The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read the following discussion in conjunction with Item 6, "Selected Financial Data," and our audited consolidated financial statements and the accompanying notes thereto, included elsewhere in this Annual Report on Form 10-K.
The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Item 1A, "Risk Factors." Our actual results may differ materially from those contained in or implied by any forward-looking statements. Overview
Sensata, a global industrial technology company, is a leader in the development, manufacture and sale of sensors and controls. We produce a wide range of customized, innovative sensors and controls for mission-critical applications such as thermal circuit breakers in aircraft, pressure sensors in automotive systems, and bimetal current and temperature control devices in electric motors. We believe that we are one of the largest suppliers of sensors and controls in the majority of the key applications in which we compete and that we have developed our strong market position due to our long-standing customer relationships, technical expertise, product performance and quality, and competitive cost structure. We compete in growing global market segments driven by demand for products that are safe, energy-efficient and environmentally-friendly. In addition, our long-standing position in emerging markets, including our greater than 15-year presence in China, further enhances our growth prospects. We deliver a strong value proposition to our customers by leveraging an innovative portfolio of core technologies and manufacturing at high volumes in low-cost locations such as China, Mexico, Malaysia, Bulgaria, and the Dominican Republic.
History
We have a history of innovation dating back to our origins. We operated as a part of Texas Instruments from 1959 until we were acquired in 2006, (the "2006 Acquisition"). Since then, we have expanded our operations in part through acquisitions including the Magnetic Speed and Position business ("MSP") in January 2011 and the High Temperature Sensing business ("HTS") in August 2011. Prior to our IPO in March 2010, we were a direct, 99% owned, subsidiary of Sensata Investment Company S.C.A. ("SCA"), a Luxembourg company, which is owned by investment funds or vehicles advised or managed by Bain Capital Partners, LLC ("Bain Capital"), its co-investors (Bain Capital and its co-investors are collectively referred to as the "Sponsors") and certain members of our senior management. As of December 31, 2012, SCA owns 45% of our outstanding ordinary shares.
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 operations into the sensors and controls businesses. Selected Segment Information
We manage our sensors and controls businesses separately and report their results of operations as two segments. Set forth below is selected information for each of these business segments for each of the periods presented. 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.

The following table presents net revenue by segment and segment operating income for the following periods:

                               For the year ended December 31,
                                2012             2011         2010
(Amounts in millions)
Net revenue
Sensors segment          $    1,375.2         $ 1,292.8    $   969.6
Controls segment                538.7             534.1        570.5
Total                    $    1,913.9         $ 1,826.9    $ 1,540.1
Segment operating income
Sensors segment          $      384.7         $   389.9    $   327.1
Controls segment                167.5             175.8        193.3
Total                    $      552.2         $   565.7    $   520.4

The following table presents net revenue by segment as a percentage of total net revenue and segment operating income as a percentage of segment net revenue for the following periods:

                             For the year ended December 31,
                            2012           2011           2010
Net revenue
Sensors segment              71.9 %         70.8 %         63.0 %
Controls segment             28.1           29.2           37.0
Total                       100.0 %        100.0 %        100.0 %
Segment operating income
Sensors segment              28.0 %         30.2 %         33.7 %
Controls segment             31.1 %         32.9 %         33.9 %

For a reconciliation of total segment operating income to profit from operations, refer to Note 18, "Segment Reporting", of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Factors Affecting Our Operating Results
The following discussion sets forth certain components of our statements of operations as well as factors that impact those components. Net revenue
We generate revenue from the sale of sensors and controls products across all major geographic areas. Our net revenue from product sales includes total sales less estimates of returns for product quality reasons and for price allowances. Price allowances include discounts for prompt payment as well as volume-based incentives.
Because we sell our products to end-users in a wide range of industries and geographies, demand for our products is generally driven more by the level of general economic activity rather than conditions in one particular industry or geographic region.
Our overall net revenue is generally impacted by the following factors:
• fluctuations in overall economic activity within the geographic markets in which we operate;

• underlying growth in one or more of our core end-markets, either worldwide or in particular geographies in which we operate;

• the number of sensors and/or controls used within existing applications, or the development of new applications requiring sensors and/or controls;

• the "mix" of products sold, including the proportion of new or upgraded products and their pricing relative to existing products;

• changes in product sales prices (including quantity discounts, rebates and cash discounts for prompt payment);

• changes in the level of competition faced by our products, including the launch of new products by competitors;

• our ability to successfully develop and launch new products and applications; and

• fluctuations in exchange rates.

While the factors described above impact net revenue in each of our operating segments, the impact of these factors on our operating segments can differ, as described below. For more information about risks relating to our business, refer to Item 1A, "Risk Factors."
Cost of revenue
We manufacture the majority of our products and subcontract only a limited number of products to third parties. As such, our cost of revenue consists principally of the following:
• Production Materials Costs. We purchase much of the materials used in production on a global lowest-cost basis, but we are still impacted by global and local market conditions. 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. We enter into forward contracts to hedge a portion of our exposure to the potential change in prices associated with certain of our commodities. The terms of these contracts fix the price at a future date for various notional amounts associated with these commodities.

• Employee Costs. Employee costs include the salary costs and benefit charges for employees involved in our manufacturing operations. These costs generally increase on an aggregate basis as sales and production volumes increase, and may decline as a percent of net revenue as a result of economies of scale associated with higher production volumes. We rely significantly on contract workers for direct labor in certain geographies.

• Sustaining Engineering Activity costs. These costs relate to modifications of existing products for use by new customers in familiar applications.

• Other. Our remaining cost of revenue consists of:

• customer-related development costs;

• depreciation of fixed assets;

• freight costs;

• warehousing expenses;

• purchasing costs; and

• other general manufacturing expenses, such as expenses for energy consumption.

The main factors that influence our cost of revenue as a percent of net revenue include:
• changes in the price of raw materials, including certain metals;

• the implementation of cost control measures aimed at improving productivity, including reduction of fixed production costs, refinements in inventory management and the coordination of purchasing within each subsidiary and at the business level;

• production volumes-production costs are capitalized in inventory based on normal production volumes. As revenue increases, the fixed portion of these costs does not;

• transfer of production to our lower cost production facilities;

• product lifecycles, as we typically incur higher cost of revenue associated with manufacturing over-capacity during the initial stages of product launches and when we are phasing out discontinued products;

• the increase in the carrying value of the inventory that was adjusted to fair value as a result of the application of purchase accounting associated with acquisitions;

• depreciation expense, including amounts arising from the adjustment of property, plant and equipment ("PP&E") to fair value associated with acquisitions; and

• fluctuations in exchange rates.

Research and development
Research and development ("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. We conduct such activities in areas we believe will accelerate our longer term net revenue growth. Our basic technologies have been developed through a combination of internal development and third-party efforts (often by parties with whom we have joint development relationships). Our development expense is typically associated with:
• engineering core technology platforms to specific applications; and

• improving functionality of existing products.

Costs related to modifications of existing products for use by new customers in familiar applications is accounted for in cost of revenue and not included in R&D expense.
Selling, general and administrative
Selling, general and administrative ("SG&A") expense consists of all expenditures incurred in connection with the sales and marketing of our products, as well as administrative overhead costs, including:
• salary and benefit costs for sales personnel and administrative staff, including share-based compensation expense. Expenses relating to our sales personnel generally increase or decrease principally with changes in sales volume due to the need to increase or decrease sales personnel to meet changes in demand. Expenses relating to administrative personnel generally do not increase or decrease directly with changes in sales volume;

• expense related to the use and maintenance of administrative offices, including depreciation expense;

• other administrative expense, including expense relating to logistics, information systems and legal and accounting services;

• other selling expenses, such as expenses incurred in connection with travel and communications; and

• transaction costs associated with acquisitions.

Changes in SG&A expense as a percent of net revenue have historically been impacted by a number of factors, including:
• changes in sales volume, as higher volumes enable us to spread the fixed portion of our administrative expense over higher revenue;

• changes in the mix of products we sell, as some products may require more customer support and sales effort than others;

• changes in our customer base, as new customers may require different levels of sales and marketing attention;

• new product launches in existing and new markets, as these launches typically involve a more intense sales activity before they are integrated into customer applications;

• customer credit issues requiring increases to the allowance for doubtful accounts;

• volume and timing of acquisitions; and

• fluctuations in exchange rates.

Amortization of intangible assets and capitalized software Acquisition-related intangible assets are amortized on an economic benefit basis according to the useful lives of the assets or on a straight-line basis, if a pattern of economic benefits cannot be determined. Capitalized software licenses are amortized on a straight-line basis over the term of the license.

Impairment of goodwill and intangible assets Goodwill and intangible assets are reviewed for impairment on an annual basis unless events or circumstances occur which trigger the need for an earlier impairment review. No impairment charges were required during 2012, 2011, or 2010.
Our revenue and earnings forecasts depend on many factors, including our ability to project customer spending, particularly within the semiconductor industry. Changes in the level of spending in the industry and/or by our customers could result in a change to our forecasts, which, in turn, could result in a future impairment of goodwill and/or intangible assets. See the "Critical Accounting Policies and Estimates" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations for more discussion of the key assumptions that are used in the determination of fair value of our reporting units.
Restructuring and special charges
Restructuring costs consist of severance, outplacement, other separation benefits, certain pension settlement and curtailment losses, and facility exit and other costs. Special charges for fiscal 2012 include costs associated with the retirement of our former Chief Executive Officer and costs incurred as a result of a fire at our South Korea facility. Refer to Note 17, "Restructuring Costs and Special Charges" of our audited consolidated financial statements, included elsewhere in this Annual Report on Form 10-K for more discussion of our restructuring plans and the special charges. Depreciation expense
PP&E are stated at cost and depreciated on a straight-line basis over their estimated useful lives. PP&E acquired through the 2006 Acquisition, the acquisitions of the First Technology Automotive, Airpax, MSP and HTS businesses were "stepped-up" to fair value on the date of the respective business acquisition resulting in a new cost basis for accounting purposes. The amount of the adjustment to the cost basis of these assets as a result of the 2006 Acquisition, the First Technology Automotive acquisition, the Airpax acquisition, the MSP acquisition, and the HTS acquisition totaled $57.8 million, $2.2 million, $5.1 million, $12.4 million, and $9.6 million, respectively. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.
Assets held under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. These assets are depreciated on a straight-line basis over the shorter of the estimated useful lives or the period of the related lease.
Interest expense, net
Interest expense, net consists primarily of interest expense on institutional borrowings, interest rate derivative instruments and capital lease and other financing obligations. Interest expense, net also includes the amortization of deferred financing costs.
Currency translation (loss)/gain and other, net Currency translation (loss)/gain and other, net includes gains and losses recognized on currency translation, gains and losses recognized on our non-designated derivatives used to hedge commodity prices and certain foreign currency exposures, gains and losses on the repurchases or refinancing of debt and other. We continue to derive a significant portion of our revenue in markets outside of the U.S., primarily Europe and Asia. For financial reporting purposes, the functional currency of all our subsidiaries is the U.S. dollar. In certain instances, we enter into transactions that are denominated in a currency other than the U.S. dollar. At the date the transaction is recognized, each asset, liability, revenue, expense, gain or loss arising from the transaction is measured and recorded in U.S. dollars using the exchange rate in effect at that date. At each balance sheet date, recorded monetary balances denominated in a currency other than the U.S. dollar are adjusted to the U.S. dollar using the current exchange rate with gains or losses recorded in the consolidated statements of operations.
Provision for income taxes
We and our subsidiaries are subject to income tax in the various jurisdictions in which we operate. While the extent of our future tax liability is uncertain, the impact of purchase accounting for past and future acquisitions, changes to debt and equity capitalization of our subsidiaries and the realignment of the functions performed and risks assumed by the various subsidiaries are among the factors that will determine the future book and taxable income of the respective subsidiary and Sensata as a whole.

Effects of Acquisitions and Other Transactions Shareholders' Equity
In March 2010, we completed an IPO of our ordinary shares, in which we received proceeds from the offering and from the exercise of stock options. In April 2010, our underwriters of our IPO exercised their option to purchase additional ordinary shares from our selling shareholders. We did not receive any proceeds from the sale of the additional ordinary shares except for the proceeds received from the exercise of stock options. In November 2010, February 2011, and December 2012, we completed secondary public offerings of our ordinary shares in which our existing shareholders and certain employees sold ordinary shares. The proceeds to us of these secondary public offerings were limited to the proceeds received from the exercise of stock options. In March 2011, the underwriters of our February 2011 secondary offering exercised their option to purchase additional ordinary shares from our selling shareholders through the exercise of stock options. We received proceeds from the exercise of the aforementioned stock options. As of December 31, 2012, SCA owns 45% of our outstanding ordinary shares.
In the fourth quarter of 2012, we announced that our Board of Directors approved a $250.0 million share repurchase program. The timing, manner, price and volume of repurchases will be based on market conditions, relevant securities laws and other factors we consider appropriate. We expect to fund purchases from available cash and free cash flow. The share repurchase program may be modified or terminated by our Board of Directors at any time. Our primary goal of the program will be to offset the dilution associated with our equity compensation programs. As of December 31, 2012, we had $234.8 million available under the program.
Our authorized share capital consists of 400,000 thousand ordinary shares with a nominal value of €0.01 per share, of which 178,392 thousand ordinary shares were issued and 178,011 thousand were outstanding as of December 31, 2012. Issued and outstanding shares exclude 489 thousand unvested restricted securities. We also have authorized 400,000 thousand preference shares with a nominal value of €0.01 per share, none of which are outstanding. At December 31, 2012, there were 399 thousand options available for grant under the First Amended and Restated Sensata Technologies Holding B.V. 2006 Management Option Plan and 2,621 thousand options available for grant under the Sensata Technologies Holding N.V. 2010 Equity Incentive Plan. In addition, we had 6,876 thousand ordinary shares available for issuance upon exercise of outstanding options, and 482 thousand ordinary shares available for issuance under the Sensata Technologies Holding N.V. 2010 Employee Stock Purchase Plan.
Purchase Accounting
We accounted for prior acquisitions using the purchase method of accounting. As a result, the purchase prices for each of these transactions have been allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values as of the date of each acquisition. The excess of the purchase price over the fair value of assets and liabilities was assigned to goodwill, which is not amortized for accounting purposes, but is subject to testing for impairment at least annually. The application of purchase accounting resulted in an increase in amortization and depreciation expense in the periods subsequent to the acquisitions relating to our acquired intangible assets and PP&E. In addition to the increase in the carrying value of PP&E, we extended the remaining depreciable lives of certain PP&E to reflect the estimated remaining useful lives for purposes of calculating periodic depreciation. We also adjusted the value of the inventory to fair value, increasing the costs and expenses recognized upon the sale of this acquired inventory.
In January 2011, we completed the acquisition of the Automotive on Board business from Honeywell International Inc. for total consideration of $152.5 million.
In August 2011, we completed the acquisition of the Sensor-NITE Group Companies for total consideration of $324.0 million. Increased Leverage
We are a highly-leveraged company and our interest expense increased significantly in the periods following the consummation of the 2006 Acquisition and the acquisitions of First Technology Automotive and Airpax. As a result, interest expense is a significant portion of our results of operations. A portion of our debt has a variable interest rate. We have utilized interest rate swaps, interest rate collars and interest rate caps to hedge the effect of variable interest rates. Refer to Item 7A, "Quantitative and Qualitative Disclosures About Market Risk-Interest Rate Risk," for more information regarding our hedging activities. Our large amount of indebtedness may limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities since a substantial portion of our cash flow from operations will be dedicated to the servicing of our debt, and this may place us at a competitive disadvantage as some of our competitors are less leveraged. Our leverage may make us more vulnerable to a downturn in our business, industry or the economy in general. Refer to Item 1A, "Risk Factors"

and Note 16, "Derivative Instruments and Hedging Activities" of our audited consolidated financial statements, included elsewhere in this Annual Report on Form 10-K.
Pension and Other Post-Retirement Benefits Effective January 31, 2012, we froze our U.S. pension plans. The freeze resulted in reduced net periodic pension cost recorded in fiscal year 2012, related to our U.S. pension plans, and will also reduce net periodic pension cost in future periods. Specifically, the service cost component of net periodic pension expense was no longer applicable after January 31, 2012, since future benefit accruals after this date were eliminated. We will continue to make contributions to the plans to maintain the required funding levels. Also, our results of operations will continue to be impacted by these plans primarily due to the recognition of other components of net periodic pension expense such as interest cost, amortization of actuarial gains or losses, and expected return on plan assets. We amortize actuarial gains or losses over the average remaining service lives of employees participating in the pension plan. As of December 31, 2012, we estimate this period for our U.S. pension plans to be approximately 7 years. For further discussion of our pension plans, refer to Note 10, "Pension and Other Post-Retirement Benefits" of our audited consolidated financial statements, included elsewhere in this Annual Report on Form 10-K.

Results of Operations
Our discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements. These financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under the circumstances and re-evaluate them on an ongoing basis. Those estimates form the basis for our judgments that affect the amounts reported in the financial statements. Actual results could differ from our estimates under different assumptions or conditions. Our significant accounting policies are more fully described in Note 2, "Significant Accounting Policies", of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
The table below presents our historical results of operations in millions of dollars and as a percentage of net revenue. We have derived the statements of operations for the years ended December 31, 2012, 2011, and 2010 from the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Amounts and percentages in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not add due to the effect of rounding.