (28.0) | | | (28.1) | | | Less: deferred financing costs | | (26.7) | | | (26.7) | | |
Total gross indebtedness | Total gross indebtedness | | 4,281.6 | | | 4,036.6 | | | Total gross indebtedness | | 4,276.7 | | | 4,280.2 | | |
Less: cash and cash equivalents | Less: cash and cash equivalents | | 1,958.1 | | | 1,862.0 | | | Less: cash and cash equivalents | | 1,558.6 | | | 1,709.0 | | |
Net debt | Net debt | | $ | 2,323.5 | | | $ | 2,174.6 | | | Net debt | | $ | 2,718.1 | | | $ | 2,571.3 | | |
| Adjusted EBITDA (LTM) | Adjusted EBITDA (LTM) | | $ | 927.6 | | | $ | 685.1 | | | Adjusted EBITDA (LTM) | | $ | 893.5 | | | $ | 928.3 | | |
Net leverage ratio | Net leverage ratio | | 2.5 | | 3.2 | | Net leverage ratio | | 3.0 | | 2.8 | |
Liquidity and Capital Resources
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, 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) | (In millions) | September 30, 2021 | | December 31, 2020 | (In millions) | June 30, 2022 | | December 31, 2021 |
United Kingdom | United Kingdom | $ | 30.2 | | | $ | 25.3 | | United Kingdom | $ | 23.9 | | | $ | 20.4 | |
United States | United States | 23.2 | | | 17.2 | | United States | 598.8 | | | 25.0 | |
The Netherlands | The Netherlands | 1,580.2 | | | 1,514.1 | | The Netherlands | 607.1 | | | 1,304.3 | |
China | China | 269.9 | | | 185.2 | | China | 261.6 | | | 293.8 | |
Other | Other | 54.6 | | | 120.2 | | Other | 67.2 | | | 65.5 | |
Total | Total | $ | 1,958.1 | | | $ | 1,862.0 | | Total | $ | 1,558.6 | | | $ | 1,709.0 | |
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 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 equivalent balances are held in the following significant currencies:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2022 |
(In millions) | USD | | EUR | | GBP | | CNY | | Other |
United Kingdom | $ | (0.6) | | | € | 0.0 | | | £ | 15.5 | | | ¥ | — | | | |
United States | 598.8 | | | 0.0 | | | — | | | — | | | |
The Netherlands | 588.1 | | | 17.8 | | | — | | | — | | | |
China | 147.2 | | | — | | | — | | | 766.2 | | | |
Other | 44.9 | | | 3.1 | | | — | | | — | | | |
Total | $ | 1,378.4 | | | € | 20.9 | | | £ | 15.5 | | | ¥ | 766.2 | | | |
USD Equivalent | | | $ | 22.0 | | | $ | 18.9 | | | $ | 114.5 | | | $ | 24.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
(In millions) | USD | | EUR | | GBP | | CNY | | Other |
United Kingdom | $ | 1.8 | | | € | 0.0 | | | £ | 13.2 | | | ¥ | — | | | |
United States | 25.0 | | | — | | | — | | | — | | | |
The Netherlands | 1,294.2 | | | 8.9 | | | — | | | — | | | |
China | 50.8 | | | — | | | — | | | 1,549.4 | | | |
Other | 51.0 | | | 1.7 | | | — | | | — | | | |
Total | $ | 1,422.8 | | | € | 10.6 | | | £ | 13.2 | | | ¥ | 1,549.4 | | | |
USD Equivalent | | | $ | 12.0 | | | $ | 17.8 | | | $ | 243.1 | | | $ | 13.3 | |
Cash Flows:
The table below summarizes our primary sources and uses of cash for the ninesix months ended SeptemberJune 30, 20212022 and 2020.2021. We have derived this summarized statements of cash flows from the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 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 | | For the six months ended |
(In millions) | (In millions) | September 30, 2021 | | September 30, 2020 | (In millions) | June 30, 2022 | | June 30, 2021 |
Net cash provided by/(used in): | Net cash provided by/(used in): | | | | Net cash provided by/(used in): | | | |
Operating activities: | Operating activities: | | Operating activities: | |
Net income adjusted for non-cash items | Net income adjusted for non-cash items | $ | 516.8 | | | $ | 248.7 | | Net income adjusted for non-cash items | $ | 285.1 | | | $ | 347.0 | |
Changes in operating assets and liabilities, net | Changes in operating assets and liabilities, net | (123.6) | | | 44.6 | | Changes in operating assets and liabilities, net | (143.2) | | | (79.1) | |
Operating activities | Operating activities | 393.2 | | | 293.3 | | Operating activities | 141.9 | | | 267.9 | |
Investing activities | Investing activities | (516.1) | | | (158.5) | | Investing activities | (129.8) | | | (489.1) | |
Financing activities | Financing activities | 219.0 | | | 701.2 | | Financing activities | (162.5) | | | 221.0 | |
Net change | Net change | $ | 96.2 | | | $ | 836.1 | | Net change | $ | (150.4) | | | $ | (0.2) | |
Operating activities. Net cash provided by operating activities increased infor the ninesix months ended SeptemberJune 30, 2021 primarily due to higher net income adjusted for non-cash items, partially offset by the impact of changes in working capital. Changes in working capital in the nine months ended September 30, 2021 were primarily driven by higher accounts receivable balances reflecting higher revenue in the third quarter of 20212022 decreased compared to the third quartercorresponding period of 2020. In addition, during the three months ended September 30, 2021, weprior year, primarily due to increased raw material purchases in order to maximize production flexibility given widespread parts shortages in our supply chain. These changes were partially offset by increased accounts payablechain and in anticipation of volume increases later in the nine months ended September 30, 2021 comparedyear, a cash payment of $15.0 million for earned acquisition-related incentive compensation related to the prior year period.Elastic M2M, and timing of supplier payments and customer receipts.
Investing activities. Net cash used in investing activities increased infor the ninesix months ended SeptemberJune 30, 20212022 decreased compared to the corresponding period of the prior year, primarily due to $415.0 millionlower cash paid for acquisitions, which included Elastic M2M in the acquisitions of Lithium Balancesix months ended June 30, 2022 and Xirgo. InXirgo Technologies, LLC in the six months ended June 30, 2021. This impact was partially offset by higher capital expenditures. For fiscal year 2021,2022, we anticipate capital expenditures of approximately $145.0$135.0 million to $155.0$145.0 million, which we expect to be funded fromfund with cash on hand.
Financing activities. In the ninesix months ended SeptemberJune 30, 2022, net cash used in financing activities was primarily driven by $144.3 million cash paid for share repurchases and $17.2 million paid for cash dividends, each of which did not have a comparable payment in the prior year. In the six months ended June 30, 2021, net cash provided by financing activities decreasedwas primarily duethe 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 2021 we used $33.0 million in cash related to the impact of debt financing transactions. In the nine months ended September 30, 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, for net cash provided of $208.0 million (including associated fees). This compares to the issuance of $750 million aggregate principal amount of 3.75% Senior Notes in the nine months ended September 30, 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 $736.5 million. This decline in net proceeds from the issuance of debt was partially offset by less cash paid to repurchase shares and increased proceeds from option exercises. We did not repurchase any ordinary shares in the nine months ended September 30, 2021, compared to ordinary share repurchases of $35.2 million in the nine months ended September 30, 2020. This decline is the result of our temporary suspension of share repurchases on April 2, 2020. Refer to Capital Resources—Share repurchase programs for additional discussion. We intend to resume our share repurchase program in the fourth quarter.
Indebtedness and Liquidity
As of SeptemberJune 30, 2021,2022, we had $4.3 billion in gross indebtedness, which includes finance lease and other financing obligations and excludedexcludes debt discounts, premiums, and deferred financing costs. In the first quarter of 2021, we redeemed our 6.25% Senior Notes and issued the 4.0% Senior Notes, reducing our cost of capital and extending the maturity profile of our debt. Refer to Overview—Debt Transactions included elsewhere in this MD&A for additional discussion of these transactions.
Capital Resources
Senior Secured Credit Facilities
The credit agreement governing ourCredit Agreement provides for senior secured credit facility (as amended, the "Credit Agreement") provides for the Senior Secured Credit Facilitiesfacilities consisting of the Term Loan, the Revolving Credit Facility, and incremental availability (the "Accordion") under which additional secured credit facilities could be issued under certain circumstances.
On June 23, 2022, certain of our indirect, wholly-owned subsidiaries, including STI, STIHBV, and STBV, entered into the Eleventh Amendment to the Credit Agreement and the Foreign Guaranty, dated as of May 12, 2011. Among other changes to the Credit Agreement, the Eleventh Amendment (i) increased the aggregate principal amount of the Revolving Credit Facility to $750.0 million; (ii) extended the maturity date of the Revolving Credit Facility to June 23, 2027 (which could be accelerated to June 22, 2026 if, prior to June 22, 2026, the Term Loan is not refinanced with a maturity date that is on or after June 23, 2027); (iii) released the Foreign Guarantors (as defined in the Credit Agreement), excluding STBV, from their obligations to guarantee the obligations of STI and the other Loan Parties (as defined in the Credit Agreement) relating to the Revolving Credit Facility and certain related obligations, subject to an obligation to reinstate such guaranties under certain conditions; (iv) replaced the LIBOR-based interest rates referenced by the Credit Agreement regarding revolving credit loans to (a) for revolving credit loans denominated in U.S. dollars, an interest rate based on the SOFR published by the Federal Reserve Bank of New York and (b) for revolving credit loans denominated in pounds sterling, an interest rate based on the SONIA; and (v) certain of the operational and restrictive covenants and other terms and conditions of the Credit Agreement were modified to provide STI and its affiliates increased flexibility and permissions thereunder.
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 SeptemberJune 30, 2021,2022, we had $416.1$746.1 million available under the Revolving Credit Facility, net of $3.9 million of obligations related toin respect of outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of SeptemberJune 30, 2021,2022, 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 SeptemberJune 30, 2021,2022, availability under the Accordion was approximately $1.0$0.6 billion. Our primary use of cash on hand is to acquire businesses that will extend our market position within our key growth vectors of Electrification and Insights. In addition, we intend to resume our share repurchase program, under which we have approximately $302 million available for repurchase, in the fourth quarter.
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, (when resumed), 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 OctoberJuly 20, 2021,2022, 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.
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.our senior secured credit facilities. The Credit Agreement also requires mandatory prepayments of the outstanding borrowings under the Senior Secured Credit Facilitiesour senior secured credit facilities upon certain asset dispositions and casualty events, in each case subject to certain reinvestment rights, and upon the incurrence of certain
indebtedness (excluding any permitted indebtedness). These provisions were not triggered during the ninesix months ended SeptemberJune 30, 2021.2022. We do not expect that the sale of the Qinex Business, which occurred subsequent to June 30, 2022, will trigger these provisions.
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’s7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources" included in our 20202021 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 SeptemberJune 30, 2021,2022, 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 an authorized $500.0 million share repurchase program (the "January 2022 Program") under which approximately $302.3$370.6 million remained available as of SeptemberJune 30, 2021. 2022.
Dividends
On April 2, 2020,May 25, 2022, we paid a cash dividend of $0.11 per share, or $17.2 million in aggregate, to shareholders of record as of May 11, 2022. On July 21, 2022, we announced that our Board had declared a temporary suspensionquarterly dividend of this$0.11 per share, repurchase program. We intendpayable on August 24, 2022 to resume our share repurchase program in the fourth quarter.shareholders of record as of August 10, 2022.
Recently Issued Accounting Pronouncements
There are no recently issued accounting standards that have been adopted in the current period or will be adopted in future periods that have had or are expected to have a material impact on our consolidated financial position or results of operations.
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’s7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates"Estimates included in our 20202021 Annual Report.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
No significant changes to our market risk have occurred since December 31, 2020.2021. For a discussion of market risks affecting us, refer to Part II, Item 7A—"7A: Quantitative and Qualitative Disclosures About Market Risk"Risk included in our 20202021 Annual Report.
Item 4.Controls and Procedures.
The required certifications of our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer are included as exhibits to this Quarterly Report on Form 10-Q. The disclosures set forth in this Item 4 contain information concerning the evaluation of our disclosure controls and procedures and changes in internal control over financial reporting referred to in these certifications. These certifications should be read in conjunction with this Item 4 for a more complete understanding of the matters covered by the certifications.
Evaluation of Disclosure Controls and Procedures
With the participation of our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, we have evaluated the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2021.2022. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of SeptemberJune 30, 2021,2022, our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended SeptemberJune 30, 20212022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
There are inherent limitations to the effectiveness of any system of internal control over financial reporting. Accordingly, even an effective system of internal control over financial reporting can only provide reasonable assurance with respect to financial statement preparation and presentation in accordance with U.S. GAAP. Our internal controls over financial reporting are subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time.
PART II—OTHER INFORMATION
Item 1.Legal Proceedings.
We are regularly involved in a number of claims and litigation matters that arise in the ordinary course of business. Although it is not feasible to predict the outcome of these matters, based upon our experience and current information known to us, we do not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on our results of operations, financial condition, and/or cash flows.
Item 1A.Risk Factors.
Information regarding risk factors appears in Part I, Item 1A: Risk Factors, included in our 20202021 Annual Report. There have been no material changes to the risk factors disclosed therein.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (in shares) | | Weighted-Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plan or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Programs (in millions) |
July 1 through July 31, 2021 | | 1,047 | | | $ | 58.44 | | | — | | | $ | 302.3 | |
August 1 through August 31, 2021 | | 2,465 | | | $ | 58.62 | | | — | | | $ | 302.3 | |
September 1 through September 30, 2021 | | 14,286 | | | $ | 58.30 | | | — | | | $ | 302.3 | |
Quarter total | | 17,798 | | | $ | 58.35 | | | — | | | $ | 302.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (in shares) (1) | | Weighted-Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plan or Programs (2) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Programs (in millions) |
April 1 through April 30, 2022 | | 481,503 | | | $ | 49.10 | | | 344,829 | | | $ | 432.8 | |
May 1 through May 31, 2022 | | 766,864 | | | $ | 46.12 | | | 759,564 | | | $ | 397.8 | |
June 1 through June 30, 2022 | | 592,213 | | | $ | 46.16 | | | 587,947 | | | $ | 370.6 | |
Quarter total | | 1,840,580 | | | $ | 46.91 | | | 1,692,340 | | | $ | 370.6 | |
__________________________
(1) The number of ordinary shares presented includes ordinary shares that were withheld upon the vesting of restricted securities to cover payment of employee withholding tax. These withholdings took place outside of a publicly announced repurchase plan. There were 136,674 ordinary shares withheld in April 2022, 7,300 ordinary shares withheld in May 2022, and 4,266 ordinary shares withheld in June 2022, representing a total aggregate fair value of $7.4 million based on the closing price of our ordinary shares on the date of withholdings.
(2) All purchases during the three months ended June 30, 2022 were conducted pursuant to a $500.0 million share repurchase program authorized by our Board of Directors and publicly announced on January 20, 2022 (the “January 2022 Program”). The January 2022 Program does not have an established expiration date.
Item 3.Defaults Upon Senior Securities.
None.
Item 6.Exhibits.
| | | | | | | | |
Exhibit No. | | Description |
| | |
3.1 | | |
| | |
10.1 | | |
| | |
10.2 | | Amendment No. 11 to Credit Agreement and Amendment No. 2 to Foreign Guaranty, dated as of June 23, 2022, by and among Sensata Technologies, Inc., Sensata Technologies Intermediate Holding B.V., the other Guarantors party thereto, Morgan Stanley Senior Funding, Inc., as the Administrative Agent, an L/C Issuer and the Swing Line Lender, and the Revolving Credit Lenders and other L/C Issuers party thereto (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed on June 29, 2022). |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
31.3 | | |
| | |
32.1 | | |
| | |
| | |
| | |
| | |
| | |
101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. * |
| | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. * |
| | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. * |
| | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. * |
| | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. * |
| | |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
| | |
___________________________
* Filed herewith
† Indicates management contract or compensatory plan, contract, or arrangement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: October 26, 2021August 1, 2022
| | |
SENSATA TECHNOLOGIES HOLDING PLC |
|
/s/ Jeffrey Cote |
(Jeffrey Cote) Chief Executive Officer and President (Principal Executive Officer) |
|
/s/ Paul Vasington |
(Paul Vasington) Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
|
/s/ Maria Freve |
(Maria Freve) Vice President and Chief Accounting Officer (Principal Accounting Officer) |
|
|
|