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Sensata Technologies Holding N.V.'s SEC Filings

S-1/A
SENSATA TECHNOLOGIES HOLDING PLC filed this Form S-1/A on 03/09/2010
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electrical contacts used in the manufacturing of certain of our controls products. We entered into the transition production agreement in order to support the ECS business unit, which was at risk of closing. Since that time, we have been developing a second source supplier. If Engineered Materials Solutions was unable to continue as a supplier, the impact on our revenue would be approximately $(61.0) million as of December 31, 2009. We believe existing inventory and an alternative supplier would cover the majority of our electrical contacts requirements in the event of the loss of Engineered Materials Solutions as a supplier. Under the transition production agreement, the ECS business unit was required to produce electrical contacts for us for a term of 270 days from May 11, 2009 until February 5, 2010. On February 4, 2010, we reached an agreement with Engineered Materials Solutions to extend the transition production agreement until May 31, 2010. We believe we will have one or more alternative suppliers to cover our electrical contacts requirements prior to May 31, 2010. Our principal obligations under the transition production agreement are to provide silver to Engineered Materials Solutions to enable the production of electrical contacts and to purchase these contacts at quantity and price levels that ensure the ECS business unit operates at a break even level. Specifically, each month Engineered Materials Solutions and we agree upon the amounts recorded in the profit and loss statement of the ECS business based on predetermined accounting principles. Once the applicable profit and loss statement is agreed to by both parties, either Engineered Materials Solutions pays cash to us for the amount of any profit generated or we pay cash to Engineered Materials Solutions for the amount of any loss incurred. For the twelve months ended December 31, 2009, EMS paid us $3.3 million for profit that was earned through production under the transition production agreement. The transition production agreement allowed for the purchase of certain equipment by us in addition to the settlement of outstanding payables to Engineered Materials Solutions. In addition, the extension amendment requires payment of an administrative fee of $0.2 million, agreement on final disposition of the purchased equipment, prepayment of ECS working capital needs, and agreement on various matters related to past and future electricity supply to the Attleboro corporate campus. We originally accounted for this transaction as an asset purchase during the three months ended June 30, 2009. Under the silver consignment agreement, we are required to pay the consignor as the silver is consumed and sold to end customers. Upon termination of this agreement, we must either pay for the silver or return it. We have issued a letter of credit to the consignor in the amount of $12.0 million which expires on June 30, 2010.

 

Because we purchase various types of raw materials and component parts from suppliers, such as from Engineered Materials Solutions described above, we may be materially and adversely affected by failure of those suppliers to perform as expected. This non-performance may consist of delivery delays or failures caused by production issues or delivery of non-conforming products. This risk of non-performance may also result from the insolvency or bankruptcy of one or more of our suppliers. Our efforts to protect against and to minimize these risks may not always be effective. As we continually review the performance and price competitiveness of our suppliers, we may occasionally seek to engage new suppliers with which we have little or no experience. For example, we do not have a prior relationship with all of the suppliers that we are qualifying for the supply of contacts. The use of new suppliers can pose technical, quality and other risks. See “Risk Factors” included elsewhere in this prospectus.

 

Recent Accounting Pronouncements

 

In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”). ASU 2009-13 establishes the accounting and reporting guidance for arrangements including multiple revenue-generating activities, and provides amendments to the criteria for separating deliverables, measuring and allocating arrangement consideration to one or more units of accounting. The amendments in ASU 2009-13 also establish a selling price hierarchy for determining the selling price of a deliverable. Significantly enhanced disclosures are also required to provide information about a vendor’s multiple-deliverable revenue arrangements, including information about the nature and terms, significant deliverables, and its performance within arrangements. The amendments also require providing information about the significant judgments made and changes to those judgments and about how the application of the relative selling-price method affects the timing or amount of revenue recognition. The amendments in

 

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