Sensata Technologies - 10-Q quarterly report FY2013 Q2

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________

FORM 10-Q

_____________________________________

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013



¨	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 N.V.

(Exact Name of Registrant as Specified in Its Charter)

_____________________________________



THE NETHERLANDS		98-0641254
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Kolthofsingel 8, 7602 EM Almelo The Netherlands		31-546-879-555
(Address of Principal Executive Offices, including Zip Code)		(Registrant’s Telephone Number, Including Area Code)

Former name, former address and former fiscal year, if changed since last report.

_____________________________________

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):



Large accelerated filer	ý		Accelerated filer	¨

Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of July 15, 2013, 175,639,116 ordinary shares were outstanding.

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TABLE OF CONTENTS



PART I
	Item 1.	Financial Statements (unaudited):
		Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	3
		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2013 and June 30, 2012	4
		Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2013 and June 30, 2012	5
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and June 30, 2012	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
	Item 4.	Controls and Procedures	37

PART II
	Item 1.	Legal Proceedings	38
	Item 1A.	Risk Factors	38
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
	Item 3.	Defaults Upon Senior Securities	38
	Item 4.	Mine Safety Disclosures	38
	Item 6.	Exhibits	39
		Signatures	40

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PART I—FINANCIAL INFORMATION


Item 1.	Financial Statements.

SENSATA TECHNOLOGIES HOLDING N.V.

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

(unaudited)



	June 30, 2013			December 31, 2012
Assets
Current assets:
Cash and cash equivalents	$	234,347		$	413,539
Accounts receivable, net of allowances of $9,902 and $11,059 as of June 30, 2013 and December 31, 2012, respectively	310,136			258,114
Inventories	173,549			176,233
Deferred income tax assets	12,871			12,871
Prepaid expenses and other current assets	37,265			33,923
Total current assets	768,168			894,680
Property, plant and equipment, at cost	639,055			611,991
Accumulated depreciation	(307,752		)	(283,792		)
Property, plant and equipment, net	331,303			328,199
Goodwill	1,754,385			1,754,107
Other intangible assets, net of accumulated amortization of $1,012,244 and $945,208 as of June 30, 2013 and December 31, 2012, respectively	551,171			603,883
Deferred income tax assets	37,286			38,971
Deferred financing costs	21,014			22,119
Other assets	5,712			6,432
Total assets	$	3,469,039		$	3,648,391
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt, capital lease and other financing obligations	$	13,775		$	12,878
Accounts payable	177,113			152,964
Income taxes payable	11,004			8,884
Accrued expenses and other current liabilities	123,383			100,112
Deferred income tax liabilities	3,525			3,525
Total current liabilities	328,800			278,363
Deferred income tax liabilities	285,182			271,902
Pension and post-retirement benefit obligations	26,433			32,747
Capital lease and other financing obligations, less current portion	50,562			43,425
Long-term debt, net of discount, less current portion	1,564,487			1,768,352
Other long-term liabilities	37,944			31,308
Commitments and contingencies
Total liabilities	2,293,408			2,426,097
Shareholders’ equity:
Ordinary shares, €0.01 nominal value per share, 400,000 shares authorized; 178,434 and 178,392 shares issued as of June 30, 2013 and December 31, 2012, respectively	2,289			2,289
Treasury shares, at cost, 3,048 and 381 shares as of June 30, 2013 and December 31, 2012, respectively	(98,757		)	(11,423		)
Additional paid-in capital	1,592,149			1,587,202
Accumulated deficit	(288,364		)	(316,368		)
Accumulated other comprehensive loss	(31,686		)	(39,406		)
Total shareholders’ equity	1,175,631			1,222,294
Total liabilities and shareholders’ equity	$	3,469,039		$	3,648,391

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

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SENSATA TECHNOLOGIES HOLDING N.V.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(unaudited)



	For the three months ended						For the six months ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Net revenue	$	506,418		$	504,617		$	976,831		$	996,625
Operating costs and expenses:
Cost of revenue	322,699			326,159			631,381			651,407
Research and development	14,308			12,460			27,924			25,754
Selling, general and administrative	42,821			35,530			81,075			74,109
Amortization of intangible assets	33,650			36,199			67,036			72,325
Restructuring and special charges	2,350			7,887			4,026			8,450
Total operating costs and expenses	415,828			418,235			811,442			832,045
Profit from operations	90,590			86,382			165,389			164,580
Interest expense	(23,962		)	(24,928		)	(48,097		)	(50,143		)
Interest income	400			185			548			426
Other, net	(32,200		)	(10,761		)	(34,801		)	(6,588		)
Income before taxes	34,828			50,878			83,039			108,275
Provision for income taxes	14,457			24,760			28,003			43,241
Net income	$	20,371		$	26,118		$	55,036		$	65,034
Basic net income per share:	$	0.12		$	0.15		$	0.31		$	0.37
Diluted net income per share:	$	0.11		$	0.14		$	0.31		$	0.36

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

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SENSATA TECHNOLOGIES HOLDING N.V.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(unaudited)



	For the three months ended					For the six months ended
	June 30, 2013			June 30, 2012		June 30, 2013		June 30, 2012
Net income	$	20,371		$	26,118	$	55,036	$	65,034
Other comprehensive (loss)/income, net of tax:
Net unrealized (loss)/gain on derivative instruments designated and qualifying as cash flow hedges	(1,759		)	536		6,848		376
Defined benefit and retiree healthcare plans	418			125		872		250
Other comprehensive (loss)/income	(1,341		)	661		7,720		626
Comprehensive income	$	19,030		$	26,779	$	62,756	$	65,660

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

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SENSATA TECHNOLOGIES HOLDING N.V.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)



	For the six months ended
	June 30, 2013			June 30, 2012
Cash flows from operating activities:
Net income	$	55,036		$	65,034
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	25,361			27,712
Amortization of deferred financing costs and original issue discounts	2,263			2,608
Currency remeasurement gain on debt	(185		)	(79		)
Share-based compensation	4,602			4,698
Loss on debt refinancing	7,111			—
Amortization of intangible assets	67,036			72,325
Loss/(gain) on disposition of assets	806			(3,563		)
Deferred income taxes	12,621			30,495
Unrealized loss on hedges and other non-cash items	24,037			2,581
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net	(51,849		)	(41,025		)
Inventories	2,684			5,357
Prepaid expenses and other current assets	1,681			(2,344		)
Accounts payable and accrued expenses	33,030			25,845
Income taxes payable	2,120			(278		)
Other	(6,228		)	410
Net cash provided by operating activities	180,126			189,776
Cash flows from investing activities:
Additions to property, plant and equipment and capitalized software	(33,853		)	(27,481		)
Insurance proceeds	1,400			—
Proceeds from sale of assets	—			4,216
Acquisition payments	(411		)	—
Net cash used in investing activities	(32,864		)	(23,265		)
Cash flows from financing activities:
Proceeds from exercise of stock options and issuance of ordinary shares	11,163			8,909
Proceeds from issuance of debt	500,000			—
Payments on debt	(706,658		)	(6,503		)
Payments to repurchase ordinary shares	(125,218		)	—
Payments of debt issuance costs	(5,741		)	(209		)
Net cash (used in)/provided by financing activities	(326,454		)	2,197
Net change in cash and cash equivalents	(179,192		)	168,708
Cash and cash equivalents, beginning of period	413,539			92,127
Cash and cash equivalents, end of period	$	234,347		$	260,835

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

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SENSATA TECHNOLOGIES HOLDING N.V.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except per share amounts, or unless otherwise noted)

(unaudited)

1. Business Description and Basis of Presentation

Business Description

The accompanying unaudited condensed consolidated financial statements presented herein reflect the financial position, results of operations and cash flows of Sensata Technologies Holding N.V. and its wholly-owned subsidiaries, including Sensata Technologies Intermediate Holding B.V. and Sensata Technologies B.V. (“STBV”), collectively referred to as the “Company,” “Sensata,” “we,” “our,” and “us.”

We are incorporated under the laws of the Netherlands. We conduct our operations through subsidiary companies which operate business and product development centers in the United States (“U.S.”), the Netherlands, Belgium, China, and Japan; and manufacturing operations in China, South Korea, Malaysia, Mexico, the Dominican Republic, Bulgaria, and the U.S. We organize our operations into the sensors and controls businesses.

Our sensors business is a manufacturer of pressure, force, temperature, speed and position sensors and electromechanical products used in subsystems of automobiles (e.g., engine, air-conditioning and ride stabilization) and heavy off-road vehicles and in industrial products such as heating, ventilation and air conditioning (“HVAC”) systems. These products help improve performance, for example, by making an automobile’s heating and air-conditioning systems work more efficiently, thereby improving gas mileage. These products are also used in systems that address safety and environmental concerns, such as improving the stability control of the vehicle and reducing vehicle emissions.

Our controls business is a manufacturer of a variety of control products used in industrial, aerospace, military, commercial and residential markets. These products include motor and compressor protectors, circuit breakers, semiconductor burn-in test sockets, electronic HVAC controls, power inverters, precision switches and thermostats. These products help prevent damage from overheating and fires in a wide variety of applications, including commercial HVAC systems, refrigerators, aircraft, automobiles, lighting and other industrial applications. The controls business also manufactures direct current to alternating current power inverters, which enable the operation of electronic equipment when grid power is not available.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and therefore 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 which are, in the opinion of management, necessary for a fair presentation of the interim period results. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results to be expected for a full year, nor were those of the comparable 2012 periods representative of those actually experienced for the full year 2012. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012.

All intercompany balances and transactions have been eliminated.

All 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

In February 2013, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2013-02, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). ASU 2013-02 requires an entity to provide information about amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the financial statements or in a single note, any significant amount reclassified out of accumulated other comprehensive income in its entirety in the period, and the income statement line item affected by the reclassification. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. We adopted this guidance as of January 1, 2013. The

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adoption of ASU 2013-02 impacted disclosure only and did not have any impact on our financial position or results of operations.

In February 2013, the FASB issued ASU No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date ("ASU 2013-04"). This guidance changes how an entity measures obligations resulting from joint and several liability arrangements by requiring that when measuring the obligation, an entity will include the amount the entity agreed to pay for the arrangement between the entity and other entities that are also obligated to the liability, and any additional amount the entity expects to pay on behalf of the other entities. ASU 2013-04 also requires additional disclosures surrounding such obligations. ASU 2013-04 is effective for interim and annual reporting periods beginning after December 15, 2013, and is required to be applied retrospectively. We expect to adopt this guidance in the first quarter of 2014. This guidance is not expected to have a material impact on our financial position or results of operations, but will require additional disclosures.

3. Inventories

The components of inventories as of June 30, 2013 and December 31, 2012 were as follows:



	June 30, 2013		December 31, 2012
Finished goods	$	67,418	$	68,621
Work-in-process	32,049		28,909
Raw materials	74,082		78,703
Total	$	173,549	$	176,233

4. Shareholders' Equity

Treasury Shares

In October 2012, our Board of Directors authorized a $250.0 million share repurchase program. During the three months ended June 30, 2013, we repurchased 2,177 ordinary shares under this program for an aggregate purchase price of approximately $70.1 million at an average price of $32.21 per ordinary share. Ordinary shares repurchased by us are recorded at cost as treasury shares and result in a reduction of shareholders' equity. We reissue treasury shares as part of our share-based compensation programs and employee stock purchase plan. When shares are reissued, we determine the cost using the first-in, first-out method. During the three months ended June 30, 2013, we reissued 781 ordinary shares held in treasury to satisfy employee stock option exercises.

During the six months ended June 30, 2013, we repurchased 3,877 ordinary shares under this program for an aggregate purchase price of approximately $125.2 million at an average price of $32.30 per ordinary share. During the six months ended June 30, 2013, we reissued 1,206 ordinary shares held in treasury to satisfy employee stock option exercises. In connection with the treasury share reissuances, we recognized a loss of $27.0 million that was recorded in accumulated deficit.

Secondary Offerings

In February 2013, we completed a secondary offering of our ordinary shares in which our existing shareholders sold 15.0 million ordinary shares at an offering price of $33.20 per ordinary share. In May 2013, we completed a secondary offering of our ordinary shares in which our existing shareholders sold 12.5 million ordinary shares at an offering price of $35.95 per ordinary share. We did not receive any proceeds from these secondary offerings. After the May 2013 offering, Sensata Investment Company S.C.A. ("SCA") owned approximately 27.6% of our ordinary shares.

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Accumulated Other Comprehensive Loss

The following is a roll forward of the components of Accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2013:



	Net Unrealized Gain/(Loss) on Derivative Instruments Designated and Qualifying as Cash Flow Hedges			Defined Benefit and Retiree Healthcare Plans			Accumulated Other Comprehensive Loss
Balance as of December 31, 2012	$	(4,795	)	$	(34,611	)	$	(39,406	)
Other comprehensive income before reclassifications	6,222			—			6,222
Amounts reclassified from Accumulated other comprehensive loss	626			872			1,498
Net current period other comprehensive income	6,848			872			7,720
Balance as of June 30, 2013	$	2,053		$	(33,739	)	$	(31,686	)

The details about the amounts reclassified from Accumulated other comprehensive loss for the three and six months ended June 30, 2013 are as follows:



For the three months ended June 30, 2013
Component	Amount reclassified from Accumulated Other Comprehensive Loss⁽³⁾			Affected line in condensed consolidated statement of operations
Net unrealized gain/(loss) on derivative instruments designated and qualifying as cash flow hedges
Interest rate caps	$	208		Interest expense ⁽¹⁾
Interest rate caps	1,097			Other, net ⁽¹⁾
Foreign currency forward contracts	(922		)	Net revenue ⁽¹⁾
Foreign currency forward contracts	(658		)	Cost of revenue ⁽¹⁾
	(275		)	Total before tax
	69			Provision for income taxes
	$	(206	)	Net of tax

Defined benefit and retiree healthcare plans	$	448		Various ⁽²⁾
	(30		)	Provision for income taxes
	$	418		Net of tax

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For the six months ended June 30, 2013
Component	Amount reclassified from Accumulated Other Comprehensive Loss⁽³⁾			Affected line in condensed consolidated statement of operations
Net unrealized gain/(loss) on derivative instruments designated and qualifying as cash flow hedges
Interest rate caps	$	515		Interest expense ⁽¹⁾
Interest rate caps	1,097			Other, net ⁽¹⁾
Foreign currency forward contracts	288			Net revenue ⁽¹⁾
Foreign currency forward contracts	(1,065		)	Cost of revenue ⁽¹⁾
	835			Total before tax
	(209		)	Provision for income taxes
	$	626		Net of tax

Defined benefit and retiree healthcare plans	$	930		Various ⁽²⁾
	(58		)	Provision for income taxes
	$	872		Net of tax

⁽¹⁾ See Note 12, "Derivative Instruments and Hedging Activities" for further details on amounts to be reclassified in the future from Accumulated other comprehensive loss.
⁽²⁾ Amounts related to defined benefit and retiree healthcare plans reclassified from Accumulated other comprehensive loss affect the Cost of revenue, Research and development, and Selling, general and administrative line items in the condensed consolidated statement of operations. These amounts reclassified are included in the computation of net periodic benefit cost. See Note 8, "Pension and Other Post-Retirement Benefits" for additional details of net periodic benefit cost.
⁽³⁾ Amounts in parentheses indicate credits in the condensed consolidated statement of operations.

5. Restructuring and Special Charges

Restructuring

Our restructuring programs are described below.

2011 Plan

During fiscal year 2011, we committed to a restructuring plan (the "2011 Plan") to reduce the workforce in several business centers and manufacturing facilities throughout the world, and move certain manufacturing operations to our low-cost sites. During fiscal year 2012, we expanded the 2011 Plan to include additional costs associated with ceasing manufacturing in our South Korean facility.

The total expected restructuring costs in connection with the 2011 Plan are estimated to be approximately $48 million to $53 million, consisting of approximately $24 million to $25 million in severance costs and the remaining $24 million to $28 million in facility exit and other costs. As of June 30, 2013, we have incurred cumulative costs of $46,819, of which $23,977 was related to severance costs (including $1,513 of pension settlement charges), $19,450 was related to facility exit and other costs, $1,873 was associated with a write-down related to assets in our Cambridge, Maryland facility, and the remainder related to other non-cash charges. The 2011 Plan was initiated to manage our cost structure, therefore the total related costs were not allocated to our reporting segments. We anticipate these actions will be completed and payments will be made in 2013.

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The following table outlines the changes to the restructuring liability for the 2011 Plan since December 31, 2012, excluding non-cash charges:



	Severance			Facility Exit and Other Costs			Total
Balance as of December 31, 2012	$	6,157		$	1,525		$	7,682
Charges	(332		)	3,928			3,596
Payments	(2,210		)	(4,965		)	(7,175		)
Impact of changes in foreign currency exchange rates	(30		)	—			(30		)
Balance as of June 30, 2013	$	3,585		$	488		$	4,073

MSP Plan

On January 28, 2011, we acquired MSP from Honeywell International Inc. On January 31, 2011, we announced a plan (the “MSP Plan”) to close the manufacturing facilities in Freeport, Illinois and Brno, Czech Republic. Restructuring charges related to these actions consist primarily of severance and facility exit and other costs. Severance is recognized through the expected service period of the affected employees. The actions are expected to cost approximately $7 million based on the exchange rate on June 30, 2013, and are related to the sensors segment. As of June 30, 2013, we have incurred cumulative costs of $6,835, of which $4,675 related to severance costs and $2,160 related to facility exit and other costs. We anticipate these actions will be completed and the remaining payments will be made in 2013.

The following table outlines the changes to the restructuring liability associated with the MSP Plan since December 31, 2012:



	Severance			Facility Exit and Other Costs			Total
Balance as of December 31, 2012	$	2,818		$	63		$	2,881
Charges	—			451			451
Payments	(2,511		)	(514		)	(3,025		)
Balance as of June 30, 2013	$	307		$	—		$	307

Special Charges

On September 30, 2012, a fire damaged a portion of our manufacturing facility in JinCheon, South Korea. During the six months ended June 30, 2013, we recognized $2.5 million of insurance proceeds related to this fire, of which $0.8 million were recognized in the Restructuring and special charges line of our condensed consolidated statements of operations, and the remainder in Cost of revenue. We did not recognize any insurance proceeds related to the fire during the three months ended June 30, 2013. As discussed in Note 10, "Commitments and Contingencies," we classify insurance proceeds in our condensed consolidated statements of operations in a manner consistent with the related losses. During the three and six months ended June 30, 2013, we incurred costs related to the fire which were recognized primarily in Cost of revenue. We may incur additional costs related to this incident in 2013.

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Summary of Restructuring Programs

The following tables outline costs/(gains) recorded within the condensed consolidated statements of operations associated with our restructuring activities and special charges, and where these amounts were recognized for the three and six months ended June 30, 2013 and June 30, 2012:



	For the three months ended June 30, 2013
	2011 Plan			MSP Plan		Other		Special Charges		Total
Restructuring and special charges	$	1,581		$	—	$	769	$	—	$	2,350
Other, net	(17		)	—		3		—		(14		)
Cost of revenue	71			—		—		193		264
Total	$	1,635		$	—	$	772	$	193	$	2,600



	For the three months ended June 30, 2012
	2011 Plan			MSP Plan		Other		Special Charges		Total
Restructuring and special charges	$	6,387		$	1,500	$	—	$	—	$	7,887
Other, net	(28		)	—		—		—		(28		)
Total	$	6,359		$	1,500	$	—	$	—	$	7,859



	For the six months ended June 30, 2013
	2011 Plan			MSP Plan		Other		Special Charges			Total
Restructuring and special charges	$	3,596		$	451	$	1,199	$	(1,220	)	$	4,026
Other, net	(30		)	—		2		—			(28		)
Cost of revenue	1,162			—		—		1,150			2,312
Total	$	4,728		$	451	$	1,201	$	(70	)	$	6,310



	For the six months ended June 30, 2012
	2011 Plan			MSP Plan		Other			Special Charges		Total
Restructuring and special charges	$	6,468		$	2,016	$	(34	)	$	—	$	8,450
Other, net	(4		)	4		2			—		2
Total	$	6,464		$	2,020	$	(32	)	$	—	$	8,452

The “other” restructuring charges of $769 and $1,199 recognized during the three and six months ended June 30, 2013, respectively, represent the termination of a limited number of employees located in various locations throughout the world, and not the initiation of a larger restructuring program.

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6. Debt

Our debt as of June 30, 2013 and December 31, 2012 consisted of the following:



	June 30, 2013			December 31, 2012
Term Loan Facility	$	378,000		$	1,083,500
6.5% Senior Notes	700,000			700,000
4.875% Senior Notes	500,000			—
Less: discount	(2,513		)	(4,148		)
Less: current portion	(11,000		)	(11,000		)
Long-term debt, net of discount, less current portion	$	1,564,487		$	1,768,352

Capital lease and other financing obligations	$	53,337		$	45,303
Less: current portion	(2,775		)	(1,878		)
Capital lease and other financing obligations, less current portion	$	50,562		$	43,425

There were no borrowings outstanding on the $250.0 million revolving credit facility (the "Revolving Credit Facility") as of June 30, 2013 and December 31, 2012.

Under the Revolving Credit Facility, there was $244.7 million of availability (net of $5.3 million in letters of credit) as of June 30, 2013. Outstanding letters of credit are issued primarily for the benefit of certain operating activities. As of June 30, 2013, no amounts had been drawn against these outstanding letters of credit, which are scheduled to expire at various dates through 2014.

On April 17, 2013, we completed the issuance and sale of $500.0 million in aggregate principal amount of 4.875% senior notes due 2023 (the "4.875% Senior Notes"). We used the proceeds from the issuance and sale of these notes, together with cash on hand, to (1) repay $700.0 million of our existing $1,100.0 million term loan (the "Term Loan Facility") under our senior secured credit facilities (the "Senior Secured Credit Facilities"), (2) pay all accrued interest on such indebtedness and (3) pay all fees and expenses in connection with the sale of the 4.875% Senior Notes.

In connection with these transactions, during the three months ended June 30, 2013 we recorded a $7.1 million loss to Other, net which is comprised of the write-off of unamortized deferred financing fees and original issue discount of $4.4 million and transaction costs of $2.7 million. For holders of the Term Loan Facility who did not invest in the 4.875% Senior Notes, we wrote-off a pro rata portion of the related unamortized deferred financing fees and original issue discount. For holders of the Term Loan Facility who were also investors in the 4.875% Senior Notes, we applied the provisions of Accounting Standards Codification (“ASC”) Subtopic 470-50, Modifications and Extinguishments (“ASC 470-50”). Our evaluation of the accounting under ASC 470-50 was done on a creditor by creditor basis in order to determine if the terms of the debt were substantially different and, as a result, whether to apply modification or extinguishment accounting. Borrowings associated with holders of the 4.875% Senior Notes that were not also holders of the Term Loan Facility were accounted for as new issuances as we did not have a previous financing relationship with these creditors. As such, we capitalized $3.9 million (i.e. pro rata portion) of third party costs, primarily associated with issuances to these creditors, as deferred financing costs.

The 4.875% Senior Notes were issued under an indenture dated April 17, 2013 (the "4.875% Senior Notes Indenture") among STBV, as issuer, The Bank of New York Mellon, as trustee, and certain subsidiaries located in certain jurisdictions, including the U.S., the Netherlands, Mexico, Japan, Malaysia and Bermuda (collectively, the "Guarantors"). The 4.875% Senior Notes were offered at par. Interest on the 4.875% Senior Notes is payable semi-annually on April 15 and October 15 of each year, commencing on October 15, 2013. Our obligations under the 4.875% Senior Notes are guaranteed by all of STBV's subsidiaries that guarantee our obligations under the Senior Secured Credit Facilities. The 4.875% Senior Notes and the guarantees are senior unsecured obligations of STBV and the Guarantors and rank equally in right of payment to all existing and future senior unsecured indebtedness of STBV or the Guarantors, including the 6.5% senior notes due 2019 (the "6.5% Senior Notes").

At any time we may redeem the 4.875% Senior Notes, in whole or in part, at a price equal to 100.0% of the principal amount of the 4.875% Senior Notes redeemed, plus accrued and unpaid interest to the date of redemption, plus the applicable premium set forth in the 4.875% Senior Notes Indenture. In addition, if STBV experiences certain change of control events, holders of the 4.875% Senior Notes may require us to repurchase all or part of the 4.875% Senior Notes at 101.0% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date. If certain changes in the tax law of any relevant taxing

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jurisdiction become effective that would impose withholding taxes or other deductions on the payments of the 4.875% Senior Notes or the guarantees, we may redeem the 4.875% Senior Notes in whole, but not in part, at any time, at a redemption price of 100.0% of the principal amount, plus accrued and unpaid interest, if any, to the date of redemption.

The 4.875% Senior Notes Indenture contains certain restrictions that limit our ability to, among other things: incur liens; engage in sale and leaseback transactions; incur indebtedness; or consolidate, merge with, or convey, transfer or lease substantially all of our assets to, another party. These covenants are subject to important exceptions and qualifications set forth in the 4.875% Senior Notes Indenture. Certain of these covenants will be suspended if the 4.875% Senior Notes are assigned an investment grade rating by Standard & Poor’s or Moody’s Investors Service, Inc. and are not in default. The suspended covenants will be reinstated if the 4.875% Senior Notes are no longer rated investment grade by either rating agency or an event of default has occurred and is continuing at such time.

The 4.875% Senior Notes Indenture provides for events of default (subject in certain cases to customary grace and cure periods) which include, among others, nonpayment of principal or interest when due, breach of covenants or other agreements in the 4.875% Senior Notes Indenture, defaults in payment of certain other indebtedness, certain events of bankruptcy or insolvency and when the guarantees of significant subsidiaries cease to be in full force and effect. Generally, if an event of default occurs, the trustee or the holders of at least 25% in principal amount of the then outstanding 4.875% Senior Notes may declare the principal of, and accrued but unpaid interest on, all of the 4.875% Senior Notes to be due and payable immediately. All provisions regarding remedies in an event of default are subject to the 4.875% Senior Notes Indenture.

See Note 8, "Debt" of our Annual Report on Form 10-K for the year ended December 31, 2012 for a detailed discussion of the restrictions related to the 6.5% Senior Notes and the Senior Secured Credit Facilities, the credit agreement under which the Senior Secured Credit Facilities were issued, and the indenture related to the 6.5% Senior Notes.

Debt Maturities

The final maturity of the Revolving Credit Facility is on May 12, 2016. Loans made pursuant to the Revolving Credit Facility must be repaid in full on or prior to such date and are pre-payable at our option at par. All letters of credit issued thereunder will terminate at the final maturity of the Revolving Credit Facility unless cash collateralized prior to such time. The final maturity of the Term Loan Facility is on May 12, 2018. The Term Loan Facility must be repaid in full on or prior to such maturity date. The 6.5% Senior Notes mature on May 15, 2019 and the 4.875% Senior Notes mature on October 15, 2023.

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, 2013 and December 31, 2012, accrued interest totaled $12,700 and $11,070, respectively.

Capital Leases and Other Financing Obligations

During the six months ended June 30, 2013, we recorded a financing obligation for an agreement with one of our suppliers, Measurement Specialties, Inc., under which we acquired the rights to certain intellectual property in exchange for quarterly royalty payments through the fourth quarter of 2019. The obligation recorded as of June 30, 2013 was $8.9 million.

7. Income Taxes

We recorded tax provisions for the three months ended June 30, 2013 and June 30, 2012 of $14,457 and $24,760, respectively, and for the six months ended June 30, 2013 and June 30, 2012 of $28,003 and $43,241, respectively. Our tax provision consists of current tax expense, which relates primarily to our profitable operations in foreign tax jurisdictions, and deferred tax expense, which relates primarily to the amortization of tax deductible goodwill and the use of net operating losses.

8. Pension and Other Post-Retirement Benefits

We provide various retirement and other post-employment plans for current and former employees, including defined benefit, defined contribution, and retiree healthcare benefit plans.

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The components of net periodic benefit cost associated with our defined benefit and retiree healthcare plans for the three months ended June 30, 2013 and June 30, 2012 were as follows:



	U.S. Plans										Non-U.S. Plans
	Defined Benefit						Retiree Healthcare				Defined Benefit						Total
	June 30, 2013			June 30, 2012			June 30, 2013		June 30, 2012		June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Service cost	$	—		$	(7	)	$	53	$	60	$	563		$	770		$	616		$	823
Interest cost	335			468			144		143		287			287			766			898
Expected return on plan assets	(590		)	(860		)	—		—		(224		)	(249		)	(814		)	(1,109		)
Amortization of net loss	227			26			119		27		100			145			446			198
Amortization of prior service cost	—			—			—		—		2			3			2			3
Net periodic benefit cost	$	(28	)	$	(373	)	$	316	$	230	$	728		$	956		$	1,016		$	813

The components of net periodic benefit cost associated with our defined benefit and retiree healthcare plans for the six months ended June 30, 2013 and June 30, 2012 were as follows:



	U.S. Plans										Non-U.S. Plans
	Defined Benefit						Retiree Healthcare				Defined Benefit						Total
	June 30, 2013			June 30, 2012			June 30, 2013		June 30, 2012		June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Service cost	$	—		$	41		$	126	$	120	$	1,144		$	1,494		$	1,270		$	1,655
Interest cost	719			968			295		286		584			579			1,598			1,833
Expected return on plan assets	(1,254		)	(1,828		)	—		—		(460		)	(502		)	(1,714		)	(2,330		)
Amortization of net loss	477			26			245		54		203			240			925			320
Amortization of prior service cost	—			—			—		—		5			6			5			6
Net periodic benefit cost	$	(58	)	$	(793	)	$	666	$	460	$	1,476		$	1,817		$	2,084		$	1,484

9. Share-Based Payment Plans

Share-Based Compensation Expense

The table below presents non-cash compensation expense related to our equity awards recorded within Selling, general and administrative expense in the condensed consolidated statements of operations during the identified periods:



	For the three months ended				For the six months ended
	June 30, 2013		June 30, 2012		June 30, 2013		June 30, 2012
Stock options	$	1,799	$	2,157	$	3,279	$	3,928
Restricted securities	854		625		1,323		770
Total share-based compensation expense	$	2,653	$	2,782	$	4,602	$	4,698

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We granted the following options under the Sensata Technologies Holding N.V. 2010 Equity Incentive Plan (the "2010 Equity Plan") during the six months ended June 30, 2013:



Awards Granted to	Number of Options Granted	Weighted- Average Grant Date Fair Value	Vesting Period
Various executives and employees	695	$10.13	25% per year over four years
Directors	120	$10.25	1 year

We granted the following restricted securities under the 2010 Equity Plan during the six months ended June 30, 2013:



Awards Granted to	Number of Restricted Securities Granted	Weighted- Average Grant Date Fair Value
Various executives and employees	214	$31.99

Of the restricted securities granted during the six months ended June 30, 2013, 109 were performance based securities that cliff vest in April 2016. The number of performance based securities that vest will depend on the extent to which certain performance criteria are met and could range between 0% and 150% of the number of securities granted. The remaining securities granted are non-performance based securities that vest on various dates between April 2014 and April 2016.

During the six months ended June 30, 2013, 1,248 stock options were exercised, of which 1,206 shares were reissued from treasury.

On May 22, 2013, our shareholders approved an amendment to the 2010 Equity Plan to increase the number of ordinary shares authorized for issuance under the 2010 Equity Plan by 5,000 ordinary shares to a total of 10,000 ordinary shares. As of June 30, 2013, there were 1,714 shares available for issuance under the 2010 Equity Plan, which does not include the additional 5,000 ordinary shares authorized, as they have not yet been registered with the U.S. Securities and Exchange Commission.

10. Commitments and Contingencies

Off-Balance Sheet Commitments

We execute contracts involving indemnifications standard in the relevant industry and indemnifications specific to certain transactions such as the sale of a business. These indemnifications might include claims relating to the following: environmental matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier and other commercial contractual relationships; and financial matters. Performance under these indemnifications would generally be triggered by a breach of terms of the contract or by a third-party claim. Historically, we have experienced only minimal and infrequent losses associated with these indemnifications. Consequently, any future liabilities brought about by these indemnifications cannot reasonably be estimated or accrued.

Indemnifications Provided As Part of Contracts and Agreements

We are party to the following types of agreements pursuant to which we may be obligated to indemnify a third party with respect to certain matters:

Officers and Directors: In connection with our initial public offering ("IPO"), we entered into indemnification agreements with each of our board members and executive officers pursuant to which we agree to indemnify, defend and hold harmless, and also advance expenses as incurred, to the fullest extent permitted under applicable law, from damages arising from the fact that such person is or was one of our directors or officers or that of any of our subsidiaries.

Our articles of association provide for indemnification of directors and officers by us to the fullest extent permitted by applicable law, as it now exists or may hereinafter be amended (but, in the case of an amendment, only to the extent such amendment permits broader indemnification rights than permitted prior thereto), against any and all liabilities including all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding provided he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, and, with respect to any criminal action or proceeding, had no

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reasonable cause to believe his or her conduct was unlawful or outside of his or her mandate. The articles do not provide a limit to the maximum future payments, if any, under the indemnification. No indemnification is provided for in respect of any claim, issue or matter as to which such person has been adjudged to be liable for gross negligence or willful misconduct in the performance of his or her duty on our behalf.

In addition, we have a liability insurance policy which insures directors and officers against the cost of defense, settlement or payment of claims and judgments under some circumstances. Certain indemnification payments may not be covered under our directors’ and officers’ insurance coverage.

Underwriters: Pursuant to the terms of the underwriting agreements entered into in connection with our IPO and secondary public equity offerings, we are obligated to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make in respect thereof. The underwriting agreements do not provide a limit to the maximum future payments, if any, under these indemnifications.

Intellectual Property and Product Liability Indemnification: We routinely sell products with a limited intellectual property and product liability indemnification included in the terms of sale. Historically, we have had only minimal and infrequent losses associated with these indemnifications. Consequently, any future liabilities resulting from these indemnifications cannot reasonably be estimated or accrued.

Product Warranty Liabilities

Our standard terms of sale provide our customers with a warranty against faulty workmanship and the use of defective materials. Depending on the product, warranties exist for a period of twelve to eighteen months after the date we ship the product to our customer or for a period of twelve months after the customer resells our product, whichever comes first. We do not offer separately priced extended warranty or product maintenance contracts. Our liability associated with this warranty is, at our option, to repair the product, replace the product or provide the customer with a credit. We also sell products to customers under negotiated agreements or where we have accepted the customer’s terms of purchase. In these instances, we may provide additional warranties for longer durations consistent with differing end-market practices, and where our liability is not limited. Finally, many sales take place in situations where commercial or civil codes, or other laws, would imply various warranties and restrict limitations on liability.

In the event a warranty claim based on defective materials exists, we may be able to recover some of the cost of the claim from the vendor from whom the materials were purchased. Our ability to recover some of the costs will depend on the terms and conditions to which we agreed when the materials were purchased. When a warranty claim is made, the only collateral available to us is the return of the inventory from the customer making the warranty claim. Historically, when customers make a warranty claim, we either replace the product or provide the customer with a credit. We generally do not rework the returned product.

Our policy is to accrue for warranty claims when a loss is both probable and estimable. This is accomplished by reserving for estimated returns and estimated costs to replace the product at the time the related revenue is recognized. Liabilities for warranty claims have historically not been material. In some instances, customers may make claims for costs they incurred or other damages. Any potentially material liabilities associated with these claims are discussed in this Note under the heading Legal Proceedings and Claims.

Environmental Remediation Liabilities

Our operations and facilities are subject to U.S. and foreign laws and regulations governing the protection of the environment and our employees, including those governing air emissions, water discharges, the management and disposal of hazardous substances and wastes, and the cleanup of contaminated sites. We could incur substantial costs, including cleanup costs, fines or civil or criminal sanctions, or third-party property damage or personal injury claims, in the event of violations or liabilities under these laws and regulations, or non-compliance with the environmental permits required at our facilities. Potentially significant expenditures could be required in order to comply with environmental laws that may be adopted or imposed in the future. We are, however, not aware of any threatened or pending material environmental investigations, lawsuits or claims involving us or our operations.

In 2001, Texas Instruments ("TI") Brazil was notified by the State of São Paolo, Brazil, regarding its potential cleanup liability as a generator of wastes sent to the Aterro Mantovani disposal site, which operated near Campinas from 1972 to 1987. The site is a landfill contaminated with a variety of chemical materials, including petroleum products, allegedly disposed at the site. TI Brazil is one of over 50 companies notified of potential cleanup liability. There have been several lawsuits filed by third parties

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alleging personal injuries caused by exposure to drinking water contaminated by the disposal site. Our subsidiary, Sensata Technologies Brazil ("ST Brazil"), is the successor in interest to TI Brazil. However, in accordance with the terms of the acquisition agreement entered into in connection with the acquisition of the sensors and controls business of TI (the “Acquisition Agreement”), TI retained these liabilities (subject to the limitations set forth in that agreement) and has agreed to indemnify us with regard to these excluded liabilities. In 2008, five lawsuits were filed against ST Brazil alleging personal injuries suffered by individuals who were exposed to drinking water allegedly contaminated by the Aterro disposal site. These matters are managed and controlled by TI. TI is defending these five lawsuits in the 1st Civil Court of Jaquariuna, San Paolo. Although ST Brazil cooperates with TI in this process, we do not anticipate incurring any non-reimbursable expenses related to the matters described above. Accordingly, no amounts have been accrued for these matters as of June 30, 2013 or December 31, 2012.

Control Devices, Inc. (“CDI”), a wholly-owned subsidiary of Sensata Technologies, Inc. acquired through our acquisition of First Technology Automotive, holds a post-closure license, along with GTE Operations Support, Inc. (“GTE”), from the Maine Department of Environmental Protection with respect to a closed hazardous waste surface impoundment located on real property and a facility owned by CDI in Standish, Maine. The post-closure license obligates GTE to operate a pump and treatment process to reduce the levels of chlorinated solvents in the groundwater under the property. The post-closure license obligates CDI to maintain the property and provide access to GTE. We do not expect the costs to comply with the post-closure license to be material. As a related but separate matter, pursuant to the terms of an environmental agreement dated July 6, 1994, GTE retained liability and agreed to indemnify CDI for certain liabilities related to the soil and groundwater contamination from the surface impoundments and an out-of-service leach field at the Standish, Maine facility, and CDI and GTE have certain obligations related to the property and each other. The site is contaminated primarily with chlorinated solvents. We do not expect the remaining cost associated with addressing the soil and groundwater contamination to be material.

Legal Proceedings and Claims

We account for litigation and claims losses in accordance with ASC Topic 450, Contingencies, (“ASC 450”). ASC 450 loss contingency provisions are recorded for probable and estimable losses at our best estimate of a loss, or when a best estimate cannot be made, at our estimate of the minimum loss. These estimates are often developed prior to knowing the amount of the ultimate loss and are refined each accounting period as additional information becomes known. Accordingly, we are often initially unable to develop a best estimate of loss and therefore the minimum amount, which could be zero, is recorded. As information becomes known, either the minimum loss amount is increased, resulting in additional loss provisions, or a best estimate can be made resulting in additional loss provisions. Occasionally, a best estimate amount is changed to a lower amount when events result in an expectation of a more favorable outcome than previously expected.

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 for property damage allegedly caused by our products, but some involve allegations of personal injury or wrongful death. We believe that the ultimate resolution of the current litigation matters pending against us, except potentially those matters described below, will not have a material effect on our financial condition or results of operations. See our Annual Report on Form 10-K for the year ended December 31, 2012, Note 14, “Commitments and Contingencies” for historical details of such claims.

Insurance Claims

The accounting for insurance claims depends on a variety of factors, including the nature of the claim, the evaluation of coverage, the amount of proceeds (or anticipated proceeds), the ability of an insurer to satisfy the claim, and the timing of the loss and corresponding recovery. In accordance with ASC 450, receipts from insurance up to the amount of loss recognized are considered recoveries. Recoveries are recognized in the financial statements when they are probable of receipt. Insurance proceeds in excess of the amount of loss recognized are considered gains. Gains are recognized in the financial statements in the period in which contingencies related to the claim (or a specific portion of the claim) have been resolved. We classify insurance proceeds in our condensed consolidated statements of operations in a manner consistent with the related losses.

Pending Litigation and Claims

Ford Speed Control Deactivation Switch Litigation: We are involved in a number of litigation matters relating to a pressure switch that TI sold to Ford Motor Company (“Ford”) for several years until 2002. Ford incorporated the switch into a cruise control deactivation switch system that it installed in certain vehicles. Due to concerns that, in some circumstances, this system

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and switch may cause fires, Ford and related companies issued numerous separate recalls of vehicles between 1999 and 2009, which covered approximately fourteen million vehicles in the aggregate.

We are a defendant in one case that involves wrongful death allegations. This case, Romans vs. Ford et al, Case No. CVH 20100126, Court of Common Pleas, Madison County, Ohio, involves claims for property damage, personal injury, and three fatalities resulting from an April 5, 2008 residential fire alleged to involve a Ford vehicle. On April 1, 2010, the plaintiff filed suit against TI and Sensata and this case was subsequently consolidated with an earlier lawsuit, former Case No. CVC 20090074, filed against Ford. On March 18, 2013, the court granted our motion for dismissal. The case continues against Ford. The plaintiff has filed an appeal of the decision dismissing Sensata. On April 22, 2013, the court issued a stay of the proceedings until the appeal is completed.

As of June 30, 2013, we are a defendant in eight lawsuits in which plaintiffs have alleged property damage and various personal injuries caused by vehicle fires. For the most part, these cases seek an unspecified amount of compensatory and exemplary damages. For the plaintiffs that have requested a specific amount, the range of the demand is $0.1 million to $0.5 million. Ford and TI are co-defendants in each of these lawsuits. In accordance with the terms of the Acquisition Agreement, we are managing and defending these lawsuits on behalf of both parties. Of these eight cases, seven are now active and one resulted in a dismissal that has been appealed by the plaintiff.

Pursuant to the terms of the Acquisition Agreement, and subject to the limitations set forth in that agreement, TI has agreed to indemnify us for certain claims and litigations, including the Ford matter. The Acquisition Agreement provides that when the aggregate amount of costs and/or damages from such claims exceeds $30.0 million, TI will reimburse us for amounts incurred in excess of that threshold up to a cap of $300.0 million. We entered into an agreement with TI, called the Contribution and Cooperation Agreement, dated October 24, 2011, whereby TI acknowledged that amounts we paid through September 30, 2011, plus an additional cash payment, would be deemed to satisfy the $30.0 million threshold. Accordingly, TI will not contest the claims or the amounts claimed through September 30, 2011. Costs that we have incurred since September 30, 2011 or may incur in the future will be reimbursed by TI up to a cap of $300.0 million, less amounts incurred by TI. TI has reimbursed us for expenses incurred through March 31, 2013 and we have submitted expenses through June 30, 2013. We do not believe that aggregate TI and Sensata costs will exceed $300.0 million.

SGL Italia: Our subsidiaries, STBV and ST Italia, are defendants in a lawsuit, Luigi Lavazza s.p.a and SGL Italia s.r.l. v. Sensata Technologies Italia s.r.l,, Sensata Technologies, B.V., and Komponent s.r.l., Court of Milan, bench 7, brought in the court in Milan, Italy. The lawsuit alleges defects in one of our electro-mechanical control products. The plaintiffs are alleging €4.2 million in damages. We have denied liability in this matter. We filed our most recent answer to the lawsuit in November 2012 and the most recent hearing occurred in December 2012. We expect additional motion filings during 2013, with the next scheduled hearing set in November 2013. We are actively defending the case, but we believe that a loss is probable. We estimate the range of loss to be between $0.2 million and the full amount of the claim. As of June 30, 2013, we have accrued $0.2 million, the low end of the range, as we believe that no amount within the range is a better estimate of loss than any other amount.

Venmar: We have been involved in a related series of claims and lawsuits involving products we sold to one of our customers, Venmar, that sold ventilation and air exchanger equipment containing an electro-mechanical control product. Venmar conducted recalls in conjunction with the U.S. Consumer Product Safety Commission on similar equipment in 2007, 2008, and 2011. Claims are generally unspecified, but two of the matters involve property damage in excess of $1 million. In April 2013, two of the pending claims were filed as lawsuits. These are Cincinnati Ins. Co. v. Sensata Technologies, Inc., Case No. 13105170NP, 52^nd Cir. Ct., Huron Co., MI and Auto-Owners Ins. Co. v. Venmar Ventilation, Case No. 13917CZ, 37^th Cir. Ct., Calhoun Co., MI. In light of a related lawsuit settlement in 2012, we believe losses resulting from these matters are reasonably possible. However, we cannot estimate a range of loss at this time. As of June 30, 2013, we have not recorded an accrual for these matters.

Aircraft: In 2012, certain of our subsidiaries, along with more than twenty other defendants, were named in lawsuits involving a plane crash on May 25, 2011 that resulted in four deaths. The first lawsuit was filed on May 24, 2012 in Pike Circuit Court, Kentucky. This lawsuit is styled Campbell vs. Aero Resources Corporation et al, Civil Action 12-C1-652, Commonwealth of Kentucky, Pike Circuit Court, Div. No. I. A second lawsuit was filed on July 5, 2012 in Jessamine Circuit Court, Kentucky. This lawsuit is styled Shuey v. Hawker Beechcraft, Inc. et al, Civil Action 12-C1-650, Commonwealth of Kentucky, Jessamine Circuit Court, Civil Division. The plaintiffs allege that one of our circuit breakers was a component in the aircraft and have brought claims of negligence and strict liability. Damages are unspecified. We are cooperating with this effort. We do not believe that a loss is probable in these matters. Accordingly, as of June 30, 2013, we have not recorded an accrual for these matters. We have aircraft product liability insurance and the lawsuits have been submitted to our insurer, who has appointed counsel.

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Termination of Customer Relationship: In April 2013, one of our subsidiaries terminated its relationship with a minor customer in South Korea. We are currently engaged in a dispute with this former customer relating to significant damages the customer allegedly has incurred and/or will incur due to the termination. This dispute has not resulted in any litigation. At this time, we cannot reasonably estimate a range of loss relating to this matter. As of June 30, 2013, we have not recorded an accrual for this matter. If any litigation arises from this dispute, we intend to defend ourselves vigorously under all defenses that may be available.

FCPA Voluntary Disclosure

During 2010, an internal investigation was conducted under the direction of the Audit Committee of our Board of Directors to determine whether any laws, including the Foreign Corrupt Practices Act (the “FCPA”), may have been violated in connection with a certain business relationship entered into by one of our operating subsidiaries involving business in China. We believe the amount of payments and the business involved was immaterial. We discontinued the specific business relationship and our investigation has not identified any other suspect transactions. We contacted the U.S. Department of Justice (the "DOJ") and the Securities and Exchange Commission (the "SEC") to make a voluntary disclosure of the possible violations, the investigation, and the initial findings. We have been fully cooperating with their review. During 2012, the DOJ informed us that it has closed its inquiry into the matter but indicated that it could reopen its inquiry in the future in the event it were to receive additional information or evidence. We have not received an update from the SEC concerning the status of its inquiry. The FCPA (and related statutes and regulations) provides for potential monetary penalties, criminal and civil sanctions, and other remedies. We are unable to estimate the potential penalties and/or sanctions, if any, that might be assessed and, accordingly, no provision has been made in the condensed consolidated financial statements.

Termination of Administrative Services Agreement

In 2009, we entered into a fee for service arrangement with SCA for ongoing consulting, management advisory and other services (the "Administrative Services Agreement"). On May 10, 2013, the Administrative Services Agreement was terminated, upon a mutual agreement between us and SCA.

11. Fair Value Measures

Our assets and liabilities reported at fair value have been categorized based upon a fair value hierarchy in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. The levels of the fair value hierarchy are described below:


•	Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to access at the measurement date.

•

Level 2 inputs utilize inputs, other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.


•	Level 3 inputs are unobservable inputs for the asset or liability, allowing for situations where there is little, if any, market activity for the asset or liability.

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Measured on a Recurring Basis

The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012, aggregated by the level in the fair value hierarchy within which those measurements fell:



	June 30, 2013						December 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Foreign currency forward contracts	$	—	$	4,291	$	—	$	—	$	957	$	—
Commodity forward contracts	—		27		—		—		3,150		—
Interest rate caps	—		4		—		—		8		—
Total	$	—	$	4,322	$	—	$	—	$	4,115	$	—
Liabilities
Foreign currency forward contracts	$	—	$	777	$	—	$	—	$	7,049	$	—
Commodity forward contracts	—		21,945		—		—		263		—
Total	$	—	$	22,722	$	—	$	—	$	7,312	$	—

The valuations of the foreign currency forward contracts are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including foreign currency exchange rates, and reflects the contractual terms of these instruments, including the period to maturity. The specific contractual terms utilized as inputs in determining fair value and a discussion of the nature of the risks being mitigated by these instruments are detailed in Note 12, “Derivative Instruments and Hedging Activities,” under the caption “Hedges of Foreign Currency Risk."

The valuations of the commodity forward contracts are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including commodity forward curves, and reflects the contractual terms of these instruments, including the period to maturity. The specific contractual terms utilized as inputs in determining fair value and a discussion of the nature of the risks being mitigated by these instruments are detailed in Note 12, “Derivative Instruments and Hedging Activities,” under the caption “Hedges of Commodity Risk."

The valuations of the interest rate caps are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including interest rate curves and interest rate volatility, and reflects the contractual terms of these instruments, including the period to maturity. The specific contractual terms utilized as inputs in determining fair value and a discussion of the nature of the risks being mitigated by these instruments are detailed in Note 12, “Derivative Instruments and Hedging Activities,” under the caption “Hedges of Interest Rate Risk."

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurement. As of June 30, 2013 and December 31, 2012, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 in the fair value hierarchy.

Measured on a Nonrecurring Basis

We evaluate the recoverability of goodwill and indefinite-lived intangible assets in the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that goodwill or other intangible assets may be impaired. As of

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October 1, 2012, we evaluated our goodwill and indefinite-lived intangible assets for impairment and determined that the fair values of our reporting units and indefinite-lived intangible assets exceeded their carrying values on that date. As of June 30, 2013, no events or changes in circumstances occurred that would have triggered the need for an additional impairment review.

Goodwill and indefinite-lived intangible assets are valued primarily using discounted cash flow models that incorporate assumptions for a reporting unit's short-term and long-term revenue growth rates, operating margins and discount rates, which represent our best estimates of current and forecasted market conditions, current cost structure, and the implied rate of return that management believes a market participant would require for an investment in a company having similar risks and business characteristics to the reporting unit being assessed.

The fair value of assets held for sale is determined based on the use of appraisals, input from market participants, our experience selling similar assets, and/or internally developed cash flow models. The fair value of these assets is considered to be a Level 3 fair value measurement. There have been no changes in the fair value of our assets held for sale during the six months ended June 30, 2013.

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, 2013 and December 31, 2012:



	June 30, 2013								December 31, 2012
	Carrying Value ⁽¹⁾		Fair Value						Carrying Value ⁽¹⁾		Fair Value
	Carrying Value ⁽¹⁾		Level 1		Level 2		Level 3		Carrying Value ⁽¹⁾		Level 1		Level 2		Level 3
Liabilities
Term Loan Facility	$	378,000	$	—	$	374,078	$	—	$	1,083,500	$	—	$	1,081,427	$	—
6.5% Senior Notes	$	700,000	$	—	$	742,000	$	—	$	700,000	$	—	$	742,000	$	—
4.875% Senior Notes	$	500,000	$	—	$	487,500	$	—	$	—	$	—	$	—	$	—


⁽¹⁾	The carrying value is presented excluding discount.

The fair values of our Term Loan Facility and our 4.875% Senior Notes and 6.5% Senior Notes are determined using observable prices in markets where these instruments are generally not traded on a daily basis.

Cash and cash equivalents, trade receivables and trade payables are carried at their cost, which approximates fair value, because of their short-term nature.

12. Derivative Instruments and Hedging Activities

As required by ASC Topic 815, Derivatives and Hedging (“ASC 815”), we record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative as being in a hedging relationship and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge, or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though we elect not to apply hedge accounting under ASC 815. Specific information about the valuations of derivatives and classification in the fair value hierarchy are described in Note 11, “Fair Value Measures.”

We do not offset fair value amounts recognized for derivative instruments against fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral. As of June 30, 2013, we have posted $4.4 million in cash collateral.

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Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements on our floating rate debt. To accomplish these objectives, we may use interest rate swaps, collars, and caps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the receipt of variable rate amounts if interest rates rise above the cap strike rate on the contract and payments of variable rate amounts if interest rates fall below the floor strike rate on the contract. Interest rate caps designated as cash flow hedges involve the receipts of variable rate amounts if interest rates rise above the cap strike rate on the contract. During the six months ended June 30, 2013 and June 30, 2012, we utilized interest rate caps to hedge the variable cash flows associated with existing variable rate debt.

The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in Accumulated other comprehensive loss and is subsequently reclassified into earnings in the period in which the hedged forecasted transaction affects earnings. The ineffective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recognized directly in earnings. For the three and six months ended June 30, 2013 and June 30, 2012, we recorded no ineffectiveness in earnings and no amounts were excluded from the assessment of effectiveness.

Amounts reported in Accumulated other comprehensive loss related to interest rate derivatives are reclassified to Interest expense as interest payments are made on our variable rate debt. As of June 30, 2013, we estimated that an additional $1.3 million will be reclassified from Accumulated other comprehensive loss to Interest expense during the twelve months ending June 30, 2014.

As of June 30, 2013, we had the following outstanding derivative contract, $367.0 million of which is designated as a cash flow hedge of floating interest payments on our Term Loan Facility:

Interest Rate Derivative

Notional

(in millions)

Effective Date

Amortization

Maturity Date

Index

Strike Rate

Interest rate cap

$600.0

August 12, 2011

August 12, 2014

3-month LIBOR

2.75%

Hedges of Foreign Currency Risk

We are exposed to fluctuations in various foreign currencies against our functional currency, the U.S. dollar. We use foreign currency derivatives, primarily foreign currency forward agreements, to manage this exposure. We currently have outstanding foreign currency forward contracts that qualify as cash flow hedges intended to offset the effect of exchange rate fluctuations on forecasted sales and labor costs. We also have outstanding foreign currency forward contracts which are intended to preserve the economic value of foreign currency denominated monetary assets and liabilities. These instruments were not designated for hedge accounting treatment in accordance with ASC 815.

The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in Accumulated other comprehensive loss and is subsequently reclassified into earnings in the period in which the hedged forecasted transaction affects earnings. The ineffective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recognized directly in earnings. For the three and six months ended June 30, 2013 and June 30, 2012, the amount recognized for ineffectiveness in earnings was not material and no amounts were excluded from the assessment of effectiveness. As of June 30, 2013, we estimated that $4.0 million in net gains will be reclassified from Accumulated other comprehensive loss to earnings during the twelve months ending June 30, 2014.

Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings as a component of Other, net.

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As of June 30, 2013, we had the following outstanding foreign currency forward contracts:



Notional (in millions)	Effective Date	Maturity Date	Index	Weighted- Average Strike Rate	Hedge Designation
150.2 EUR	Various from September 2012 to May 2013	Various from August 2013 to December 2014	Euro to U.S. Dollar Exchange Rate	1.30 USD	Designated
48.8 EUR	Various from September 2012 to June 2013	July 2013	Euro to U.S. Dollar Exchange Rate	1.30 USD	Non-designated
1,180.4 JPY	Various from January to June 2013	Various from August 2013 to December 2013	U.S. Dollar to Japanese Yen Exchange Rate	91.17 JPY	Designated
676.0 JPY	January 2013 and June 2013	July 31, 2013	U.S. Dollar to Japanese Yen Exchange Rate	93.87 JPY	Non-designated
15,480.0 KRW	January 11, 2013	Various from August 2013 to December 2013	U.S. Dollar to Korean Won Exchange Rate	1,075.25 KRW	Designated
9,520.0 KRW	January 2013 and June 2013	July 31, 2013	U.S. Dollar to Korean Won Exchange Rate	1,133.38 KRW	Non-designated
28.1 MYR	June 25, 2013	September 30, 2013	U.S. Dollar to Malaysian Ringgit Exchange Rate	3.21 MYR	Non-designated
676.0 MXN	Various from October 2012 to June 2013	Various from September 2013 to December 2014	U.S. Dollar to Mexican Peso Exchange Rate	13.55 MXN	Designated
138.0 MXN	Various from October 2012 to June 2013	Various from July 2013 to August 2013	U.S. Dollar to Mexican Peso Exchange Rate	13.38 MXN	Non-designated

The notional amounts above represent the total quantities we have outstanding over the remaining contracted periods.

Hedges of Commodity Risk

Our objective in using commodity forward contracts is to offset a portion of our exposure to the potential change in prices associated with certain commodities, including silver, gold, nickel, aluminum, copper, platinum, and palladium used in the manufacturing of our products. The terms of these forward contracts fix the price at a future date for various notional amounts associated with these commodities. These instruments were not designated for hedge accounting treatment in accordance with ASC 815. Derivatives not designated as hedges are not speculative and are used to manage our exposure to commodity price movements, but do not meet the hedge accounting requirements. In accordance with ASC 815, changes in the fair value of these derivatives not designated in hedging relationships are recorded in the condensed consolidated statements of operations as a component of Other, net.

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We had the following outstanding commodity forward contracts, none of which were designated as derivatives in qualifying hedging relationships, as of June 30, 2013:



Commodity	Notional	Remaining Contracted Periods	Weighted- Average Strike Price Per Unit
Silver	1,974,112 troy oz.	July 2013 - December 2015	$25.21
Gold	22,316 troy oz.	July 2013 - December 2015	$1,481.14
Nickel	1,113,414 pounds	July 2013 - December 2015	$7.27
Aluminum	4,561,766 pounds	July 2013 - December 2015	$0.91
Copper	5,966,129 pounds	July 2013 - December 2015	$3.40
Platinum	14,900 troy oz.	July 2013 - December 2015	$1,502.39
Palladium	1,834 troy oz.	July 2013 - December 2015	$697.17

The notional amounts above represent the total volumes we have hedged for the remaining contracted periods.

Financial Instrument Presentation

The following table presents the fair values of our derivative financial instruments in the condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012:



	Asset Derivatives					Liability Derivatives
		Fair Value					Fair Value
	Balance Sheet Location	June 30, 2013		December 31, 2012		Balance Sheet Location	June 30, 2013		December 31, 2012
Derivatives designated as hedging instruments under ASC 815
Interest rate caps	Other assets	$	2	$	8		$	—	$	—
Foreign currency forward contracts	Prepaid expenses and other current assets	3,658		937		Accrued expenses and other current liabilities	608		3,679
Foreign currency forward contracts	Other assets	404		—		Other long term liabilities	84		790
Total		$	4,064	$	945		$	692	$	4,469
Derivatives not designated as hedging instruments under ASC 815
Interest rate caps	Other assets	$	2	$	—		$	—	$	—
Commodity forward contracts	Prepaid expenses and other current assets	22		3,150		Accrued expenses and other current liabilities	13,182		263
Commodity forward contracts	Other assets	5		—		Other long term liabilities	8,763		—
Foreign currency forward contracts	Prepaid expenses and other current assets	229		20		Accrued expenses and other current liabilities	85		2,580
Total		$	258	$	3,170		$	22,030	$	2,843

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The following tables present the effect of our derivative financial instruments on the condensed consolidated statements of operations for the three months ended June 30, 2013 and June 30, 2012:



Derivatives designated as hedging instruments under ASC 815	Amount of Gain or (Loss) Recognized in Other Comprehensive (Loss)/Income						Location of Loss or Gain Reclassified from Accumulated Other Comprehensive Loss into Income	Amount of Net (Loss)/Gain Reclassified from Accumulated Other Comprehensive Loss into Income
	June 30, 2013			June 30, 2012				June 30, 2013			June 30, 2012
Interest rate caps	$	2		$	(240	)	Interest expense	$	(208	)	$	(140	)
Interest rate cap	$	—		$	—		Other, net	$	(1,097	)	$	—
Foreign currency forward contracts	$	(1,729	)	$	8		Net revenue	$	922		$	—
Foreign currency forward contracts	$	(339	)	$	628		Cost of revenue	$	658		$	—



Derivatives not designated as hedging instruments under ASC 815	Amount of Gain or (Loss) Recognized in Income on Derivatives						Location of Gain or (Loss) Recognized in Income on Derivatives
	June 30, 2013			June 30, 2012
Commodity forward contracts	$	(23,752	)	$	(8,941	)	Other, net
Foreign currency forward contracts	$	(623	)	$	2,163		Other, net

The following tables present the effect of our derivative financial instruments on the condensed consolidated statements of operations for the six months ended June 30, 2013 and June 30, 2012:



Derivatives designated as hedging instruments under ASC 815	Amount of Gain or (Loss) Recognized in Other Comprehensive (Loss)/Income						Location of Loss or Gain Reclassified from Accumulated Other Comprehensive Loss into Income	Amount of Net (Loss)/Gain Reclassified from Accumulated Other Comprehensive Loss into Income
	June 30, 2013			June 30, 2012				June 30, 2013			June 30, 2012
Interest rate caps	$	(4	)	$	(642	)	Interest expense	$	(515	)	$	(382	)
Interest rate cap	$	—		$	—		Other, net	$	(1,097	)	$	—
Foreign currency forward contracts	$	7,123		$	8		Net revenue	$	(288	)	$	—
Foreign currency forward contracts	$	1,181		$	628		Cost of revenue	$	1,065		$	—



Derivatives not designated as hedging instruments under ASC 815	Amount of Gain or (Loss) Recognized in Income on Derivatives						Location of Gain or (Loss) Recognized in Income on Derivatives
	June 30, 2013			June 30, 2012
Commodity forward contracts	$	(26,192	)	$	(5,188	)	Other, net
Foreign currency forward contracts	$	1,953		$	1,576		Other, net

As discussed in Note 6, “Debt,” in April 2013 we completed the issuance and sale of the 4.875% Senior Notes. The proceeds from this issuance and sale along with cash on hand were used to, among other things, repay $700.0 million of the Term Loan Facility. As a result of this repayment, it was probable that a portion of the hedged forecasted transactions associated with our interest rate cap would not occur. Accordingly, we reclassified $1.1 million from Accumulated other comprehensive loss to Other, net, in the three and six months ended June 30, 2013.

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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, where 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, 2013, the termination value of outstanding derivatives in a liability position, excluding any adjustment for non-performance risk, was $23.4 million. As of June 30, 2013, we have posted $4.4 million in 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.

13. Other, Net

Other, net consisted of the following for the three and six months ended June 30, 2013 and June 30, 2012:



	For the three months ended						For the six months ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Currency remeasurement gain/(loss) on debt	$	108		$	(277	)	$	185		$	79
Currency remeasurement gain/(loss) on net monetary assets	224			(3,298		)	(2,542		)	(2,879		)
Loss on commodity forward contracts	(23,752		)	(8,941		)	(26,192		)	(5,188		)
(Loss)/gain on foreign currency forward contracts	(623		)	2,163			1,953			1,576
Loss on debt refinancing	(7,111		)	—			(7,111		)	—
Loss on interest rate cap	(1,097		)	—			(1,097		)	—
Other	51			(408		)	3			(176		)
Total Other, net	$	(32,200	)	$	(10,761	)	$	(34,801	)	$	(6,588	)

14. Segment Reporting

We organize our business into two reportable segments, sensors and controls, based on differences in products included in each segment. The reportable segments are consistent with how management views the markets served by us and the financial information that is reviewed by our chief operating decision maker. We manage our sensors and controls businesses as components of an enterprise, for which separate information is available and 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 share-based compensation expense, restructuring and special charges and certain corporate costs not associated with the operations of the segment, including amortization expense and a portion of depreciation expense associated with assets recorded in connection with acquisitions. In addition, an operating segment’s performance excludes results from discontinued operations, if any. Corporate 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, income from operations or other measures of financial performance prepared in accordance with U.S. GAAP. The accounting policies of each of the two reporting segments are the same as 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, 2012.

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The following table presents net revenue and 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, 2013 and June 30, 2012:



	For the three months ended						For the six months ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Net revenue:
Sensors	$	361,332		$	360,094		$	693,965		$	719,688
Controls	145,086			144,523			282,866			276,937
Total net revenue	$	506,418		$	504,617		$	976,831		$	996,625
Segment operating income (as defined above):
Sensors	$	108,838		$	100,856		$	202,030		$	198,796
Controls	45,716			47,626			89,070			89,787
Total segment operating income	154,554			148,482			291,100			288,583
Corporate and other	(27,964		)	(18,014		)	(54,649		)	(43,228		)
Amortization of intangible assets	(33,650		)	(36,199		)	(67,036		)	(72,325		)
Restructuring and special charges	(2,350		)	(7,887		)	(4,026		)	(8,450		)
Profit from operations	90,590			86,382			165,389			164,580
Interest expense	(23,962		)	(24,928		)	(48,097		)	(50,143		)
Interest income	400			185			548			426
Other, net	(32,200		)	(10,761		)	(34,801		)	(6,588		)
Income before taxes	$	34,828		$	50,878		$	83,039		$	108,275

15. Net Income per Share

Basic and diluted net income per share are calculated by dividing net income by the number of basic and diluted weighted-average ordinary shares outstanding during the period. For the three and six months ended June 30, 2013 and June 30, 2012, the weighted-average shares outstanding for basic and diluted net income per share were as follows:



	For the three months ended		For the six months ended
	June 30, 2013	June 30, 2012	June 30, 2013	June 30, 2012
Basic weighted-average ordinary shares outstanding	175,210	177,457	176,573	177,111
Dilutive effect of stock options	3,008	4,140	3,210	4,344
Dilutive effect of unvested restricted securities	189	184	182	188
Diluted weighted-average ordinary shares outstanding	178,407	181,781	179,965	181,643

Net income and net income per share are presented in the condensed consolidated statements of operations.

For the three and six months ended June 30, 2013 and June 30, 2012, certain potential ordinary shares were excluded from our calculation of diluted weighted-average shares outstanding because they would have an anti-dilutive effect on net income per share, or because they related to share-based awards associated with restricted securities that were contingently issuable, for which the contingency has not been satisfied.



	For the three months ended		For the six months ended
	June 30, 2013	June 30, 2012	June 30, 2013	June 30, 2012
Anti-dilutive shares excluded	1,888	1,685	1,728	1,283
Contingently issuable shares excluded	510	431	437	323

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CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains forward-looking statements within the meaning of the federal securities laws. These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies.

These forward looking statements are identified by the use of terms and phrases such as “anticipate,” “believe,” “could,” “should,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “predict,” “project” and similar terms and phrases or the negative of such terms and phrases, including references to assumptions. However, these words are not the exclusive means of identifying such statements. These statements are contained in many sections of this report, including “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Although we believe that our plans, intentions and expectations reflected in, or suggested by, such forward-looking statements are reasonable, we cannot assure you that we will achieve those plans, intentions or expectations.

We believe that the following factors, among others (including those described in our Annual Report on Form 10-K for the year ended December 31, 2012 and those described in Part II, Item 1A of this Quarterly Report on Form 10-Q), 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: general conditions in the automotive industry; continued fundamental changes in the industries in which we operate; risks associated with our non-U.S. operations; continued pricing and other pressures from our customers; our ability to attract and retain key personnel; our ability to maintain existing relationships with customers and our exposure to industry and customer-specific demand fluctuations; and competitive pressures in the markets in which we compete, which could require us to lower our prices or result in reduced demand for our products.

There may be other factors that may cause our actual results to differ materially from the forward-looking statements. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. You should carefully read the factors described in the “Risk Factors” section of this report and in our Annual Report on Form 10-K for the year ended December 31, 2012 for a description of certain risks that could, among other things, cause our actual results to differ from these forward-looking statements.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement, and we undertake no obligation to revise or update this Quarterly Report on Form 10-Q to reflect events or circumstances after the date hereof.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion 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, 2012 filed with the SEC in February 2013 and the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. All percentage amounts and ratios were calculated using the underlying data in whole dollars and may not reflect rounding adjustments.

Results of Operations

The tables below present our results of operations in millions of dollars and as a percentage of net revenue for the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012. 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 tables below have been calculated based on unrounded numbers. Accordingly, certain amounts may not add due to the effect of rounding.

Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30, 2012



	For the three months ended
	June 30, 2013					June 30, 2012
(Dollars in millions)	Amount			Percent of Net Revenue		Amount			Percent of Net Revenue
Net revenue:
Sensors	$	361.3		71.4	%	$	360.1		71.4	%
Controls	145.1			28.6		144.5			28.6
Net revenue	506.4			100.0		504.6			100.0
Operating costs and expenses:
Cost of revenue	322.7			63.7		326.2			64.6
Research and development	14.3			2.8		12.5			2.5
Selling, general and administrative	42.8			8.5		35.5			7.0
Amortization of intangible assets	33.7			6.6		36.2			7.2
Restructuring and special charges	2.4			0.5		7.9			1.6
Total operating costs and expenses	415.8			82.1		418.2			82.9
Profit from operations	90.6			17.9		86.4			17.1
Interest expense, net	(23.6		)	(4.7	)	(24.7		)	(4.9	)
Other, net	(32.2		)	(6.4	)	(10.8		)	(2.1	)
Income before taxes	34.8			6.9		50.9			10.1
Provision for income taxes	14.5			2.9		24.8			4.9
Net income	$	20.4		4.0	%	$	26.1		5.2	%

Net revenue. Net revenue for the three months ended June 30, 2013 increased $1.8 million, or 0.4%, to $506.4 million from $504.6 million for the three months ended June 30, 2012. Net revenue increased by approximately 1% related to an acquisition in the controls segment in the fourth quarter of 2012, largely offset by a decline of approximately 1% in organic revenue (sales excluding the impact of acquisitions and the effect of foreign currency exchange).

Sensors business segment net revenue for the three months ended June 30, 2013 increased $1.2 million, or 0.3%, to $361.3 million from $360.1 million for the three months ended June 30, 2012. This increase was primarily due to organic revenue growth.

Controls business segment net revenue for the three months ended June 30, 2013 increased $0.6 million, or 0.4%, to $145.1 million from $144.5 million for the three months ended June 30, 2012. Controls net revenue increased approximately 4% due to the effect of an acquisition completed in the fourth quarter of 2012, partially offset by declines of approximately 3% in organic revenue and approximately 1% related to the effect of unfavorable foreign currency exchange rates. The decline in organic revenue was primarily due to capacity constraints related to the fire at our facility in South Korea.

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Cost of revenue. Cost of revenue for the three months ended June 30, 2013 and June 30, 2012 was $322.7 million (63.7% of net revenue) and $326.2 million (64.6% of net revenue), respectively. Cost of revenue decreased as a percentage of net revenue primarily due to cost reductions, partially resulting from production line moves, and favorable trends in metal pricing, primarily gold and silver. A portion of our production materials contains metals, such as copper, nickel, and aluminum, and precious metals, such as gold, silver, platinum, and palladium, and the costs of these materials may vary with underlying metals pricing.

Research and development expense. Research and development ("R&D") expense for the three months ended June 30, 2013 and June 30, 2012 was $14.3 million (2.8% of net revenue) and $12.5 million (2.5% of net revenue), respectively. R&D expense consists of costs related to direct product design, development and process engineering. The level of R&D expense is related to the number of products in development, the stage of development process, the complexity of the underlying technology, the potential scale of the product upon successful commercialization and the level of our exploratory research. These factors may impact our level of R&D expense in the future.

Selling, general and administrative expense. Selling, general and administrative ("SG&A") expense for the three months ended June 30, 2013 and June 30, 2012 was $42.8 million (8.5% of net revenue) and $35.5 million (7.0% of net revenue), respectively. SG&A expense consists of all expenditures incurred in connection with the sales and marketing of our products, as well as administrative overhead costs. These costs may be fixed or variable in nature, and we may at times experience increased or decreased variable costs for reasons other than increased or decreased net revenue. As a result, SG&A expense will not necessarily remain consistent as a percentage of net revenue. During the three months ended June 30, 2013, SG&A expense increased as a percentage of net revenue primarily due to increased compensation related to non-production headcount in the second quarter of 2013 compared to the second quarter of 2012.

Amortization of intangible assets. Amortization expense associated with definite-lived intangible assets for the three months ended June 30, 2013 and June 30, 2012 was $33.7 million and $36.2 million, respectively. Amortization expense decreased primarily due to the completion of amortization during the first quarter of 2013 of certain intangible assets initially recognized upon the acquisition of the Sensors and Controls business in 2006.

Restructuring and special charges. Restructuring and special charges for the three months ended June 30, 2013 and June 30, 2012 was $2.4 million and $7.9 million, respectively. Restructuring and special charges decreased from the prior period as we are approaching the completion of actions attributable to the execution of the 2011 Plan and the MSP Plan, each of which began in 2011. The remaining charges relate primarily to actions associated with ceasing manufacturing in our South Korean facility, incurred as part of the 2011 Plan. We expect these actions will be completed and payments will be made in 2013. These actions and events are discussed further in Note 5, "Restructuring and Special Charges," of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Interest expense, net. Interest expense, net for the three months ended June 30, 2013 and June 30, 2012 was $23.6 million and $24.7 million, respectively. Interest expense, net for the three months ended June 30, 2013 decreased primarily due to the net repayment of $200.0 million on our long term debt during the three months ended June 30, 2013, partially offset by the higher interest rate on our new fixed rate debt versus the variable interest rate on the debt repaid.

Other, net. Other, net for the three months ended June 30, 2013 and June 30, 2012 was $(32.2) million and $(10.8) million, respectively. The loss recognized for the three months ended June 30, 2013 is higher than the three months ended June 30, 2012 primarily due to higher losses on commodity forward contracts, losses related the refinancing of our debt, and the write-off to expense of amounts in Accumulated other comprehensive income due to a portion of the hedged forecasted transactions related to the interest rate cap becoming probable of not occurring. See Note 13, "Other, Net," of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details of the gains and losses included within this account.

Provision for income taxes. Provision for income taxes for the three months ended June 30, 2013 and June 30, 2012 totaled $14.5 million and $24.8 million, respectively. Our tax provision consists of current tax expense, which relates primarily to our profitable operations in foreign tax jurisdictions, and deferred tax expense, which relates primarily to the amortization of tax deductible goodwill and the use of net operating losses. The decrease in the provision was primarily due to the change in the distribution of income recorded in profitable jurisdictions, changes in the applicable tax rates and the impact of changes in foreign currency exchange rates.

Deferred taxes, in part, involve accounting for differences between the financial statement carrying value of existing assets and liabilities and their respective tax basis. The future related consequences of these differences result in deferred tax assets and liabilities. We assess the recoverability of deferred tax assets by assessing whether it is more likely than not that some or all of the deferred tax asset will be realized. To the extent we believe that a more likely than not standard cannot be met, we record a valuation allowance. Significant management judgment is required in determining the need for a valuation allowance against deferred tax assets. We review the need for valuation allowances jurisdictionally during each reporting period based on

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information available to us at that time. We have significant valuation allowances in certain jurisdictions where our businesses have historically incurred operating losses. Should our judgment change about the need for a valuation allowance, it may result in the recognition of a valuation allowance or the reduction of some or all of the previously recognized valuation allowances, possibly resulting in a material tax provision or benefit in the period of such change.

We believe a change of ownership within the meaning of Section 382 of the Internal Revenue Code occurred in fiscal year 2012. As a result, our U.S. federal net operating loss utilization will be limited to an amount equal to the market capitalization of our U.S. subsidiaries at the time of the ownership change multiplied by the federal long-term tax exempt rate. A change of ownership under Section 382 of the Internal Revenue Code is defined as a cumulative change of fifty percentage points or more in the ownership positions of certain stockholders owning five percent or more of our common stock over a three year rolling period. We do not believe the resulting change will prohibit the utilization of our U.S. federal net operating loss.

Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012



	For the six months ended
	June 30, 2013					June 30, 2012
(Dollars in millions)	Amount			Percent of Net Revenue		Amount			Percent of Net Revenue
Net revenue:
Sensors	$	694.0		71.0	%	$	719.7		72.2	%
Controls	282.9			29.0		276.9			27.8
Net revenue	976.8			100.0		996.6			100.0
Operating costs and expenses:
Cost of revenue	631.4			64.6		651.4			65.4
Research and development	27.9			2.9		25.8			2.6
Selling, general and administrative	81.1			8.3		74.1			7.4
Amortization of intangible assets	67.0			6.9		72.3			7.3
Restructuring and special charges	4.0			0.4		8.5			0.8
Total operating costs and expenses	811.4			83.1		832.0			83.5
Profit from operations	165.4			16.9		164.6			16.5
Interest expense, net	(47.5		)	(4.9	)	(49.7		)	(5.0	)
Other, net	(34.8		)	(3.6	)	(6.6		)	(0.7	)
Income before taxes	83.0			8.5		108.3			10.9
Provision for income taxes	28.0			2.9		43.2			4.3
Net income	$	55.0		5.6	%	$	65.0		6.5	%

Net revenue. Net revenue for the six months ended June 30, 2013 decreased $19.8 million, or 2.0%, to $976.8 million from $996.6 million for the six months ended June 30, 2012. Net revenue decreased approximately 3% due to organic revenue, partially offset by an increase of approximately 1% related to an acquisition in the controls segment in the fourth quarter of 2012. The decrease in organic revenue reflects weakness in light vehicle production in Asia (excluding China) and the heavy and commercial truck markets in North America and capacity constraints related to the fire at our facility in South Korea, partially offset by market recovery in the controls business.

Sensors business segment net revenue for the six months ended June 30, 2013 decreased $25.7 million, or 3.6%, to $694.0 million from $719.7 million for the six months ended June 30, 2012. Sensors net revenue decreased primarily due to organic revenue, which reflects weakness in light vehicle production in Asia (excluding China) and the heavy and commercial truck markets in North America.

Controls business segment net revenue for the six months ended June 30, 2013 increased $5.9 million, or 2.1%, to $282.9 million from $276.9 million for the six months ended June 30, 2012. Controls net revenue increased approximately 4% due to the effect of an acquisition completed in the fourth quarter of 2012, partially offset by declines of approximately 1% in organic revenue and approximately 1% related to the effect of unfavorable foreign currency exchange rates. The decline in organic revenue was primarily due to capacity constraints related to the fire at our facility in South Korea, partially offset by market recovery.

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Cost of revenue. Cost of revenue for the six months ended June 30, 2013 and June 30, 2012 was $631.4 million (64.6% of net revenue) and $651.4 million (65.4% of net revenue), respectively. Cost of revenue decreased primarily due to the reduction in unit volumes sold, and decreased as a percentage of net revenue due to cost reductions, partially resulting from production line moves, and favorable trends in metal pricing, primarily gold and silver. A portion of our production materials contains metals, such as copper, nickel, and aluminum, and precious metals, such as gold, silver, platinum, and palladium, and the costs of these materials may vary with underlying metals pricing.

Research and development expense. R&D expense for the six months ended June 30, 2013 and June 30, 2012 was $27.9 million (2.9% of net revenue) and $25.8 million (2.6% of net revenue), respectively. R&D expense consists of costs related to direct product design, development and process engineering. The level of R&D expense is related to the number of products in development, the stage of development process, the complexity of the underlying technology, the potential scale of the product upon successful commercialization and the level of our exploratory research. These factors may impact our level of R&D expense in the future.

Selling, general and administrative expense. SG&A expense for the six months ended June 30, 2013 and June 30, 2012 was $81.1 million (8.3% of net revenue) and $74.1 million (7.4% of net revenue), respectively. SG&A expense consists of all expenditures incurred in connection with the sales and marketing of our products, as well as administrative overhead costs. These costs may be fixed or variable in nature, and we may at times experience increased or decreased variable costs for reasons other than increased or decreased net revenue. As a result, SG&A expense will not necessarily remain consistent as a percentage of net revenue. During the six months ended June 30, 2013, SG&A expense increased as a percentage of net revenue primarily due to increased compensation related to non-production headcount in the first half of 2013 compared to the first half of 2012.

Amortization of intangible assets. Amortization expense associated with definite-lived intangible assets for the six months ended June 30, 2013 and June 30, 2012 was $67.0 million and $72.3 million, respectively. Amortization expense decreased primarily due to the completion of amortization during the first quarter of 2013 of certain intangible assets initially recognized upon the acquisition of the Sensors and Controls business in 2006.

Restructuring and special charges. Restructuring and special charges for the six months ended June 30, 2013 and June 30, 2012 was $4.0 million and $8.5 million, respectively. Restructuring and special charges decreased from the prior period as we are approaching the completion of actions attributable to the execution of the 2011 Plan and the MSP Plan, each of which began in 2011. The remaining charges relate primarily to actions associated with ceasing manufacturing in our South Korean facility, incurred as part of the 2011 Plan. We expect these actions will be completed and payments will be made in 2013. During the six months ended June 30, 2013, we received insurance proceeds as a result of damage caused by the fire in our South Korean facility in September 2012, a portion of which were recognized in Restructuring and special charges. These actions and events are discussed in further detail in Note 5, "Restructuring and Special Charges," of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Interest expense, net. Interest expense, net for the six months ended June 30, 2013 and June 30, 2012 was $47.5 million and $49.7 million, respectively. Interest expense, net for the six months ended June 30, 2013 decreased primarily due to the net repayment of $200.0 million on our long-term debt during the six months ended June 30, 2013, partially offset by the higher interest rate on our new fixed rate debt versus the variable interest rate on the debt repaid.

Other, net. Other, net for the six months ended June 30, 2013 and June 30, 2012 was $(34.8) million and $(6.6) million, respectively. The loss recognized in the six months ended June 30, 2013 is higher than the six months ended June 30, 2012 primarily due to higher losses on commodity forward contracts, losses related the refinancing of our debt, and the write-off to expense of amounts in Accumulated other comprehensive income due to a portion of the hedged forecasted transactions related to the interest rate cap becoming probable of not occurring. See Note 13, "Other, Net," of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details of the gains and losses included within this account.

Provision for income taxes. Provision for income taxes for the six months ended June 30, 2013 and June 30, 2012 totaled $28.0 million and $43.2 million, respectively. Our tax provision consists of current tax expense, which relates primarily to our profitable operations in foreign tax jurisdictions, and deferred tax expense, which relates primarily to amortization of tax deductible goodwill and the use of net operating losses. The decrease in the provision was primarily due to the change in the distribution of income recorded in profitable jurisdictions, changes in the applicable tax rates and the impact of changes in foreign currency exchange rates.

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Liquidity and Capital Resources

We held cash and cash equivalents of $234.3 million and $413.5 million at June 30, 2013 and December 31, 2012, respectively, of which $101.4 million and $259.1 million at June 30, 2013 and December 31, 2012, respectively, was held in the Netherlands, $52.2 million and $77.2 million at June 30, 2013 and December 31, 2012, respectively, was held by U.S. subsidiaries, and $80.7 million and $77.2 million at June 30, 2013 and December 31, 2012, respectively, was held by other foreign subsidiaries. The amount of cash and cash equivalents held in the Netherlands and in our U.S. and other foreign subsidiaries fluctuates throughout the year due to a variety of factors, including timing of cash receipts and disbursements in the normal course of business.

Cash Flows:

The table below summarizes our primary sources and uses of cash for the six months ended June 30, 2013 and June 30, 2012. We have derived the summarized statements of cash flows for the six months ended June 30, 2013 and June 30, 2012 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 add due to the effect of rounding.



	For the six months ended
(Dollars in millions)	June 30, 2013			June 30, 2012
Net cash provided by/(used in):
Operating activities:
Net income adjusted for non-cash items	$	198.7		$	201.8
Changes in operating assets and liabilities	(18.6		)	(12.0		)
Operating activities	180.1			189.8
Investing activities	(32.9		)	(23.3		)
Financing activities	(326.5		)	2.2
Net change	$	(179.2	)	$	168.7

Operating activities. Net cash provided by operating activities for the six months ended June 30, 2013 was $180.1 million compared to $189.8 million for the six months ended June 30, 2012. The decrease in net cash provided by operating activities was primarily due to the changes in operating assets and liabilities during the six months ended June 30, 2013 as compared to the six months ended June 30, 2012, which is primarily due to an increase of $5.1 million in contributions to our defined benefit and retiree healthcare plans during the six months ended June 30, 2013 compared to the six months ended June 30, 2012 and timing of receipts from our customers and payments to our suppliers.

Investing activities. Net cash used in investing activities for the six months ended June 30, 2013 was $32.9 million compared to $23.3 million for the six months ended June 30, 2012. Net cash used in investing activities during the six months ended June 30, 2013 and June 30, 2012 consisted primarily of $33.9 million and $27.5 million in capital expenditures, respectively. Capital expenditures primarily relate to investments associated with increasing our manufacturing capacity. In 2013, we anticipate capital expenditures of approximately $70 million to $90 million, which we plan to fund with cash flows from operations.

During the six months ended June 30, 2013, we received cash reimbursements related to insurance claims associated with the fire in our South Korean Facility in September 2012. We expect to be reimbursed for further amounts in 2013, a portion of which may be included within cash flows from investing activities.

Financing activities. Net cash (used in)/provided by financing activities for the six months ended June 30, 2013 was $(326.5) million compared to $2.2 million for the six months ended June 30, 2012. Net cash used in financing activities for the six months ended June 30, 2013 consisted primarily of $706.7 million in principal payments on our existing $1,100.0 million term loan (the "Term Loan Facility"), $125.2 million in payments to repurchase ordinary shares and $5.7 million in payments of debt issuance costs, partially offset by the issuance and sale of $500.0 million of 4.875% senior notes due 2023 (the "4.875% Senior Notes") and proceeds of $11.2 million from the exercise of stock options. See Indebtedness and Liquidity for further discussion of the issuance and sale of the 4.875% Senior Notes and and the partial repayment of the Term Loan Facility. The payments to repurchase ordinary shares are associated with the $250.0 million share buyback program discussed further in Capital Resources, under which, as of June 30, 2013, there is approximately $109.6 million remaining.

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Indebtedness and Liquidity:

Our liquidity requirements are significant due to our highly leveraged nature. As of June 30, 2013, we had $1,631.3 million in gross outstanding indebtedness, including our outstanding capital lease and other financing obligations.

A summary of our indebtedness as of June 30, 2013 is as follows:



	June 30, 2013
Term Loan Facility	$	378,000
6.5% Senior Notes	700,000
4.875% Senior Notes	500,000
Less: discount	(2,513		)
Less: current portion	(11,000		)
Long-term debt, net of discount, less current portion	$	1,564,487

Capital lease and other financing obligations	$	53,337
Less: current portion	(2,775		)
Capital lease and other financing obligations, less current portion	$	50,562

There were no borrowings outstanding on the Revolving Credit Facility as of June 30, 2013.

On April 17, 2013, we completed the issuance and sale of the 4.875% Senior Notes. We used the proceeds from the issuance and sale of the 4.875% Senior Notes, together with cash on hand, to (1) repay $700.0 million of the Term Loan Facility under our senior secured credit facilities (the "Senior Secured Credit Facilities"), (2) pay all accrued interest on such indebtedness and (3) pay all fees and expenses in connection with the sale of the 4.875% Senior Notes. The agreements governing the 4.875% Senior Notes contain restrictive covenants and place limitations on us and certain of our subsidiaries. Restrictions on our indebtedness and liquidity related to the 4.875% Senior Notes are described in Note 6, "Debt" of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Capital Resources

Our sources of liquidity include cash on hand, cash flows from operations and amounts available under the Revolving Credit Facility. We believe, based on our current level of operations as reflected in our results of operations for the three and six months ended June 30, 2013, these sources of liquidity will be sufficient to fund our operations, capital expenditures, ordinary share repurchases and debt service for at least the next twelve months.

Our ability to raise additional financing and our borrowing costs may be impacted by short-term and long-term debt ratings assigned by independent rating agencies, which are based, in part, on our performance as measured by certain credit metrics such as interest coverage and leverage ratios. As of July 26, 2013, Moody’s Investors Service’s corporate credit rating for Sensata Technologies B.V. was Ba3 with positive outlook and Standard & Poor’s corporate credit rating for Sensata Technologies B.V. was BB with stable outlook.

We cannot make assurances that our business will generate sufficient cash flows from operations or that future borrowings will be available to us under our Revolving Credit Facility in an amount sufficient to enable us to pay our indebtedness, including the 6.5% Senior Notes and the 4.875% Senior Notes, or to fund our other liquidity needs. Further, our highly leveraged nature may limit our ability to procure additional financing in the future.

In October 2012, we announced that our board of directors approved a $250.0 million share buyback program. Execution of share repurchases under this program are to be funded from available cash and cash flows from operations. For the six months

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ended June 30, 2013, we used $125.2 million of cash for the repurchase of approximately 3.9 million shares under this program.

As discussed in Note 8, "Debt" of our Annual Report on Form 10-K for the year ended December 31, 2012, the credit agreement and indenture under which the Senior Secured Credit Facilities and the 6.5% Senior Notes, respectively, were issued contain covenants that limit the ability of STBV and certain of its subsidiaries to, among other things, incur subsequent indebtedness, sell assets, make capital expenditures, pay dividends and make other restricted payments. These covenants, which are subject to important exceptions and qualifications set forth in the credit agreement and indenture, were taken into consideration in establishing our share buyback program. We do not believe that the covenants described above, or the covenants related to the 4.875% Senior Notes discussed in Note 6, "Debt" included within this Quarterly Report on Form 10-Q, will prevent us from funding share repurchases under our existing buyback program with available cash and cash flows from operations. As of June 30, 2013, we were in compliance with all the covenants and default provisions under our credit arrangements.

New Accounting Standards

In February 2013, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2013-02, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). ASU 2013-02 requires an entity to provide information about amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the financial statements or in a single note, any significant amount reclassified out of accumulated other comprehensive income in its entirety in the period, and the income statement line item affected by the reclassification. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 is effective for interim and annual periods beginning after December 15, 2012. We adopted this guidance as of January 1, 2013, as required. The adoption of ASU 2013-02 impacted disclosure only and did not have any impact on our financial position or results of operations.

In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date ("ASU 2013-04"). This guidance changes how an entity measures obligations resulting from joint and several liability arrangements by requiring that when measuring the obligation, an entity will include the amount the entity agreed to pay for the arrangement between the entity and other entities that are also obligated to the liability, and any additional amount the entity expects to pay on behalf of the other entities. ASU 2013-04 also requires additional disclosures surrounding such obligations. ASU 2013-04 is effective for interim and annual reporting periods beginning after December 15, 2013, and is to be applied retrospectively. We expect to adopt this guidance in the first quarter of 2014. This guidance is not expected to have a material impact on our financial position or results of operations, but will require additional disclosures.

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 the Annual Report on Form 10-K for the year ended December 31, 2012.

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Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes to our market risk since December 31, 2012. For a discussion of market risk 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, 2012.


Item 4.	Controls and Procedures.

The required certifications of our Chief Executive Officer and Chief Financial Officer, as well as one from our Chief Accounting Officer, are included as exhibits to this Quarterly Report on Form 10-Q. The disclosures set forth in this Item 4 contain information concerning the evaluation of our disclosure controls and procedures, management's report on internal control over financial reporting and change in internal control over financial reporting referred to in those certifications. Those certifications should be read in conjunction with this Item 4 for a more complete understanding of the matters covered by the certifications.

Evaluation of disclosure controls and procedures

With the participation of our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, we have evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2013. 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 SEC’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, 2013, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended June 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

There are inherent limitations to the effectiveness of any system of internal control over financial reporting. Accordingly, even an effective system of internal control over financial reporting can only provide reasonable assurance with respect to financial statement preparation and presentation in accordance with U.S. generally accepted accounting principles. Our internal controls over financial reporting are subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time.

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PART II—OTHER INFORMATION


Item 1.	Legal Proceedings.

Information regarding legal proceedings is discussed in Part I, Item 3—“Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2012.


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, 2012. The information presented below updates and should be read in connection with the risk factors and information previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

Export of our products are subject to various export control regulations and may require a license from either the U.S. Department of State, the U.S. Department of Commerce or the U.S. Department of the Treasury.

We must comply with the United States Export Administration Regulations, International Traffic in Arms Regulation ("ITAR") and the sanctions, regulations and embargoes administered by the Office of Foreign Assets Control (“OFAC”). Certain of our products that have military applications are on the munitions list of the ITAR and require an individual validated license in order to be exported to certain jurisdictions. Any changes in export regulations may further restrict the export of our products, and we may cease to be able to procure export licenses for our products under existing regulations. For example, recent changes in the OFAC administrated embargo on trade with Iran have eliminated exceptions that may have previously permitted direct or indirect sales to that country. Additionally, an executive order of the President of the United States, effective July 1, 2013, specifically targets the Iranian automotive sector. Should we need an export license, the length of time required by the licensing process can vary, potentially delaying the shipment of products and the recognition of the corresponding revenue. Any restriction on the export of a significant product line or a significant amount of our products could cause a significant reduction in revenue. Violations of these various laws and regulations could expose us to fines or other restrictions on our ability to export products.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Programs⁽¹⁾	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Programs (in millions)⁽¹⁾
April 1 through April 30, 2013	2,140,275	$	32.19	2,140,275	$	110.8
May 1 through May 31, 2013	36,955	$	33.55	36,955	$	109.6
June 1 through June 30, 2013	—	$	—	—	$	109.6
Total	2,177,230	$	32.21	2,177,230	$	109.6

__________________

⁽¹⁾All shares were purchased in open-market transactions or under a 10b5-1 plan pursuant to our share repurchase program authorization by our Board of Directors, announced on October 23, 2012, to repurchase $250 million of our ordinary shares. The share repurchase program expires after three years and may be modified or terminated by our Board of Directors at any time.


Item 3.	Defaults Upon Senior Securities.

None.


Item 4.	Mine Safety Disclosures.

Not applicable.

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Item 6.	Exhibits.



Exhibit No.		Description


4.1		Indenture, dated as of April 17, 2013, among Sensata Technologies B.V., the Guarantors and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed on April 18, 2013).

4.2		Form of 4.875% Senior Note due 2023 (included as Exhibit A to Exhibit 4.1).

10.1		Sensata Technologies Holding N.V. 2010 Equity Incentive Plan, as Amended May 22, 2013.

10.2		Intellectual Property License Agreement, dated March 14, 2013, between Sensata Technologies, Inc. and Measurement Specialties, Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed on March 20, 2013).

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.3		Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Section 1350 Certification of Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer.

101		The following materials from Sensata’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows and (v) Notes to the Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: July 29, 2013

SENSATA TECHNOLOGIES HOLDING N.V.

/s/ Martha Sullivan

(Martha Sullivan)

President and Chief Executive Officer

(Principal Executive Officer)

/s/ Jeffrey Cote

(Jeffrey Cote)

Executive Vice President, Chief Operating Officer and Interim Chief Financial Officer

(Principal Financial Officer)

/s/ Christine Creighton

(Christine Creighton)

Vice President and Chief Accounting Officer

(Principal Accounting Officer)

Sensata Technologies - 10-Q quarterly report FY2013 Q2

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