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Sensata Technologies B.V. announces third quarter 2006 results


  • Revenue increased 14 percent over the prior year third Quarter to $287 million.
  • Adjusted EBITDA increased $4 million over the prior year third Quarter to $75 million.
ATTLEBORO, Massachusetts | December 8, 2006 | Sensata Technologies B.V. announced the results of its operations for the Quarter ended September 30, 2006. Revenue for the quarter was $287 million, increasing 14 percent from the quarter ended September 30, 2005. Adjusted EBITDA was $75 million, $4 million greater than last year’s third Quarter.

"Our results for the third Quarter were in line with our expectations for the period. Revenue in the Sensors business was strong as we began to realize the benefits of our investment in the Occupant Weight Sensor technology as well as expansion in sales of our core sensors for air conditioning, automotive transmissions, engines, braking and electronic stability control systems," said Tom Wroe, Chairman and Chief Executive Officer.

Highlights of the Third Quarter 2006

Revenues for the third Quarter ended September 30, 2006 were $287 million, which was 14 percent higher than the third Quarter ended September 30, 2005 revenue of $252 million, but was a 4% decline from the record second Quarter ended June 30, 2006 revenue of $298 million, on a combined basis. The revenue growth over the prior year was generated by strength in Sensors’ core products and higher sales of new products including Occupant Weight sensors and Mass Air Flow sensors. The decline from the prior Quarter resulted from a normal seasonal decline in our control products.

Adjusted EBITDA increased $4 million from third Quarter ended September 30, 2005 to $75 million based on the growth in sensor products, as well as the positive impact from our cost reduction programs. Compared to the second Quarter ended June 30, 2006, adjusted EBITDA, on a combined basis, was down $6 million due to the normal seasonal sales decline, primarily in our Controls business segment, and to higher manufacturing costs associated with new products.

"As expected for the year, we saw some decrease in margin levels relative to 2005 due to additional manufacturing costs of transitioning new products into production, higher commodity costs not yet offset by higher prices and higher bonus and profit sharing expense this year," said Martha Sullivan, Chief Operating Officer.

"We are pleased by the results of our sourcing strategy of working with the best cost producers, and the improvements seen in our manufacturing plants’ targets for employee productivity and yields. We continue to track in line with our cost goals for 2006," she added.

Cash at September 30, 2006 was $88 million, up $36 million from June 2006, and the Company’s line of credit remained undrawn. Capital expenditures were $11 million for the third Quarter ended September 30, 2006, compared with $11 million for the second Quarter ended June 30, 2006, on a combined basis, and $10 million in the third Quarter ended September 30, 2005 as the Company continued to invest in new manufacturing equipment to support growth in the Sensors business segment.

Highlights of the First Nine Months of 2006

Nine months’ 2006 revenues, on a combined basis, increased 11 percent over the same period in the prior year to a record $880 million. The increase in revenue was driven by strong growth in our world–wide sales of core pressure sensors and revenue from new products.

Adjusted EBITDA, on a combined basis, was $234 million which was $3 million higher than the same period last year. Although we experienced higher margins from increased sales volume of established products, these were offset by higher commodity raw material costs not yet passed through in the form of higher prices, costs to transition new products into production, and higher bonus and profit sharing expense this year.

Business Outlook

"The business outlook remains strong despite the challenges facing the Big 3 US auto makers. Our revenue growth is powered by our global market reach and the upgrading of sensors’ technology required by our customers. The continual increase in the number of sensors used per end product propels our unit growth above that of the end markets which we serve. We have responded to our customers’ requirements by continuous investment in new technologies and facilities, which has positioned us well for delivering on our operational and financial plans," said Tom Wroe, Chairman, and Chief Executive Officer.

Description of Sensata Technologies B.V.

On April 27, 2006, Sensata Technologies B.V.("Sensata" or the "Successor"), a company owned by an affiliate of Bain Capital Partners, LLC, a leading global private investment firm, completed the acquisition of the Sensors & Controls business of Texas Instruments Incorporated ("S&C" or the "Predecessor").

Sensata is a leading designer and manufacturer of sensors and controls in each of the key applications in which we compete. Sensata has business and technology development centers in Attleboro, Massachusetts, Holland and Japan and manufacturing operations in Brazil, China, Korea, Malaysia, and Mexico, as well as sales offices around the world. Sensata Technologies employs approximately 5,500 people world–wide.

The Company manufactures approximately 18,000 different products that are highly–engineered and application specific, and ships over one billion units each year.

Safe Harbor Statement

This earnings release contains forward–looking statements with respect to the financial condition, results of operations and business of the Company within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward–looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in such statements. The principal risks and uncertainties include, but are not limited to: changes in general economic conditions, our ability to operate as a stand–alone company, including the remediation of identified weaknesses in our internal controls, labor and material costs, increased competition, our ability to develop and protect intellectual property and know–how, interest rate and foreign currency changes, environmental risks and conditions in end–markets. Readers are cautioned not to place undue reliance on these forward–looking statements, which speak to results only as of the date the statements were made, and we undertake no obligation to publicly update or revise any forward–looking statements, whether to reflect any future events or circumstances or otherwise.

Non–GAAP Measures

EBITDA and Adjusted EBITDA are non–GAAP measures of profitability. Adjusted EBITDA is a required measure in our bank reporting. We define EBITDA as earnings before interest, taxes, depreciation and amortization. We calculate Adjusted EBITDA by adjusting EBITDA to exclude non–cash expenses, one–time charges associated with becoming a stand–alone company and charges associated with becoming a public company ("transition expenses"), and significant non–recurring items. We believe Adjusted EBITDA provides investors with helpful information with respect to our operations and cash flows. We include it to provide additional information with respect to our ability to meet our future debt service, capital expenditures and working capital requirements.

The following Unaudited combined and pro forma combined Selected Financial Information for the three months ended June 30, 2006 include the results of operations for the period from April 1, 2006 to April 26, 2006 of the Predecessor, the Texas Instruments’ Sensors and Controls business, and the results of operations for the period from April 27, 2006 to June 30, 2006 of the Successor, Sensata Technologies B.V. on a combined basis.

The following Unaudited combined and pro forma combined Selected Financial Information for the nine months ended September 30, 2006 includes the results of operations for the period from January 1, 2006 to April 26, 2006 of the Predecessor, the Texas Instruments’ Sensors and Controls business, and the results of operations for the period from April 27, 2006 to September 30, 2006 of the Successor, Sensata Technologies B.V. on a combined basis.

The following unaudited Pro–forma combined selected information eliminates the interest expense and the loss on currency translation related to the Deferred Payment Certificates (DPCs) as if they had never been issued. Please see Basis of Presentation for additional information on the DPCs.

Although these combined and pro forma presentations do not comply with generally accepted accounting principles in the U.S. (U.S. GAAP), we believe that they provide a meaningful method of comparison to prior periods.

Sensata Technologies B.V. and Predecessor – Unaudited selected financial information (in thousands)

Statements of Income For quarter ending
Successor Combined* Prede-cessor
  Pro-Forma **   Pro-Forma **
Sep 30, 2006 Sep 30, 2006 Jun 30, 2006 Jun 30, 2006 Sep 30, 2005
Net revenue $287,251 $287,251 $298,130 $298,130 $252,489
Cost of revenue 191,677 191,677 216,857 216,857 169,678
Gross profit 95,574 95,574 81,273 81,273 82,811
Total operating expenses 71,780 71,780 61,940 61,940 31,541
Profit from operations 23,794 23,794 19,333 19,333 51,270
Interest (expense), income, net (67,921) (42,883) (53,498) (33,955) (30)
Currency translation (loss), gain, other (17,469) (8,698) (16,788) (12,118) (26)
(Loss) income before income taxes (61,596) (27,787) (50,953) (26,740) 51,214
Provision for income taxes 14,103 14,103 14,835 14,835 18,542
Net (Loss) income ($75,699) ($41,890) ($65,788) ($41,575) $32,672
 
Adjusted EBITDA*** $74,571 $74,571 $80,934 $80,934 $70,582

See accompanying notes.

* The accompanying financial information for the Quarter ended June 30, 2006 has been prepared on a combined basis as further described in the accompanying Basis of Presentation. Although this presentation does not comply with accounting principles generally accepted in the U.S. (U.S. GAAP), we believe that it provides a meaningful method of comparison to prior periods.
** The Pro–Forma column eliminates the interest expense and the loss on currency translation related to the Deferred Payment Certificates (DPCs) as if they had never been issued. Please see Basis of Presentation for additional information on the DPCs.
*** Adjusted EBITDA excludes non–cash expenses, transition expenses, and significant non–recurring items from EBITDA.

Sensata Technologies B.V. and Predecessor – Unaudited selected financial information (in thousands)

Statements of Income For nine months ending
Combined* Predecessor
  Pro–Forma**
Sept 30, 2006 Sept 30, 2006 Sept 30, 2006
Net revenue $879,542 $879,542 $792,627
Cost of revenue 606,273 606,273 515,047
Gross profit 273,269 273,269 277,580
Total operating expenses 168,558 168,558 98,640
Profit from operations 104,711 104,711 178,940
Interest (expense), net (122,025) (77,444) (121)
Currency translation (loss), gain, other (34,213) (20,773) 11
(Loss) income before income taxes (51,527) 6,494 178,830
Provision for income taxes 50,357 50,357 64,745
Net (Loss) income ($101,884) ($43,863) $114,085
 
Adjusted EBITDA*** $233,908 $233,908 $231,325

See accompanying notes.

* The accompanying financial information for the nine months ended September 30, 2006 has been prepared on a combined basis as further described in the accompanying Basis of Presentation. Although this presentation does not comply with accounting principles generally accepted in the U.S. (U.S. GAAP), we believe that it provides a meaningful method of comparison to prior periods.
** The Pro–Forma column eliminates the interest expense and the loss on currency translation related to the Deferred Payment Certificates as if they had never been issued. Please see Basis of Presentation for additional information on the DPCs.
*** Adjusted EBITDA excludes non–cash expenses, transition expenses, and significant non–recurring items from EBITDA.

Notes to Unaudited Selected Financial Information

Basis of Presentation

On April 27, 2006, Sensata Technologies B.V., a company owned by an affiliate of Bain Capital Partners, LLC, a leading global private investment firm, completed the acquisition of the Sensors & Controls business of Texas Instruments Incorporated (the Sensata Acquisition).

The Unaudited Selected Financial Information of Sensata Technologies B.V. for the periods after April 27, 2006 reflects the Company’s preliminary purchase price allocation including preliminary fair value adjustments for fixed assets, inventory, pensions, goodwill, identified intangible assets and deferred taxes. Sensata Technologies purchase accounting entries are preliminary and represent our best estimates from information currently available, and are subject to revision as we refine estimates and finalize valuations. Such final adjustments may have a material impact on our financial condition and results of operations for future periods.

Deferred Payment Certificates (DPCs) issued in connection with the Sensata Acquisition were originally classified as debt in the Company’s Balance Sheet. On September 21, 2006, Sensata retired the DPCs, effective legally from April 27, 2006, and replaced them with additional paid–in capital, thus qualifying as equity — the original intended investment classification. Under U.S. GAAP, the DPCs are classified as debt until the date of the restructuring of the instrument. Therefore, effective September 21, 2006, the principal amounts of the DPCs and related interest were reclassified into equity as additional paid–in capital.

We incurred interest expense on the DPCs at 14 percent from April 27, 2006 to September 21, 2006 of $44,581 ($25,038 during the third quarter). The DPCs were denominated in Euro and, as a result, we incurred a currency exchange loss of $13,440 ($8,771 during the third quarter).

The Pro–forma column on the Selected Financial Information schedules eliminates these amounts to reflect the results of operations as if the DPCs were never issued.

The results for the combined three and nine months ended September 30, 2006 are not necessarily indicative of a full year’s results. US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. In addition, the combined financial information combines periods with different bases of accounting and as such do not include the impact of the purchase accounting for the full period. Actual results may vary materially from these estimates and assumptions.

Non–GAAP Financial Measures: EBITDA and Adjusted EBITDA and Combined Presentation of Selected Financial Results

EBITDA and Adjusted EBITDA, as presented in this report, are supplemental measures of our performance that are not required by, or presented in accordance with U.S. GAAP. They are not measurements of our financial performance under U.S. GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with U.S. GAAP or as alternatives to cash flow from operating activities as measures of our liquidity.

We define EBITDA as earnings before interest, taxes, depreciation and amortization. We calculate Adjusted EBITDA by adjusting EBITDA to exclude non–cash expenses, transition expenses, and significant non–recurring items. We believe EBITDA and Adjusted EBITDA provides investors with helpful information with respect to our operations and cash flows. We include it to provide additional information with respect to our ability to meet our future debt service, capital expenditures and working capital requirements.

The Unaudited Selected Financial Information for the three months ended June 30, 2006 and the Pro–forma three months ended June 30, 2006 includes the results of operations for the period from April 1, 2006 to April 26, 2006 of the Predecessor, the Texas Instruments’ Sensors and Controls business, and the results of operations for the period from April 27, 2006 to June 30, 2006 of the Successor, Sensata Technologies B.V. on a combined basis.

The Unaudited Selected Financial Information for the nine months ended September 30, 2006 and the Pro–forma nine months ended September 30, 2006 includes the results of operations for the period from January 1, 2006 to April 26, 2006 of the Predecessor, the Texas Instruments’ Sensors and Controls business, and the results of operations for the period from April 27, 2006 to September 30, 2006 of the Successor, Sensata Technologies B.V. on a combined basis.

Although these combined and pro forma presentations do not comply with generally accepted accounting principles in the U.S. (U.S. GAAP), we believe that they provide a meaningful method of comparison to prior periods.

Risk Factors

The risks described below are not the only ones facing our Company. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also materially and adversely affect our business, financial condition or results of operations. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. In such case, you may lose all or part of your original investment.

Our historical and pro forma financial information may not be representative of our results as a separate company or indicative of our future financial performance.
We will incur increased costs as a result of being a stand–alone company.
We may experience difficulties operating as a stand–alone company, including an inability to build–out corporate infrastructure necessary for stand–alone operations.
We have identified certain material weaknesses in our internal controls over financial reporting which could affect our ability to produce accurate financial information in a timely manner.
We are subject to risks associated with our non–U.S. operations, which could adversely impact the reported results of operations from our international businesses.
We may be adversely affected by environmental and safety regulations or concerns.
Our future liquidity and capital requirements will depend on numerous factors, some of which are beyond our control, and we may not be able to raise future financing.
Fundamental changes in the industries in which we operate could adversely affect our businesses.
We may incur material losses and costs as a result of product liability and warranty and recall claims that may be brought against us.
We conduct operations through manufacturing and distribution subsidiaries in numerous tax jurisdictions around the world. Our transfer pricing methodology is based on economic studies prepared by an independent consulting firm. The price charged for products, services and financing among our subsidiaries could be challenged by the various tax authorities resulting in additional tax liability, interest and/or penalties. Furthermore, tax laws are subject to change which could lead to additional future tax liabilities.
Our substantial indebtedness could adversely affect our financial condition and our ability to operate our business, and could prevent us from fulfilling our obligations under the notes.
Restrictive covenants in our senior secured credit facility and the indentures governing the notes may restrict our ability to pursue our business strategies or repay the notes.
Our failure to comply with the covenants contained in the credit agreement governing our new senior secured credit facility or our other debt agreements, including as a result of events beyond our control, could result in an event of default, which could materially and adversely affect our operating results and our financial condition.
Bain Capital controls us and their interests may conflict with the interests of our note holders.

Source: Sensata Technologies B.V.

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About Sensata Technologies
On April 27, 2006, Sensata Technologies B.V. ("Sensata" or the "Successor"), a company owned by an affiliate of Bain Capital Partners, LLC, a leading global private investment firm, completed the acquisition of the Sensors & Controls business of Texas Instruments Incorporated ("S&C" or the "Predecessor").

Sensata is a leading designer and manufacturer of sensors and controls in each of the key applications in which we compete. Sensata has business and technology development centers in Attleboro, Massachusetts, Holland and Japan and manufacturing operations in Brazil, China, Korea, Malaysia, and Mexico, as well as sales offices around the world. Sensata Technologies employs approximately 5,400 people worldwide.

The Company manufactures approximately 18,000 different products that are highly–engineered and application specific, and ships over one billion units each year.

Sensata Technologies B.V.’s U.S. business and technology development center is located at 529 Pleasant Street, Attleboro, MA 02703-0964. Further information can be found on the Company’s website: www.sensata.com.

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