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Sensata Technologies Holding plc - Quarter Report: 2020 June (Form 10-Q)


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 June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 001-34652
_________________________________________________________________________________ 
SENSATA TECHNOLOGIES HOLDING PLC
(Exact name of registrant as specified in its charter)
_________________________________________________________________________________ 
England and Wales
 
98-1386780
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
529 Pleasant Street
Attleboro, Massachusetts, 02703, United States
(Address of principal executive offices, including zip code))
+1 (508) 236 3800
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
_____________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of exchange on which registered
Ordinary Shares - nominal value €0.01 per share
ST
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
 
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
As of July 15, 2020, 157,212,763 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.
 
 
 

2


PART I—FINANCIAL INFORMATION

Item 1.
Financial Statements.
SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(unaudited)
 
June 30,
2020
 
December 31,
2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,242,949

 
$
774,119

Accounts receivable, net of allowances of $17,655 and $15,129 as of June 30, 2020 and December 31, 2019, respectively
443,712

 
557,874

Inventories
488,807

 
506,678

Prepaid expenses and other current assets
103,696

 
126,981

Total current assets
2,279,164

 
1,965,652

Property, plant and equipment, net
815,872

 
830,998

Goodwill
3,093,598

 
3,093,598

Other intangible assets, net of accumulated amortization of $2,105,318 and $2,039,436 as of June 30, 2020 and December 31, 2019, respectively
706,102

 
770,904

Deferred income tax assets
29,011

 
21,150

Other assets
161,138

 
152,217

Total assets
$
7,084,885

 
$
6,834,519

Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt, finance lease and other financing obligations
$
407,042

 
$
6,918

Accounts payable
250,219

 
376,968

Income taxes payable
866

 
35,234

Accrued expenses and other current liabilities
268,432

 
215,626

Total current liabilities
926,559

 
634,746

Deferred income tax liabilities
254,230

 
251,033

Pension and other post-retirement benefit obligations
31,900

 
36,100

Finance lease and other financing obligations, less current portion
28,243

 
28,810

Long-term debt, net
3,220,833

 
3,219,885

Other long-term liabilities
129,715

 
90,190

Total liabilities
4,591,480

 
4,260,764

Commitments and contingencies (Note 12)

 

Shareholders’ equity:
 
 
 
Ordinary shares, €0.01 nominal value per share, 177,069 shares authorized, and 172,844 and 172,561 shares issued, as of June 30, 2020 and December 31, 2019, respectively
2,215

 
2,212

Treasury shares, at cost, 15,631 and 14,733 shares as of June 30, 2020 and December 31, 2019, respectively
(784,596
)
 
(749,421
)
Additional paid-in capital
1,735,826

 
1,725,091

Retained earnings
1,579,931

 
1,616,357

Accumulated other comprehensive loss
(39,971
)
 
(20,484
)
Total shareholders’ equity
2,493,405

 
2,573,755

Total liabilities and shareholders’ equity
$
7,084,885

 
$
6,834,519


 
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 six months ended
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
Net revenue
$
576,505

 
$
883,726

 
$
1,350,774

 
$
1,754,225

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
412,443

 
575,235

 
978,849

 
1,156,041

Research and development
30,239

 
36,685

 
64,692

 
71,781

Selling, general and administrative
64,730

 
72,026

 
141,951

 
142,575

Amortization of intangible assets
32,743

 
36,031

 
65,835

 
72,174

Restructuring and other charges, net
38,218

 
16,310

 
42,716

 
21,619

Total operating costs and expenses
578,373

 
736,287

 
1,294,043

 
1,464,190

Operating (loss)/income
(1,868
)
 
147,439

 
56,731

 
290,035

Interest expense, net
(40,808
)
 
(39,608
)
 
(80,211
)
 
(78,861
)
Other, net
1,576

 
(3,554
)
 
(10,705
)
 
(365
)
(Loss)/income before taxes
(41,100
)
 
104,277

 
(34,185
)
 
210,809

Provision for/(benefit from) income taxes
1,441

 
30,841

 
(75
)
 
52,308

Net (loss)/income
$
(42,541
)
 
$
73,436

 
$
(34,110
)
 
$
158,501

Basic net (loss)/income per share:
$
(0.27
)
 
$
0.45

 
$
(0.22
)
 
$
0.98

Diluted net (loss)/income per share:
$
(0.27
)
 
$
0.45

 
$
(0.22
)
 
$
0.97

The accompanying notes are an integral part of these condensed consolidated financial statements.

4



SENSATA TECHNOLOGIES HOLDING PLC
Condensed Consolidated Statements of Comprehensive (Loss)/Income
(In thousands)
(unaudited)
 
 
For the three months ended
 
For the six months ended
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
Net (loss)/income
$
(42,541
)
 
$
73,436

 
$
(34,110
)
 
$
158,501

Other comprehensive (loss)/income, net of tax:
 
 
 
 
 
 
 
Cash flow hedges
(5,167
)
 
(4,646
)
 
(24,501
)
 
5,414

Defined benefit and retiree healthcare plans
1,672

 
83

 
5,014

 
166

Other comprehensive (loss)/income
(3,495
)
 
(4,563
)
 
(19,487
)
 
5,580

Comprehensive (loss)/income
$
(46,036
)
 
$
68,873

 
$
(53,597
)
 
$
164,081

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 six months ended
 
June 30, 2020
 
June 30, 2019
Cash flows from operating activities:
 
 
 
Net (loss)/income
$
(34,110
)
 
$
158,501

Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
 
 
 
Depreciation
65,288

 
55,182

Amortization of debt issuance costs
3,263

 
3,718

Share-based compensation
9,590

 
12,425

Amortization of intangible assets
65,835

 
72,174

Deferred income taxes
1,500

 
13,213

Loss on litigation judgment
41,314

 

Unrealized loss on derivative instruments and other
8,035

 
16,717

Changes in operating assets and liabilities, net of the effects of acquisitions:
 
 
 
Accounts receivable, net
114,162

 
(53,775
)
Inventories
17,871

 
2,196

Prepaid expenses and other current assets
14,790

 
(1,645
)
Accounts payable and accrued expenses
(99,467
)
 
(27,157
)
Income taxes payable
(34,368
)
 
(2,241
)
Other
(3,431
)
 
2,858

Net cash provided by operating activities
170,272

 
252,166

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash received

 
(1,681
)
Additions to property, plant and equipment and capitalized software
(56,697
)
 
(81,549
)
Other
(3,798
)
 
305

Net cash used in investing activities
(60,495
)
 
(82,925
)
Cash flows from financing activities:
 
 
 
Proceeds from exercise of stock options and issuance of ordinary shares
1,146

 
7,099

Payment of employee restricted stock tax withholdings
(2,314
)
 
(6,778
)
Proceeds from borrowings on Revolving Credit Facility
400,000

 

Payments on debt
(4,604
)
 
(8,248
)
Payments to repurchase ordinary shares
(35,175
)
 
(168,198
)
Payments of debt and equity issuance costs

 
(1,876
)
Net cash provided by/(used in) financing activities
359,053

 
(178,001
)
Net change in cash and cash equivalents
468,830

 
(8,760
)
Cash and cash equivalents, beginning of period
774,119

 
729,833

Cash and cash equivalents, end of period
$
1,242,949

 
$
721,073

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 March 31, 2020
172,596

 
$
2,212

 
(15,631
)
 
$
(784,596
)
 
$
1,731,884

 
$
1,624,773

 
$
(36,476
)
 
$
2,537,797

Surrender of shares for tax withholding

 

 
(83
)
 
(2,299
)
 

 

 

 
(2,299
)
Stock options exercised
21

 
1

 

 

 
436

 

 

 
437

Vesting of restricted securities
310

 
3

 

 

 

 
(3
)
 

 

Retirement of ordinary shares
(83
)
 
(1
)
 
83

 
2,299

 

 
(2,298
)
 

 

Share-based compensation

 

 

 

 
3,506

 

 

 
3,506

Net loss

 

 

 

 

 
(42,541
)
 

 
(42,541
)
Other comprehensive loss

 

 

 

 

 

 
(3,495
)
 
(3,495
)
Balance as of June 30, 2020
172,844

 
$
2,215

 
(15,631
)
 
$
(784,596
)
 
$
1,735,826

 
$
1,579,931

 
$
(39,971
)
 
$
2,493,405

 
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, 2019
172,561

 
$
2,212

 
(14,733
)
 
$
(749,421
)
 
$
1,725,091

 
$
1,616,357

 
$
(20,484
)
 
$
2,573,755

Surrender of shares for tax withholding

 

 
(83
)
 
(2,314
)
 

 

 

 
(2,314
)
Stock options exercised
55

 
1

 

 

 
1,145

 

 

 
1,146

Vesting of restricted securities
311

 
3

 

 

 

 
(3
)
 

 

Repurchase of ordinary shares

 

 
(898
)
 
(35,175
)
 

 

 

 
(35,175
)
Retirement of ordinary shares
(83
)
 
(1
)
 
83

 
2,314

 

 
(2,313
)
 

 

Share-based compensation

 

 

 

 
9,590

 

 

 
9,590

Net loss

 

 

 

 

 
(34,110
)
 

 
(34,110
)
Other comprehensive loss

 

 

 

 

 

 
(19,487
)
 
(19,487
)
Balance as of June 30, 2020
172,844

 
$
2,215

 
(15,631
)
 
$
(784,596
)
 
$
1,735,826

 
$
1,579,931

 
$
(39,971
)
 
$
2,493,405

 
Ordinary Shares
 
Treasury Shares
 
Additional
Paid-In
Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
Number
 
Amount
 
Number
 
Amount
 
Balance as of March 31, 2019
171,987

 
$
2,206

 
(10,607
)
 
$
(550,166
)
 
$
1,702,940

 
$
1,425,426

 
$
(16,035
)
 
$
2,564,371

Surrender of shares for tax withholding

 

 
(138
)
 
(6,503
)
 

 

 

 
(6,503
)
Stock options exercised
64

 

 

 

 
1,286

 

 

 
1,286

Vesting of restricted securities
412

 
5

 

 

 

 
(5
)
 

 

Repurchase of ordinary shares

 

 
(379
)
 
(17,449
)
 

 

 

 
(17,449
)
Retirement of ordinary shares
(138
)
 
(2
)
 
138

 
6,503

 

 
(6,501
)
 

 

Share-based compensation

 

 

 

 
6,485

 

 

 
6,485

Net income

 

 

 

 

 
73,436

 

 
73,436

Other comprehensive loss

 

 

 

 

 

 
(4,563
)
 
(4,563
)
Balance as of June 30, 2019
172,325

 
$
2,209

 
(10,986
)
 
$
(567,615
)
 
$
1,710,711

 
$
1,492,356

 
$
(20,598
)
 
$
2,617,063

 
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
171,719

 
$
2,203

 
(7,571
)
 
$
(399,417
)
 
$
1,691,190

 
$
1,340,636

 
$
(26,178
)
 
$
2,608,434

Surrender of shares for tax withholding

 

 
(144
)
 
(6,778
)
 

 

 

 
(6,778
)
Stock options exercised
312

 
3

 

 

 
7,096

 

 

 
7,099

Vesting of restricted securities
438

 
5

 

 

 

 
(5
)
 

 

Repurchase of ordinary shares

 

 
(3,415
)
 
(168,198
)
 

 

 

 
(168,198
)
Retirement of ordinary shares
(144
)
 
(2
)
 
144

 
6,778

 

 
(6,776
)
 

 

Share-based compensation

 

 

 

 
12,425

 

 

 
12,425

Net income

 

 

 

 

 
158,501

 

 
158,501

Other comprehensive income

 

 

 

 

 

 
5,580

 
5,580

Balance as of June 30, 2019
172,325

 
$
2,209

 
(10,986
)
 
$
(567,615
)
 
$
1,710,711

 
$
1,492,356

 
$
(20,598
)
 
$
2,617,063

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 (loss)/income, cash flows, and changes in shareholders' equity of Sensata Technologies Holding 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 audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.
All U.S. dollar ("USD") and share amounts presented, except per share amounts, are stated in thousands, unless otherwise indicated.
Certain reclassifications have been made to prior periods to conform to current period presentation.
2. New Accounting Standards
There are no recently issued accounting standards that have been adopted in the current period or will be adopted in future periods that have had or are expected to have a material impact on our consolidated financial position or results of operations.
3. Revenue Recognition
The following tables present net revenue disaggregated by segment and end market for the three and six months ended June 30, 2020 and 2019:
 
 
For the three months ended June 30, 2020
 
For the three months ended June 30, 2019
 
 
Performance Sensing
 
Sensing Solutions
 
Total
 
Performance Sensing
 
Sensing Solutions
 
Total
Automotive
 
$
286,499

 
$
7,279

 
$
293,778

 
$
498,296

 
$
10,672

 
$
508,968

HVOR (1)
 
98,708

 

 
98,708

 
146,220

 

 
146,220

Industrial
 

 
79,264

 
79,264

 

 
95,818

 
95,818

Appliance and HVAC (2)
 

 
43,689

 
43,689

 

 
55,832

 
55,832

Aerospace
 

 
27,193

 
27,193

 

 
44,902

 
44,902

Other
 

 
33,873

 
33,873

 

 
31,986

 
31,986

Total
 
$
385,207

 
$
191,298

 
$
576,505

 
$
644,516

 
$
239,210

 
$
883,726


________________________
(1)    Heavy vehicle and off-road
(2)    Heating, ventilation and air conditioning

8



 
 
For the six months ended June 30, 2020
 
For the six months ended June 30, 2019
 
 
Performance Sensing
 
Sensing Solutions
 
Total
 
Performance Sensing
 
Sensing Solutions
 
Total
Automotive
 
$
724,202

 
$
15,515

 
$
739,717

 
$
990,311

 
$
22,100

 
$
1,012,411

HVOR
 
229,694

 

 
229,694

 
294,233

 

 
294,233

Industrial
 

 
159,863

 
159,863

 

 
188,459

 
188,459

Appliance and HVAC
 

 
89,085

 
89,085

 

 
107,536

 
107,536

Aerospace
 

 
69,317

 
69,317

 

 
87,881

 
87,881

Other
 

 
63,098

 
63,098

 

 
63,705

 
63,705

Total
 
$
953,896



$
396,878



$
1,350,774

 
$
1,284,544

 
$
469,681

 
$
1,754,225


4. Share-Based Payment Plans
The following table presents the components of non-cash compensation expense related to our equity awards for the three and six months ended June 30, 2020 and 2019.
 
For the three months ended
 
For the six months ended
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
Stock options
$
53

 
$
1,964

 
$
2,542

 
$
3,488

Restricted securities
3,453

 
4,521

 
7,048

 
8,937

Share-based compensation expense
$
3,506

 
$
6,485

 
$
9,590

 
$
12,425


Equity Awards
We granted the following restricted stock units ("RSUs" and each, an "RSU") and performance-based restricted stock units ("PRSUs" and each, a "PRSU") under the Sensata Technologies Holding plc First Amended and Restated 2010 Equity Incentive Plan during the six months ended June 30, 2020:
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)
 
10

 
N/A
 
$
36.67

Directors
 
RSU (1)
 
39

 
N/A
 
$
36.45

Various executives and employees
 
RSU (2)
 
717

 
N/A
 
$
27.92

Various executives and employees
 
PRSU (3)
 
395

 
0.0% - 172.5%
 
$
27.99

__________________________
(1) 
These RSUs generally cliff vest between one year and three years from the grant date (various dates between April 2021 and March 2023).
(2) 
Beginning in April 2020, we began granting RSUs that vest ratably over three years, one-third per year beginning on the first anniversary of the grant date. These RSUs will fully vest on various dates between April 2023 and June 2023.
(3) 
These PRSUs vest on various dates between April 2023 and June 2023. The number of units that ultimately vest is dependent on the achievement of certain performance criteria.
5. Restructuring and Other Charges, Net
During the three months ended June 30, 2020, we analyzed the potential long-term impact of the global financial and health crisis caused by the coronavirus pandemic ("COVID-19") on our business and, as a result, committed to a plan to reorganize our business (the “Q2 2020 Global Restructure Program”). The Q2 2020 Global Restructure Program, consisting of voluntary and involuntary reductions-in-force and certain site closures, was commenced in order to align our cost structure to the demand levels that we anticipate over the coming quarters. The majority of the actions under the Q2 2020 Global Restructure Program are expected to be completed on or before June 30, 2021.
The reductions-in-force, which are subject to the laws and regulations of the countries in which the actions are planned, are expected to impact approximately 980 positions. Over the life of the Q2 2020 Global Restructure Program, we expect to incur restructuring charges of between $35.0 million and $39.0 million related to reductions-in-force and between $8.0 million and $10.0 million related to site closures. We expect to settle these charges with cash on hand.

9



We expect these restructuring charges to impact our business segments and corporate functions as follows:
 
 
 
Reductions-in-Force
 
Site Closures
(Dollars in millions)
Positions
 
Minimum
 
Maximum
 
Minimum
 
Maximum
Performance Sensing
214

 
$
12.6

 
$
14.0

 
$
3.0

 
$
4.0

Sensing Solutions
335

 
10.2

 
11.3

 
5.0

 
6.0

Corporate and other
431

 
12.2

 
13.7

 

 

Total
980

 
$
35.0

 
$
39.0

 
$
8.0

 
$
10.0

Amounts accrued in the three months ended June 30, 2020 related to the Q2 2020 Global Restructure Program are detailed by segment below. All charges related to this program incurred in the three months ended June 30, 2020 were related to severance costs and recorded in restructuring and other charges, net.
 
Total
Performance Sensing
$
7,609

Sensing Solutions
7,181

Corporate and other
9,330

Restructuring and other charges, net
$
24,120

The following table presents the components of restructuring and other charges, net for the three and six months ended June 30, 2020 and 2019:
 
For the three months ended
 
For the six months ended
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
Q2 2020 Global Restructure Program charges
$
24,120

 
$

 
$
24,120

 
$

Other restructuring charges
 
 
 
 
 
 
 
Severance costs, net (1)

 
14,631

 
3,897

 
17,486

Facility and other exit costs

 
37

 

 
37

Other (2)
14,098

 
1,642

 
14,699

 
4,096

Restructuring and other charges, net
$
38,218

 
$
16,310

 
$
42,716

 
$
21,619

___________________________________
(1) 
Severance costs, net (excluding those related to the Q2 2020 Global Restructure Program) for the six months ended June 30, 2020 were related to termination benefits arising from the shutdown and relocation of an operating site in Northern Ireland. Severance costs, net for the three and six months ended June 30, 2019 were primarily related to benefits provided for under a voluntary retirement incentive program offered to a limited number of eligible employees in the U.S.
(2) 
Other charges in the three and six months ended June 30, 2020 were primarily related to a $12.1 million pre-judgment interest-related award granted by the court on behalf of the plaintiffs, Wasica Finance GmbH ("Wasica"), in connection with a patent infringement case against Schrader. Refer to Note 12, "Commitments and Contingencies," for additional information related to this matter. Other charges in the three and six months ended June 30, 2019 were primarily related to deferred compensation incurred in connection with the acquisition of GIGAVAC, LLC ("GIGAVAC").
The following table presents a rollforward of the severance portion of our restructuring liabilities during the six months ended June 30, 2020. The only charges that were incurred under the Q2 2020 Global Restructure Program related to severance. The components of our other restructuring liabilities not related to severance were immaterial. All balances at June 30, 2020 are recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets.
 
Q2 2020 Global Restructure Program
 
Other Severance
 
Total
Balance at December 31, 2019
$

 
$
14,779

 
$
14,779

Charges, net of reversals
24,120

 
3,897

 
28,017

Payments
(2,606
)
 
(10,802
)
 
(13,408
)
Foreign currency remeasurement

 
(486
)
 
(486
)
Balance at June 30, 2020
$
21,514

 
$
7,388

 
$
28,902




10



6. Other, Net
The following table presents the components of other, net for the three and six months ended June 30, 2020 and 2019:
 
For the three months ended
 
For the six months ended
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
Currency remeasurement (loss)/gain on net monetary assets
$
(1,097
)
 
$
(4,326
)
 
$
456

 
$
(2,461
)
Gain/(loss) on foreign currency forward contracts
417

 
1,039

 
(3,364
)
 
1,517

Gain/(loss) on commodity forward contracts
5,427

 
(102
)
 
(148
)
 
1,021

Net periodic benefit cost, excluding service cost
(2,516
)
 
(287
)
 
(6,897
)
 
(574
)
Other
(655
)
 
122

 
(752
)
 
132

Other, net
$
1,576

 
$
(3,554
)
 
$
(10,705
)
 
$
(365
)

7. Income Taxes
The following table presents the provision for/(benefit from) income taxes for the three and six months ended June 30, 2020 and 2019:
 
For the three months ended
 
For the six months ended
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
Provision for/(benefit from) income taxes
$
1,441

 
$
30,841

 
$
(75
)
 
$
52,308


The decrease in total tax from the prior periods was predominantly related to the overall decrease in income before tax as impacted by the mix of profits in the various jurisdictions in which we operate.
In response to the global financial and health crisis caused by COVID-19, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") on March 27, 2020. Federal limitations on interest deductions were reduced in connection with this legislation, and we recorded a deferred tax benefit of $7.5 million in the three months ended March 31, 2020, as we were able to utilize additional interest expense that was previously subject to a valuation allowance.
The provision for/(benefit from) income taxes consists of:
current tax expense, which relates primarily to our profitable operations in non-U.S. tax jurisdictions and withholding taxes related to 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) changes in net operating loss carryforwards, (3) changes in tax rates, and (4) changes in our assessment of the realizability of our deferred tax assets.
8. Net (Loss)/Income per Share
Basic and diluted net (loss)/income per share are calculated by dividing net (loss)/income by the number of basic and diluted weighted-average ordinary shares outstanding during the period. For the three and six months ended June 30, 2020 and 2019 the weighted-average ordinary shares outstanding used to calculate basic and diluted net (loss)/income per share were as follows:
 
For the three months ended
 
For the six months ended
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
Basic weighted-average ordinary shares outstanding
157,186

 
161,618

 
157,392

 
162,433

Dilutive effect of stock options (1)

 
568

 

 
601

Dilutive effect of unvested restricted securities (1)

 
292

 

 
466

Diluted weighted-average ordinary shares outstanding
157,186

 
162,478

 
157,392

 
163,500


___________________________________
(1) 
In the three and six months ended June 30, 2020, potential ordinary shares of approximately 66 thousand and 200 thousand, respectively, related to stock options and approximately 353 thousand and 403 thousand, respectively, related to unvested restricted securities were excluded from the calculation of diluted weighted-average ordinary shares outstanding as a result of the net loss incurred in those periods.

11



Net (loss)/income and net (loss)/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 (loss)/income per share or they related to equity awards that were contingently issuable for which the contingency had not been satisfied. These potential ordinary shares were as follows:
 
For the three months ended
 
For the six months ended
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
Anti-dilutive shares excluded
2,959

 
1,358

 
2,172

 
1,185

Contingently issuable shares excluded
1,251

 
794

 
923

 
635


9. Inventories
The following table presents the components of inventories as of June 30, 2020 and December 31, 2019:
 
June 30, 2020
 
December 31, 2019
Finished goods
$
190,142

 
$
197,531

Work-in-process
91,865

 
104,007

Raw materials
206,800

 
205,140

Inventories
$
488,807

 
$
506,678

 
10. Pension and Other Post-Retirement Benefits
The components of net periodic benefit cost/(credit) associated with our defined benefit and retiree healthcare plans for the three months ended June 30, 2020 and 2019 were as follows:
 
U.S. Plans
 
Non-U.S. Plans
 
 
 
Defined Benefit
 
Retiree Healthcare
 
Defined Benefit
 
Total
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Service cost
$

 
$

 
$
3

 
$
2

 
$
939

 
$
632

 
$
942

 
$
634

Interest cost
206

 
399

 
36

 
53

 
396

 
338

 
638

 
790

Expected return on plan assets
(293
)
 
(451
)
 

 

 
(172
)
 
(176
)
 
(465
)
 
(627
)
Amortization of net loss
300

 
245

 
9

 
11

 
359

 
192

 
668

 
448

Amortization of prior service (credit)/cost

 

 
(197
)
 
(327
)
 
3

 
3

 
(194
)
 
(324
)
Loss on settlement
310

 

 

 

 
1,559

 

 
1,869

 

Net periodic benefit cost/(credit)
$
523

 
$
193

 
$
(149
)
 
$
(261
)
 
$
3,084

 
$
989

 
$
3,458

 
$
921


The components of net periodic benefit cost/(credit) associated with our defined benefit and retiree healthcare plans for the six months ended June 30, 2020 and 2019 were as follows:
 
U.S. Plans
 
Non-U.S. Plans
 
 
 
Defined Benefit
 
Retiree Healthcare
 
Defined Benefit
 
Total
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Service cost
$

 
$

 
$
5

 
$
4

 
$
1,708

 
$
1,363

 
$
1,713

 
$
1,367

Interest cost
473

 
798

 
73

 
106

 
711

 
676

 
1,257

 
1,580

Expected return on plan assets
(726
)
 
(902
)
 

 

 
(346
)
 
(351
)
 
(1,072
)
 
(1,253
)
Amortization of net loss
595

 
490

 
19

 
22

 
595

 
383

 
1,209

 
895

Amortization of prior service (credit)/cost

 

 
(393
)
 
(654
)
 
5

 
6

 
(388
)
 
(648
)
Loss on settlement
4,332

 

 

 

 
1,559

 

 
5,891

 

Net periodic benefit cost/(credit)
$
4,674

 
$
386

 
$
(296
)
 
$
(522
)
 
$
4,232

 
$
2,077

 
$
8,610

 
$
1,941


Components of net periodic benefit cost/(credit) other than service cost are presented in other, net in the condensed consolidated statements of operations. Refer to Note 6, "Other, Net."

12



11. Debt
Our long-term debt, finance lease, and other financing obligations as of June 30, 2020 and December 31, 2019 consisted of the following:
 
 
Maturity Date
 
June 30, 2020
 
December 31, 2019
Term Loan
 
September 20, 2026
 
$
458,411

 
$
460,725

4.875% Senior Notes
 
October 15, 2023
 
500,000

 
500,000

5.625% Senior Notes
 
November 1, 2024
 
400,000

 
400,000

5.0% Senior Notes
 
October 1, 2025
 
700,000

 
700,000

6.25% Senior Notes
 
February 15, 2026
 
750,000

 
750,000

4.375% Senior Notes
 
February 15, 2030
 
450,000

 
450,000

Revolving Credit Facility
 
March 27, 2024
 
400,000

 

Less: discount
 
 
 
(10,681
)
 
(11,758
)
Less: deferred financing costs
 
 
 
(22,266
)
 
(24,452
)
Less: current portion
 
 
 
(404,631
)
 
(4,630
)
Long-term debt, net
 
 
 
$
3,220,833

 
$
3,219,885

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Finance lease and other financing obligations
 
 
 
$
30,654

 
$
31,098

Less: current portion
 
 
 
(2,411
)
 
(2,288
)
Finance lease and other financing obligations, less current portion
 
 
 
$
28,243

 
$
28,810


To enhance our financial flexibility given the general uncertainty associated with COVID-19, we withdrew $400.0 million of our $420.0 million revolving credit facility (the "Revolving Credit Facility") on April 1, 2020. As of June 30, 2020, we had $16.1 million available under the Revolving Credit Facility, net of $3.9 million of obligations related to outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of June 30, 2020, no amounts had been drawn against these outstanding letters of credit.
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 June 30, 2020 and December 31, 2019, accrued interest totaled $43.4 million and $42.8 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 certain of our tire pressure monitoring system products. The patent in question has expired, and as a result, the claimant seeks damages for past alleged infringement with interest and costs. The asserted patent is the U.S. counterpart of a German patent that had been previously asserted against Schrader. Schrader succeeded in proving that German patent to be invalid. On February 14, 2020, the federal jury trial related to this lawsuit concluded, and the jury found Schrader International Inc. liable for damages in the amount of $31.2 million. We recorded a loss of $29.2 million in the three months ended March 31, 2020 in cost of revenue. On July 6, 2020, the court awarded an additional $12.1 million for plaintiffs and against us for pre-judgment interest-related damages. In the three months ended June 30, 2020, we recorded a loss of $12.1 million through restructuring and other charges, net, to reflect the court's order. We continue to deny any wrongdoing in this matter and intend to appeal this ruling along with the court's pre-judgment interest award. As of June 30, 2020, we have recorded an accrual of $43.3 million related to this matter in other long-term liabilities, based on timing of expected payment if our appeal is unsuccessful.
13. Shareholders' Equity
Treasury Shares
From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or terminated by our Board at any time. We currently have an authorized $500.0 million share repurchase program under which approximately $302.3 million remained available as of June 30, 2020. On April 2, 2020, we announced a temporary suspension of this share repurchase program, which will continue to remain on hold until end market conditions show greater improvement and stability.

13



Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss for the six months ended June 30, 2020 were as follows:
 
 
Cash Flow Hedges
 
Defined Benefit and Retiree Healthcare Plans
 
Accumulated Other Comprehensive Loss
Balance at December 31, 2019
 
$
16,546

 
$
(37,030
)
 
$
(20,484
)
Other comprehensive (loss)/income before reclassifications, net of tax
 
(13,559
)
 

 
(13,559
)
Reclassifications from accumulated other comprehensive loss, net of tax
 
(10,942
)
 
5,014

 
(5,928
)
Other comprehensive (loss)/income
 
(24,501
)
 
5,014

 
(19,487
)
Balance at June 30, 2020
 
$
(7,955
)
 
$
(32,016
)
 
$
(39,971
)

The amounts reclassified from accumulated other comprehensive loss for the three and six months ended June 30, 2020 and 2019 were as follows:
 
 
For the three months ended June 30,
 
For the six months ended June 30,
 
Affected Line in Condensed Consolidated Statements of Operations
Component
 
2020
 
2019
 
2020
 
2019
 
Derivative instruments designated and qualifying as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
$
(6,392
)
 
$
(6,493
)
 
$
(13,015
)
 
$
(9,712
)
 
Net revenue (1)
Foreign currency forward contracts
 
193

 
(941
)
 
(1,575
)
 
(1,069
)
 
Cost of revenue (1)
Total, before taxes
 
(6,199
)
 
(7,434
)
 
(14,590
)
 
(10,781
)
 
(Loss)/income before taxes
Income tax effect
 
1,550

 
1,524

 
3,648

 
2,210

 
Provision for/(benefit from) income taxes
Total, net of taxes
 
$
(4,649
)
 
$
(5,910
)
 
$
(10,942
)
 
$
(8,571
)
 
Net (loss)/income
 
 
 
 
 
 
 
 
 
 
 
Defined benefit and retiree healthcare plans
 
$
2,343

 
$
124

 
$
6,712

 
$
247

 
Other, net (2)
Income tax effect
 
(671
)
 
(41
)
 
(1,698
)
 
(81
)
 
Provision for/(benefit from) income taxes
Total, net of taxes
 
$
1,672

 
$
83

 
$
5,014

 
$
166

 
Net (loss)/income
__________________________
(1) 
Refer to Note 15, "Derivative Instruments and Hedging Activities" for additional information on amounts to be reclassified from accumulated other comprehensive loss in future periods.
(2) 
Refer to Note 10, "Pension and Other Post-Retirement Benefits" for additional information on net periodic benefit cost/(credit).
14. Fair Value Measures
Measured on a Recurring Basis
The fair values of our assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 are shown in the below table. All fair value measures presented are categorized in Level 2 of the fair value hierarchy.
 
June 30, 2020
 
December 31, 2019
Assets
 
 
 
Foreign currency forward contracts
$
10,140

 
$
23,561

Commodity forward contracts
3,526

 
3,623

Total
$
13,666

 
$
27,184

Liabilities
 
 
 
Foreign currency forward contracts
$
17,210

 
$
1,959

Commodity forward contracts
1,225

 
462

Total
$
18,435

 
$
2,421

Refer to Note 15, "Derivative Instruments and Hedging Activities," for additional information related to our forward contracts.

14



Measured on a Nonrecurring Basis
We evaluated our goodwill and other indefinite-lived intangible assets for impairment as of October 1, 2019 and determined that they were not impaired. As of June 30, 2020, we have assessed the current and expected market impact of COVID-19, including the impact on our forecasts, and have determined that our intangible assets (including goodwill) were not impaired as of June 30, 2020.
Financial Instruments Not Recorded at Fair Value
The following table presents the carrying values and fair values of financial instruments not recorded at fair value in the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019. All fair value measures presented are categorized in Level 2 of the fair value hierarchy.
 
June 30, 2020
 
December 31, 2019
 
Carrying Value (1)
 
Fair Value
 
Carrying Value (1)
 
Fair Value
Liabilities
 
 
 
 
 
 
 
Term Loan
$
458,411

 
$
453,827

 
$
460,725

 
$
464,181

4.875% Senior Notes
$
500,000

 
$
520,000

 
$
500,000

 
$
532,500

5.625% Senior Notes
$
400,000

 
$
425,000

 
$
400,000

 
$
444,000

5.0% Senior Notes
$
700,000

 
$
745,500

 
$
700,000

 
$
759,500

6.25% Senior Notes
$
750,000

 
$
781,875

 
$
750,000

 
$
808,125

4.375% Senior Notes
$
450,000

 
$
445,500

 
$
450,000

 
$
457,875

Revolving Credit Facility
$
400,000

 
$
400,000

 
$

 
$

___________________________________
(1)    Excluding any related debt discounts and deferred financing costs.
Cash and cash equivalents are carried at cost, which approximates fair value because of their short-term nature.
In addition to the above, we hold certain equity investments that do not have readily determinable fair values for which we use the measurement alternative prescribed in FASB ASC Topic 321, Investments - Equity Securities. Such investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. There were no impairments or changes resulting from observable transactions for any of these investments, and no adjustments were made to their carrying values.
Refer to the table below for a detail of the carrying values of these investments, each of which were included as a component of other assets in the condensed consolidated balance sheets.
 
June 30, 2020
 
December 31, 2019
Quanergy Systems, Inc.
$
50,000

 
$
50,000

Lithium Balance

 
3,700

Total
$
50,000

 
$
53,700


15. Derivative Instruments and Hedging Activities
Hedges of Foreign Currency Risk
For the three and six months ended June 30, 2020 and 2019, 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 June 30, 2020, we estimated that $5.5 million of net losses will be reclassified from accumulated other comprehensive loss to earnings during the twelve-month period ending June 30, 2021.

15



As of June 30, 2020, 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)
10.0 EUR
 
June 26, 2020
 
July 31, 2020
 
Euro ("EUR") to USD
 
1.12 USD
 
Not designated
287.2 EUR
 
Various from August 2018 to June 2020
 
Variance from July 2020 to May 2022
 
EUR to USD
 
1.15 USD
 
Cash flow hedge
423.0 CNY
 
June 23, 2020
 
July 31, 2020
 
USD to Chinese Renminbi ("CNY")
 
7.09 CNY
 
Not designated
570.6 CNY
 
Various from December 2019 to January 2020
 
Various from July to December 2020
 
USD to CNY
 
7.00 CNY
 
Cash flow hedge
272.0 JPY
 
June 26, 2020
 
July 31, 2020
 
USD to Japanese Yen ("JPY")
 
107.08 JPY
 
Not designated
19,267.1 KRW
 
Various from August 2018 to June 2020
 
Various from July 2020 to May 2022
 
USD to Korean Won ("KRW")
 
1,163.13 KRW
 
Cash flow hedge
11.0 MYR
 
June 25, 2020
 
July 30, 2020
 
USD to Malaysian Ringgit ("MYR")
 
4.29 MYR
 
Not designated
192.0 MXN
 
June 26, 2020
 
July 31, 2020
 
USD to Mexican Peso ("MXN")
 
23.00 MXN
 
Not designated
2,821.1 MXN
 
Various from August 2018 to June 2020
 
Various from July 2020 to May 2022
 
USD to MXN
 
21.92 MXN
 
Cash flow hedge
7.0 GBP
 
June 26, 2020
 
July 31, 2020
 
British Pound Sterling ("GBP") to USD
 
1.24 USD
 
Not Designated
49.6 GBP
 
Various from August 2018 to June 2020
 
Various from July 2020 to May 2022
 
GBP to USD
 
1.28 USD
 
Cash flow hedge

_________________________
(1) 
Derivative financial instruments not designated as hedges are used to manage our exposure to currency exchange rate risk. They are intended to preserve economic value, and they are not used for trading or speculative purposes.
Hedges of Commodity Risk
As of June 30, 2020, we had the following outstanding commodity forward contracts, none of which were designated for hedge accounting treatment in accordance with FASB ASC Topic 815, Derivatives and Hedging:
Commodity
 
Notional
 
Remaining Contracted Periods
 
Weighted-Average Strike Price Per Unit
Silver
 
743,321 troy oz.
 
July 2020 - June 2022
 
$16.96
Gold
 
7,095 troy oz.
 
July 2020 - June 2022
 
$1,525.01
Nickel
 
183,689 pounds
 
July 2020 - June 2022
 
$6.20
Aluminum
 
2,543,429 pounds
 
July 2020 - June 2022
 
$0.86
Copper
 
1,915,045 pounds
 
July 2020 - June 2022
 
$2.65
Platinum
 
7,071 troy oz.
 
July 2020 - June 2022
 
$889.56
Palladium
 
832 troy oz.
 
July 2020 - June 2022
 
$1,698.72


16



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 June 30, 2020 and December 31, 2019:
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet Location
 
June 30, 2020
 
December 31, 2019
 
Balance Sheet Location
 
June 30, 2020
 
December 31, 2019
Derivatives designated as hedging instruments
 
 
 
 
 
 
Foreign currency forward contracts
Prepaid expenses and other current assets
 
$
8,547

 
$
20,957

 
Accrued expenses and other current liabilities
 
$
12,966

 
$
1,055

Foreign currency forward contracts
Other assets
 
1,514

 
2,530

 
Other long-term liabilities
 
4,157

 
428

Total
 
 
$
10,061

 
$
23,487

 
 
 
$
17,123

 
$
1,483

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
Commodity forward contracts
Prepaid expenses and other current assets
 
$
2,732

 
$
3,069

 
Accrued expenses and other current liabilities
 
$
986

 
$
394

Commodity forward contracts
Other assets
 
794

 
554

 
Other long-term liabilities
 
239

 
68

Foreign currency forward contracts
Prepaid expenses and other current assets
 
79

 
74

 
Accrued expenses and other current liabilities
 
87

 
476

Total
 
 
$
3,605

 
$
3,697

 
 
 
$
1,312

 
$
938


These fair value measurements were all categorized within Level 2 of the fair value hierarchy.
The following tables present the effect of our derivative financial instruments on the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive (loss)/income for the three months ended June 30, 2020 and 2019:
Derivatives designated as
hedging instruments
 
Amount of Deferred (Loss)/Gain Recognized in Other Comprehensive (Loss)/Income
 
Location of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Net (Loss)/Income
 
Amount of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Net (Loss)/Income
 
2020
 
2019
 
 
2020
 
2019
Foreign currency forward contracts
 
$
(5,954
)
 
$
1,209

 
Net revenue
 
$
6,392

 
$
6,493

Foreign currency forward contracts
 
$
5,267

 
$
382

 
Cost of revenue
 
$
(193
)
 
$
941

Derivatives not designated as
hedging instruments
 
Amount of Gain/(Loss) Recognized in Net (Loss)/Income
 
Location of Gain/(Loss) Recognized in Net (Loss)/Income
 
2020
 
2019
 
Commodity forward contracts
 
$
5,427

 
$
(102
)
 
Other, net
Foreign currency forward contracts
 
$
417

 
$
1,039

 
Other, net
The following tables present the effect of our derivative financial instruments on the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive (loss)/income for the six months ended June 30, 2020 and 2019:
Derivatives designated as
hedging instruments
 
Amount of Deferred Gain/(Loss) Recognized in Other Comprehensive (Loss)/Income
 
Location of Net Gain Reclassified from Accumulated Other Comprehensive Loss into Net (Loss)/Income
 
Amount of Net Gain Reclassified from Accumulated Other Comprehensive Loss into Net (Loss)/Income
 
2020
 
2019
 
 
2020
 
2019
Foreign currency forward contracts
 
$
6,590

 
$
10,327

 
Net revenue
 
$
13,015

 
$
9,712

Foreign currency forward contracts
 
$
(24,363
)
 
$
6,460

 
Cost of revenue
 
$
1,575

 
$
1,069

Derivatives not designated as
hedging instruments
 
Amount of (Loss)/Gain Recognized in Net (Loss)/Income
 
Location of (Loss)/Gain Recognized in Net (Loss)/Income
 
2020
 
2019
 
Commodity forward contracts
 
$
(148
)
 
$
1,021

 
Other, net
Foreign currency forward contracts
 
$
(3,364
)
 
$
1,517

 
Other, net


17



Credit Risk Related Contingent Features
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.
As of June 30, 2020, the termination value of outstanding derivatives in a liability position, excluding any adjustment for non-performance risk, was $18.5 million. As of June 30, 2020, we had not posted any cash collateral related to these agreements. If we breach any of the default provisions on any of our indebtedness as described above, we could be required to settle our obligations under the derivative agreements at their termination values.
16. Segment Reporting
In the three months ended June 30, 2020, we altered the way we measure segment operating income in order to align with a change to the performance measures provided to and used by our chief operating decision maker for purposes of assessing performance and deciding how to allocate resources to each segment. Whereas research and development ("R&D") and selling, general and administrative ("SG&A") expenses related to our megatrend initiatives were historically allocated to our operating segments, beginning in the second quarter these amounts are presented within corporate and other. Prior period information has been recast to reflect this revised presentation.
We operate in, and report financial information for, the following 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 financial information is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and assess performance.
An operating segment’s performance is primarily evaluated based on segment operating income, which excludes amortization of intangible assets, restructuring and other charges, net, certain costs associated with our strategic megatrend initiatives, and certain corporate costs/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, 2019.

18



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 six months ended June 30, 2020 and 2019 (recast to reflect realignment of performance measures as discussed above):
 
For the three months ended
 
For the six months ended
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
Net revenue:
 
 
 
 
 
 
 
Performance Sensing
$
385,207

 
$
644,516

 
$
953,896

 
$
1,284,544

Sensing Solutions
191,298

 
239,210

 
396,878

 
469,681

Total net revenue
$
576,505

 
$
883,726

 
$
1,350,774

 
$
1,754,225

Segment operating income (as defined above):
 
 
 
 
 
 
 
Performance Sensing
$
60,756

 
$
173,420

 
$
195,802

 
$
328,742

Sensing Solutions
55,787

 
77,731

 
112,316

 
153,256

Total segment operating income
116,543

 
251,151

 
308,118

 
481,998

Corporate and other
(47,450
)
 
(51,371
)
 
(142,836
)
 
(98,170
)
Amortization of intangible assets
(32,743
)
 
(36,031
)
 
(65,835
)
 
(72,174
)
Restructuring and other charges, net
(38,218
)
 
(16,310
)
 
(42,716
)
 
(21,619
)
Operating (loss)/income
(1,868
)
 
147,439

 
56,731

 
290,035

Interest expense, net
(40,808
)
 
(39,608
)
 
(80,211
)
 
(78,861
)
Other, net
1,576

 
(3,554
)
 
(10,705
)
 
(365
)
(Loss)/income before taxes
$
(41,100
)
 
$
104,277

 
$
(34,185
)
 
$
210,809



19



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 set forth here and described in Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2019), 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:
Future risks and existing uncertainties associated with the COVID-19 pandemic, which continues to have a significant adverse impact on our business and operations including: (i) full or partial shutdowns of our facilities as mandated by government decrees, (ii) limited ability to adjust certain costs due to government actions, (iii) significant travel restrictions and “work-from-home” orders limiting the availability of our workforce, (iv) supplier constraints and supply-chain interruptions, (v) logistics challenges and limitations, (vi) reduced demand from certain customers, (vi) uncertainties associated with a protracted economic slowdown that could negatively affect the financial condition of our customers and suppliers, and (vii) uncertainties and volatility in the global capital markets;
business disruptions due to natural disasters or other disasters outside our control, such as the global COVID-19 pandemic.
instability and changes in the global markets, including regulatory, political, economic, governmental, and military matters, such as the recent 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;
competitive pressure from customers that could require us to reduce prices or result in reduced demand;
losses and costs as a result of intellectual property, product liability, warranty, and recall claims;
market acceptance of new product introductions and product innovations;
supplier interruption or non-performance, limiting our access to manufactured components or raw materials;
risks related to the acquisition or disposition of businesses, or the restructuring of our business;
labor disruptions or increased labor costs;
inability to realize all of the revenue or achieve anticipated gross margins from products subject to existing purchase orders for which we are currently engaged in development;
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 senior notes indentures;
changes to current policies, such as trade tariffs, by the U.S. government;
risks related to the potential for goodwill impairment;
the impact of challenges by taxing authorities of our historical and future tax positions or our allocation of taxable income among our subsidiaries, and challenges to the sovereign taxation regimes of EU member states by the European Commission and the Organization for Economic Co-operation and Development;
changes to, or inability to comply with, various regulations, including tax laws, import/export regulations, anti-bribery laws, environmental, health, and safety laws, and other governmental regulations; and
risks related to our domicile in the U.K.

20



In addition, the extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments, such as the length and severity of the crisis, the potential resurgence of the crisis, future government actions in response to the crisis and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable.
All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this Quarterly Report on Form 10-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, 2019 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.

21


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, 2019, filed with the U.S. Securities and Exchange Commission on February 11, 2020, and the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Overview
The COVID-19 pandemic has caused widespread disruptions to our Company, employees, customers, suppliers, and communities. We recognized the global impact of COVID-19 early, and took a wide range of actions across our organization designed to benefit the health and safety of employees, while also enabling us to respond to customer needs and enhance our financial flexibility during the pandemic. We are continuing to work with local, state, and federal governmental health agencies in many countries, implementing measures to help protect employees and minimize the spread of COVID-19 in our communities. Reduced demand, in addition to elevated logistics costs, government mandates, and actions to safeguard our employees, contributed to lower margins. Savings related to our previously announced cost reduction activities in the second quarter were approximately $21.8 million, resulting from temporary salary reductions, furloughs, and government subsidies.
Given the economic response to the spread of COVID-19 worldwide, the end markets that we serve were down substantially (approximately 39.9%) in the second quarter. However, most of our businesses performed better than their respective end markets, and our net revenue contracted 33.9% organically in the second quarter. Additionally, revenue improved sequentially each month of the second quarter. On this basis, we expect sequential improvements in the third and fourth quarters, unless COVID-19 causes further economic slowdown from our expectations, which could result in customers further reducing or shutting down their production.
We are also continuing to win new business and invest in opportunities that will drive long-term growth for Sensata. In the first half of 2020, we closed new business wins at a pace faster than the average new business wins over the past five years, including $100 million in electrification wins during the first half of 2020. We believe these wins demonstrate the mission-critical nature of our products and designs, as customers have been eager to continue business awards even in the midst of shutdowns related to COVID-19.
In addition, we continue to believe that our investments in megatrend initiatives will further our end market diversification, increase our long-term growth rate, and provide important competitive advantages as these trends transform our world. Despite the impact of COVID-19, we see no evidence that customers are meaningfully slowing their investments in these areas. We are making progress on both Smart & Connected and Electrification initiatives. In the Industrial space, we are increasing our focus on high-growth areas such as the Industrial Internet of Things, Smart Manufacturing, Smart Buildings, and Infrastructure. Bringing our sensing solutions to enhance material handling and electrification charging infrastructure represent fast growing opportunities that we believe will drive industrial business content and market outgrowth.
We believe that we are in a strong financial position today, having generated $170.3 million of operating cash flow in the six months ended June 30, 2020. In addition, we have taken multiple steps to enhance our financial flexibility. We lowered our operating expenses for the second quarter through management salary reductions and employee furloughs, implemented reductions in discretionary spending, and ramped down production in certain facilities in line with end market demand. We are reducing capital expenditures for the year and carefully managing our working capital.
Q2 2020 Global Restructure Program
In the second quarter of 2020, we commenced the Q2 2020 Global Restructure Program, which consists of actions such as voluntary and involuntary reductions-in-force and certain site closures in order to align our cost structure to the demand levels that we anticipate in the coming quarters. This program is expected to impact approximately 980 positions.
The majority of the actions under the Q2 2020 Global Restructure Program are expected to be completed on or before June 30, 2021. Over the life of the Q2 2020 Global Restructure Program, we expect to incur restructuring charges of between $35.0 million and $39.0 million related to reductions-in-force and between $8.0 million and $10.0 million related to site closures. We expect to settle these charges with cash on hand.
In the three months ended June 30, 2020, we accrued $24.1 million of severance charges related to this program. Refer to the discussion on restructuring and other related charges in Results of Operations below for further information. As of June 30, 2020, our severance liability related to the Q2 2020 Global Restructure Program was $21.5 million. Refer to Note 5, "Restructuring and Other Charges, Net," of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

22


We expect that the actions taken in the Q2 2020 Global Restructure Program will result in annualized savings of personnel- and facilities-related costs of approximately $49 million by 2021. We expect savings in the third quarter of 2020 to be approximately $7 million.
Results of Operations
The table below presents our historical results of operations, in millions of dollars and as a percentage of net revenue, for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019. 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 six months ended
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
 
Amount
 
Margin*
 
Amount
 
Margin*
 
Amount
 
Margin*
 
Amount
 
Margin*
Net revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance Sensing
$
385.2

 
66.8
 %
 
$
644.5

 
72.9
 %
 
$
953.9

 
70.6
 %
 
$
1,284.5

 
73.2
 %
Sensing Solutions
191.3

 
33.2

 
239.2

 
27.1

 
396.9

 
29.4

 
469.7

 
26.8

Net revenue
576.5

 
100.0

 
883.7

 
100.0

 
1,350.8

 
100.0

 
1,754.2

 
100.0

Operating costs and expenses
578.4

 
100.3

 
736.3

 
83.3

 
1,294.0

 
95.8

 
1,464.2

 
83.5

Operating (loss)/income
(1.9
)
 
(0.3
)
 
147.4

 
16.7

 
56.7

 
4.2

 
290.0

 
16.5

Interest expense, net
(40.8
)
 
(7.1
)
 
(39.6
)
 
(4.5
)
 
(80.2
)
 
(5.9
)
 
(78.9
)
 
(4.5
)
Other, net
1.6

 
0.3

 
(3.6
)
 
(0.4
)
 
(10.7
)
 
(0.8
)
 
(0.4
)
 
(0.0
)
(Loss)/income before taxes
(41.1
)
 
(7.1
)
 
104.3

 
11.8

 
(34.2
)
 
(2.5
)
 
210.8

 
12.0

Provision for/(benefit from) income taxes
1.4

 
0.2

 
30.8

 
3.5

 
(0.1
)
 
(0.0
)
 
52.3

 
3.0

Net (loss)/income
$
(42.5
)
 
(7.4
)%
 
$
73.4

 
8.3
 %
 
$
(34.1
)
 
(2.5
)%
 
$
158.5

 
9.0
 %
__________________________
*     Represents the amount presented divided by total net revenue.
Net revenue
Overall, volumes were lower than prior periods, both sequentially and year over year, due to severe end market decline caused by COVID-19. However, our end market environment is expected to improve sequentially overall through the balance of 2020. Refer to detailed discussion of revenue by segment below.
The following table presents a reconciliation of organic revenue decline, a non-GAAP financial measure, to reported net revenue decline, a financial measure determined in accordance with U.S. GAAP, for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019. Refer to the section entitled Non-GAAP Financial Measures below for further information on our use of organic revenue growth or decline.
 
Three months ended June 30, 2020
 
Six months ended June 30, 2020
 
Performance Sensing
 
Sensing Solutions
 
Total
 
Performance Sensing
 
Sensing Solutions
 
Total
Reported net revenue decline
(40.2
)%
 
(20.0
)%
 
(34.8
)%
 
(25.7
)%
 
(15.5
)%
 
(23.0
)%
Percent impact of:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency remeasurement (1)
(0.9
)
 
(0.7
)
 
(0.9
)
 
(0.8
)
 
(0.6
)
 
(0.7
)
Organic revenue decline
(39.3
)%
 
(19.3
)%
 
(33.9
)%
 
(24.9
)%
 
(14.9
)%
 
(22.3
)%
__________________________
(1) 
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 USD, which is the functional currency of the Company and each of its subsidiaries. The percentage amounts presented above related primarily to the USD to CNY and the EUR to USD exchange rates.
Performance Sensing
For the three months ended June 30, 2020, Performance Sensing net revenue declined 40.2%, or 39.3% on an organic basis.

23


For the three months ended June 30, 2020, automotive net revenue declined 42.5% compared to the prior year. Excluding a decline of 0.9% attributed to foreign currency exchange rate differences between the two periods, automotive net revenue in the three months ended June 30, 2020 declined 41.6% on an organic basis, representing outgrowth of 890 bps compared to a market that was down 50.5%. We refer to better performance by our business compared to the markets that the business serves, which relates to content growth partially offset by pricing, as "outgrowth." Our automotive market outgrowth was led primarily by new sensor launches in mission-critical emissions, electrification, and safety applications, as well as favorable pricing.
The difference between the performance of our automotive business and that of the end markets we serve was due primarily to two factors. First, we were able to alleviate the impact of end market declines by delivering market outgrowth, driven by increased content in all regions, but particularly in China where we experienced strong content growth following the adoption of NS6 emissions regulations. During the first quarter, we attributed a portion of automotive revenue growth to inventory build, particularly in China. In most regions in which we operate, inventory movements overall were negligible in the second quarter of 2020. We expect inventories at our customers to return to normalized levels by the end of the year.
We expect that the automotive markets in North America and Europe will grow sequentially in the third and fourth quarters of 2020. The China automotive end market was up 4.3% in the second quarter compared to the prior year, rebounding from first quarter declines resulting from COVID-19, as customer facilities re-opened and production ramped back up in this region, as expected. We expect production in other regions to ramp up at a slower pace. In the North American automotive markets, improving production levels sequentially from the second quarter are expected as original equipment manufacturer ("OEM") and Tier 1 sales to their customers improve. In Europe, consumer and business confidence are showing improvements as vehicle registrations and OEM factory production levels improve from low levels in the second quarter.
For the three months ended June 30, 2020, HVOR net revenue declined 32.5% compared to the corresponding period in the prior year. Excluding a decline of 1.0% attributed to foreign exchange rate differences between the two periods, HVOR net revenue in the three months ended June 30, 2020 declined 31.5% on an organic basis, representing outgrowth of 750 bps compared to a market that was down 39.0%.
The difference between the performance of our HVOR business and the performance of the end markets it serves is the result of market outgrowth, due primarily to increased content. Similar to our automotive business, a significant portion of this content came from China, where the on-road truck business has continued to post better-than-expected growth following the adoption of NS6 emissions regulations. While our HVOR business in China grew in the second quarter, we experienced substantial declines in both Europe and the Americas. We evaluate key economic indicators to gauge the health of our HVOR customers and the markets they serve, including freight load factors, truck inventory to sales ratios, building permits, industrial production, crop futures, and farm machinery. Based on these indicators, we expect HVOR end markets to improve sequentially in the third and fourth quarters of 2020.
For the six months ended June 30, 2020, Performance Sensing net revenue declined 25.7%, or 24.9% on an organic basis.
For the six months ended June 30, 2020, automotive net revenue declined 26.9% compared to the prior year. Excluding a decline of 0.8% attributed to foreign exchange rate differences between the two periods, automotive net revenue in the six months ended June 30, 2020 declined 26.1% on an organic basis. For the six months ended June 30, 2020, our automotive business reported content growth in all of our major regions, particularly Asia, of which most related to China.
For the six months ended June 30, 2020, HVOR net revenue declined 21.9% compared to the prior year. Excluding a decline of 0.9% attributed to foreign exchange rate differences between the two periods, HVOR net revenue in the six months ended June 30, 2020, declined 21.0% on an organic basis. For the six months ended June 30, 2020, our HVOR business reported content growth in most markets, most notably in the China on-road truck market, but also globally in agriculture and construction markets.
Sensing Solutions
For the three months ended June 30, 2020, Sensing Solutions net revenue decreased 20.0%, or 19.3% on an organic basis. For the six months ended June 30, 2020, Sensing Solutions net revenue decreased 15.5%, or 14.9% on an organic basis.
For the three months ended June 30, 2020, industrial and other net revenue decreased 15.5% compared to the prior year. Excluding a decline of 0.9% attributed to foreign exchange rate differences between the two periods, industrial and other net revenue in the three months ended June 30, 2020 decreased 14.6% on an organic basis. For the six months ended June 30, 2020, industrial and other net revenue decreased 14.2% compared to the prior year. Excluding a decline of 0.7% attributed to foreign exchange rate differences between the two periods, industrial and other net revenue in the six months ended June 30, 2020 declined 13.5% on an organic basis.

24


The decline in industrial and other net revenue for the second quarter and first half of 2020 was primarily driven by shutdowns related to COVID-19 and the resulting global industrial market slowdown. In the second quarter, industrial markets fared better than other markets in which we operate, as Purchasing Managers' Index data in all areas of the world improved during the quarter. For the balance of the year, we expect the industrial markets to continue to decline, but less significantly than in the second quarter.
For the three months ended June 30, 2020, aerospace net revenue declined 39.4% compared to the prior year on a reported and organic basis. For the six months ended June 30, 2020, aerospace net revenue declined 21.1% compared to the prior year on a reported and organic basis.
Reduced commercial OEM production in the second quarter led to a 32.0% decline in the aerospace market, and grounding of aircraft led to weakness in our aerospace aftermarket business. Expectations for future OEM commercial and defense production build rates and passenger miles flown are good indicators of future demand for our aerospace products and aftermarket services. Accordingly, as air traffic resumes, we expect the aerospace aftermarket to return to growth. The defense portion of the aerospace production market is expected to remain steady this year, while commercial production is expected to improve from very low levels in the second quarter.
Operating costs and expenses
Operating costs and expenses for the three and six months ended June 30, 2020 and 2019 are presented, in millions of dollars and as a percentage of net revenue, in the following table. Amounts and percentages in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
 
For the three months ended
 
For the six months ended
 
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
 
Amount
 
Margin*
 
Amount
 
Margin*
 
Amount
 
Margin*
 
Amount
 
Margin*
Operating costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
$
412.4

 
71.5
%
 
$
575.2

 
65.1
%
 
$
978.8

 
72.5
%
 
$
1,156.0

 
65.9
%
Research and development
30.2

 
5.2

 
36.7

 
4.2

 
64.7

 
4.8

 
71.8

 
4.1

Selling, general and administrative
64.7

 
11.2

 
72.0

 
8.2

 
142.0

 
10.5

 
142.6

 
8.1

Amortization of intangible assets
32.7

 
5.7

 
36.0

 
4.1

 
65.8

 
4.9

 
72.2

 
4.1

Restructuring and other charges, net
38.2

 
6.6

 
16.3

 
1.8

 
42.7

 
3.2

 
21.6

 
1.2

Total operating costs and expenses
$
578.4

 
100.3
%
 
$
736.3

 
83.3
%
 
$
1,294.0

 
95.8
%
 
$
1,464.2

 
83.5
%
__________________________
*     Represents the amount presented divided by total net revenue.
Cost of revenue
For the three months ended June 30, 2020, cost of revenue as a percentage of net revenue increased from the prior period, primarily as a result of productivity headwinds from our manufacturing facilities running at significantly lower than normal capacity and elevated logistics costs, partially offset by savings from temporary cost reductions in the second quarter, including salary reductions and furloughs, repositioning actions taken in 2019, and the positive impact of changes in foreign currency exchange rates.
For the six months ended June 30, 2020, cost of revenue as a percentage of net revenue increased from the prior period, primarily as a result of a $29.2 million loss related to a judgment against us in intellectual property litigation with Wasica in the first quarter of 2020, productivity headwinds from our manufacturing facilities running at significantly lower than normal capacity and elevated logistics costs, partially offset by savings from temporary cost reductions in the second quarter, including salary reductions and furloughs, repositioning actions taken in 2019, and the positive impact of changes in foreign currency exchange rates. We continue to deny any wrongdoing in the intellectual property litigation with Wasica, and intend to appeal the judgment. Refer to Note 12, "Commitments and Contingencies," of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
In the second quarter of 2020, we commenced the Q2 2020 Global Restructure Program, which includes reductions-in-force and certain site closures. Costs related to this program have been recognized in restructuring and other charges, net line on our condensed consolidated financial statements. We expect that the actions taken in the Q2 2020 Global Restructure Program will result in annualized savings of personnel- and facilities-related costs of approximately $49 million by 2021. We expect savings in the third quarter of 2020 to be approximately $7 million.

25


Research and development ("R&D") expense
For each of the three and six months ended June 30, 2020, R&D expense decreased from the prior comparable periods. R&D expense declined compared to the prior year periods, primarily as a result of temporary salary and furlough cost savings in the second quarter and savings from repositioning actions taken in 2019, as well as the positive impact of foreign currency exchange rates, somewhat offset by increased investments in our megatrend initiatives.
Selling, general and administrative ("SG&A") expense
For the three months ended June 30, 2020, SG&A expense decreased from the prior year, primarily as a result of temporary salary reductions, lower incentive compensation, furloughs, and savings from repositioning actions taken in 2019, as well as the positive impact of foreign currency exchange rates.
For the six months ended June 30, 2020, SG&A expense decreased from the prior period, primarily due to temporary salary reductions and furloughs, savings from repositioning actions taken in 2019, and the positive impact of foreign currency exchange rates, partially offset by higher compensation to retain and incentivize critical employee talent and increased costs related to enhancements and improvements to our global operating processes to increase productivity.
Amortization of intangible assets
For the three and six months ended June 30, 2020, amortization expense decreased from the corresponding prior periods primarily due to the effect of the economic benefit method.
Restructuring and other charges, net
On June 30, 2020, we analyzed the potential long-term impact of COVID-19 on our business and, as a result, committed to the Q2 2020 Global Restructure Program, which consists of voluntary and involuntary reductions-in-force and certain site closures. It was commenced in order to align our cost structure to the demand levels that we anticipate over the coming quarters. The majority of the actions under the Q2 2020 Global Restructure Program are expected to be completed on or before June 30, 2021.
The reductions-in-force, which are subject to the laws and regulations of the countries in which the actions are planned, are expected to impact approximately 980 positions. Over the life of the Q2 2020 Global Restructure Program, we expect to incur restructuring charges of between $35.0 million and $39.0 million related to reductions-in-force and between $8.0 million and $10.0 million related to site closures. We expect to settle these charges with cash on hand.
Restructuring and other charges, net for the three and six months ended June 30, 2020 and 2019 consisted of the following (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 three months ended
 
For the six months ended
(In millions)
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
Q2 2020 Global Restructure Program charges (1)
$
24.1

 
$

 
$
24.1

 
$

Other restructuring charges
 
 
 
 
 
 
 
Severance costs, net (2)

 
14.6

 
3.9

 
17.5

Facility and other exit costs

 
0.0

 

 
0.0

Other (3)
14.1

 
1.6

 
14.7

 
4.1

Restructuring and other charges, net
$
38.2

 
$
16.3

 
$
42.7

 
$
21.6

__________________________
(1) 
Amounts accrued in the three months ended June 30, 2020 related to the Q2 2020 Global Restructure Program are detailed by segment below. All charges related to this program incurred in the three months ended June 30, 2020 were related to severance costs and recorded in restructuring and other charges, net.
(In millions)
Total
Performance Sensing
$
7.6

Sensing Solutions
7.2

Corporate and other
9.3

Restructuring and other charges, net
$
24.1


26


(2) 
Severance costs, net (excluding those related to the Q2 2020 Global Restructure Program) for the six months ended June 30, 2020 were related to termination benefits arising from the shutdown and relocation of an operating site in Northern Ireland. Severance costs, net for the three and six months ended June 30, 2019 were primarily related to benefits provided for under a voluntary retirement incentive program offered to a limited number of eligible employees in the U.S.
(3) 
Other charges in the three and six months ended June 30, 2020 were primarily related to a $12.1 million pre-judgment interest-related award granted by the court on behalf of the plaintiffs, Wasica, in connection with a patent infringement case against Schrader. Refer to Note 12, "Commitments and Contingencies," of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information related to this matter. Other charges in the three and six months ended June 30, 2019 were primarily related to deferred compensation incurred in connection with the acquisition of GIGAVAC.
Operating (loss)/income
In the three months ended June 30, 2020, operating (loss)/income decreased $149.3 million, or 101.3%, to a loss of $1.9 million (0.3% of net revenue) compared to income of $147.4 million (16.7% of net revenue) in the three months ended June 30, 2019. This decrease was primarily due to lower revenues, productivity headwinds from our manufacturing facilities running at significantly lower than normal capacity, a charge of $24.1 million recognized in the second quarter related to the Q2 2020 Global Restructure Program, $12.1 million of pre-judgment interest-related damages assessed against us related to the Wasica judgment, and elevated operating costs, partially offset by the non-recurrence of charges recognized in the second quarter of 2019 related to benefits provided under a voluntary retirement incentive program and the positive impact of foreign currency exchange rates. In addition, we realized savings of approximately $21.8 million in the second quarter resulting from temporary salary reductions, furloughs, and government subsidies.
In the six months ended June 30, 2020, operating income decreased $233.3 million, or 80.4%, to $56.7 million (4.2% of net revenue) compared to $290.0 million (16.5% of net revenue) in the six months ended June 30, 2019. This decrease was primarily due to lower revenues, productivity headwinds from our manufacturing facilities running at significantly lower than normal capacity, a $29.2 million loss related to a judgment against us in the intellectual property litigation with Wasica in the first quarter of 2020, a charge of $24.1 million recognized in the second quarter related to the Q2 2020 Global Restructure Program, $12.1 million of pre-judgment interest-related damages assessed against us related to the Wasica judgment, and elevated operating costs, partially offset by the non-recurrence of charges recognized in the second quarter of 2019 related to benefits provided under a voluntary retirement incentive program and the positive impact of foreign currency exchange rates. In addition, we realized savings of approximately $21.8 million in the second quarter resulting from temporary salary reductions, furloughs, and government subsidies.
We expect that the actions taken in the Q2 2020 Global Restructure Program will result in annualized savings of personnel- and facilities-related costs of approximately $49 million by 2021. We expect savings in the third quarter of 2020 to be approximately $7 million.
Other, net
Other, net for the three and six months ended June 30, 2020 and 2019 consisted of the following (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 three months ended
 
For the six months ended
(In millions)
June 30, 2020
 
June 30, 2019
 
June 30, 2020
 
June 30, 2019
Currency remeasurement (loss)/gain on net monetary assets (1)
$
(1.1
)
 
$
(4.3
)
 
$
0.5

 
$
(2.5
)
Gain/(loss) on foreign currency forward contracts (2)
0.4

 
1.0

 
(3.4
)
 
1.5

Gain/(loss) on commodity forward contracts
5.4

 
(0.1
)
 
(0.1
)
 
1.0

Net periodic benefit cost, excluding service cost
(2.5
)
 
(0.3
)
 
(6.9
)
 
(0.6
)
Other
(0.7
)
 
0.1

 
(0.8
)
 
0.1

Other, net
$
1.6

 
$
(3.6
)
 
$
(10.7
)
 
$
(0.4
)
__________________________
(1) 
Relates to the remeasurement of non-USD denominated monetary assets and liabilities into USD.
(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 additional information.

27


Provision for/(benefit from) income taxes
For the three and six months ended June 30, 2020, the decrease in total tax from the prior periods was predominantly related to the overall decrease in income before tax as impacted by the mix of profits in the various jurisdictions in which we operate.
In response to the global financial and health crisis caused by COVID-19, the U.S. federal government enacted the CARES Act on March 27, 2020. Federal limitations on interest deductions were reduced in connection with this legislation, and we recorded a deferred tax benefit of $7.5 million in the six months ended June 30, 2020, as we were able to utilize additional interest expense that was previously subject to a valuation allowance.
The provision for/(benefit from) income taxes consists of:
current tax expense, which relates primarily to our profitable operations in non-U.S. tax jurisdictions and withholding taxes related to 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) changes in net operating loss carryforwards, (3) changes in tax rates, and (4) changes in our assessment of the realizability of our deferred tax assets.
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 (or decline) is defined as the reported percentage change in net revenue, calculated in accordance with U.S. GAAP, excluding the period-over-period impact of foreign exchange rate differences as well as the net impact of material acquisitions and divestitures for the 12-month period following the respective transaction date(s). Refer to the Net revenue section above for a reconciliation of organic revenue decline to reported revenue decline.
We believe that organic revenue growth (or decline) provides investors with helpful information with respect to our operating performance, and we use organic revenue growth (or decline) to evaluate our ongoing operations, as well as for internal planning and forecasting purposes. We believe that organic revenue growth (or decline) provides useful information in evaluating the results of our business because it excludes items that we believe are not indicative of ongoing performance or that we believe impact comparability with the prior-year period.
Organic revenue growth (or decline) 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 organic revenue growth (or decline) may not be the same as, or comparable to, similar non-GAAP financial measures presented by other companies.
Liquidity and Capital Resources
As of June 30, 2020 and December 31, 2019, we held cash and cash equivalents in the following regions (amounts have been calculated based on unrounded numbers; accordingly, certain amounts may not appear to recalculate due to the effect of rounding):
(In millions)
June 30, 2020
 
December 31, 2019
United Kingdom
$
16.2

 
$
8.8

United States
7.0

 
7.0

The Netherlands
952.6

 
522.9

China
138.5

 
119.3

Other
128.6

 
116.1

Total
$
1,242.9

 
$
774.1

The amount of cash and cash equivalents held in these geographic regions fluctuates throughout the year due to a variety of factors, such as our use of intercompany loans and dividends and the timing of cash receipts and disbursements in the normal course of business. Our earnings are not considered to be permanently reinvested in certain jurisdictions in which they were 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.

28


Cash Flows:
The table below summarizes our primary sources and uses of cash for the six months ended June 30, 2020 and 2019. 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 six months ended
(In millions)
June 30, 2020
 
June 30, 2019
Net cash provided by/(used in):
 
 
 
Operating activities:
 
 
 
Net (loss)/income adjusted for non-cash items
$
160.7

 
$
331.9

Changes in operating assets and liabilities, net
9.6

 
(79.8
)
Operating activities
170.3

 
252.2

Investing activities
(60.5
)
 
(82.9
)
Financing activities
359.1

 
(178.0
)
Net change
$
468.8

 
$
(8.8
)
Operating activities. Net cash provided by operating activities declined from the six months ended June 30, 2019 primarily due to lower operating profitability, partially offset by improved management of working capital. Savings related to our cost-reduction activities in the second quarter were approximately $21.8 million, resulting from temporary salary reductions and furloughs. These savings are included in operating profitability.
Over the life of the Q2 2020 Global Restructure Program, we expect to incur restructuring charges of between $35.0 million and $39.0 million related to reductions-in-force and between $8.0 million and $10.0 million related to site closures. We expect to settle these charges with cash on hand.
Investing activities. Net cash used in investing activities declined from the six months ended June 30, 2019 primarily due to a reduction in capital expenditures as a result of COVID-19. In fiscal year 2020, we anticipate capital expenditures of approximately $120.0 million to $130.0 million, which we expect to be funded from cash on hand.
Financing activities. Net cash provided by financing activities for the six months ended June 30, 2020 included $400.0 million of cash proceeds from the drawdown on the Revolving Credit Facility on April 1, 2020. In addition, on April 2, 2020, we announced a temporary suspension of our share repurchase program. As a result, payments to repurchase ordinary shares decreased from $168.2 million for the six months ended June 30, 2019 to $35.2 million for the six months ended June 30, 2020. The share repurchase program will continue to remain on hold until end market conditions show greater improvement and stability.
Indebtedness and Liquidity:
As of June 30, 2020, we had $3,689.1 million in gross indebtedness, which included finance lease and other financing obligations and excluded debt discounts and deferred financing costs. Refer to Note 11, "Debt," of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on the components of our debt.
Capital Resources
The credit agreement governing our secured credit facility (as amended, the "Credit Agreement") provides for senior secured credit facilities (the "Senior Secured Credit Facilities") consisting of a term loan facility (the "Term Loan"), the Revolving Credit Facility, and incremental availability (the "Accordion") under which additional secured credit facilities could be issued under certain circumstances.
Our sources of liquidity include cash on hand, cash flows from operations, and available capacity under the Revolving Credit Facility. In order to enhance our financial flexibility given the general uncertainty associated with COVID-19, we withdrew $400.0 million from the Revolving Credit Facility on April 1, 2020. As of June 30, 2020, we had $16.1 million available under the Revolving Credit Facility, net of $3.9 million of obligations related to outstanding letters of credit issued thereunder. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of June 30, 2020, no amounts had been drawn against these outstanding letters of credit.

29


Availability under the Accordion varies each period based on our attainment of certain financial metrics as set forth in the terms of the Credit Agreement and the indentures under which our senior notes were issued (the "Senior Notes Indentures"). As of June 30, 2020, availability under the Accordion was approximately $0.7 billion.
We believe, based on our current level of operations and taking into consideration the restrictions and covenants included in the Credit Agreement and Senior Notes Indentures, that these sources of liquidity will be sufficient to fund our operations, capital expenditures, ordinary share repurchases (if and when resumed), and debt service for at least the next twelve months. However, we cannot make assurances that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. Further, our highly-leveraged nature may limit our ability to procure additional financing in the future. On April 2, 2020, we announced a temporary suspension of our share repurchase program, which will continue to remain on hold until end market conditions show greater improvement and stability.
The Credit Agreement provides that, if our senior secured net leverage ratio exceeds a specified level, we are required to use a portion of our excess cash flow, as defined in the Credit Agreement, generated by operating, investing, or financing activities to prepay some or all of the outstanding borrowings under the Senior Secured Credit Facilities. The Credit Agreement also requires mandatory prepayments of the outstanding borrowings under the Senior Secured Credit Facilities upon certain asset dispositions and casualty events, in each case subject to certain reinvestment rights, and upon the incurrence of certain indebtedness (excluding any permitted indebtedness). These provisions were not triggered during the six months ended June 30, 2020.
The Credit Agreement and the Senior Notes Indentures contain restrictions and covenants that limit the ability of our wholly-owned subsidiary, Sensata Technologies B.V. ("STBV"), and certain of its subsidiaries to, among other things, incur subsequent indebtedness, sell assets, pay dividends, and make other restricted payments. For a full discussion of these restrictions and covenants, refer to Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources," included in our Annual Report on Form 10-K for the year ended December 31, 2019.
These restrictions and covenants, which are subject to important exceptions and qualifications set forth in the Credit Agreement and Senior Notes Indentures, were taken into consideration when we established our share repurchase programs, and will be evaluated periodically with respect to future potential funding of those programs. As of June 30, 2020, 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 July 24, 2020, 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 negative outlook. The Standard & Poor's outlook represents a decline from their outlook of "stable" as of December 31, 2019. The change in outlook reflects the uncertainties in the markets caused by COVID-19.
From time to time, our Board of Directors has authorized various share repurchase programs, which may be modified or terminated by our Board at any time. We currently have an authorized $500.0 million share repurchase program under which approximately $302.3 million remained available as of June 30, 2020. During the six months ended June 30, 2020, we repurchased approximately 0.9 million ordinary shares under our share repurchase program for a total purchase price of approximately $35.2 million, which are now held as treasury shares. On April 2, 2020, we announced a temporary suspension of this share repurchase program, which will continue to remain on hold until end market conditions show greater improvement and stability.
Recently Issued Accounting Pronouncements
There are no recently issued accounting standards that have been adopted in the current period or will be adopted in future periods that have had or are expected to have a material impact on our consolidated financial position or results of operations.
Critical Accounting Policies and Estimates
For a discussion of the critical accounting policies that require the use of significant judgments and estimates by management, refer to Part II, Item 7, "Management’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, 2019.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
No significant changes to our market risk have occurred since December 31, 2019. 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, 2019.

30


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 June 30, 2020. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2020, 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 June 30, 2020 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.
PART II—OTHER INFORMATION
Item 1.
Legal Proceedings.
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.

31


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, 2019. The information presented below updates and should be read in connection with the risk factors and information previously disclosed therein.
We are subject to various risks related to public health crises, including the global coronavirus (COVID-19) pandemic, which could have material and adverse impacts on our business, financial condition, liquidity and results of operations.
Any outbreaks of contagious diseases and other adverse public health developments in countries where we operate could have a material and adverse impact on our business, financial condition, liquidity and results of operations. For example, the COVID-19 pandemic has caused widespread disruptions to our Company in the first half of 2020. During the first quarter of 2020, these disruptions were primarily limited to our manufacturing operations in China, portions of which were closed during the end of January and first half of February due to government mandates. As the virus spread to the rest of the world beginning in March, most of our other operations outside of China also were impacted. These impacts have continued to varying degrees throughout the second quarter, as regions have had varying levels of success mitigating the impacts of the virus, resulting in varying degrees of reopening. As of June 30, 2020, we were still experiencing significant disruptions, which include, depending on the specific location, full or partial shutdowns of our facilities as mandated by government decree, government actions limiting our ability to adjust certain costs, significant travel restrictions, “work-from-home” orders, limited availability of our workforce, supplier constraints, supply-chain interruptions, logistics challenges and limitations, and reduced demand from certain customers.
In addition, in these challenging and dynamic circumstances, we are working to protect our employees, maintain business continuity and sustain our operations, including ensuring the safety and protection of our people who work in our plants and distribution centers across the world, many of whom support the manufacturing and delivery of products deemed part of the critical infrastructure or essential businesses by the applicable local or country governments. The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of the crisis, future government actions in response to the crisis and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable.
In addition, the COVID-19 pandemic increases the likelihood and potential severity of other risks previously discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019. These include, but are not limited to, the following:
A protracted economic downturn could negatively affect the financial condition of the industries and customers we serve, which may result in an increase in bankruptcies or insolvencies, a delay in payments, and decreased sales.
A scarcity of resources or other hardships caused by the COVID-19 pandemic may result in increased nationalism, protectionism and political tensions which may cause governments and/or other entities to take actions that may have a significant negative impact on the ability of the Company, its suppliers and its customers to conduct business.
The impact of the COVID-19 pandemic may cause us to restructure our business or divest some of our businesses or product lines in the future, which may have a material adverse effect on our results of operations, financial condition, and cash flows.
To mitigate the spread of COVID-19, we have transitioned a significant subset of our employee population to a remote work environment, which may exacerbate various cybersecurity risks to our business, including an increased demand for information technology resources, an increased risk of phishing and other cybersecurity attacks, and an increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information.
The COVID-19 pandemic has disrupted the supply of raw materials, and we may experience increased difficulties in obtaining a consistent supply of materials at stable pricing levels.
If the financial performance of our businesses were to decline significantly as a result of the COVID-19 pandemic, we could incur a material non-cash charge to our income statement for the impairment of goodwill and other intangible assets.
The continued global spread of COVID-19 has led to disruption and volatility in the global capital markets, which may increase the cost of, and adversely impacted access to, capital. In addition, as a public limited company incorporated under the laws of England and Wales, we may have even less flexibility with respect to certain aspects of capital management.
If the financial performance of our businesses were to decline significantly for an extended period of time as a result of the COVID-19 pandemic, we may face challenges to comply with the covenants contained in our credit arrangements.

32


As of the date of this Quarterly Report on Form10-Q, given the speed with which the COVID-19 pandemic is evolving and the uncertainty of its duration and impact, we are not able to predict the impact of the COVID-19 pandemic on our business, financial condition, liquidity and financial results, and there can be no assurance that the COVID-19 pandemic will not have a material adverse effect on our financial results during any quarter or year in which we are affected.
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)
April 1 through April 30, 2020
 
82,259

(1)
$
27.75

 

 
$
302.3

May 1 through May 31, 2020
 
464

(1)
$
34.12

 

 
$
302.3

June 1 through June 30, 2020
 

 
$

 

 
$
302.3

Quarter total
 
82,723

 
$
27.79

 

 
$
302.3

__________________________
(1)
The number of ordinary shares presented were withheld upon the vesting of restricted securities to cover payment of employee withholding tax. These withholdings took place outside of a publicly announced repurchase plan.
Item 3.
Defaults Upon Senior Securities.
None.
Item 6.
Exhibits.
Exhibit No.
 
Description
 
 
 
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
†    Indicates management contract or compensatory plan, contract, or arrangement


33


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: July 28, 2020

SENSATA TECHNOLOGIES HOLDING PLC
 
/s/ Jeffrey Cote
(Jeffrey Cote)
Chief Executive Officer and President
(Principal Executive Officer)
 
/s/ Paul Vasington
(Paul Vasington)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)


34