SENSATA TECHNOLOGIES HOLDING PLC
10-Ks and 10-Qs
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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 September 30, 2019
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
_________________________________________________________________________________
(Exact name of registrant as specified in its charter)
_________________________________________________________________________________
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
(Address of principal executive offices, including zip code))
(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 |
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.
☒ | 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 October 18, 2019, 158,853,596 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. | |||
Signatures | |||
2
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, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | $ | |||||
Accounts receivable, net of allowances of $15,969 and $13,762 as of September 30, 2019 and December 31, 2018, respectively | |||||||
Inventories | |||||||
Prepaid expenses and other current assets | |||||||
Total current assets | |||||||
Property, plant and equipment, net | |||||||
Goodwill | |||||||
Other intangible assets, net of accumulated amortization of $2,004,646 and $1,896,861 as of September 30, 2019 and December 31, 2018, respectively | |||||||
Deferred income tax assets | |||||||
Other assets | |||||||
Total assets | $ | $ | |||||
Liabilities and shareholders’ equity | |||||||
Current liabilities: | |||||||
Current portion of long-term debt, finance lease and other financing obligations | $ | $ | |||||
Accounts payable | |||||||
Income taxes payable | |||||||
Accrued expenses and other current liabilities | |||||||
Total current liabilities | |||||||
Deferred income tax liabilities | |||||||
Pension and other post-retirement benefit obligations | |||||||
Finance lease and other financing obligations, less current portion | |||||||
Long-term debt, net | |||||||
Other long-term liabilities | |||||||
Total liabilities | |||||||
Commitments and contingencies (Note 12) | |||||||
Shareholders’ equity: | |||||||
Ordinary shares, €0.01 nominal value per share, 177,069 shares authorized, and 172,427 and 171,719 shares issued, as of September 30, 2019 and December 31, 2018, respectively | |||||||
Treasury shares, at cost, 13,084 and 7,571 shares as of September 30, 2019 and December 31, 2018, respectively | ( | ) | ( | ) | |||
Additional paid-in capital | |||||||
Retained earnings | |||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | |||
Total shareholders’ equity | |||||||
Total liabilities and shareholders’ equity | $ | $ | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
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 | ||||||||||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | ||||||||||||
Net revenue | $ | $ | $ | $ | |||||||||||
Operating costs and expenses: | |||||||||||||||
Cost of revenue | |||||||||||||||
Research and development | |||||||||||||||
Selling, general and administrative | |||||||||||||||
Amortization of intangible assets | |||||||||||||||
Restructuring and other charges, net | ( | ) | ( | ) | |||||||||||
Total operating costs and expenses | |||||||||||||||
Operating income | |||||||||||||||
Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Other, net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Income before taxes | |||||||||||||||
Provision for income taxes | |||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Basic net income per share: | $ | $ | $ | $ | |||||||||||
Diluted net income per share: | $ | $ | $ | $ | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)
For the three months ended | For the nine months ended | ||||||||||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | ||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Other comprehensive income, net of tax: | |||||||||||||||
Cash flow hedges | |||||||||||||||
Defined benefit and retiree healthcare plans | |||||||||||||||
Other comprehensive income | |||||||||||||||
Comprehensive income | $ | $ | $ | $ | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
For the nine months ended | |||||||
September 30, 2019 | September 30, 2018 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation | |||||||
Amortization of debt issuance costs | |||||||
Gain on sale of business | ( | ) | |||||
Share-based compensation | |||||||
Loss on debt financing | |||||||
Amortization of intangible assets | |||||||
Deferred income taxes | |||||||
Unrealized loss on derivative instruments and other | |||||||
Changes in operating assets and liabilities, net of the effects of acquisitions and divestitures: | |||||||
Accounts receivable, net | ( | ) | ( | ) | |||
Inventories | ( | ) | ( | ) | |||
Prepaid expenses and other current assets | ( | ) | |||||
Accounts payable and accrued expenses | ( | ) | |||||
Income taxes payable | ( | ) | |||||
Other | ( | ) | ( | ) | |||
Net cash provided by operating activities | |||||||
Cash flows from investing activities: | |||||||
Acquisitions, net of cash received | ( | ) | |||||
Additions to property, plant and equipment and capitalized software | ( | ) | ( | ) | |||
Proceeds from the sale of business, net of cash sold | |||||||
Other | ( | ) | |||||
Net cash (used in)/provided by investing activities | ( | ) | |||||
Cash flows from financing activities: | |||||||
Proceeds from exercise of stock options and issuance of ordinary shares | |||||||
Payment of employee restricted stock tax withholdings | ( | ) | ( | ) | |||
Proceeds from issuance of debt | |||||||
Payments on debt | ( | ) | ( | ) | |||
Payments to repurchase ordinary shares | ( | ) | ( | ) | |||
Payments of debt and equity issuance costs | ( | ) | ( | ) | |||
Other | |||||||
Net cash used in financing activities | ( | ) | ( | ) | |||
Net change in cash and cash equivalents | ( | ) | |||||
Cash and cash equivalents, beginning of period | |||||||
Cash and cash equivalents, end of period | $ | $ | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Changes in Shareholders' Equity
(In thousands)
(unaudited)
Ordinary Shares | Treasury Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | ||||||||||||||||||||||||
Number | Amount | Number | Amount | ||||||||||||||||||||||||||
Balance as of June 30, 2019 | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Surrender of shares for tax withholding | — | — | ( | ) | ( | ) | — | — | — | ( | ) | ||||||||||||||||||
Stock options exercised | — | — | — | — | |||||||||||||||||||||||||
Vesting of restricted securities | — | — | — | — | — | — | |||||||||||||||||||||||
Repurchase of ordinary shares | — | — | ( | ) | ( | ) | — | — | — | ( | ) | ||||||||||||||||||
Retirement of ordinary shares | ( | ) | — | — | ( | ) | — | ||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | |||||||||||||||||||||||
Balance as of September 30, 2019 | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Ordinary Shares | Treasury Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | ||||||||||||||||||||||||
Number | Amount | Number | Amount | ||||||||||||||||||||||||||
Balance as of December 31, 2018 | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Surrender of shares for tax withholding | — | — | ( | ) | ( | ) | — | — | — | ( | ) | ||||||||||||||||||
Stock options exercised | — | — | — | — | |||||||||||||||||||||||||
Vesting of restricted securities | — | — | — | ( | ) | — | |||||||||||||||||||||||
Repurchase of ordinary shares | — | — | ( | ) | ( | ) | — | — | — | ( | ) | ||||||||||||||||||
Retirement of ordinary shares | ( | ) | ( | ) | — | ( | ) | — | |||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | |||||||||||||||||||||||
Balance as of September 30, 2019 | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Ordinary Shares | Treasury Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | ||||||||||||||||||||||||
Number | Amount | Number | Amount | ||||||||||||||||||||||||||
Balance as of June 30, 2018 | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Surrender of shares for tax withholding | — | — | ( | ) | ( | ) | — | — | — | ( | ) | ||||||||||||||||||
Stock options exercised | — | — | — | — | |||||||||||||||||||||||||
Vesting of restricted securities | — | — | — | — | — | — | |||||||||||||||||||||||
Repurchase of ordinary shares | — | — | ( | ) | ( | ) | — | — | — | ( | ) | ||||||||||||||||||
Retirement of ordinary shares | ( | ) | — | — | ( | ) | — | ||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | |||||||||||||||||||||||
Balance as of September 30, 2018 | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Ordinary Shares | Treasury Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | ||||||||||||||||||||||||
Number | Amount | Number | Amount | ||||||||||||||||||||||||||
Balance as of December 31, 2017 | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Surrender of shares for tax withholding | — | — | ( | ) | ( | ) | — | — | — | ( | ) | ||||||||||||||||||
Stock options exercised | ( | ) | — | ||||||||||||||||||||||||||
Vesting of restricted securities | — | — | — | ( | ) | — | |||||||||||||||||||||||
Repurchase of ordinary shares | — | — | ( | ) | ( | ) | — | — | — | ( | ) | ||||||||||||||||||
Retirement of ordinary shares | ( | ) | ( | ) | — | ( | ) | — | |||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | |||||||||||||||||||||||
Balance as of September 30, 2018 | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
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 wholly-owned 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 consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.
All U.S. dollar and share amounts presented, except per share amounts, are stated in thousands, unless otherwise indicated.
2. New Accounting Standards
In February 2016 the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), which establishes new accounting and disclosure requirements for leases. FASB Accounting Standards Codification ("ASC") Topic 842, Leases, requires lessees to classify most leases as either finance or operating leases and to recognize a lease liability and right-of-use asset. For finance leases, the statements of operations include separate recognition of interest on the lease liability and amortization of the right-of-use asset. For operating leases, the statements of operations include a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis. We adopted the provisions of FASB ASU No. 2016-02 on January 1, 2019 using the modified retrospective transition method. Refer to Note 18, "Leases" for additional discussion of this adoption.
3. Revenue Recognition
The following tables present net revenue disaggregated by segment and end market for the three and nine months ended September 30, 2019 and 2018:
For the three months ended September 30, 2019 | For the three months ended September 30, 2018 | |||||||||||||||||||||||
Performance Sensing | Sensing Solutions | Total | Performance Sensing | Sensing Solutions | Total | |||||||||||||||||||
Automotive | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
HVOR (1) | ||||||||||||||||||||||||
Appliance and HVAC (2) | ||||||||||||||||||||||||
Industrial | ||||||||||||||||||||||||
Aerospace | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
__________________________
(1) Heavy vehicle and off-road
(2) Heating, ventilation and air conditioning
8
For the nine months ended September 30, 2019 | For the nine months ended September 30, 2018 | |||||||||||||||||||||||
Performance Sensing | Sensing Solutions | Total | Performance Sensing | Sensing Solutions | Total | |||||||||||||||||||
Automotive | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
HVOR | ||||||||||||||||||||||||
Appliance and HVAC | ||||||||||||||||||||||||
Industrial | ||||||||||||||||||||||||
Aerospace | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
4. Share-Based Payment Plans
Share-Based Compensation Expense
The table below presents non-cash compensation expense related to our equity awards, which is recognized within selling, general and administrative expense in the condensed consolidated statements of operations, during the identified periods:
For the three months ended | For the nine months ended | ||||||||||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | ||||||||||||
Stock options | $ | $ | $ | $ | |||||||||||
Restricted securities | |||||||||||||||
Share-based compensation expense | $ | $ | $ | $ | |||||||||||
Equity Awards
Awards granted in or after April 2019 permit accelerated vesting for qualified retirements.
We granted the following options under the Sensata Technologies Holding plc First Amended and Restated 2010 Equity Incentive Plan (the "2010 Equity Plan") during the nine months ended September 30, 2019:
Options Granted To: | Number of Options Granted (in thousands) | Weighted- Average Grant Date Fair Value | Vesting Period | ||||||
Various executives and employees | $ | 25% per year over four years | |||||||
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 2010 Equity Plan during the nine months ended September 30, 2019:
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 | |||||||
Various executives and employees | RSU (1) | N/A | $ | ||||||||
Directors | RSU (1) | N/A | $ | ||||||||
Various executives and employees | PRSU (2) | 0.0% - 172.5% | $ | ||||||||
Various executives and employees | PRSU (2) | 0.0% - 150.0% | $ | ||||||||
__________________________
(1) | RSUs granted during the nine months ended September 30, 2019 vest on various dates between March 2020 and August 2022. |
(2) | PRSUs granted during the nine months ended September 30, 2019 vest in April and August 2022. The number of units that ultimately vest is dependent on the achievement of certain performance criteria. |
9
5. Restructuring and Other Charges, Net
Restructuring and other charges, net for the three and nine months ended September 30, 2019 and 2018 were as follows:
For the three months ended | For the nine months ended | |||||||||||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | |||||||||||||
Severance costs, net (1) | $ | $ | $ | $ | ||||||||||||
Facility and other exit costs | ||||||||||||||||
Gain on sale of Valves Business (2) (4) | ( | ) | ( | ) | ||||||||||||
Other (3) (4) | ||||||||||||||||
Restructuring and other charges, net | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
___________________________________
(1) | Severance costs, net for the three and nine months ended September 30, 2019 and 2018 were primarily related to limited workforce reductions of manufacturing, engineering, and administrative positions as well as the elimination of certain positions related to site consolidations. Severance costs, net for the three months ended September 30, 2019 primarily comprise termination benefits provided under a one-time benefit arrangement related to the shutdown and relocation of an operating site in Germany. Severance costs, net for the nine months ended September 30, 2019 also included a charge of approximately $ |
(2) | In the three months ended September 30, 2018 we completed the sale of the capital stock of Schrader Bridgeport International, Inc. and August France Holding Company SAS (collectively, the "Valves Business"). |
(3) | Other charges in the three and nine months ended September 30, 2019 were primarily related to deferred compensation incurred in connection with the acquisition of GIGAVAC, LLC ("GIGAVAC"). Other charges in the three and nine months ended September 30, 2018 included incremental direct costs in order to transact the sale of the Valves Business. |
(4) | Refer to Note 16, "Acquisitions and Divestitures," for further discussion of the acquisition of GIGAVAC and the divestiture of the Valves Business. |
Changes to the severance portion of our restructuring liability during the nine months ended September 30, 2019 were as follows:
Severance | ||||
Balance at December 31, 2018 | $ | |||
Charges, net of reversals | ||||
Payments | ( | ) | ||
Impact of changes in foreign currency exchange rates | ( | ) | ||
Balance at September 30, 2019 | $ | |||
6. Other, Net
Other, net consisted of the following for the three and nine months ended September 30, 2019 and 2018:
For the three months ended | For the nine months ended | ||||||||||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | ||||||||||||
Currency remeasurement loss on net monetary assets | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Gain on foreign currency forward contracts | |||||||||||||||
Gain/(loss) on commodity forward contracts | ( | ) | ( | ) | |||||||||||
Loss on debt financing | ( | ) | ( | ) | ( | ) | |||||||||
Net periodic benefit cost, excluding service cost | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Other | ( | ) | |||||||||||||
Other, net | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
10
7. Income Taxes
We recorded provision for income taxes of the following in the periods presented:
For the three months ended | For the nine months ended | ||||||||||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | ||||||||||||
Provision for income taxes | $ | $ | $ | $ | |||||||||||
The increase in the provision for income taxes relates to changes in the jurisdictional mix of profits, effects of changes in tax laws and rates in the locations where we operate, changes in tax accruals related to prior year tax positions, and the utilization of previously unbenefited net operating losses in our U.S. jurisdiction. The provision for income taxes consists of:
• | current tax expense, which relates primarily to our profitable operations in non-U.S. tax jurisdictions and withholding taxes related to management fees, royalties, and the repatriation of foreign earnings; and |
• | deferred tax expense (or benefit), which represents adjustments in book-to-tax basis differences primarily related to (1) the step-up in fair value of fixed and intangible assets acquired in connection with business combination transactions, (2) the utilization of net operating losses, (3) changes in tax rates, and (4) 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 nine months ended September 30, 2019 and 2018 the weighted-average ordinary shares outstanding for basic and diluted net income per share were as follows:
For the three months ended | For the nine months ended | ||||||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | ||||||||
Basic weighted-average ordinary shares outstanding | |||||||||||
Dilutive effect of stock options | |||||||||||
Dilutive effect of unvested restricted securities | |||||||||||
Diluted weighted-average ordinary shares outstanding | |||||||||||
Net income and net income per share are presented in the condensed consolidated statements of operations.
Certain potential ordinary shares were excluded from our calculation of diluted weighted-average ordinary shares outstanding because either they would have had an anti–dilutive effect on net income per share or they related to equity awards that were contingently issuable for which the contingency had not been satisfied. These potential ordinary shares are as follows:
For the three months ended | For the nine months ended | ||||||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | ||||||||
Anti-dilutive shares excluded | |||||||||||
Contingently issuable shares excluded | |||||||||||
9. Inventories
The components of inventories as of September 30, 2019 and December 31, 2018 were as follows:
September 30, 2019 | December 31, 2018 | ||||||
Finished goods | $ | $ | |||||
Work-in-process | |||||||
Raw materials | |||||||
Inventories | $ | $ | |||||
11
10. Pension and Other Post-Retirement Benefits
The components of net periodic benefit cost associated with our defined benefit and retiree healthcare plans for the three months ended September 30, 2019 and 2018 were as follows:
U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||||||||||
Defined Benefit | Retiree Healthcare | Defined Benefit | Total | ||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||
Service cost | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Interest cost | |||||||||||||||||||||||||||||||
Expected return on plan assets | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
Amortization of net loss | |||||||||||||||||||||||||||||||
Amortization of prior service (credit)/cost | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
Loss on settlement | |||||||||||||||||||||||||||||||
Net periodic benefit cost/(credit) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||
The components of net periodic benefit cost associated with our defined benefit and retiree healthcare plans for the nine months ended September 30, 2019 and 2018 were as follows:
U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||||||||||
Defined Benefit | Retiree Healthcare | Defined Benefit | Total | ||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||
Service cost | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Interest cost | |||||||||||||||||||||||||||||||
Expected return on plan assets | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
Amortization of net loss | |||||||||||||||||||||||||||||||
Amortization of prior service (credit)/cost | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
Loss on settlement | |||||||||||||||||||||||||||||||
Gain on curtailment | ( | ) | ( | ) | |||||||||||||||||||||||||||
Net periodic benefit cost/(credit) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||
Components of net periodic benefit cost other than service cost are presented in other, net. Refer to Note 6, "Other, Net."
11. Debt
Our long-term debt and finance lease and other financing obligations as of September 30, 2019 and December 31, 2018 consisted of the following:
Maturity Date | September 30, 2019 | December 31, 2018 | ||||||||
Term Loan | September 20, 2026 | $ | $ | |||||||
4.875% Senior Notes | October 15, 2023 | |||||||||
5.625% Senior Notes | November 1, 2024 | |||||||||
5.0% Senior Notes | October 1, 2025 | |||||||||
6.25% Senior Notes | February 15, 2026 | |||||||||
4.375% Senior Notes | February 15, 2030 | |||||||||
Less: discount | ( | ) | ( | ) | ||||||
Less: deferred financing costs | ( | ) | ( | ) | ||||||
Less: current portion | ( | ) | ( | ) | ||||||
Long-term debt, net | $ | $ | ||||||||
Finance lease and other financing obligations | $ | $ | ||||||||
Less: current portion | ( | ) | ( | ) | ||||||
Finance lease and other financing obligations, less current portion | $ | $ | ||||||||
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Our debt consists of a secured facility and various tranches of senior unsecured notes.
Secured Credit Facility
The credit agreement governing our secured credit facility (the "Credit Agreement") provides for senior secured credit facilities (the "Senior Secured Credit Facilities") consisting of a term loan facility (the "Term Loan"), a $420.0 million revolving credit facility (the "Revolving Credit Facility"), and incremental availability under which additional secured credit facilities could be issued under certain circumstances.
On March 27, 2019 certain indirect, wholly-owned subsidiaries of Sensata plc, including Sensata Technologies B.V. ("STBV"), entered into the ninth amendment (the "Ninth Amendment") of the Credit Agreement. Among other changes to the Credit Agreement, the Ninth Amendment (i) extended the maturity date of the Revolving Credit Facility to March 27, 2024; (ii) added pounds sterling as an available currency for revolving credit loans and letters of credit under the Revolving Credit Facility; (iii) lowered certain index rate spreads related to the Revolving Credit Facility; (iv) lowered our letter of credit fees; (v) reduced our revolving credit commitment fees; and (vi) modified the senior secured net leverage ratio financial covenant to increase the Revolving Credit Facility utilization threshold above which such financial covenant is tested from 10 % to 20 %.
On June 13, 2019, our subsidiaries that were at the time borrowers under the Credit Agreement entered into an amendment to the Credit Agreement with the administrative agent to correct certain technical and immaterial errors in the Credit Agreement.
On September 20, 2019 certain of our subsidiaries, including STBV and its indirect, wholly-owned subsidiary, Sensata Technologies Inc. ("STI"), entered into the tenth amendment of the Credit Agreement (the "Tenth Amendment"). Under the terms of the Tenth Amendment, among other changes to the Credit Agreement, (i) the final maturity date of the Term Loan was extended to September 20, 2026; (ii) STI became the sole borrower under the Credit Agreement and assumed substantially all of the obligations of STBV and Sensata Technologies Finance Company, LLC ("STFC") thereunder; (iii) the permission to incur incremental additional indebtedness under the Credit Agreement was increased; and (iv) certain of the operational and restrictive covenants and other terms and conditions of the Senior Secured Credit Facilities to which STBV and its restricted subsidiaries are subject were modified to provide us with increased flexibility and permissions thereunder (including permission to make restricted payments (including dividends) in an amount equal to $50.0 million annually, which can be further increased to an unlimited amount subject to no default or event of default and compliance with certain financial covenants).
In addition, under the Tenth Amendment, STBV became a guarantor of STI’s obligations under the Credit Agreement, STFC ceased to be a guarantor with respect to the Credit Agreement, and certain subsidiaries of STBV that previously guaranteed the obligations under the Credit Agreement (the ‘‘Released Guarantors’’) were released from their guarantees, subject to satisfaction of certain conditions.
As of September 30, 2019 there was $416.1 million available under the Revolving Credit Facility, net of $3.9 million of obligations in respect of outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of September 30, 2019 no amounts had been drawn against these outstanding letters of credit.
Senior Notes
We have various tranches of senior notes outstanding. Prior to September 20, 2019 these consisted of $500.0 million in aggregate principal amount of 4.875 % senior notes due 2023 (the "4.875 % Senior Notes"), $400.0 million in aggregate principal amount of 5.625 % senior notes due 2024 (the "5.625 % Senior Notes"), $700.0 million in aggregate principal amount of 5.0 % senior notes due 2025 (the "5.0 % Senior Notes"), and $750.0 million in aggregate principal amount of 6.25 % senior notes due 2026 (the "6.25 % Senior Notes" and together with each tranche of senior notes outstanding prior to September 20, 2019, the "Existing Senior Notes").
On September 20, 2019, coincident with the entry into the Tenth Amendment, STI issued $450.0 million in aggregate principal amount of 4.375 % senior notes due 2030 (the "4.375 % Senior Notes"). The proceeds of the issuance of the 4.375 % Senior Notes were used to partially repay the Term Loan. The 4.375 % Senior Notes were issued under an indenture dated September 20, 2019 among STI, as issuer, The Bank of New York Mellon, as trustee, and our guarantor subsidiaries named therein (the "Guarantors"). The 4.375 % Senior Notes were offered at par, and interest is payable semi-annually on February 15 and August 15 of each year, commencing on February 15, 2020.
At any time, and from time to time, STI may redeem the 4.375 % Senior Notes, in whole or in part, at a price equal to 100 % of the principal amount of the notes redeemed, plus accrued and unpaid interest, if any, up to, but excluding, the date of redemption, and, for redemptions occurring prior to November 15, 2029, a "make-whole" premium. Beginning on November 15, 2029, the "make-whole" premium will be eliminated. In addition, upon the occurrence of certain specific kinds of changes
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in control, STI will be required to offer to repurchase the notes at 101 % of their principal amount plus accrued and unpaid interest, if any, 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, STI may, at its option, redeem the 4.375 % 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, to, but excluding, the redemption date, premium, if any, and all additional amounts (as described in the indenture governing the 4.375 % Senior Notes), if any, then due and which will become due on the date of redemption.
Upon consummation of the Tenth Amendment, the guarantees of the Released Guarantors under the Existing Senior Notes were released (the "Guarantees Release"). Accordingly, as of September 20, 2019, the 4.375 % Senior Notes are guaranteed by STBV and all of the subsidiaries of STBV (other than STI) that guarantee the Existing Senior Notes and the Credit Agreement, in each case, giving effect to the Guarantees Release.
Accounting for Debt Financing Transactions
We accounted for our debt financing transactions in accordance with our policies as disclosed in Note 2, "Significant Accounting Policies" included in our Annual Report on Form 10-K for the year ended December 31, 2018.
In connection with the entry into the Ninth Amendment, we incurred $2.4 million of creditor fees and related third-party costs, which were recorded as an adjustment to the carrying amount of long-term debt.
In connection with of the issuance of the 4.375 % Senior Notes, the entry into the Tenth Amendment, and the subsequent partial repayment of the Term Loan, we recognized a loss of $4.4 million, presented in the other, net line of our condensed consolidated statement of operations, as well as $5.0 million of deferred financing costs, which are presented as a reduction of 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 September 30, 2019 and December 31, 2018 accrued interest totaled $45.5 million and $40.6 million, respectively.
12. Commitments and Contingencies
We are a defendant in a lawsuit, Wasica Finance Gmbh et al v. Schrader International Inc. et al, Case No. 13-1353-CPS, U.S.D.C., Delaware, in which the claimant alleges infringement of their patent (US 5,602,524) in connection with our tire pressure monitoring system products. The patent in question has expired, and as a result, the claimant is seeking damages for past alleged infringement with interest and costs. Should the claimant prevail, these amounts could be material. We have denied liability and have been defending the litigation, which is in discovery. Trial is currently expected in February 2020. We do not believe a loss related to this matter is probable. As of September 30, 2019, we have no accrual recorded related to this matter.
We are a defendant in a lawsuit, Metal Seal Precision, Ltd. v. Sensata Technologies Inc., Case No. 2017-0518-BCSI, MA Superior Court (Suffolk County), in which the claimant ("Metal Seal"), a supplier of certain metal parts used in the manufacture of our products, alleges breach of contract, breach of covenant of good faith and fair dealing, and anticipatory repudiation. The dispute arises out of an agreement under which Metal Seal alleges certain purchase requirements were not met, resulting in damages and lost profits. On April 12, 2019 the court granted, in part, our motion for summary judgment and dismissed Metal Seal's unfair trade practices claims. Plaintiff’s damage expert claims that Metal Seal has losses ranging up to $51.0 million. We dispute Metal Seal's claims and continue to defend the lawsuit, with trial currently expected in December 2019. We do not believe a loss related to this matter is probable. As of September 30, 2019, we have no accrual recorded related to this matter.
13. Shareholders' Equity
On July 30, 2019, our Board of Directors approved a new $500.0 million share repurchase program with terms consistent to those of our previously authorized $250.0 million share repurchase program. The $250.0 million share repurchase program was terminated upon commencement of the new program.
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Accumulated Other Comprehensive Loss
The following is a roll forward of the components of accumulated other comprehensive loss for the nine months ended September 30, 2019:
Cash Flow Hedges | Defined Benefit and Retiree Healthcare Plans | Accumulated Other Comprehensive Loss | ||||||||||
Balance at December 31, 2018 | $ | $ | ( | ) | $ | ( | ) | |||||
Other comprehensive income before reclassifications, net of tax | ||||||||||||
Reclassifications from accumulated other comprehensive loss, net of tax | ( | ) | ( | ) | ||||||||
Other comprehensive income | ||||||||||||
Balance at September 30, 2019 | $ | $ | ( | ) | $ | ( | ) | |||||
The details of the (gain)/loss reclassified from accumulated other comprehensive loss for the three and nine months ended September 30, 2019 and 2018 are as follows:
For the three months ended September 30, | For the nine months ended September 30, | Affected Line in Condensed Consolidated Statements of Operations | ||||||||||||||||
Component | 2019 | 2018 | 2019 | 2018 | ||||||||||||||
Derivative instruments designated and qualifying as cash flow hedges: | ||||||||||||||||||
Foreign currency forward contracts | $ | ( | ) | $ | $ | ( | ) | $ | Net revenue (1) | |||||||||
Foreign currency forward contracts | ( | ) | ( | ) | ( | ) | ( | ) | Cost of revenue (1) | |||||||||
Foreign currency forward contracts | Other, net (1) | |||||||||||||||||
Total, before taxes | ( | ) | ( | ) | Income before taxes | |||||||||||||
Income tax effect | ( | ) | ( | ) | Provision for income taxes | |||||||||||||
Total, net of taxes | $ | ( | ) | $ | $ | ( | ) | $ | Net income | |||||||||
Defined benefit and retiree healthcare plans | $ | $ | $ | $ | Other, net (2) | |||||||||||||
Defined benefit and retiree healthcare plans | Restructuring and other charges, net (3) | |||||||||||||||||
Total, before taxes | Income before taxes | |||||||||||||||||
Income tax effect | ( | ) | ( | ) | ( | ) | Provision for income taxes | |||||||||||
Total, net of taxes | $ | $ | $ | $ | Net income | |||||||||||||
__________________________
(1) | Refer to Note 15, "Derivative Instruments and Hedging Activities" for additional details 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 details of net periodic benefit cost. |
(3) | Amount represents an equity component of the Valves Business, which was sold in the third quarter of 2018. Refer to Note 5, "Restructuring and Other Charges, Net" and Note 16, "Acquisitions and Divestitures" for additional information related to the divestiture of the Valves Business. |
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14. Fair Value Measures
Measured on a Recurring Basis
The fair values of our assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 are as shown in the below table. All fair value measures presented are categorized in Level 2 of the fair value hierarchy.
September 30, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Foreign currency forward contracts | $ | $ | |||||
Commodity forward contracts | |||||||
Total | $ | $ | |||||
Liabilities | |||||||
Foreign currency forward contracts | $ | $ | |||||
Commodity forward contracts | |||||||
Total | $ | $ | |||||
We evaluated our goodwill and other indefinite-lived intangible assets for impairment as of October 1, 2018 and determined that they were not impaired. As of September 30, 2019 no events or changes in circumstances occurred that would have triggered the need for an additional impairment review of these 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 September 30, 2019 and December 31, 2018. All fair value measures presented are categorized in Level 2 of the fair value hierarchy.
September 30, 2019 | December 31, 2018 | ||||||||||||||
Carrying Value (1) | Fair Value | Carrying Value (1) | Fair Value | ||||||||||||
Liabilities | |||||||||||||||
Term Loan | $ | $ | $ | $ | |||||||||||
4.875% Senior Notes | $ | $ | $ | $ | |||||||||||
5.625% Senior Notes | $ | $ | $ | $ | |||||||||||
5.0% Senior Notes | $ | $ | $ | $ | |||||||||||
6.25% Senior Notes | $ | $ | $ | $ | |||||||||||
4.375% Senior Notes | $ | $ | $ | $ | |||||||||||
___________________________________
(1) Excluding any related debt discounts and deferred financing costs.
Cash and cash equivalents, accounts receivable, and accounts payable 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, and as such measure them using the measurement alternative prescribed in FASB 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 an identical or similar investment of the same issuer. There were no impairments or changes resulting from observable transactions for any of these investments, and no adjustments have been made to their carrying values.
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Refer to the table below for a detail of the carrying values of these investments, each of which are included in other assets.
September 30, 2019 | December 31, 2018 | ||||||
Quanergy Systems, Inc | $ | $ | |||||
Lithium Balance (1) | |||||||
Total | $ | $ | |||||
___________________________________
(1) Our investment in Lithium Balance A/S ("Lithium Balance") was purchased in July 2019.
15. Derivative Instruments and Hedging Activities
Hedges of Foreign Currency Risk
We are exposed to fluctuations in various foreign currencies against our functional currency, the U.S. dollar (the "USD"). We enter into forward contracts for certain of these foreign currencies to manage this exposure. We currently have outstanding foreign currency forward contracts that qualify as cash flow hedges intended to offset the effect of exchange rate fluctuations on forecasted sales and certain manufacturing costs. We also have outstanding foreign currency forward contracts that are intended to preserve the economic value of foreign currency denominated monetary assets and liabilities, which are not designated for hedge accounting treatment in accordance with FASB ASC Topic 815, Derivatives and Hedging.
For the three and nine months ended September 30, 2019 and 2018 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 September 30, 2019 we estimate that $24.7 million of net gains will be reclassified from accumulated other comprehensive loss to earnings during the twelve-month period ending September 30, 2020.
As of September 30, 2019 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) | |||||
September 26, 2019 | October 31, 2019 | Euro ("EUR") to USD | Not designated | |||||||
Various from July 2017 to September 2019 | Various from October 2019 to August 2021 | EUR to USD | Cash flow hedge | |||||||
September 25, 2019 | October 31, 2019 | USD to Chinese Renminbi ("CNY") | Not designated | |||||||
January 10, 2019 | Various from October to December 2019 | USD to CNY | Cash flow hedge | |||||||
September 26, 2019 | October 31, 2019 | USD to Japanese Yen ("JPY") | Not designated | |||||||
Various from November 2017 to September 2019 | Various from October 2019 to August 2021 | USD to Korean Won ("KRW") | Cash flow hedge | |||||||
September 25, 2019 | October 31, 2019 | USD to Malaysian Ringgit ("MYR") | Not designated | |||||||
September 26, 2019 | October 31, 2019 | USD to Mexican Peso ("MXN") | Not designated | |||||||
Various from November 2017 to September 2019 | Various from October 2019 to August 2021 | USD to MXN | Cash flow hedge | |||||||
Various from November 2017 to September 2019 | Various from October 2019 to August 2021 | British Pound Sterling ("GBP") to 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
We enter into commodity forward contracts in order to limit our exposure to variability in raw material costs that is caused by movements in the price of underlying metals. The terms of these forward contracts fix the price at a future date for various notional amounts associated with these commodities. These instruments are not designated for hedge accounting treatment in accordance with FASB ASC Topic 815.
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As of September 30, 2019 we had the following outstanding commodity forward contracts:
Commodity | Notional | Remaining Contracted Periods | Weighted-Average Strike Price Per Unit | |||
Silver | October 2019-September 2021 | $ | ||||
Gold | October 2019-September 2021 | $ | ||||
Nickel | October 2019-September 2021 | $ | ||||
Aluminum | October 2019-September 2021 | $ | ||||
Copper | October 2019-September 2021 | $ | ||||
Platinum | October 2019-September 2021 | $ | ||||
Palladium | October 2019-September 2021 | $ | ||||
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 September 30, 2019 and December 31, 2018:
Asset Derivatives | Liability Derivatives | ||||||||||||||||||
Balance Sheet Location | September 30, 2019 | December 31, 2018 | Balance Sheet Location | September 30, 2019 | December 31, 2018 | ||||||||||||||
Derivatives designated as hedging instruments | |||||||||||||||||||
Foreign currency forward contracts | Prepaid expenses and other current assets | $ | $ | Accrued expenses and other current liabilities | $ | $ | |||||||||||||
Foreign currency forward contracts | Other assets | Other long-term liabilities | |||||||||||||||||
Total | $ | $ | $ | $ | |||||||||||||||
Derivatives not designated as hedging instruments | |||||||||||||||||||
Commodity forward contracts | Prepaid expenses and other current assets | $ | $ | Accrued expenses and other current liabilities | $ | $ | |||||||||||||
Commodity forward contracts | Other assets | Other long-term liabilities | |||||||||||||||||
Foreign currency forward contracts | Prepaid expenses and other current assets | Accrued expenses and other current liabilities | |||||||||||||||||
Total | $ | $ | $ | $ | |||||||||||||||
These fair value measurements are 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 September 30, 2019 and 2018:
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 | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||
Foreign currency forward contracts | $ | $ | Net revenue | $ | $ | ( | ) | |||||||||||
Foreign currency forward contracts | $ | ( | ) | $ | Cost of revenue | $ | $ | |||||||||||
Derivatives not designated as hedging instruments | Amount of Gain/(Loss) Recognized in Net Income | Location of Gain/(Loss) Recognized in Net Income | ||||||||
2019 | 2018 | |||||||||
Commodity forward contracts | $ | $ | ( | ) | Other, net | |||||
Foreign currency forward contracts | $ | $ | Other, net | |||||||
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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 nine months ended September 30, 2019 and 2018:
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 | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||
Foreign currency forward contracts | $ | $ | Net revenue | $ | $ | ( | ) | |||||||||||
Foreign currency forward contracts | $ | $ | Cost of revenue | $ | $ | |||||||||||||
Foreign currency forward contracts | $ | $ | Other, net | $ | $ | ( | ) | |||||||||||
Derivatives not designated as hedging instruments | Amount of Gain/(Loss) Recognized in Net Income | Location of Gain/(Loss) Recognized in Net Income | ||||||||
2019 | 2018 | |||||||||
Commodity forward contracts | $ | $ | ( | ) | Other, net | |||||
Foreign currency forward contracts | $ | $ | Other, net | |||||||
We have agreements with certain of 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.
16. Acquisitions and Divestitures
Other acquisition
On September 13, 2019 we completed one acquisition for approximately $30 million, net of cash acquired and subject to customary post-closing adjustments. We are in the process of completing our assessment of the fair values of assets acquired and liabilities assumed.
GIGAVAC merger
On September 24, 2018 we entered into an agreement and plan of merger with GIGAVAC, whereby GIGAVAC would merge with one of our wholly-owned subsidiaries, thereby becoming a wholly-owned subsidiary of Sensata. On October 31, 2018 we completed the acquisition of GIGAVAC for $229.9 million of cash consideration, approximately $12.0 million of which related to certain compensation arrangements with certain GIGAVAC employees and shareholders.
Based in Carpinteria, California, GIGAVAC has more than 270 employees and is a leading provider of solutions that enable electrification in demanding environments within the automotive, battery storage, industrial, and HVOR end markets. We acquired GIGAVAC to increase our content and capabilities for electrification, including products such as cars, delivery trucks, buses, material handling equipment, and charging stations. Portions of GIGAVAC will be integrated into each of our operating segments.
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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 | $ | |||
Property, plant and equipment | ||||
Goodwill | ||||
Other intangible assets | ||||
Other assets | ||||
Deferred income tax liabilities | ( | ) | ||
Other long-term liabilities | ( | ) | ||
Fair value of net assets acquired, excluding cash and cash equivalents | ||||
Cash and cash equivalents | ||||
Fair value of net assets acquired | $ | |||
The allocation of purchase price related to the GIGAVAC merger 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 $113.7 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 recorded 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 estimated fair values, and weighted-average lives:
Acquisition Date Fair Value | Weighted-Average Lives (years) | ||||
Acquired definite-lived intangible assets: | |||||
Customer relationships | $ | ||||
Completed technologies | |||||
Tradenames | |||||
Other | |||||
Total definite-lived intangible assets acquired | $ | ||||
The definite-lived intangible assets were valued using the income approach. We 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 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.
Valves Business Divestiture
On August 31, 2018 we completed the divestiture of the Valves Business to Pacific Industrial Co. Ltd. (together with its affiliates, "Pacific"). Contemporaneous with the closing of the sale, Sensata and Pacific entered into a long-term supply agreement, which imposes an obligation on us to purchase minimum quantities of product from Pacific over a period of nearly five years .
In exchange for selling the Valves Business and entering into the long-term supply agreement, we received cash consideration from Pacific of approximately $165.5 million, net of $11.8 million of cash and cash equivalents sold.
We determined that the terms of the long-term supply agreement entered into concurrent with the divestiture of the Valves Business were not at market. Accordingly, we recognized a liability of $16.4 million, measured at fair value, which represented the fair value of the off-market component of the supply agreement.
17. Segment Reporting
We organize our business into two reportable segments, Performance Sensing and Sensing Solutions, each of which is also an operating segment. Our operating segments are businesses that we manage as components of an enterprise for which separate
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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, and certain corporate costs/credits not associated with the operations of the segment, including share-based compensation expense and a portion of depreciation expense associated with assets recorded in connection with acquisitions. Corporate and other costs excluded from an operating 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 reporting segments are materially consistent with those in the summary of significant accounting policies as described in Note 2, "Significant Accounting Policies" included in our Annual Report on Form 10-K for the year ended December 31, 2018.
The following table presents net revenue and segment operating income for the reported segments and other operating results not allocated to the reported segments for the three and nine months ended September 30, 2019 and 2018:
For the three months ended | For the nine months ended | ||||||||||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | ||||||||||||
Net revenue: | |||||||||||||||
Performance Sensing | $ | $ | $ | $ | |||||||||||
Sensing Solutions | |||||||||||||||
Total net revenue | $ | $ | $ | $ | |||||||||||
Segment operating income (as defined above): | |||||||||||||||
Performance Sensing | $ | $ | $ | $ | |||||||||||
Sensing Solutions | |||||||||||||||
Total segment operating income | |||||||||||||||
Corporate and other | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Amortization of intangible assets | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Restructuring and other charges, net | ( | ) | ( | ) | |||||||||||
Operating income | |||||||||||||||
Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Other, net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Income before taxes | $ | $ | $ | $ | |||||||||||
18. Leases
As discussed in Note 2, "New Accounting Standards," we adopted FASB ASC Topic 842 on January 1, 2019, using the modified retrospective transition method. We have elected to apply the package of practical expedients and the land easement practical expedient. We have not elected to apply the hindsight practical expedient.
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We elected to apply the transition provisions of this guidance, including its disclosure requirements, at its date of adoption instead of at the beginning of the earliest comparative period presented. Accordingly, we have not restated our consolidated balance sheet as of December 31, 2018. There was no cumulative effect of adoption on our retained earnings or any other components of equity. The below adjustments were made to our condensed consolidated balance sheet on January 1, 2019 to reflect the new guidance:
December 31, 2018 | Adjustment | January 1, 2019 | |||||||||
Prepaid expenses and other current assets | $ | $ | ( | ) | $ | ||||||
Other intangible assets, net | $ | $ | ( | ) | $ | ||||||
Other assets | $ | $ | $ | ||||||||
Accrued expenses and other current liabilities | $ | $ | $ | ||||||||
Other long-term liabilities | $ | $ | $ | ||||||||
The table below presents the amounts recognized and location of recognition in our condensed consolidated balance sheet as of September 30, 2019 related to our operating and finance leases:
September 30, 2019 | |||
Operating lease right-of-use assets: | |||
Other assets | $ | ||
Total operating lease right-of-use assets | $ | ||
Operating lease liabilities: | |||
Accrued expenses and other current liabilities | $ | ||
Other long-term liabilities | |||
Total operating lease liabilities | $ | ||
Finance lease right-of-use assets: | |||
Property, plant and equipment, at cost | $ | ||
Accumulated depreciation | ( | ) | |
Property, plant and equipment, net | $ | ||
Finance lease liabilities: | |||
Current portion of long-term debt, finance lease and other financing obligations | $ | ||
Finance lease and other financing obligations, less current portion | |||
Total finance lease liabilities | $ | ||
The table below presents the lease liabilities arising from obtaining right-of-use assets in the nine months ended September 30, 2019:
For the nine months ended | |||
September 30, 2019 | |||
Operating leases | $ | ||
Finance leases | $ | ||
For finance leases, the consolidated statements of operations include separate recognition of interest on the lease liability and amortization of the right-of-use asset. For operating leases, the consolidated statements of operations include a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis. The table below presents our total lease cost for the three and nine months ended September 30, 2019:
For the three months ended | For the nine months ended | ||||||
September 30, 2019 | September 30, 2019 | ||||||
Operating lease cost | $ | $ | |||||
Finance lease cost: | |||||||
Amortization of right-of-use assets | $ | $ | |||||
Interest on lease liabilities | |||||||
Total finance lease cost | $ | $ | |||||
Short-term lease cost was not material for the three and nine months ended September 30, 2019.
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Cash flows from operating activities include (1) interest on finance lease liabilities and (2) payments arising from operating leases. Cash flows from financing activities include repayments of the principal portion of finance lease liabilities. The table below presents the cash paid related to our operating and finance leases for the nine months ended September 30, 2019:
For the nine months ended | |||
September 30, 2019 | |||
Operating cash flows from operating leases | $ | ||
Operating cash flows from finance leases | $ | ||
Financing cash flows from finance leases | $ | ||
We occupy leased facilities with initial terms ranging up to 20 years. These lease agreements frequently include options to renew for additional periods and generally require that we pay taxes, insurance, and maintenance costs. We also lease certain vehicles and equipment. The table below presents the weighted-average remaining lease term of our operating and finance leases (in years):
September 30, 2019 | |
Operating leases | |
Finance leases | |
Our lease liabilities are initially measured at the present value of the lease payments not yet paid, discounted using our incremental borrowing rate for a period that is comparable to the remaining lease term. Upon adoption of FASB ASC Topic 842, we initially measured our operating lease liabilities using this methodology, while our accounting for finance leases remained unchanged. We use our incremental borrowing rate, adjusted for collateralization, because the discount rate implicit in our leases are generally not readily determinable. The table below presents our weighted-average discount rate as of September 30, 2019:
September 30, 2019 | ||
Operating leases | % | |
Finance leases | % | |
The table below presents a maturity analysis of the obligations related to our operating lease liabilities and finance lease liabilities in effect as of September 30, 2019:
Operating Leases | Finance Leases | ||||||
Year ending December 31, | |||||||
2019 (excluding the nine months ended September 30, 2019) | $ | $ | |||||
2020 | |||||||
2021 | |||||||
2022 | |||||||
2023 | |||||||
Thereafter | |||||||
Total undiscounted cash flows related to lease liabilities | |||||||
Less imputed interest | ( | ) | ( | ) | |||
Total lease liabilities | $ | $ | |||||
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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 and may be identified by terminology such as "may," "will," "could," "should," "expect," "anticipate," "believe," "estimate," "predict," "project," "forecast," "continue," "intend," "plan," and similar terms or phrases, or the negative 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 based on management’s expectations and beliefs concerning future events impacting us. These statements are subject to 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 any of the events anticipated 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," in our Annual Report on Form 10-K for the year ended December 31, 2018), could affect our future performance and the liquidity and value of our securities and cause our actual results to differ materially from those expressed or implied by forward-looking statements made by us or on our behalf:
• | instability and changes in the global markets, including regulatory, political, economic, and military matters, such as the impending exit of the United Kingdom (the "U.K.") from the European Union (the "EU"); |
• | adverse conditions or competition in the industries upon which we are dependent, including the automotive industry; |
• | pressure from customers to reduce prices; |
• | supplier interruption or non-performance, limiting our access to manufactured components or raw materials; |
• | we may not 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; |
• | risks related to the acquisition or disposition of businesses, or the restructuring of our business; |
• | market acceptance of new product introductions and product innovations; |
• | losses and costs as a result of intellectual property, product liability, warranty, and recall claims; |
• | business disruptions due to natural disasters or other disasters outside our control; |
• | labor disruptions or increased labor costs; |
• | security breaches, cyber theft of our intellectual property, and other disruptions to our information technology infrastructure, or improper disclosure of confidential, personal, or proprietary data; |
• | foreign currency risks, changes in socio-economic conditions, or changes to monetary and fiscal policies; |
• | our level of indebtedness, or our inability to meet debt service obligations or comply with the covenants contained in the credit agreement and indentures; |
• | risks related to the potential for goodwill impairment; |
• | the impact of United States ("U.S.") federal income tax reform, or taxing authorities challenging our historical and future tax positions or our allocation of taxable income among our subsidiaries, and challenges to the sovereign taxation regimes of EU member states by the European Commission; |
• | changes to current policies, such as trade tariffs, by the U.S. government; |
• | 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. |
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-Q and are expressly qualified in their entirety by the cautionary statements contained in this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise forward-looking 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 Annual Report on Form 10-K for the year ended December 31, 2018 and in the other documents that we file with the U.S. Securities and Exchange Commission. You can read these documents at www.sec.gov or on our website at www.sensata.com.
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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 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, 2018, filed with the U.S. Securities and Exchange Commission on February 6, 2019, and the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations
The table below presents our historical results of operations, in millions of dollars and as a percentage of net revenue, for the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018. 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 | ||||||||||||||||||||||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | ||||||||||||||||||||||||
Amount | Margin* | Amount | Margin* | Amount | Margin* | Amount | Margin* | ||||||||||||||||||||
Net revenue: | |||||||||||||||||||||||||||
Performance Sensing | $ | 628.6 | 74.0 | % | $ | 649.6 | 74.4 | % | $ | 1,913.1 | 73.5 | % | $ | 1,988.7 | 74.4 | % | |||||||||||
Sensing Solutions | 221.1 | 26.0 | 223.9 | 25.6 | 690.8 | 26.5 | 685.0 | 25.6 | |||||||||||||||||||
Net revenue | 849.7 | 100.0 | 873.6 | 100.0 | 2,603.9 | 100.0 | 2,673.7 | 100.0 | |||||||||||||||||||
Operating costs and expenses | 703.6 | 82.8 | 651.2 | 74.5 | 2,167.8 | 83.2 | 2,125.6 | 79.5 | |||||||||||||||||||
Operating income | 146.1 | 17.2 | 222.3 | 25.5 | 436.2 | 16.8 | 548.1 | 20.5 | |||||||||||||||||||
Interest expense, net | (39.6 | ) | (4.7 | ) | (38.1 | ) | (4.4 | ) | (118.4 | ) | (4.5 | ) | (114.8 | ) | (4.3 | ) | |||||||||||
Other, net | (7.6 | ) | (0.9 | ) | (10.6 | ) | (1.2 | ) | (7.9 | ) | (0.3 | ) | (26.3 | ) | (1.0 | ) | |||||||||||
Income before taxes | 99.0 | 11.7 | 173.7 | 19.9 | 309.8 | 11.9 | 407.0 | 15.2 | |||||||||||||||||||
Provision for income taxes | 28.3 | 3.3 | 24.6 | 2.8 | 80.6 | 3.1 | 62.1 | 2.3 | |||||||||||||||||||
Net income | $ | 70.7 | 8.3 | % | $ | 149.1 | 17.1 | % | $ | 229.2 | 8.8 | % | $ | 344.9 | 12.9 | % | |||||||||||
__________________________
* Represents the amount presented divided by total net revenue.
Net revenue
The following table presents a reconciliation of organic revenue decline, a financial measure not presented in accordance with U.S. generally accepted accounting principles ("GAAP"), to reported net revenue (decline)/growth, a financial measure determined in accordance with U.S. GAAP, for the three and nine months ended September 30, 2019 compared to the comparable periods of the prior year. Refer to the section entitled Non-GAAP Financial Measures below for further information on our use of organic revenue growth (or decline).
Three-Month (Decline)/Growth | Nine-Month (Decline)/Growth | ||||||||||||||||
Performance Sensing | Sensing Solutions | Total | Performance Sensing | Sensing Solutions | Total | ||||||||||||
Reported net revenue (decline)/growth | (3.2 | )% | (1.3 | )% | (2.7 | )% | (3.8 | )% | 0.8 | % | (2.6 | )% | |||||
Percent impact of: | |||||||||||||||||
Acquisition and divestiture, net (1) | (1.2 | ) | 5.6 | 0.4 | (2.6 | ) | 5.5 | (0.5 | ) | ||||||||
Foreign currency remeasurement (2) | (0.3 | ) | (0.6 | ) | (0.3 | ) | (0.9 | ) | (0.9 | ) | (0.9 | ) | |||||
Organic revenue decline | (1.7 | )% | (6.3 | )% | (2.8 | )% | (0.3 | )% | (3.8 | )% | (1.2 | )% | |||||
__________________________
(1) | Represents the percentage change in net revenue attributed to the effect of acquisitions and divestitures for the 12 months immediately following the respective transaction dates. The percentage amounts presented relate to the sale of the capital stock of Schrader Bridgeport International, Inc. and August France Holding Company SAS (collectively, the "Valves Business") in August 2018 and the merger with GIGAVAC, LLC ("GIGAVAC") in October 2018, each of which is discussed in Note 16, "Acquisitions and Divestitures" of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. |
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(2) | Represents the percentage change in net revenue between the comparative periods attributed to differences in exchange rates used to remeasure foreign currency denominated revenue transactions into U.S. dollars, which is the functional currency of the Company and each of its subsidiaries. The percentage amounts presented above relate primarily to the U.S. dollar to Chinese Renminbi exchange rates. |
Performance Sensing
For the three months ended September 30, 2019, Performance Sensing net revenue declined 3.2%, or 1.7% on an organic basis. Continued weakness across many of the markets served by our heavy vehicle and off-road ("HVOR") business was partially offset by content growth, namely in China. In our automotive business, weakness in Europe was partially offset by our outgrowth (i.e. the combined impact of content and pricing) of the markets in Asia (primarily China) from increased content on systems and applications we serve. In addition, our North American automotive business generated organic revenue growth despite the impact of the General Motors strike.
For the nine months ended September 30, 2019, Performance Sensing net revenue declined 3.8%, or 0.3% on an organic basis. In our automotive business, we continue to outgrow end markets, which declined principally in China and Europe, largely due to content growth. In our HVOR business, content growth in China as well as the agriculture and North America on-road truck markets more than offset general market weakness.
We continue to expect sustained content growth as we execute on our clean & efficient and electrification initiatives in our automotive and HVOR businesses. However, we expect global automotive production will remain under pressure for the full year 2019, and we expect our HVOR markets, in aggregate, to further weaken in the fourth quarter of 2019.
Sensing Solutions
For the three months ended September 30, 2019, Sensing Solutions net revenue declined 1.3%, or 6.3% on an organic basis. This organic revenue decline was due mainly to weakness in the industrial markets we serve, partially offset by content growth in our aerospace business.
For the nine months ended September 30, 2019, Sensing Solutions net revenue grew 0.8%, but declined 3.8% on an organic basis. This organic revenue decline was primarily attributable to weakness in the industrial markets we serve partially offset by content and market growth in our aerospace business.
Weakness in the industrial markets we serve is consistent with trends in certain indicators of demand, such as global manufacturing Purchasing Managers' Index ("PMI") data, which is signaling continued demand contraction, consistent with slowing customer production and reductions in inventory. Our industrial growth in China is particularly weak as exports out of China have slowed as a result of tariffs and global trade actions.
Operating costs and expenses
Operating costs and expenses for the three and nine months ended September 30, 2019 and 2018 are presented in the following table. Amounts and percentages in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
For the three months ended | For the nine months ended | ||||||||||||||||||||||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | ||||||||||||||||||||||||
Amount | Margin* | Amount | Margin* | Amount | Margin* | Amount | Margin* | ||||||||||||||||||||
Operating costs and expenses: | |||||||||||||||||||||||||||
Cost of revenue | $ | 554.9 | 65.3 | % | $ | 558.3 | 63.9 | % | $ | 1,711.0 | 65.7 | % | $ | 1,723.3 | 64.5 | % | |||||||||||
Research and development | 38.2 | 4.5 | 37.8 | 4.3 | 110.0 | 4.2 | 111.8 | 4.2 | |||||||||||||||||||
Selling, general and administrative | 68.2 | 8.0 | 73.9 | 8.5 | 210.7 | 8.1 | 235.7 | 8.8 | |||||||||||||||||||
Amortization of intangible assets | 35.9 | 4.2 | 33.9 | 3.9 | 108.1 | 4.2 | 103.6 | 3.9 | |||||||||||||||||||
Restructuring and other charges, net | 6.4 | 0.8 | (52.7 | ) | (6.0 | ) | 28.0 | 1.1 | (48.7 | ) | (1.8 | ) | |||||||||||||||
Total operating costs and expenses | $ | 703.6 | 82.8 | % | $ | 651.2 | 74.5 | % | $ | 2,167.8 | 83.2 | % | $ | 2,125.6 | 79.5 | % | |||||||||||
__________________________
* Represents the amount presented divided by total net revenue.
Cost of revenue
For the three and nine months ended September 30, 2019, cost of revenue as a percentage of net revenue increased from the prior periods, primarily as a result of organic revenue decline, negative mix due to new product launches, the impact of acquisitio
26
ns and divestitures, and increased tariff costs, partially offset by the positive impact of changes in foreign currency exchange rates and lower variable compensation.
Research and development ("R&D") expense
For the three months ended September 30, 2019, R&D expense was relatively consistent with the prior period as increased spend was offset by the positive impact of changes in foreign currency exchange rates.
For the nine months ended September 30, 2019, R&D expense declined from the prior period, primarily as a result of the positive impact of changes in foreign currency exchange rates.
Selling, general and administrative ("SG&A") expense
For the three and nine months ended September 30, 2019, SG&A expense declined from the prior periods, primarily due to lower variable compensation, lower selling costs, the divestiture of the Valves Business, and the favorable impact of foreign currency exchange rates, partially offset by additional SG&A expense related to GIGAVAC. In addition, the nine months ended September 30, 2019 was favorably impacted by lower costs related to our redomicile in the prior year.
Amortization of intangible assets
For the three and nine months ended September 30, 2019, amortization expense increased from the prior periods due to the intangible assets acquired with GIGAVAC, partially offset by the effect of the economic benefit method.
Restructuring and other charges, net
Restructuring and other charges, net for the three and nine months ended September 30, 2019 and 2018 consisted of the following (amounts have been calculated based on unrounded numbers: accordingly, certain amounts may not appear to recalculate due to the effect of rounding):
For the three months ended | For the nine months ended | ||||||||||||||
($ in millions) | September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | |||||||||||
Severance costs, net (1) | $ | 5.5 | $ | 4.9 | $ | 23.0 | $ | 8.2 | |||||||
Facility and other exit costs | 0.2 | 0.2 | 0.2 | 0.9 | |||||||||||
Gain on sale of Valves Business (2) (4) | — | (63.7 | ) | — | (63.7 | ) | |||||||||
Other (3) (4) | 0.7 | 5.9 | 4.8 | 5.9 | |||||||||||
Restructuring and other charges, net | $ | 6.4 | $ | (52.7 | ) | $ | 28.0 | $ | (48.7 | ) | |||||
__________________________
(1) | Severance costs, net for the three and nine months ended September 30, 2019 and 2018 were primarily related to limited workforce reductions of manufacturing, engineering, and administrative positions as well as the elimination of certain positions related to site consolidations. Severance costs, net for the three months ended September 30, 2019 primarily comprise termination benefits provided under a one-time benefit arrangement related to the shutdown and relocation of an operating site in Germany. Severance costs, net for the nine months ended September 30, 2019 also included a charge of approximately $13 million related to benefits provided for under a voluntary retirement incentive program offered to a limited number of eligible employees in the U.S. The majority of these benefits were paid in the third quarter of 2019. |
(2) | In the three months ended September 30, 2018 we completed the divestiture of the Valves Business. |
(3) | Other charges for the three and nine months ended September 30, 2019 were primarily related to deferred compensation incurred in connection with the acquisition of GIGAVAC. Other charges for the three and nine months ended September 30, 2018 included incremental direct costs in order to transact the sale of the Valves Business. |
(4) | Refer to Note 16, "Acquisitions and Divestitures" of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further discussion of the acquisition of GIGAVAC and the divestiture of the Valves Business. |
Operating income
Operating income decreased $76.2 million, or 34.3%, to $146.1 million (17.2% of net revenue) in the three months ended September 30, 2019 from $222.3 million (25.5% of net revenue) in the three months ended September 30, 2018. The decline in operating income was due primarily to the divestiture of the Valves Business in the third quarter of 2018 (including the gain on sale), lower volume, and net productivity headwinds partly due to the scaling up of new product launches, partially offset by
27
lower variable compensation, the impact of the acquisition of GIGAVAC, and the overall favorable impact of foreign currency exchange rates.
Operating income decreased $111.9 million, or 20.4%, to $436.2 million (16.8% of net revenue) in the nine months ended September 30, 2019 from $548.1 million (20.5% of net revenue) in the nine months ended September 30, 2018. The decline in operating income was due primarily to the divestiture of the Valves Business in the third quarter of 2018 (including the gain on sale), net productivity headwinds partly due to the scaling up of new product launches, higher severance charges, and the impact of increased tariffs, partially offset by lower variable compensation, the favorable impact of foreign currency rates, and the impact of the acquisition of GIGAVAC.
Other, net
Other, net for the three and nine months ended September 30, 2019 and 2018 consisted of the following (amounts have been calculated based on unrounded numbers; accordingly, certain amounts may not appear to recalculate due to the effect of rounding):
For the three months ended | For the nine months ended | ||||||||||||||
($ in millions) | September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | |||||||||||
Currency remeasurement loss on net monetary assets (1) | $ | (6.0 | ) | $ | (9.6 | ) | $ | (8.5 | ) | $ | (18.5 | ) | |||
Gain on foreign currency forward contracts (2) | 1.3 | 3.7 | 2.8 | 3.1 | |||||||||||
Gain/(loss) on commodity forward contracts | 1.8 | (4.2 | ) | 2.8 | (8.9 | ) | |||||||||
Loss on debt financing | (4.4 | ) | — | (4.4 | ) | (2.4 | ) | ||||||||
Net periodic benefit cost, excluding service cost | (0.3 | ) | (0.3 | ) | (0.8 | ) | (0.8 | ) | |||||||
Other | 0.0 | (0.2 | ) | 0.2 | 1.1 | ||||||||||
Other, net | $ | (7.6 | ) | $ | (10.6 | ) | $ | (7.9 | ) | $ | (26.3 | ) | |||
__________________________
(1) | Relates to the remeasurement of non-U.S. dollar denominated monetary assets and liabilities into U.S. dollars. |
(2) | Relates to changes in the fair value of derivative financial instruments not designated as hedges. Refer to Note 15, "Derivative Instruments and Hedging Activities" of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a more detailed discussion. |
Provision for income taxes
The increase in our total tax provision for the three and nine months ended September 30, 2019 compared to the prior year relates to changes in the jurisdictional mix of profits, effects of changes in tax laws and rates in the locations where we operate, changes in tax accruals related to prior year tax positions, and the utilization of previously unbenefited net operating losses in our U.S. jurisdiction. The provision for income taxes consists of (i) current tax expense, which relates primarily to our profitable operations in non-U.S. tax jurisdictions and withholding taxes on management fees and royalty income; and (ii) deferred tax expense, which represents adjustments in book-to-tax basis differences primarily related to the step-up in fair value of fixed and intangible assets acquired in connection with business combination transactions, the utilization of net operating losses, and changes in tax rates.
Non-GAAP Financial Measures
This Quarterly Report on Form 10-Q includes references to organic revenue growth (or decline), which is a non-GAAP financial measure. Organic revenue growth 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 exchange rate differences as well as the net impact of acquisitions and divestitures for the 12-month period following the respective transaction date(s). Refer to the Net revenue section above for a reconciliation of organic revenue growth to reported revenue decline.
We believe that organic revenue growth provides investors with helpful information with respect to our operating performance, and we use organic revenue growth to evaluate our ongoing operations, as well as for internal planning and forecasting purposes. We believe that organic revenue growth 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.
Organic revenue growth should be considered as supplemental in nature and is not intended to be considered in isolation or as a substitute for reported percentage change in net revenue calculated in accordance with U.S. GAAP. In addition, our measure of
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organic revenue growth may not be the same as, or comparable to, similar non-GAAP financial measures presented by other companies.
Liquidity and Capital Resources
As of September 30, 2019 and December 31, 2018 we held cash and cash equivalents in the following regions:
(in millions) | September 30, 2019 | December 31, 2018 | |||||
United Kingdom | $ | 12.8 | $ | 8.8 | |||
United States | 11.1 | 4.6 | |||||
The Netherlands | 381.1 | 482.1 | |||||
China | 200.3 | 125.2 | |||||
Other | 116.1 | 109.1 | |||||
Total | $ | 721.4 | $ | 729.8 | |||
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.
Cash Flows:
The table below summarizes our primary sources and uses of cash for the nine months ended September 30, 2019 and 2018. We have derived the 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 | |||||||
(in millions) | September 30, 2019 | September 30, 2018 | |||||
Net cash provided by/(used in): | |||||||
Operating activities: | |||||||
Net income adjusted for non-cash items | $ | 490.6 | $ | 508.5 | |||
Changes in operating assets and liabilities, net | (57.1 | ) | (88.4 | ) | |||
Operating activities | 433.5 | 420.1 | |||||
Investing activities | (160.5 | ) | 42.9 | ||||
Financing activities | (281.5 | ) | (404.7 | ) | |||
Net change | $ | (8.4 | ) | $ | 58.3 | ||
Operating activities. Net cash provided by operating activities for the nine months ended September 30, 2019 and 2018 was $433.5 million and $420.1 million, respectively. Net cash provided by operating activities was favorably impacted by the timing of cash receipts and payments, partially offset by lower profitability.
Investing activities. Net cash (used in)/provided by investing activities for the nine months ended September 30, 2019 and 2018 was $(160.5) million and $42.9 million, respectively, which included $123.2 million and $111.3 million, respectively, in capital expenditures. In 2019, we anticipate capital expenditures of approximately $160.0 million to $170.0 million, which we expect to be funded from net cash provided by operating activities. In addition, net cash used in investing activities for the nine months ended September 30, 2019 included $32.3 million paid for acquisitions, which relates primarily to a small acquisition in the third quarter of 2019. Net cash provided by investing activities for the nine months ended September 30, 2018 included $149.1 million received related to the divestiture of the Valves Business. Refer to Note 16, "Acquisitions and Divestitures" of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further discussion of these transactions.
Financing activities. Net cash used in financing activities for the nine months ended September 30, 2019 and 2018 was $281.5 million and $404.7 million, respectively, which included $265.8 million and $399.4 million, respectively, in payments to repurchase our ordinary shares. Net cash used in financing activities for the nine months ended September 30, 2019 also included $461.2 million in payments on debt, partially offset by $450.0 million in proceeds from the issuance of debt. The debt related cash flows resulted from the issuance of $450.0 million in aggregate principal amount of 4.375% senior notes due 2030
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(the "4.375% Senior Notes"), the proceeds of which were used to partially repay the balance due on the term loan outstanding under our secured credit facilities. Refer to Note 11, "Debt" of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further discussion of this transaction.
Indebtedness and Liquidity:
As of September 30, 2019, we had $3,294.5 million in gross indebtedness, which includes finance lease and other financing obligations and excludes debt discounts and deferred financing costs.
A summary of our indebtedness as of September 30, 2019 is as follows:
($ in millions) | Maturity Date | September 30, 2019 | |||
Term Loan | September 20, 2026 | $ | 461.9 | ||
4.875% Senior Notes | October 15, 2023 | 500.0 | |||
5.625% Senior Notes | November 1, 2024 | 400.0 | |||
5.0% Senior Notes | October 1, 2025 | 700.0 | |||
6.25% Senior Notes | February 15, 2026 | 750.0 | |||
4.375% Senior Notes | February 15, 2030 | 450.0 | |||
Less: discount | (12.3 | ) | |||
Less: deferred financing costs | (25.5 | ) | |||
Less: current portion | (4.6 | ) | |||
Long-term debt, net | $ | 3,219.4 | |||
Finance lease and other financing obligations | $ | 32.6 | |||
Less: current portion | (3.2 | ) | |||
Finance lease and other financing obligations, less current portion | $ | 29.4 | |||
Our debt consists of a secured facility and various tranches of senior unsecured notes.
Secured Credit Facility
The credit agreement governing our secured credit facility (the "Credit Agreement") provides for senior secured credit facilities (the "Senior Secured Credit Facilities") consisting of a term loan facility (the "Term Loan"), a $420.0 million revolving credit facility (the "Revolving Credit Facility"), and incremental availability under which additional secured credit facilities could be issued under certain circumstances (the "Accordion").
On March 27, 2019 certain indirect, wholly owned subsidiaries of Sensata Technologies Holding plc entered into the ninth amendment (the "Ninth Amendment") of the Credit Agreement. On June 13, 2019, our subsidiaries that were at the time borrowers under the Credit Agreement entered into a technical amendment to the Credit Agreement (the "Technical Amendment"). Refer to Note 11, "Debt" of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for discussion of the Ninth Amendment and the Technical Amendment.
On September 20, 2019 certain of our subsidiaries, including Sensata Technologies B.V. ("STBV") and its indirect, wholly-owned subsidiary, Sensata Technologies Inc. ("STI"), entered into the tenth amendment of the Credit Agreement (the "Tenth Amendment"). Under the terms of the Tenth Amendment, among other changes to the Credit Agreement, (i) the final maturity date of the Term Loan was extended to September 20, 2026; (ii) STI became the sole borrower under the Credit Agreement and assumed substantially all of the obligations of STBV and Sensata Technologies Finance Company, LLC ("STFC") thereunder; (iii) the permission to incur incremental additional indebtedness under the Credit Agreement was increased; and (iv) certain of the operational and restrictive covenants and other terms and conditions of the Senior Secured Credit Facilities to which STBV and its restricted subsidiaries are subject were modified to provide us with increased flexibility and permissions thereunder (including permission to make restricted payments (including dividends) in an amount equal to $50.0 million annually which can be further increased to an unlimited amount subject to no default or event of default and compliance with certain financial covenants).
In addition, under the Tenth Amendment, STBV became a guarantor of STI’s obligations under the Credit Agreement, STFC ceased to be a guarantor with respect to the Credit Agreement, and certain subsidiaries of STBV that previously guaranteed the obligations under the Credit Agreement (the ‘‘Released Guarantors’’) were released from their guarantees, subject to satisfaction of certain conditions.
As of September 30, 2019 there was $416.1 million available under the Revolving Credit Facility, net of $3.9 million of obligations in respect of outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the
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benefit of certain operating activities. As of September 30, 2019, no amounts had been drawn against these outstanding letters of credit.
Senior Notes
We have various tranches of senior notes outstanding. Prior to September 20, 2019 these consisted of $500.0 million in aggregate principal amount of 4.875% senior notes due 2023 (the "4.875% Senior Notes"), $400.0 million in aggregate principal amount of 5.625% senior notes due 2024 (the "5.625% Senior Notes"), $700.0 million in aggregate principal amount of 5.0% senior notes due 2025 (the "5.0% Senior Notes"), and $750.0 million in aggregate principal amount of 6.25% senior notes due 2026 (the "6.25% Senior Notes" and together with each tranche of senior notes outstanding prior to September 20, 2019, the "Existing Senior Notes").
On September 20, 2019, coincident with the entry into the Tenth Amendment, STI issued the 4.375% Senior Notes. The proceeds of the issuance of the 4.375% Senior Notes were used to partially repay the Term Loan. The 4.375% Senior Notes were issued under an indenture dated September 20, 2019 among STI, as issuer, The Bank of New York Mellon, as trustee, and our guarantor subsidiaries named therein (the "Guarantors"). The 4.375% Senior Notes were offered at par, and interest is payable semi-annually on February 15 and August 15 of each year, commencing on February 15, 2020.
At any time, and from time to time, STI may redeem the 4.375% Senior Notes, in whole or in part, at a price equal to 100% of the principal amount of the notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, and, for redemptions occurring prior to November 15, 2029, a "make-whole" premium. Beginning on November 15, 2029, the "make-whole" premium will be eliminated. In addition, upon the occurrence of certain specific kinds of changes in control, STI will be required to offer to repurchase the notes at 101% of their principal amount plus accrued and unpaid interest, if any, 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, STI may, at its option, redeem the 4.375% 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, to, but excluding, the redemption date, premium, if any, and all additional amounts (as described in the indenture governing the 4.375% Senior Notes), if any, then due and which will become due on the date of redemption.
Upon consummation of the Tenth Amendment, the guarantees of the Released Guarantors under the Existing Senior Notes were released (the "Guarantees Release"). Accordingly, as of September 20, 2019, the 4.375% Senior Notes are guaranteed by STBV and all of the subsidiaries of STBV (other than STI) that guarantee the Existing Senior Notes and the Credit Agreement, in each case, giving effect to the Guarantees Release.
Capital Resources
Our sources of liquidity include cash on hand, cash flows from operations, and available capacity under the Revolving Credit Facility. In addition, the Senior Secured Credit Facilities provide for the Accordion, under which additional secured debt may be issued or the capacity of the Revolving Credit Facility may be increased. Subject to certain limitations as set forth in the indentures under which our senior notes were issued, availability under the Accordion is unlimited so long as our senior secured leverage ratio (as defined in the Credit Agreement) does not exceed 2.5:1.0; if our senior secured leverage ratio exceeds 2.5:1.0 we would be limited to the greater of $920.0 million or the measure of EBITDA as set forth in the Credit Agreement.
We believe, based on our current level of operations as reflected in our results of operations for the nine months ended September 30, 2019, and taking into consideration the restrictions and covenants discussed below, that these sources of liquidity will be sufficient to fund our operations, capital expenditures, ordinary share repurchases, and debt service for at least the next twelve months. 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.
The Credit Agreement stipulates certain events and conditions that may require us to use excess cash flow, as defined by the terms of the Credit Agreement, generated by operating, investing, or financing activities, to prepay some or all of the outstanding borrowings under our secured credit facilities. The Credit Agreement also requires mandatory prepayments of the outstanding borrowings under our 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 nine months ended September 30, 2019.
The Credit Agreement and the indentures under which our senior notes were issued contain restrictions and covenants that limit the ability of STBV and certain of its subsidiaries to, among other things, incur additional indebtedness, pay dividends, and make other restricted payments. For a full discussion of these restrictions and covenants, refer to Part II, Item 7,
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"Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources," included in our Annual Report on Form 10-K for the year ended December 31, 2018. As of September 30, 2019, we believe we were in compliance with all covenants and default provisions under our credit arrangements.
Our ability to raise additional financing, and our borrowing costs, may be impacted by short- and long-term debt ratings assigned by independent rating agencies, which are based, in significant part, on our performance as measured by certain credit metrics such as interest coverage and leverage ratios. As of October 18, 2019 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 borrowing costs, but will not reduce availability under the Revolving Credit Facility.
On July 30, 2019, our Board of Directors approved a new $500.0 million share repurchase program, which replaced the previously authorized $250.0 million share repurchase program. Under this program we may repurchase ordinary shares at such times and in amounts to be determined by our management, based on market conditions, legal requirements, and other corporate considerations, on the open market or in privately negotiated transactions, provided that such transactions are completed pursuant to an agreement and with a third party approved by our shareholders. During the nine months ended September 30, 2019, we repurchased approximately 5.5 million ordinary shares under our share repurchase programs for a total purchase price of approximately $265.8 million, which are now held as treasury shares. Remaining availability under this program was $421.6 million as of September 30, 2019.
Recently Issued Accounting Pronouncements
In February 2016 the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), which establishes new accounting and disclosure requirements for leases. We adopted the provisions of FASB ASU No. 2016-02 on January 1, 2019 using the modified retrospective transition method. Refer to Note 2, "New Accounting Standards" and Note 18, "Leases," each of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, for additional discussion of this adoption. We do not expect adoption of FASB ASU No. 2016-02 to have a material impact on our future 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’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" included in our Annual Report on Form 10-K for the year ended December 31, 2018.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
No significant changes to our market risk have occurred since December 31, 2018. For a discussion of market risks affecting us, refer to Part II, Item 7A—"Quantitative and Qualitative Disclosures About Market Risk" included in our Annual Report on Form 10-K for the year ended December 31, 2018.
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Item 4. | Controls and Procedures. |
The required certifications of our Chief Executive Officer and Chief Financial 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 and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2019. 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 United States ("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 September 30, 2019, our Chief Executive Officer and Chief Financial 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 September 30, 2019 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. generally accepted accounting principles. 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.
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PART II—OTHER INFORMATION
Item 1. | Legal Proceedings. |
As discussed in Part I, Item 3—"Legal Proceedings" in our Annual Report on Form 10-K for the year ended December 31, 2018, we are regularly involved in a number of claims and litigation matters in the ordinary course of business. Most of our litigation matters are third-party claims related to patent infringement allegations or for property damage allegedly caused by our products, but some involve allegations of personal injury or wrongful death. From time to time, we are also involved in disagreements with vendors and customers. Information on certain legal proceedings in which we are involved is included in Note 12, "Commitments and Contingencies" of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 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, or cash flows.
Item 1A. | Risk Factors. |
Information regarding risk factors appears in Part I, Item 1A—"Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018. 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) (2) | ||||||||||
July 1 through July 31, 2019 | 405,704 | (1) | $ | 47.96 | 401,916 | $ | 500.0 | |||||||
August 1 through August 31, 2019 | 1,042,396 | $ | 44.85 | 1,042,396 | $ | 453.2 | ||||||||
September 1 through September 30, 2019 | 653,943 | $ | 48.34 | 653,943 | $ | 421.6 | ||||||||
Quarter total | 2,102,043 | $ | 46.54 | 2,098,255 | $ | 421.6 | ||||||||
__________________________
(1) | Upon the vesting of restricted securities, we collect and pay withholding tax for employees by withholding shares to cover such tax. The number of shares presented includes 3,788 shares withheld in this manner with an aggregate value of $175 thousand, based on the closing price of our ordinary shares on the date of withholding. These withholdings took place outside of a publicly announced repurchase plan. |
(2) | Other than shares withheld to cover required tax withholding upon the vesting of restricted securities, all purchases during the three months ended September 30, 2019 were conducted pursuant to a $250.0 million share repurchase program authorized by our Board of Directors and publicly announced on October 30, 2018 (the "October 2018 Program") or a $500.0 million share repurchase program authorized by our Board of Directors and publicly announced on July 30, 2019 (the "July 2019 Program"). The October 2018 Program was terminated upon the authorization of the July 2019 Program, and no further purchases will be made pursuant to it. The July 2019 Program does not have an established expiration date. |
Item 3. | Defaults Upon Senior Securities. |
None.
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Item 6. | Exhibits. |
Exhibit No. | Description | |
4.1 | ||
4.2 | ||
10.1 | ||
10.2 | ||
10.3 | ||
31.1 | ||
31.2 | ||
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
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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 30, 2019
SENSATA TECHNOLOGIES HOLDING PLC |
/s/ Martha Sullivan |
(Martha Sullivan) Chief Executive Officer (Principal Executive Officer) |
/s/ Paul Vasington |
(Paul Vasington) Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
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TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 6. Exhibits