Notes to Consolidated Financial Statements(Unaudited)
(Dollars in millions, except per share amounts)
(1) DESCRIPTION OF BUSINESS
Vertiv Holdings Co ("Holdings Co", and together with its majority-owned subsidiaries, “Vertiv”, "we", "our", or "the Company"), formerly known as GS Acquisition Holdings Corp ("GSAH"), provides mission-critical infrastructure technologies and life cycle services for data centers, communication networks, and commercial and industrial environments. Vertiv’s offerings include power conditioning and uninterruptible power systems, thermal management, integrated data center control devices, software, monitoring, and service. Vertiv manages and reports results of operations for three business segments: Americas; Asia Pacific; and Europe, Middle East & Africa.
Vertiv Holdings Co was originally incorporated in Delaware on April 25, 2016 as a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On June 12, 2018, GSAH consummated its initial public offering (the “IPO”) of 69,000,000 units, including 9,000,000 units issued pursuant to the exercise by the underwriters of their option to purchase additional units in full, at a price of $10.00 per unit, generating proceeds to GSAH of $690.0 before underwriting discounts and expenses. Simultaneously with the closing of the IPO, GSAH closed the private placement of an aggregate of 10,533,333 warrants, each exercisable to purchase one share of Class A common stock at an exercise price of $11.50 per share (the “private placement warrants” and, together with the public warrants, the “warrants”), initially issued to GS DC Sponsor I LLC, a Delaware limited liability company, at a price of $1.50 per private placement warrant, generating proceeds of $15.8.
On February 7, 2020 (the “Closing Date”), Vertiv Holdings Co consummated its previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated as of December 10, 2019 (the “Merger Agreement”), by and among GSAH, Vertiv Holdings, LLC, a Delaware limited liability company (“Vertiv Holdings”), VPE Holdings, LLC, a Delaware limited liability company (the “Vertiv Stockholder”), Crew Merger Sub I LLC, a Delaware limited liability company and a direct, wholly-owned subsidiary of GSAH (“First Merger Sub”), and Crew Merger Sub II LLC, a Delaware limited liability company and a direct, wholly-owned subsidiary of GSAH (“Second Merger Sub”). As contemplated by the Merger Agreement, (1) First Merger Sub merged with and into Vertiv Holdings, with Vertiv Holdings continuing as the surviving entity (the “First Merger”) and (2) immediately following the First Merger and as part of the same overall transaction as the First Merger, Vertiv Holdings merged with and into Second Merger Sub, with Second Merger Sub continuing as the surviving entity and renamed “Vertiv Holdings, LLC” (collectively with the First Merger and the other transactions contemplated by the Merger Agreement, the “Business Combination”).
The aggregate merger consideration paid by GSAH in connection with the consummation of the Business Combination was approximately $1,526.2 (the “Merger Consideration”). The Merger Consideration was paid in a combination of cash and stock. The amount of cash consideration paid to the Vertiv Stockholder upon the consummation of the Business Combination was $341.6. The remainder of the consideration paid to the Vertiv Stockholder upon the consummation of the Business Combination was stock consideration (“Stock Consideration”), consisting of 118,261,955 newly-issued shares of our Class A common stock (the “Stock Consideration Shares”), which shares were valued at $10.00 per share for purposes of determining the aggregate number of shares of our Class A common stock payable to the Vertiv Stockholder as part of the Merger Consideration. In addition, the Vertiv Stockholder is entitled to receive additional future cash consideration with respect to the Business Combination in the form of amounts payable under a Tax Receivable Agreement, dated as of the Closing Date, by and between the Company and the Vertiv Stockholder (the “Tax Receivable Agreement”). See Note 11 to the unaudited condensed consolidated financial statements for additional information.
Concurrently with the execution of the Merger Agreement, Vertiv Holdings Co entered into subscription agreements with certain investors and executive officers ("PIPE Investors"). The PIPE Investors subscribed for 123,900,000 shares of Class A common stock for an aggregate purchase price equal to $1,239.0 (the "PIPE Investment"). The Company used $1,464.0 of the proceeds from the Business Combination to pay down its existing debt. Acquisition-related transaction costs and related charges are not included as a component of consideration transferred but were charged against the proceeds from the PIPE Investment and the trust account.
In connection with the Business Combination, GS Acquisition Holdings Corp changed its name to Vertiv Holdings Co and changed the trading symbols for its units, each unit representing one share of Class A common stock and one-third of one redeemable warrant to acquire one share of Class A common stock, that were issued in the IPO (less the number of units that have been separated into the underlying shares of Class A common stock and underlying warrants (the “public warrants”) upon the request of the holder thereof) (the “units”). Class A common stock and public warrants on the NYSE
were changed from “GSAH.U,” “GSAH” and “GSAH WS,” to “VERT.U,” “VRT” and “VRT WS,” respectively. As a result of the Business Combination, Vertiv Holdings Co became the owner, directly or indirectly, of all of the assets of Vertiv and its subsidiaries, and the Vertiv Stockholder holds a portion of the Company’s Class A common stock.
The Business Combination was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with US GAAP. This determination was primarily based on post Business Combination relative voting rights, composition of the governing board, management, and intent of the Business Combination. Under this method of accounting, GSAH was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Vertiv issuing stock for the net assets of GSAH, which primarily consisted of cash held in its trust account, accompanied by a recapitalization. The net assets of the Company were stated at historical cost, with no goodwill or other intangible assets recorded. Reported amounts from operations included herein prior to the Business Combination are those of Vertiv.
(2) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America and the rules and regulations of the Securities and Exchange Commission and include the accounts of the Company and its subsidiaries in which the Company has a controlling interest. These condensed consolidated interim financial statements do not include all of the information and footnotes required for complete financial statements. In management’s opinion, these financial statements reflect all adjustments of a normal, recurring nature necessary for a fair presentation of the results for the interim periods presented.
The preparation of financial statements in conformity with GAAP in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates. Results for these interim periods are not necessarily indicative of results to be expected for the full year due to, among other reasons, the continued uncertainty of general economic conditions due to the COVID-19 pandemic that is impacting our sales channels, supply chain, manufacturing operations, workforce, or other key aspects of our operations.
The notes included herein should be read in conjunction with the audited consolidated financial statements included in the Company’s Current Report on Form 8 K/A for the year ended December 31, 2019. The December 31, 2019 information has been derived from the Company’s annual financial statements included in Form 8 K/A for the year ended December 31, 2019.
Recently Adopted Accounting Pronouncements
Effective January 1, 2020 we adopted the Financial Accounting Standards Board Accounting Standards Update ("ASU") 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a service contract hosting arrangement with those of developing or obtaining internal-use software. The guidance was adopted prospectively to all implementation costs incurred after the date of adoption, which are now recorded in other assets in the current year compared to intangible assets in the prior year on the unaudited condensed consolidated balance sheets and payments are recorded in cash flows from operating activities in the current year compared to investing activities in the prior year on the unaudited condensed consolidated statement of cash flows.
Effective January 1, 2020, we adopted ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326), a new standard to replace the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The adoption of the standard did not have a significant impact on the unaudited condensed consolidated financial statements.
(3) REVENUE
The Company recognizes revenue from the sale of manufactured products and services when control of promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
Disaggregation of Revenues
The following table disaggregates our revenue by product and service offering and timing of transfer of control:
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|
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|
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|
Three months ended March 31, 2020
|
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|
|
|
|
|
|
Americas
|
|
Asia Pacific
|
|
Europe, Middle East, & Africa
|
|
Total
|
Sales by Product and Service Offering:
|
|
|
|
|
|
|
|
Critical infrastructure & solutions
|
$
|
264.1
|
|
|
$
|
123.1
|
|
|
$
|
112.2
|
|
|
$
|
499.4
|
|
Services & software solutions
|
159.8
|
|
|
76.9
|
|
|
65.9
|
|
|
302.6
|
|
I.T. & Edge infrastructure
|
42.8
|
|
|
23.9
|
|
|
28.6
|
|
|
95.3
|
|
Total
|
$
|
466.7
|
|
|
$
|
223.9
|
|
|
$
|
206.7
|
|
|
$
|
897.3
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition:
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|
|
|
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|
Products and services transferred at a point in time
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$
|
313.2
|
|
|
$
|
160.9
|
|
|
$
|
165.8
|
|
|
$
|
639.9
|
|
Products and services transferred over time
|
153.5
|
|
|
63.0
|
|
|
40.9
|
|
|
257.4
|
|
Total
|
$
|
466.7
|
|
|
$
|
223.9
|
|
|
$
|
206.7
|
|
|
$
|
897.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
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|
|
|
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|
|
Americas
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Asia Pacific
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Europe, Middle East, & Africa
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Total
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Sales by Product and Service Offering:
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|
|
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Critical infrastructure & solutions
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$
|
359.4
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|
|
$
|
138.4
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|
|
$
|
141.0
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|
|
$
|
638.8
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Services & software solutions
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152.2
|
|
|
85.2
|
|
|
68.6
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|
|
306.0
|
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I.T. & Edge infrastructure
|
42.8
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|
|
35.4
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|
|
31.8
|
|
|
110.0
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Total
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$
|
554.4
|
|
|
$
|
259.0
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|
|
$
|
241.4
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|
|
$
|
1,054.8
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|
|
|
|
|
|
|
|
|
Timing of revenue recognition:
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|
|
|
|
|
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Products and services transferred at a point in time
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$
|
415.9
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|
|
$
|
196.7
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|
|
$
|
199.7
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|
|
$
|
812.3
|
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Products and services transferred over time
|
138.5
|
|
|
62.3
|
|
|
41.7
|
|
|
242.5
|
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Total
|
$
|
554.4
|
|
|
$
|
259.0
|
|
|
$
|
241.4
|
|
|
$
|
1,054.8
|
|
The opening and closing balances of our current and long-term contract assets and current and long-term deferred revenue are as follows:
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|
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Balances at March 31, 2020
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|
Balances at December 31, 2019
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|
|
|
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Deferred revenue - current (1)
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$
|
188.0
|
|
|
$
|
160.9
|
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Deferred revenue - noncurrent (2)
|
39.6
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|
|
41.3
|
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Other contract liabilities - current (1)
|
33.9
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|
|
39.8
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|
(1) Current deferred revenue and contract liabilities are included within accrued expenses and other liabilities.
(2) Noncurrent deferred revenue is recorded within other long-term liabilities.
Deferred revenue consists primarily of maintenance, extended warranty and other service contracts. We expect to recognize revenue of $16.5, $12.2 and $10.9 in the last nine months of 2021, fiscal year 2022, and thereafter, respectively.
(4) RESTRUCTURING COSTS
Restructuring costs include expenses associated with the Company's efforts to continually improve operational efficiency and deploy assets to remain competitive on a worldwide basis. Start-up and moving costs include costs of moving fixed assets, employee training and relocation. Vacant facility costs include security, maintenance, utilities and other costs. The Company expects full year 2020 restructuring expense to be approximately $8.1. This expense primarily will relate to severance and benefits as part of the organizational re-alignment initiatives.
Restructuring costs by business segment are as follows:
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Three months ended March 31, 2020
|
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Three months ended March 31, 2019
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Americas
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$
|
0.3
|
|
|
$
|
0.4
|
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Asia Pacific
|
0.2
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|
|
0.1
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Europe, Middle East & Africa
|
(0.8)
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|
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0.3
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Corporate
|
(0.8)
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|
|
—
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Total
|
$
|
(1.1)
|
|
|
$
|
0.8
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The change in the liability for the restructuring of operations during the three months ended March 31, 2020 are as follows:
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|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
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Expense
|
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Paid/Utilized
|
|
March 31, 2020
|
Severance and benefits
|
$
|
21.6
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|
|
$
|
(1.5)
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|
|
$
|
(9.5)
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|
|
$
|
10.6
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Lease and contract terminations
|
—
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|
|
—
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|
|
—
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|
|
—
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|
Vacant facility and other shutdown costs
|
0.6
|
|
|
—
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|
|
—
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|
|
0.6
|
|
Start-up and moving costs
|
—
|
|
|
0.4
|
|
|
(0.4)
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|
—
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Total
|
$
|
22.2
|
|
|
$
|
(1.1)
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|
|
$
|
(9.9)
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|
|
$
|
11.2
|
|
The change in the liability for the restructuring of operations during the three months ended March 31, 2019 are as follows:
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|
|
|
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|
|
December 31, 2018
|
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Expense
|
|
Paid/Utilized
|
|
March 31, 2019
|
Severance and benefits
|
$
|
24.6
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|
|
$
|
0.1
|
|
|
$
|
(4.2)
|
|
|
$
|
20.5
|
|
Lease and contract terminations
|
—
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|
|
—
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|
—
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|
|
—
|
|
Vacant facility and other shutdown costs
|
1.2
|
|
|
0.6
|
|
|
(0.6)
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|
|
1.2
|
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Start-up and moving costs
|
—
|
|
|
0.1
|
|
|
(0.1)
|
|
|
—
|
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Total
|
$
|
25.8
|
|
|
$
|
0.8
|
|
|
$
|
(4.9)
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|
|
$
|
21.7
|
|
(5) GOODWILL AND OTHER INTANGIBLES
Goodwill by business segment is as follows:
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|
|
|
|
|
Americas
|
|
Asia Pacific
|
|
Europe, Middle East & Africa
|
|
Total
|
Balance, December 31, 2019
|
|
$
|
371.5
|
|
|
$
|
50.3
|
|
|
$
|
184.0
|
|
|
$
|
605.8
|
|
Foreign currency translation
|
|
(1.8)
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|
|
(1.8)
|
|
|
(5.9)
|
|
|
(9.5)
|
|
Balance, March 31, 2020
|
|
$
|
369.7
|
|
|
$
|
48.5
|
|
|
$
|
178.1
|
|
|
$
|
596.3
|
|
The gross carrying amount and accumulated amortization of identifiable intangible assets by major class follow:
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|
As of March 31, 2020
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Customer relationships
|
|
$
|
1,078.3
|
|
|
$
|
(285.1)
|
|
|
$
|
793.2
|
|
Developed technology
|
|
324.8
|
|
|
(113.0)
|
|
|
211.8
|
|
Capitalized software
|
|
104.3
|
|
|
(39.6)
|
|
|
64.7
|
|
Trademarks
|
|
38.6
|
|
|
(13.6)
|
|
|
25.0
|
|
Total finite-lived identifiable intangible assets
|
|
$
|
1,546.0
|
|
|
$
|
(451.3)
|
|
|
$
|
1,094.7
|
|
Indefinite-lived trademarks
|
|
290.6
|
|
|
—
|
|
|
290.6
|
|
Total intangible assets
|
|
$
|
1,836.6
|
|
|
$
|
(451.3)
|
|
|
$
|
1,385.3
|
|
As of December 31, 2019
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Customer relationships
|
|
$
|
1,099.2
|
|
|
$
|
(268.2)
|
|
|
$
|
831.0
|
|
Developed technology
|
|
328.2
|
|
|
(105.4)
|
|
|
222.8
|
|
Capitalized software
|
|
103.3
|
|
|
(35.8)
|
|
|
67.5
|
|
Trademarks
|
|
38.6
|
|
|
(12.4)
|
|
|
26.2
|
|
Favorable operating leases
|
|
2.1
|
|
|
(2.1)
|
|
|
—
|
|
Total finite-lived identifiable intangible assets
|
|
$
|
1,571.4
|
|
|
$
|
(423.9)
|
|
|
$
|
1,147.5
|
|
Indefinite-lived trademarks
|
|
294.1
|
|
|
—
|
|
|
294.1
|
|
Total intangible assets
|
|
$
|
1,865.5
|
|
|
$
|
(423.9)
|
|
|
$
|
1,441.6
|
|
Total intangible asset amortization expense for the three months ended March 31, 2020 and 2019 was $36.3 and $35.4, respectively.
The Company considered the overall macroeconomic conditions as a result of the COVID-19 pandemic and the uncertainty surrounding the global economy and concluded that it was not more likely than not the fair value of its three reporting units declined below their carrying value and therefore an interim quantitative impairment test was not required at March 31, 2020. The present uncertainty surrounding the global economy due to the COVID-19 pandemic increases the likelihood that adverse changes in key assumptions used to determine the fair value of reporting units like sales estimates, cost factors, discount rates and stock price could result in interim quantitative goodwill impairment tests and non-cash goodwill impairments in future periods.
In view of the COVID-19 pandemic the Company also reviewed its indefinite-lived tradename intangible assets and concluded that it was not more likely than not the fair value of such tradename assets were below its carrying value. However, uncertainty surrounding the impact of the COVID-19 pandemic increases the likelihood that adverse changes in key assumptions used to determine the fair value of indefinite-lived intangibles like sales estimates or discount rates could result in interim quantitative tradename impairments tests and non-cash tradename impairments in future periods. Additionally, uncertainty around the current macroeconomic environment could result in changes to the Company’s marketing and branding strategy which also could impact the carrying value or estimated useful lives of the Company’s tradenames.
Subsequent to the quarter ended March 31, 2020, management of the Company made a decision to change strategy on the ERP platform that was being implemented in the Americas segment. As a result, we expect that we could recognize a write-off of approximately $15.0 of capitalized software costs during the second quarter ending June 30, 2020.
(6) DEBT
Long-term debt, net, consists of the following as of March 31, 2020 and December 31, 2019:
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|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Term Loan due 2027
|
$
|
2,200.0
|
|
|
$
|
—
|
|
ABL Revolving Credit Facility
|
275.3
|
|
|
145.2
|
|
Term Loan due 2023
|
—
|
|
|
2,070.0
|
|
9.250% Notes due 2024
|
—
|
|
|
750.0
|
|
12.00%/13.00% Senior PIK Toggle Notes due 2022
|
—
|
|
|
500.0
|
|
10.00% Notes due 2024
|
—
|
|
|
120.0
|
|
Unamortized discount and issuance costs
|
(34.2)
|
|
|
(117.9)
|
|
|
2,441.1
|
|
|
3,467.3
|
|
Less: Current Portion
|
(22.2)
|
|
|
—
|
|
Total long-term debt, net of current portion
|
$
|
2,418.9
|
|
|
$
|
3,467.3
|
|
Contractual maturities of the Company’s debt obligations as of March 31, 2020 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan
|
|
ABL
|
|
Total
|
Remainder of 2020
|
$
|
16.5
|
|
|
$
|
—
|
|
|
$
|
16.5
|
|
2021
|
22.0
|
|
|
—
|
|
|
22.0
|
|
2022
|
22.0
|
|
|
—
|
|
|
22.0
|
|
2023
|
22.0
|
|
|
—
|
|
|
22.0
|
|
2024
|
22.0
|
|
|
—
|
|
|
22.0
|
|
2025
|
22.0
|
|
|
275.3
|
|
|
297.3
|
|
Thereafter
|
2,073.5
|
|
|
—
|
|
|
2,073.5
|
|
Total
|
$
|
2,200.0
|
|
|
$
|
275.3
|
|
|
$
|
2,475.3
|
|
On March 2, 2020, we completed a refinancing by entering into (i) Amendment No. 5 to the Prior-Asset Based Revolving Credit Agreement (as defined below), by and among, inter alia, Vertiv Group Corporation, a Delaware corporation (“Vertiv Group” or the “Borrower”) and an indirect wholly owned subsidiary of Vertiv Holdings Co, Vertiv Intermediate Holding II Corporation, a Delaware corporation (“Holdings”) and the direct parent of Vertiv Group, certain direct and indirect subsidiaries of Vertiv Group, as co-borrowers and guarantors thereunder, various financial institutions from time to time party thereto, as lenders, JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “ABL Agent”), and certain other institutions as additional agents and letter of credit issuers (the “ABL Amendment” and, the Prior Asset-Based Revolving Credit Agreement as amended by the ABL Amendment, the “ABL Revolving Credit Facility”), which ABL Amendment extended the maturity of, and made certain other modifications to, the Prior Asset-Based Revolving Credit Agreement and (ii) a new Term Loan Credit Agreement, by and among, inter alia, Holdings, Vertiv Group, as borrower, various financial institutions from time to time party thereto (the “Term Lenders”), and Citibank, N.A., as administrative agent (in such capacity, the “Term Agent”) (the “Term Loan Credit Agreement”), which Term Loan Credit Agreement provided for a $2,200.0 senior secured term loan, the proceeds of which were used, together with certain borrowings under the ABL Revolving Credit Facility, to repay or redeem, as applicable, in full certain existing indebtedness and to pay certain fees and expenses as further set forth below. The refinancing transactions reduce our debt service requirements going forward and extend the maturity profile of our indebtedness.
On the Closing Date and prior to the completion of the refinancing, Vertiv used a portion of the proceeds from the Business Combination, including the PIPE Investment, to repay $176.0 of the outstanding indebtedness under the Prior Asset-Based Revolving Credit Agreement and approximately $1,285.9 of the outstanding indebtedness under the Prior Term Loan Facility (as defined below).
In connection with the repayment from the Business Combination and the subsequent refinancing, we recognized $99.0 write-off of deferred financing fees and $75.0 early redemption premium on Prior Notes. The write-off is recorded in Loss on extinguishment of debt in the unaudited condensed consolidated statement of earnings (loss).
Term Loan due 2027
Pursuant to the Term Loan Credit Agreement, the Term Lenders made $2,200.0 in senior secured term loans (the “Term Loan”) to the Borrower. The proceeds of the Term Loan, together with certain borrowings under the ABL Revolving Credit Facility, were used to repay or redeem in full the outstanding indebtedness (the “Refinancing”) of the Borrower and of Vertiv Intermediate Holding Corporation, a Delaware corporation (“Holdco”) and an indirect parent of the Borrower, under the Prior Term Loan Facility and the Prior Notes (as defined below) and to pay fees and expenses in connection with (a) entry into the Term Loan Credit Agreement, (b) entry into the ABL Revolving Credit Facility and (c) such repayments and redemptions.
Subject to certain conditions and without consent of the then-existing Term Lenders (but subject to the receipt of commitments), the Borrower may incur additional loans under the Term Loan Credit Agreement (as an increase to the Term Loan or as one or more new tranches of term loans)(“Incremental Term Loans”) in an aggregate principal amount of up to the sum of (a) the greater of $325.0 and 60.0% of Consolidated EBITDA (as defined in the Term Loan Credit Agreement), plus (b) an amount equal to all voluntary prepayments, repurchases and redemptions of pari passu term loans borrowed under the Term Loan Credit Agreement and of certain other pari passu indebtedness incurred outside the Term Loan Credit Agreement utilizing capacity that would otherwise be available for Incremental Term Loans, plus (c) an unlimited amount, so long as on a pro forma basis after giving effect thereto, (i) with respect to indebtedness secured by the Collateral (as defined below) on a pari passu basis with the Term Loan, the Consolidated First Lien Net Leverage Ratio (as defined in the Term Loan Credit Agreement) would not exceed 3.75:1.00 and (ii) with respect to indebtedness incurred outside of the Term Loan Credit Agreement and secured by the Collateral on a junior basis with the Term Loan or that is unsecured, the Consolidated Total Net Leverage Ratio (as defined in the Term Loan Credit Agreement) would not exceed either (A) 5.25:1.00 or (B) if such indebtedness is incurred in connection with a permitted acquisition or other permitted investment, the Consolidated Total Net Leverage Ratio in effect immediately prior to the consummation of such transaction (the amounts referred to in clauses (a), (b) and (c), collectively, the “Incremental Amount”). Subject to certain conditions, the Borrower may incur additional indebtedness outside of the Term Loan Credit Agreement using the then-available Incremental Amount in lieu of Incremental Term Loans.
The Term Loan will amortize in equal quarterly installments in an amount equal to 1.00% per annum of the principal amount, commencing June 30, 2020. The interest rate applicable to the Term Loan is, at the Borrower’s option, either (a) the base rate (which is the highest of (i) the prime rate of Citibank, N.A. on such day, (ii) the greater of the then-current (A) federal funds rate set by the Federal Reserve Bank of New York and (B) rate comprised of both overnight federal funds and overnight LIBOR, in each case, plus 0.50%, (iii) LIBOR for a one month interest period, plus 1.00% and (iv) 1.00%), plus 2.00% or (b) one-, two-, three- or six-month LIBOR or, if agreed by all Term Lenders, 12-month LIBOR or, if agreed to by the Term Agent, any shorter period (selected at the option of the Borrower), plus 3.00%. Additionally, concurrent with the refinancing, Vertiv Group entered into interest rate swap agreements with an initial notional amount of $1,200.0, which will reduce to $1,000.0 in 2021 and remain at $1,000.0 until the maturity of the Term Loan Credit Agreement in 2027. The swap transactions exchange floating rate interest payments for fixed rate interest payments on the notional amount to reduce interest rate volatility. The weighted average borrowing rate of the Term Loan as of March 31, 2020 was 4.58%.
The Borrower may voluntarily prepay the Term Loan, in whole or in part, subject to minimum amounts, with prior notice but without premium or penalty (other than, subject to certain exclusions, a 1.00% premium on any prepayment in connection with a repricing transaction prior to the date that is six months after entry into the Term Loan Credit Agreement). The Borrower is required to repay the Term Loan with 50% of Excess Cash Flow (as defined in the Term Loan Credit Agreement), 100% of the net cash proceeds of certain asset sales and casualty and condemnation events and the incurrence of certain other indebtedness, in each case, subject to certain step-downs, reinvestment rights, thresholds and other exceptions.
The Borrower’s obligations under the Term Loan Credit Agreement are guaranteed by Holdings and all of the Borrower’s direct and indirect wholly-owned U.S. subsidiaries (subject to certain permitted exceptions) (collectively, the “Guarantors”). Subject to certain exceptions, the obligations of the Borrower and the Guarantors under the Term Loan Credit Agreement and related documents are secured by a lien on substantially all of the assets of the Borrower and the Guarantors (the “Collateral”).
The Term Loan Credit Agreement contains customary representations and warranties, affirmative, reporting and negative covenants, and events of default.
ABL Revolving Credit Facility
The ABL Amendment extended the maturity of, and made certain other modifications to, the Revolving Credit Agreement, dated as of November 30, 2016 (as amended, restated, supplemented or otherwise modified from time to time prior to March 2, 2020, the “Prior Asset-Based Revolving Credit Agreement”), by and among Holdings, the Borrower, certain subsidiaries of the Borrower, as co-borrowers, various financial institutions from time to time party thereto, as lenders (after giving effect to the ABL Amendment, the “ABL Lenders”), the ABL Agent and certain other institutions from time to time party thereto as additional agents and letter of credit issuers. The ABL Revolving Credit Facility is available to the Borrower and the Co-Borrowers and provides for revolving loans in various currencies and under U.S. and foreign subfacilities, in an aggregate amount up to $455.0 with a letter of credit subfacility of $200.0 and a swingline subfacility of $75.0, in each case, subject to various borrowing bases. Borrowings under the ABL Revolving Credit Facility are limited by borrowing base calculations based on the sum of specified percentages of eligible accounts receivable, certain eligible inventory and certain unrestricted cash, minus the amount of any applicable reserves. Borrowings under the ABL Revolving Credit Facility were used on March 2, 2020, together with the proceeds of the Term Loan, to consummate the Refinancing and for working capital purposes. Going forward, borrowings under the ABL Revolving Credit Facility may be used for working capital and general corporate purposes. Unless terminated subject to the terms of the ABL Revolving Credit Facility, all commitments under the ABL Revolving Credit
Subject to certain conditions and without the consent of the then-existing ABL Lenders (but subject to the receipt of commitments), commitments under the ABL Revolving Credit Facility may be increased to up to $600.0.
The interest rate applicable to loans denominated in U.S. dollars under the ABL Revolving Credit Facility is, at the Borrower’s option, either (a) the base rate (which is the highest of (i) the prime rate of JPMorgan Chase Bank, N.A. on such date, (ii) the greater of the then-current (A) federal funds rate set by the Federal Reserve Bank of New York and (B) rate comprised of both overnight federal and overnight LIBOR, in each case, plus 0.50%, (iii) LIBOR for a one month interest period, plus 1.00% and (iv) 1.00%), plus an applicable margin (the “Base Rate Margin”) ranging from 0.25% to 0.75%, depending on average excess availability or (b) one-, two-, three- or six-month LIBOR or, if available to all ABL Lenders, 12-month LIBOR or any shorter period (selected at the option of the Borrower), plus an applicable margin (the “LIBOR Margin” and collectively, with the Base Rate Margin, the “Applicable Margins”) ranging from 1.25% to 1.75%, depending on average excess availability. Certain “FILO” denominated loans have margins equal to the Applicable Margins, plus an additional 1.00%. Loans denominated in currencies other than U.S. dollars are subject to customary interest rate conventions and indexes, but in each case, with the same Applicable Margins. In addition, the following fees are applicable under the ABL Revolving Credit Facility: (a) an unused line fee of 0.25% per annum on the unused portion of the commitments under the ABL Revolving Credit Facility, (b) letter of credit participation fees on the aggregate stated amount of each letter of credit equal to the LIBOR Margin and (c) certain other customary fees and expenses of the lenders, letter of credit issuers and agents thereunder.
The Borrower’s and Co-Borrowers’ obligations under the ABL Revolving Credit Facility are guaranteed by the Guarantors (including certain Co-Borrowers as to the obligations of other Co-Borrowers) and, subject to certain exclusions, certain non-U.S. restricted subsidiaries of the Borrower (the “Foreign Guarantors”). No Foreign Guarantor guarantees the obligations of the Borrower or any Co-Borrower that is a U.S. subsidiary of the Borrower. Subject to certain exceptions, the obligations of the Borrower, Co-Borrowers, Guarantors and Foreign Guarantors under the ABL Revolving Credit Facility and related documents are secured by a lien on the Collateral and, subject to certain exceptions and exclusions, certain assets of the Co-Borrowers that are non-U.S. subsidiaries of the Borrower and certain assets of the Foreign Guarantors (collectively, the “Foreign Collateral”). None of the Foreign Collateral secures the obligations of the Borrower or any Co-Borrower that is a U.S. subsidiary of the Borrower.
The ABL Revolving Credit Facility contains customary representations and warranties, affirmative, reporting (including as to borrowing base-related matters) and negative covenants, and events of default. The ABL Revolving Credit Facility requires the maintenance of a minimum Consolidated Fixed Charge Coverage Ratio (as defined in the ABL Revolving Credit Facility) on any date when Global Availability (as defined in the ABL Revolving Credit Facility) is less than the greater of (a) 10.0% of the aggregate commitments and (b) $30,000,000 of 1.00 to 1.00, tested for the four fiscal quarter period ended on the last day of the most recently ended fiscal quarter for which financials have been delivered, and at the end of each succeeding fiscal quarter thereafter until the date on which Global Availability has exceeded the greater of (a) 10.0% of the aggregate commitments and (b) $30,000,000 for 30 consecutive calendar days.
At March 31, 2020, Vertiv Group and the Co-Borrowers had $157.3 of availability under the ABL Revolving Credit Facility, net of letters of credit outstanding in the aggregate principal amount of $22.5, and taking into account the borrowing base limitations set forth in the ABL Revolving Credit Facility and a weighted average borrowing rate of 2.41%.
Prior Term Loan Facility
On November 30, 2016, Vertiv Group and Holdings entered into a term loan credit agreement with various financial institutions from time to time party thereto as lenders and JPMorgan Chase Bank, N.A., as administrative agent (as amended from time to time prior to March 2, 2020, the “Prior Term Loan Facility”). The Prior Term Loan Facility initially provided for a $2,320.0 senior term loan. On December 22, 2017, Vertiv Group obtained an additional $325.0 incremental term loan under the Prior Term Loan Facility. After accounting for prepayments and amortization, at December 31, 2019, the principal balance of the outstanding term loans was $2,070.0.
On March 2, 2020, the Prior Term Loan Facility was fully repaid as noted above.
Redemption of Prior Notes
On January 31, 2020, Vertiv commenced a process to refinance the indebtedness governed by the Prior Term Loan Facility and amend and extend the Prior Asset-Based Revolving Credit Agreement. In connection with these refinancing transactions, Vertiv called all of Holdco's $500.0 of 12.00%/13.00% Senior PIK Toggle Notes due 2022 (the “2022 Senior Notes”), Vertiv Group’s $750.0 of 9.250% Senior Notes due 2024 (“2024 Senior Notes”) and Vertiv Group’s $120.0 of 10.00% Senior Secured Second Lien Notes due 2024 (the “2024 Senior Secured Notes” and, collectively with the 2022 Senior Notes and 2024 Senior Notes, our “Prior Notes”) for conditional redemption on March 2, 2020, in accordance with the respective indentures. A total of $0.5 principal amount of 2024 Senior Notes had been previously tendered pursuant to the change of control offer made in connection with the Business Combination and were repurchased on February 7, 2020. The remaining balance of the Prior Notes was redeemed in full on March 2, 2020. In connection with the redemption of the Prior Notes on March 2, 2020, we recognized a $75.0 redemption premium and $34.3 write-off of deferred debt issuance costs during the three months ended March 31, 2020, included in Other deductions, net.
(7) LEASES
The Company leases office space, warehouses, vehicles, and equipment. Leases have remaining lease terms of 1 year to 20 years, some of which have renewal and termination options. Termination options are exercisable at the Company's option. Terms and conditions to extend or terminate are recognized as part of the right-of-use assets and lease liabilities where prescribed by the guidance. The majority of our leases are operating leases. Finance leases are immaterial to our condensed consolidated financial statements.
The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other operating leases are recorded on the balance sheet with a corresponding operating lease asset, net, representing the right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments arising from the lease. The Company's lease agreements do not contain any material residual value guarantees or restrictive covenants.
Operating lease assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate, adjusted for lease term and foreign currency, based on the information available at lease commencement date. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term.
Operating lease expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
|
Three months ended March 31, 2019
|
Operating lease cost
|
$
|
12.8
|
|
|
$
|
11.6
|
|
Short-term and variable lease cost
|
7.5
|
|
|
6.6
|
Total lease cost
|
$
|
20.3
|
|
|
$
|
18.2
|
|
Supplemental cash flow information related to operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
|
Three months ended March 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash outflows - Payments on operating leases
|
$
|
13.0
|
|
|
$
|
11.9
|
|
Right-of-use assets obtained in exchange for new lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
$
|
11.3
|
|
|
$
|
112.8
|
|
|
|
|
|
Supplemental balance sheet information related to operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial statement line item
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
Operating lease right-of-use assets
|
Other assets
|
$
|
112.9
|
|
|
$
|
110.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
Accrued expenses and other liabilities
|
33.9
|
|
|
35.0
|
|
|
|
|
|
|
Operating lease liabilities
|
Other long-term liabilities
|
80.9
|
|
|
78.2
|
|
|
|
|
|
|
Total lease liabilities
|
|
$
|
114.8
|
|
|
$
|
113.2
|
|
Weighted average remaining lease terms and discount rates for operating leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
March 31, 2019
|
Weighted Average Remaining Lease Term
|
4.5 years
|
|
4.5 years
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
7.1%
|
|
|
7.6
|
%
|
|
|
|
|
Maturities of lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020
|
|
As of December 31, 2019
|
|
|
|
Operating Leases
|
|
|
|
|
2020
|
$
|
33.4
|
|
|
$
|
43.3
|
|
|
|
2021
|
33.8
|
|
|
31.6
|
|
|
|
2022
|
26.4
|
|
|
24.1
|
|
|
|
2023
|
20.0
|
|
|
18.0
|
|
|
|
2024
|
11.7
|
|
|
10.6
|
|
|
|
Thereafter
|
16.3
|
|
|
14.2
|
|
|
|
Total Lease Payments
|
141.6
|
|
|
141.8
|
|
|
|
Less: Imputed Interest
|
(26.8)
|
|
|
(28.6)
|
|
|
|
Present value of lease liabilities
|
$
|
114.8
|
|
|
$
|
113.2
|
|
|
|
(8) INCOME TAXES
The effective tax rate was (5.4) percent and (33.2) percent for the three months ended March 31, 2020 and 2019, respectively. The effective rate in the current three month period is primarily influenced by the mix of income between our U.S. and non-U.S. operations and the impact of the global intangible low-taxed income provisions of the Tax Cuts and Jobs Act of 2017 (the “Act”), which is offset by changes in valuation allowance for U.S. federal purposes and discrete tax adjustments primarily related to (1) a change in our indefinite reinvestment liability caused by movement in foreign currencies and legislative changes enacted during the quarter, and (2) adjustments related to uncertain tax positions. The effective rate for the comparative three-month period was primarily influenced by the mix of income between our U.S. and non-U.S. operations and the impact of the global intangible low-taxed income provisions of the “Act” which is offset by changes in valuation allowance for U.S. federal purposes.
The Company has provided for U.S. federal income taxes and foreign withholding taxes on all temporary differences attributed to basis differences in foreign subsidiaries that are not indefinitely reinvested. As of March 31, 2020, the Company has certain earnings of certain foreign affiliates that continue to be indefinitely reinvested, but determining the impact was not practicable.
On March 18, 2020, the Families First Coronavirus Response Act (FFCR Act), and on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. We have performed an analysis of these provisions and due to the significant interest and net operating loss carryforwards subject to valuation allowance, we believe the FFCR Act and CARES Act positions will not have a material impact on the company’s annual effective tax rate (AETR) or tax position.
(9) RELATED PARTY TRANSACTIONS
Services Agreement
The Company receives certain corporate and advisory services from Platinum Equity Advisors, LLC ("Advisors"), and affiliates of Advisors. These services are provided pursuant to a corporate advisory services agreement ("the "CASA") between Advisors and the Company. During the three months ended March 31, 2020 and 2019, the Company recorded $0.5 and $1.3, respectively in charges related to the CASA. This agreement was terminated on February 7,2020.
During the three months ended March 31, the Company recorded $25.0 in charges relating to services performed in connection with the Business Combination. These charges were recorded as a reduction of the cash acquired from GSAH within additional paid-in capital.
Transactions with Affiliates of Advisors
The Company also purchased and sold goods in the ordinary course of business with affiliates of Advisors. For the three months ended March 31, 2020 and 2019 purchases were $12.8 and $12.7, respectively.
Tax Receivable Agreement
On the Closing Date of the Business Combination, the Company entered into a Tax Receivable Agreement with Advisors. See Note 11 — Financial Instruments and Risk Management for additional information.
(10) OTHER FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Reconciliation of cash, cash equivalents, and restricted cash
|
|
|
|
Cash and cash equivalents
|
$
|
293.2
|
|
|
$
|
223.5
|
|
Restricted cash included in other current assets
|
10.2
|
|
|
10.2
|
|
Total cash, cash equivalents, and restricted cash
|
$
|
303.4
|
|
|
$
|
233.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Inventories
|
|
|
|
Finished products
|
$
|
199.7
|
|
|
$
|
180.2
|
|
Raw materials
|
164.1
|
|
|
162.6
|
|
Work in process
|
81.7
|
|
|
58.2
|
|
Total inventories
|
$
|
445.5
|
|
|
$
|
401.0
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Property, plant and equipment, net
|
|
|
|
Machinery and equipment
|
$
|
285.6
|
|
|
$
|
280.7
|
|
Buildings
|
244.7
|
|
|
243.2
|
|
Land
|
45.9
|
|
|
46.7
|
|
Construction in progress
|
10.4
|
|
|
21.9
|
|
Property, plant and equipment, at cost
|
586.6
|
|
|
592.5
|
|
Less: Accumulated depreciation
|
(173.9)
|
|
|
(164.3)
|
|
Property, plant and equipment, net
|
$
|
412.7
|
|
|
$
|
428.2
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Accrued expenses and other liabilities
|
|
|
|
Deferred revenue
|
$
|
188.0
|
|
|
$
|
160.9
|
|
Accrued payroll and other employee compensation
|
90.8
|
|
|
145.4
|
|
Product warranty
|
40.1
|
|
|
43.2
|
|
Litigation reserve (see note 17)
|
92.9
|
|
|
92.9
|
|
Operating lease liabilities
|
33.9
|
|
|
35.0
|
|
Other
|
301.0
|
|
|
390.3
|
|
Total
|
$
|
746.7
|
|
|
$
|
867.7
|
|
(11) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
In accordance with ASC 820, the Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. Observable inputs are from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. These tiers include the following:
Level 1 — inputs include observable unadjusted quoted prices in active markets for identical assets or liabilities
Level 2 — inputs include other than quoted prices in active markets that are either directly or indirectly observable
Level 3 — inputs include unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions
In determining fair value, the Company uses various valuation techniques and prioritizes the use of observable inputs. The availability of observable inputs varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded and other characteristics particular to the instrument. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants and the valuation does not require significant management judgment. For other financial instruments, pricing inputs are less observable in the marketplace and may require management judgment.
Recurring fair value measurements
We elected to apply fair value option accounting to the Tax receivable agreement. A summary of the Company's financial instruments recognized at fair value, and the fair value measurements used, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted prices in active markets for identical assets (Level 1)
|
|
Other observable inputs (Level 2)
|
|
Unobservable inputs (Level 3)
|
March 31, 2020
|
|
|
|
|
|
|
|
Tax Receivable Agreement
|
116.5
|
|
|
—
|
|
|
—
|
|
|
116.5
|
|
Interest rate swaps
|
24.0
|
|
|
—
|
|
|
24.0
|
|
|
—
|
|
Tax receivable agreement — value is determined using Level 3 inputs. The measurement is calculated using unobservable inputs based on the Company’s own assumptions including the timing and amount of future taxable income and realizability of tax attributes. When valuing the tax receivable liability at March 31, 2020, we utilized a discount rate of 6.3%. The discount rate was determined based on the risk-free rate and Vertiv's implied credit spread. A one percentage point change in the discount rate would result in a change in value of approximately $8.0 at March 31, 2020. Significant changes in unobservable inputs could result in material changes to the tax receivable liability.
Interest rate swaps — valued using the LIBOR yield curves at the reporting date. Counterparties to these contracts are highly rated financial institutions. The fair values of the Company’s interest rate swaps are adjusted for nonperformance risk and creditworthiness of the counterparty through the Company’s credit valuation adjustment (“CVA”). The CVA is calculated at the counterparty level utilizing the fair value exposure at each payment date and applying a weighted probability of the appropriate survival and marginal default percentages.
Details of the changes in value for the Tax receivable agreement are as follows:
|
|
|
|
|
|
|
|
Beginning liability balance, January 1, 2020
|
$
|
—
|
|
|
|
Tax receivable agreement, initially recorded
|
133.4
|
|
|
|
Change in fair value
|
(16.9)
|
|
|
|
Ending liability balance, March 31, 2020
|
$
|
116.5
|
|
|
|
Tax receivable agreement
On the Closing Date, the Company entered into the Tax Receivable Agreement, which generally provides for the payment by us to the Vertiv Stockholder of 65% of the cash tax savings in U.S. federal, state, local and certain foreign taxes, that we actually realize (or are deemed to realize) in periods after the closing of the Business Combination as a result of (i) increases in the tax basis of certain intangible assets of Vertiv resulting from certain pre-Business Combination acquisitions, (ii) certain U.S. federal income tax credits for increasing research activities (so-called “R&D credits”) and (iii) tax deductions in respect of certain Business Combination expenses. We expect to retain the benefit of the remaining 35% of these cash tax savings.
For purposes of the Tax Receivable Agreement, the applicable tax savings will generally be computed by comparing our actual tax liability for a given taxable year to the amount of such taxes that we would have been required to pay in such taxable year without the tax basis in certain intangible assets, the U.S. federal income tax R&D credits and the tax deductions for certain Business Combination expenses described above. Except as described below, the term of the Tax Receivable Agreement will continue for twelve taxable years following the closing of the Business Combination. However, the payments described in (i) and (ii) above will generally be deferred until the close of our third taxable year following the closing of the Business Combination. The payments described in (iii) above will generally be deferred until the close of our fourth taxable year following the closing of the Business Combination and then payable ratably over the following three taxable year periods regardless of whether we actually realize such tax benefits. Payments under the Tax Receivable Agreement are not conditioned on the Vertiv Stockholder’s continued ownership of our stock.
Under certain circumstances (including a material breach of our obligations, certain actions or transactions constituting a change of control, a divestiture of certain assets, upon the end of the term of the Tax Receivable Agreement or, after three years, at our option), payments under the Tax Receivable Agreement will be accelerated and become immediately due in a lump sum. In such case, the payments due upon acceleration would be based on the present value of our anticipated
future tax savings using certain valuation assumptions, including that we will generate sufficient taxable income to fully utilize the applicable tax assets and attributes covered under the Tax Receivable Agreement (or, in the case of a divestiture of certain assets, the applicable tax attributes relating to such assets). Consequently, it is possible in these circumstances that the actual cash tax savings realized by us may be significantly less than the corresponding Tax Receivable Agreement payments we are required to make at the time of acceleration. Furthermore, the acceleration of our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity.
The Tax Receivable Agreement will generally provide for the payment by us to the Vertiv Stockholder of 65% of the cash tax savings realized (or deemed realized) over a 12-year period after the closing of the Business Combination as described above. In the twelfth year of the Tax Receivable Agreement, an additional payment would be made to the Vertiv Stockholder based on 65% of the remaining tax benefits that have not been realized. The timing of expected future payments under the Tax Receivable Agreement are dependent upon various factors, including the existing tax bases at the time of the Business Combination, the realization of tax benefits, and changes in tax laws. However, as the Company is obligated to settle the remaining tax benefits after 12 years, the Company has concluded that the liability should be measured at fair value. The Company has estimated total payments of approximately $191.5 on an undiscounted basis. The fair value of the estimated liability as of the closing date of $133.4 has been included as an adjustment to additional paid in capital. Subsequent measurements will be recorded in interest expense, net and accumulated other comprehensive income, as appropriate based on the passage of time, change in risk-free rate and implied credit spread. Cash flows of the Tax Receivable Agreement are discounted at an appropriate rate for the applicable duration of the instrument adjusted for our own credit spread. The fair value movement on the tax receivable agreement attributable to our own credit risk spread is recorded in other comprehensive income. These estimates and assumptions are subject to change, which may materially affect the measurement of the liability.
We have recorded $9.0 in Interest expense, net for the three months ended March 31, 2020 in the consolidated statement of earnings (loss) and an unrealized gain of $25.9 in Accumulated other comprehensive income, related to the change in fair value of the tax receivable liability from the Closing Date to March 31, 2020.
Interest rate risk management
From time to time the Company may enter into derivative financial instruments designed to hedge the variability in interest expense on floating rate debt. Derivatives are recognized as assets or liabilities in the Consolidated Balance Sheets at their fair value. When the derivative instrument qualifies as a cash flow hedge, changes in the fair value are deferred through other comprehensive earnings, depending on the nature and effectiveness of the offset.
Concurrent with the refinancing on March 2, 2020, the Company designated certain interest rate swaps with an initial notional amount of $1,200.0 as cash flow hedges.
The Company uses interest rate swaps to manage the interest rate mix of our total debt portfolio and related overall cost of borrowing. At March 31, 2020 interest rate swap agreements designated as cash flow hedges effectively swapped an initial amount of $1,200.0 of LIBOR based floating rate debt for fixed rate debt. Our interest rate swaps mature in March 2027. The fair value of interest rates swaps of $24.0 was recorded in Other long-term liabilities and the related unrealized loss in Accumulated other comprehensive income, on the balance sheet as of March 31, 2020. There were no amounts recognized in earnings for the three months ended March 31, 2020. At March 31, 2020, the Company expects that approximately $7.5 of pre-tax net losses on cash flow hedges will be reclassified from Accumulated other comprehensive income (loss) into earnings during the next twelve months.
Other fair value measurements
We determine the fair value of debt using Level 2 inputs based on quoted market prices. The following table presents the estimated fair value and carrying value of long-term debt, including the current portion of long-term debt as of March 31, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020 (1)
|
|
|
|
December 31, 2019
|
|
|
|
Fair Value
|
|
Par Value (2)
|
|
Fair Value
|
|
Par Value (2)
|
Term Loan due 2027
|
$
|
1,969.0
|
|
|
$
|
2,200.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
ABL Revolving Credit Facility due 2025
|
|
275.3
|
|
|
275.3
|
|
|
145.2
|
|
|
145.2
|
|
Term Loan due 2023
|
—
|
|
|
—
|
|
|
2,064.8
|
|
|
2,070.0
|
|
9.250% Notes due 2024
|
—
|
|
|
—
|
|
|
805.3
|
|
|
750.0
|
|
12.00%/13.00% Senior PIK Toggle Notes due 2022
|
—
|
|
|
—
|
|
|
517.5
|
|
|
500.0
|
|
10.00% Notes due 2024
|
—
|
|
|
—
|
|
|
127.5
|
|
|
120.0
|
|
|
|
|
|
|
|
|
|
(1)On March 2, 2020, certain subsidiaries of Vertiv Holdings Co entered into a Term Loan Credit Agreement with various financial institutions for $2,200.0 of senior secured term loans. The proceeds of the Term Loan were used to repay or redeem in full certain outstanding indebtedness. See Note 6, Debt for additional information.
(2)See Note 6 — Debt for additional information
(12) OTHER DEDUCTIONS, NET
Other deductions, net are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
|
Three months ended March 31, 2019
|
|
|
Amortization of intangibles (excluding software)
|
32.4
|
|
|
32.8
|
|
|
|
Restructuring costs (see Note 4)
|
(1.1)
|
|
|
0.8
|
|
|
|
Foreign currency loss, net
|
1.8
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
Other, net
|
1.3
|
|
|
1.7
|
|
|
|
Total
|
$
|
34.4
|
|
|
$
|
38.8
|
|
|
|
(13) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Activity in accumulated other comprehensive income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
|
Three months ended March 31, 2019
|
Foreign currency translation, beginning
|
$
|
32.9
|
|
|
$
|
43.2
|
|
Other comprehensive (loss) income
|
(54.3)
|
|
|
6.7
|
|
Foreign currency translation, ending
|
(21.4)
|
|
|
49.9
|
|
Cash flow hedges, beginning
|
—
|
|
|
—
|
|
Unrealized losses deferred during the period
|
(24.0)
|
|
|
—
|
|
Cash flow hedges, ending
|
(24.0)
|
|
|
—
|
|
Pension, beginning
|
(14.8)
|
|
|
(1.4)
|
|
Actuarial losses deferred during the period, net of income taxes
|
(0.2)
|
|
|
—
|
|
Pension, ending
|
(15.0)
|
|
|
(1.4)
|
|
Tax receivable agreement, beginning
|
—
|
|
|
—
|
|
Unrealized gain during the period (1)
|
25.9
|
|
|
—
|
|
Tax receivable agreement, ending
|
25.9
|
|
|
—
|
|
Accumulated other comprehensive (loss) income
|
$
|
(34.5)
|
|
|
$
|
48.5
|
|
(1)The fair value movement on the Tax Receivable Agreement attributable to our own credit risk spread is recorded in other comprehensive income.
(14) SEGMENT INFORMATION
The primary income measure used for assessing segment performance and making operating decisions is earnings before interest and income taxes. This measure excludes corporate and other costs which consist of headquarters management costs, stock-based compensation, interest expense, other incentive compensation, global digital costs, and costs that support global product platform development and offering management. Intersegment selling prices approximate market prices. Summarized information about the Company’s results of operations by business segment and product and service offering follows:
Americas includes products and services sold for applications within the data center, communication networks and commercial/industrial markets in North America and Latin America. This segment’s principal product and service offerings include:
•Critical infrastructure and solutions includes AC and DC power management thermal management, modular hyperscale type data center sites, as well as hardware for managing IT equipment;
•I.T. and edge infrastructure includes racks, rack power, rack power distribution, rack thermal systems, and configurable integrated solutions; and
•Services and software solutions includes preventative maintenance, acceptance testing, engineering and consulting, performance assessments, remote monitoring, training, spare parts, and digital critical infrastructure software.
Asia Pacific includes products and services sold for applications within the data center, communication networks and commercial/industrial markets throughout China, India and the rest of Asia. Products and services offered are similar to the Americas segment.
Europe, Middle East & Africa includes products and services sold for applications within the data center, communication networks and commercial/industrial markets in Europe, Middle East & Africa. Products and services offered are similar to the Americas segment.
Business Segments
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
Three months ended March 31, 2020
|
|
Three months ended March 31, 2019
|
Americas
|
$
|
469.4
|
|
|
$
|
563.6
|
|
Asia Pacific
|
239.1
|
|
|
281.2
|
|
Europe, Middle East & Africa
|
217.7
|
|
|
248.7
|
|
|
926.2
|
|
|
1,093.5
|
|
Eliminations
|
(28.9)
|
|
|
(38.7)
|
|
Total
|
$
|
897.3
|
|
|
$
|
1,054.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
Three months ended March 31, 2020
|
|
Three months ended March 31, 2019
|
Americas
|
$
|
2.7
|
|
|
$
|
9.2
|
|
Asia Pacific
|
15.2
|
|
|
22.2
|
|
Europe, Middle East & Africa
|
11.0
|
|
|
7.3
|
|
Total
|
$
|
28.9
|
|
|
$
|
38.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
Three months ended March 31, 2020
|
|
Three months ended March 31, 2019
|
Americas
|
$
|
61.6
|
|
|
$
|
87.1
|
|
Asia Pacific
|
13.6
|
|
|
20.4
|
|
Europe, Middle East & Africa
|
15.9
|
|
|
20.6
|
|
|
91.1
|
|
|
128.1
|
|
Corporate and other
|
(277.3)
|
|
|
(106.1)
|
|
Interest expense, net
|
(68.9)
|
|
|
(77.8)
|
|
Income (loss) before income taxes
|
$
|
(255.1)
|
|
|
$
|
(55.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
March 31, 2020
|
|
December 31, 2019
|
Americas
|
$
|
2,222.8
|
|
|
$
|
2,296.4
|
|
Asia Pacific
|
1,055.3
|
|
|
1,152.2
|
|
Europe, Middle East & Africa
|
927.1
|
|
|
947.5
|
|
|
4,205.2
|
|
|
4,396.1
|
|
Corporate and other
|
424.7
|
|
|
261.3
|
|
Total
|
$
|
4,629.9
|
|
|
$
|
4,657.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Products and Services Offering
|
Three months ended March 31, 2020
|
|
Three months ended March 31, 2019
|
Critical infrastructure & solutions
|
$
|
499.4
|
|
|
$
|
638.8
|
|
Services & software solutions
|
302.6
|
|
|
306.0
|
|
I.T. & Edge infrastructure
|
95.3
|
|
|
110.0
|
|
Total
|
$
|
897.3
|
|
|
$
|
1,054.8
|
|
(15) STOCK-BASED COMPENSATION PLANS
Our stock incentive plan permits the granting of incentive stock options or nonqualified stock options; stock appreciation rights; performance awards, which may be cash-or share-based; restricted stock units; restricted stock; and other stock-based awards. We measure and record compensation expense based on the fair value of the Company's common stock on the date of grant for restricted stock and restricted stock units (RSUs) and the grant date fair value, determined utilizing the Black-Scholes formula, for stock options. We record compensation cost for service-based awards, including graded-vesting awards, on a straight-line basis over the entire vesting period, or for retirement eligible employees over the requisite service period. We account for the forfeiture of awards as they occur.
There were no equity compensation plans authorized by GS Acquisition Holding Corp (GSAH) as of December 31, 2019. In connection with the Business Combination, GSAH’s Board adopted the Vertiv Holdings Co 2020 Stock Incentive Plan, the “2020 Plan”, on December 9, 2019 which was approved by GSAH’s stockholders on February 6, 2020 , immediately preceding the Business Combination. Under the 2020 Plan, a total aggregate of 33.5 million share awards issuable were authorized and reserved for issuance for the purpose of better motivating our employees, consultants and directors to achieve superior performance measured by both our key financial and operating metrics as well as relative stock price appreciation. The 2020 Plan is administered by the compensation committee of our Board and permits the granting of incentive stock options or nonqualified stock options; stock appreciation rights; performance awards, which may be cash-or share-based; restricted stock units; restricted stock; and other stock-based awards. Beginning with the first business day of each calendar year beginning in 2021, the number of shares will increase by the least of (a) 10.5 million shares, (b) 3% of the number of shares outstanding as of the last day of the immediately preceding calendar year, or (c) a lesser number of shares determined by the Compensation Committee.
Stock options
Stock options are generally granted to certain employees and directors to purchase ordinary shares at an exercise price equal to the market price of the Company's stock at the date of the grant. Option awards generally vest 25% per year over four years of continuous service and have 10-year contractual terms.
The Company uses a Black-Scholes option pricing model to estimate the fair value of stock options. The principal significant assumptions utilized in valuing stock options include the expected stock price volatility (based on the most recent historical period equal to the expected life of the option); the expected option life (an estimate based on historical experience); the expected dividend yield; and the risk-free interest rate (an estimate based on the yield of United States Treasury zero coupon with a maturity equal to the expected life of the option). Because the Company only recently became publicly traded, we do not have sufficient historical information on which to base expected volatility. As such, our volatility assumption is based on the historical and implied volatility of similar public companies, which were identified considering factors such as industry, stage of life cycle, size, and financial leverage. Because the Company does not have a history of granting stock options, we do not have historical option exercise experience upon which we can estimate the expected term. As such, we estimate the expected term using the average of the vesting period and the contractual period of the award. A summary of the assumptions used in determining the fair value of stock options follows:
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
Expected volatility
|
27
|
%
|
Expected option life in years
|
6.25
|
Expected dividend yield
|
0.08
|
%
|
Risk-free interest rate
|
1.47
|
%
|
Weighted-average fair value of stock options
|
$
|
4.10
|
|
A summary of stock option activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted-average exercise price per option
|
|
Weighted-average remaining contractual life in years
|
|
Aggregate intrinsic value (1)
|
Outstanding at January 1, 2020
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
5,359,536
|
|
|
12.07
|
|
9.86
|
|
—
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited and canceled
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at March 31, 2020
|
5,359,536
|
|
|
$
|
12.07
|
|
|
9.86
|
|
$
|
—
|
|
(1)The aggregate intrinsic value in the table above represents the difference between the Company's most recent valuation and the exercise price of each in-the-money option on the last day of the period presented. As none of the options were in-the-money at March 31, 2020, the aggregate intrinsic value was $0.00.
For the three months ended March 31, 2020, total compensation expense relating to stock options was $0.7. At March 31, 2020, all options remain unvested. The total income tax benefit recognized in the income statement for the period ended March 31, 2020 was $0.0. As of March 31, 2020, there was $21.3 of total unrecognized compensation cost related to unvested options. That cost is expected to be recognized over a weighted-average period of 3.88 years.
Restricted stock units
During the quarter ended March 31, 2020, the Board of Directors (BOD) approved plans to make future awards of RSUs to certain employees and directors at a date yet to be determined. Once granted, the RSUs entitle the holder to receive one ordinary share for each RSU upon vesting, generally over four years. There were no RSUs issued and outstanding as of March 31, 2020. Subsequent to the quarter ended March 31, 2020, 2.1 million RSUs were granted with a fair value of $8.50 per RSU.
(16) EARNINGS (LOSS) PER SHARE
Basic earnings per ordinary share is computed by dividing net earnings attributable to the Company's common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per ordinary share is computed by dividing net earnings attributable to the Company's common shareholders by the weighted average number of common shares outstanding during the period increased by the number of additional shares that would have been outstanding related to potentially dilutive securities or instruments, if the impact is dilutive.
The details of the earnings per share calculations for the three months ended March 31, 2020 and 2019 are as follows (in millions, except per share and per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
|
Three months ended March 31, 2019 (1)
|
Net loss attributable to common shareholders
|
|
$
|
(268.9)
|
|
|
$
|
(74.3)
|
|
|
|
|
|
|
Weighted-average number of ordinary shares outstanding - basic
|
|
240,656,864
|
|
|
118,261,955
|
|
Less dilutive effect of equity-based compensation and warrants
|
|
—
|
|
|
—
|
|
Weighted-average number of ordinary shares outstanding - diluted
|
|
240,656,864
|
|
|
118,261,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common shareholders
|
|
|
|
|
Basic
|
|
$
|
(1.12)
|
|
|
$
|
(0.63)
|
|
Diluted
|
|
(1.12)
|
|
|
(0.63)
|
|
(1)The Business Combination was accounted for as a reverse capitalization in accordance with U.S. GAAP. See Note 1 "Description of the Business". Accordingly, weighted-average shares outstanding for purposes of the earnings per share calculation have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination (1.0 Vertiv Holdings share to 118.261955 Vertiv Holdings Co shares).
Additional stock awards and warrants were outstanding during the three months ended March 31, 2020 but were not included in the computation of diluted earnings per common share because the effect would be anti-dilutive. Such anti-dilutive awards and warrants represented 5.4 million and 33.5 million shares, respectively, for the three months ended March 31, 2020.
Each warrant is exercisable for one share of Class A common stock at a price of $11.50 per share. No fractional shares will be issued upon exercise of the warrants and only whole warrants will trade. Warrants became exercisable 30 days after the Business Combination and will expire at 5:00 p.m., New York City time, five years after the completion of the Business Combination or earlier upon redemption or liquidation. Once the warrants become exercisable, the Company may redeem the outstanding warrants in whole and not in part at a price of $0.01 per warrant upon a minimum of 30 days’ prior written notice of redemption, if and only if the last reported sale price of the Company’s Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sent the notice of redemption to the warrant holders.
(17) COMMITMENTS AND CONTINGENCIES
The Company is a party to a number of pending legal proceedings and claims, including those involving general and product liability and other matters. The Company accrues for such liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Accruals are based on developments to date; management’s estimates of the outcomes of these matters; the Company’s experience in contesting, litigating and settling similar matters; and any related insurance coverage. While the Company believes that a material adverse impact is unlikely, given the inherent uncertainty of litigation, a future development in these matters could have a material adverse impact on the Company. The Company is unable to estimate any additional loss or range of loss that may result from the ultimate resolution of these matters, other than those described below.
On May 10, 2018, the jury in the case of Bladeroom Group Limited, et al. v. Facebook, Inc., Emerson Electric Co., Emerson Network Power Solutions, Inc. (now known as Vertiv Solutions, Inc.) and Liebert Corporation returned a verdict in favor of the plaintiff in the amount of $30.0. The jury found the defendants breached a confidentiality agreement with Bladeroom, were unjustly enriched by such breach, improperly disclosed or used certain of the plaintiff’s trade secrets and the misappropriation of such trade secrets was willful and malicious. On March 11, 2019, the court entered orders in the
case affirming the original award of $30.0 and imposing an additional award for punitive damages of $30.0 as well as attorney fees and interest. Under the terms of the purchase agreement with Emerson, the Company is indemnified for damages arising out of or relating to this case, including the above amounts. On August 12, 2019, judgment was entered, confirming the award entered on March 11, 2019. Emerson has submitted an appeal, and in connection with the appeal has submitted a surety bond underwritten by a third-party insurance company in the amount of $96.8. As of March 31, 2020, the Company had accrued $92.9 in accrued expenses, the full amount of the judgment, and recorded an offsetting indemnification receivable of $92.9 in other current assets related to this matter.
On December 28, 2017, Vertiv acquired Energy Labs, Inc. (“Energy Labs”). The purchase agreement contained a provision for contingent consideration in the form of an earn-out payment based on the achievement of 2018 operating results. The range of outcomes was zero to $34.5. On June 4, 2019, Vertiv notified the selling shareholders of Energy Labs of Vertiv’s determination that the applicable 2018 operating results had not been achieved and that no contingent consideration was due to the selling shareholders. On September 6, 2019, the selling shareholders of Energy Labs notified Vertiv of their dispute regarding the contingent consideration due to them. The selling shareholders assert that the applicable 2018 operating results were exceeded and that Vertiv owes $34.5 in earn-out, the highest amount of earn-out possible under the agreement. As of March 31, 2020 and December 31, 2019, the Company had accrued $2.8 in accrued expenses. While Vertiv believes it has meritorious defenses against the assertions of the selling shareholders of Energy Labs, Vertiv is unable at this time to predict the outcome of this dispute. If Vertiv is unsuccessful, the ultimate resolution of this dispute could result in a loss of up to $31.7 in excess of the $2.8 accrued as well as costs and legal fees.
At March 31, 2020, there were no known contingent liabilities (including guarantees, taxes and other claims) that management believes will be material in relation to the Company’s consolidated financial statements, nor were there any material commitments outside the normal course of business other than those described above.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements that are forward-looking and as such are not historical facts. This includes, without limitation, statements regarding the financial position, capital structure, indebtedness, business strategy and plans and objectives of management for future operations, including as they relate to the anticipated effects of the Business Combination (as defined herein). These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. The Company cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Quarterly Report on Form 10-Q, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strive,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those that the Company has anticipated. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the Company’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Factors that may cause such differences include, but are not limited to: (1) the benefits of the Business Combination; (2) the future financial performance of the Company following the Business Combination; (3) the ability to maintain the listing of the Company’s securities on the New York Stock Exchange; (4) the risk that the Business Combination disrupts current plans and operations of the Company; (5) the ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition, the ability of the Company to grow and manage growth profitably, maintain relationships with customers and suppliers and retain its management and key employees; (6) costs related to the Business Combination; (7) the outcome of any legal proceedings that may be instituted against the Company or any of its directors or officers, following the Business Combination; (8) the failure to realize anticipated pro forma results and underlying assumptions, including with respect to estimated stockholder redemptions and purchase price and other adjustments; (9) factors relating to the business, operations and financial performance of the Company and its subsidiaries, including: global economic weakness and uncertainty; risks relating to the continued growth of the Company’s customers’ markets; failure to meet or anticipate technology changes; the unpredictability of the Company’s future operational results; disruption of the Company’s customers’ orders or the Company’s customers’ markets; less favorable contractual terms with large customers; risks associated with governmental contracts; failure to mitigate risks associated with long-term fixed price contracts; risks associated with information technology disruption or security; risks associated with the implementation and enhancement of information systems; failure to properly manage the Company’s supply chain or difficulties with third-party manufacturers; competition in the infrastructure technologies industry; failure to realize the expected benefit from any rationalization and improvement efforts; disruption of, or changes in, the Company’s independent sales representatives, distributors and original equipment manufacturers; failure to obtain performance and other guarantees from financial institutions; failure to realize sales expected from the Company’s backlog of orders and contracts; changes to tax law; ongoing tax audits; risks associated with future legislation and regulation of the Company’s customers’ markets both in the United States and abroad; costs or liabilities associated with product liability; the Company’s ability to attract, train and retain key members of its leadership team and other qualified personnel; the adequacy of the Company’s insurance coverage; a failure to benefit from future acquisitions; failure to realize the value of goodwill and intangible assets; the global scope of the Company’s operations; risks associated with the Company’s sales and operations in emerging markets; exposure to fluctuations in foreign currency exchange rates; the Company’s ability to comply with various laws and regulations and the costs associated with legal compliance; adverse outcomes to any legal claims and proceedings filed by or against us; the Company’s ability to protect or enforce its proprietary rights on which its business depends; third party intellectual property infringement claims; liabilities associated with environmental, health and safety matters; the impact of the recent COVID-19 global pandemic and response by governments and other third parties; risks associated with the Company’s limited history of operating as an independent company; and potential net losses in future periods; and (10) other risks and uncertainties described below, as well as other material risks to our business, indicated in our Annual Report on Form 10-K, including those under “Item 1A. Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of the Company’s assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
Forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q or any earlier date specified for such statements. The Company undertakes no obligation to update
or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on the Company’s behalf are qualified in their entirety by this Cautionary Note Regarding Forward-Looking Statements.