Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except as otherwise specified and 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 reportable segments: Americas; Asia Pacific; and Europe, Middle East & Africa.
(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 ("SEC") 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 presentation of certain prior period amounts includes the reclassification of intangible amortization expense, restructuring costs and net foreign currency (gain) loss into separate components within operating expenses to conform to the current period presentation. In addition certain prior period amounts have been reclassed to conform with current year presentation.
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 has impacted, and may continue to impact, 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 Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K/A filed with the SEC on April 30, 2021 (the "2020 Form 10-K/A").
Held for Sale
During the third quarter of 2021, the Company determined a heavy industrial UPS business within the Europe, Middle East & Africa reportable segment, met the held for sale accounting and reporting criteria. As a result of the held for sale classification, the Company recorded a $8.7 impairment in "Asset impairment" on the Condensed Consolidated Statement of Earnings (Loss), to adjust the business to the current fair value, less expected costs to sell. As of September 30, 2021, current assets, property plant and equipment, net and other current assets of $30.9, $9.0 and $3.1, respectively have been classified as held for sale and included in "Other current assets", current liabilities and other long-term liabilities of $16.5 and $3.9, respectively, have been classified as held of sale and included in "Accrued expenses and other liabilities" on the Unaudited Condensed Consolidated Balance Sheets. In October 2021, the Company signed an agreement for approximately 20.0 EUR in cash proceeds from the transaction.
(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
Beginning in 2020, sales were moved within product and service offering categories to reflect a strategic realignment within the Company's matrix organizational structure. Comparative results for the three and nine months ended September 30, 2020 have been adjusted to reflect this modification. Additionally, product and service offering category names were revised as follows: Services & software solutions changed to Service & spares, and I.T. edge & infrastructure changed to Integrated rack solutions. There was no change in the description of the Critical infrastructure & solutions offering.
The following table disaggregates our revenue by business segment, product and service offering and timing of transfer of control:
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|
|
|
Three Months Ended September 30, 2021
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|
Americas
|
|
Asia Pacific
|
|
Europe, Middle East, & Africa
|
|
Total
|
Sales by Product and Service Offering:
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|
|
|
|
|
|
|
Critical infrastructure & solutions
|
$
|
291.9
|
|
|
$
|
234.0
|
|
|
$
|
180.4
|
|
|
$
|
706.3
|
|
Services & spares
|
180.2
|
|
|
104.4
|
|
|
80.8
|
|
|
365.4
|
|
Integrated rack solutions
|
65.1
|
|
|
56.2
|
|
|
35.9
|
|
|
157.2
|
|
Total
|
$
|
537.2
|
|
|
$
|
394.6
|
|
|
$
|
297.1
|
|
|
$
|
1,228.9
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition:
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|
|
|
|
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|
Products and services transferred at a point in time
|
$
|
363.5
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|
|
$
|
316.0
|
|
|
$
|
253.3
|
|
|
$
|
932.8
|
|
Products and services transferred over time
|
173.7
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|
|
78.6
|
|
|
43.8
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|
|
296.1
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Total
|
$
|
537.2
|
|
|
$
|
394.6
|
|
|
$
|
297.1
|
|
|
$
|
1,228.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
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Americas
|
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Asia Pacific
|
|
Europe, Middle East, & Africa
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Total
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Sales by Product and Service Offering: (1)
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|
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Critical infrastructure & solutions
|
$
|
278.7
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|
|
$
|
239.6
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|
|
$
|
138.2
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|
|
$
|
656.5
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|
Services & spares
|
168.3
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|
|
94.8
|
|
|
77.9
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|
|
341.0
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Integrated rack solutions
|
85.0
|
|
|
45.2
|
|
|
34.3
|
|
|
164.5
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Total
|
$
|
532.0
|
|
|
$
|
379.6
|
|
|
$
|
250.4
|
|
|
$
|
1,162.0
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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
|
$
|
376.7
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|
|
$
|
302.6
|
|
|
$
|
185.9
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|
|
$
|
865.2
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|
Products and services transferred over time
|
155.3
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|
|
77.0
|
|
|
64.5
|
|
|
296.8
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|
Total
|
$
|
532.0
|
|
|
$
|
379.6
|
|
|
$
|
250.4
|
|
|
$
|
1,162.0
|
|
(1)Comparative results for Critical infrastructure & solutions, Services & spares and Integrated rack solutions for the three months ended September 30, 2020 have been adjusted by $5.8, $0.9, and $(6.7), respectively, to reflect the strategic realignment described above.
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Nine Months Ended September 30, 2021
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Americas
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Asia Pacific
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Europe, Middle East, & Africa
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Total
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Sales by Product and Service Offering:
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Critical infrastructure & solutions
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$
|
877.2
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|
$
|
690.0
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|
|
$
|
494.1
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|
|
$
|
2,061.3
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Services & spares
|
513.4
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|
|
305.8
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|
|
229.9
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|
|
1,049.1
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Integrated rack solutions
|
213.0
|
|
|
154.1
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|
|
110.1
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|
|
477.2
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Total
|
$
|
1,603.6
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|
|
$
|
1,149.9
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|
|
$
|
834.1
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|
|
$
|
3,587.6
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|
|
|
|
|
|
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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
|
$
|
1,111.1
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|
|
$
|
913.3
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|
|
$
|
696.6
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|
|
$
|
2,721.0
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|
Products and services transferred over time
|
492.5
|
|
|
236.6
|
|
|
137.5
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|
|
866.6
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Total
|
$
|
1,603.6
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|
|
$
|
1,149.9
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|
|
$
|
834.1
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|
|
$
|
3,587.6
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|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
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Americas
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Asia Pacific
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Europe, Middle East, & Africa
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Total
|
Sales by Product and Service Offering: (1)
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Critical infrastructure & solutions
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$
|
769.9
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|
|
$
|
549.6
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|
|
$
|
343.0
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|
|
$
|
1,662.5
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|
Services & spares
|
491.0
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|
|
260.5
|
|
|
207.8
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|
|
959.3
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Integrated rack solutions
|
222.4
|
|
|
116.3
|
|
|
104.5
|
|
|
443.2
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Total
|
$
|
1,483.3
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|
|
$
|
926.4
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|
|
$
|
655.3
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|
|
$
|
3,065.0
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|
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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
|
$
|
1,022.3
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|
|
$
|
720.4
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|
|
$
|
505.1
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|
|
$
|
2,247.8
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|
Products and services transferred over time
|
461.0
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|
|
206.0
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|
|
150.2
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|
|
817.2
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Total
|
$
|
1,483.3
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|
|
$
|
926.4
|
|
|
$
|
655.3
|
|
|
$
|
3,065.0
|
|
(1)Comparative results for Critical infrastructure & solutions, Services & spares and Integrated rack solutions for the nine months ended September 30, 2020 have been adjusted by $15.6, $5.6, and $(21.3), respectively, to reflect the strategic realignment described above.
The opening and closing balances of our current and long-term contract assets and current and long-term deferred revenue were as follows:
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Balances at
September 30, 2021
|
|
Balances at December 31, 2020
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|
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|
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Deferred revenue - current (1)
|
$
|
234.4
|
|
|
$
|
199.6
|
|
Deferred revenue - noncurrent (2)
|
44.4
|
|
|
38.8
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|
Other contract liabilities - current (1)
|
61.8
|
|
|
36.1
|
|
(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 - noncurrent consists primarily of maintenance, extended warranty and other service contracts. We expect to recognize revenue of $9.1, $19.7 and $15.6 in fiscal year 2022, fiscal year 2023, and thereafter, respectively.
(4) RESTRUCTURING COSTS
Restructuring costs include expenses associated with the Company's efforts to continually improve operational efficiency and reposition its assets to remain competitive on a worldwide basis. Plant closing and other costs include costs of moving fixed assets, employee training, relocation, and facility costs.
Restructuring costs by business segment were as follows:
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|
|
Three Months Ended September 30, 2021
|
|
Three Months Ended September 30, 2020
|
|
Nine Months Ended September 30, 2021
|
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Nine Months Ended September 30, 2020
|
Americas
|
$
|
0.3
|
|
|
$
|
13.7
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|
|
$
|
2.4
|
|
|
$
|
14.8
|
|
Asia Pacific
|
—
|
|
|
10.6
|
|
|
3.4
|
|
|
10.8
|
|
Europe, Middle East & Africa(1)
|
(4.1)
|
|
|
41.4
|
|
|
(6.8)
|
|
|
42.2
|
|
Corporate
|
—
|
|
|
6.0
|
|
|
0.3
|
|
|
5.2
|
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Total
|
$
|
(3.8)
|
|
|
$
|
71.7
|
|
|
$
|
(0.7)
|
|
|
$
|
73.0
|
|
(1) During the third quarter of 2021, a previously recorded restructuring reserve was reversed due to the planned sale of a heavy industrial UPS business, refer to Note 2 for more information.
The change in the liability for the restructuring of operations during the nine months ended September 30, 2021 were as follows:
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|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Expense
|
|
Paid/Utilized
|
|
September 30, 2021
|
Severance and benefits
|
$
|
68.9
|
|
|
$
|
(4.8)
|
|
|
$
|
(21.0)
|
|
|
$
|
43.1
|
|
Plant closing and other
|
0.4
|
|
|
4.1
|
|
|
(3.9)
|
|
|
0.6
|
|
Total
|
$
|
69.3
|
|
|
$
|
(0.7)
|
|
|
$
|
(24.9)
|
|
|
$
|
43.7
|
|
The change in the liability for the restructuring of operations during the nine months ended September 30, 2020 were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Expense
|
|
Paid/Utilized
|
|
September 30, 2020
|
Severance and benefits
|
$
|
21.6
|
|
|
$
|
70.7
|
|
|
$
|
(15.6)
|
|
|
$
|
76.7
|
|
Plant closing and other
|
0.6
|
|
|
2.3
|
|
|
(2.3)
|
|
|
0.6
|
|
Total
|
$
|
22.2
|
|
|
$
|
73.0
|
|
|
$
|
(17.9)
|
|
|
$
|
77.3
|
|
(5) DEBT
Long-term debt, net, consisted of the following as of September 30, 2021 and December 31, 2020:
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|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Term Loan due 2027 at 2.83% and 3.15% at September 30, 2021 and December 31, 2020, respectively.
|
$
|
2,167.1
|
|
|
$
|
2,183.5
|
|
|
|
|
|
Unamortized discount and issuance costs
|
(26.9)
|
|
|
(31.0)
|
|
|
2,140.2
|
|
|
2,152.5
|
|
Less: Current Portion
|
(21.8)
|
|
|
(22.0)
|
|
Total long-term debt, net of current portion
|
$
|
2,118.4
|
|
|
$
|
2,130.5
|
|
Contractual maturities of the Company’s debt obligations as of September 30, 2021 are shown below:
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|
|
|
|
|
|
|
|
Term Loan
|
|
|
|
|
Remainder of 2021
|
$
|
5.5
|
|
|
|
|
|
2022
|
21.8
|
|
|
|
|
|
2023
|
21.8
|
|
|
|
|
|
2024
|
21.8
|
|
|
|
|
|
2025
|
21.8
|
|
|
|
|
|
2026
|
21.8
|
|
|
|
|
|
Thereafter
|
2,052.6
|
|
|
|
|
|
Total
|
$
|
2,167.1
|
|
|
|
|
|
Amendment to the Term Loan due 2027
On March 10, 2021, Vertiv Group Corporation, a Delaware corporation and an indirect wholly owned subsidiary of the Company ("Vertiv Group" or the "Borrower"), Vertiv Intermediate Holding II Corporation, a Delaware corporation and the direct parent of Vertiv Group ("Holdings"), and certain direct and indirect subsidiaries of the Borrower, as guarantors, entered into an Amendment No. 1 to Term Loan Credit Agreement (the "Term Loan Amendment" and, the Original Term Loan Credit Agreement as amended by the Term Loan Amendment, the "Credit Agreement") with Citibank, N.A., as administrative agent (in such capacity, the “Term Agent”) and various financial institutions from time to time party thereto ("Term Lenders"), which Term Loan Amendment made certain modifications to the Term Loan Credit Agreement entered into by Borrower and the other parties on March 2, 2020 (the "Original Term Loan Credit Agreement"), including reducing the interest rate margins.
Pursuant to the Term Loan Amendment, among other modifications, the interest rate margin for the Borrower’s outstanding term loans under the Credit Agreement was reduced by 0.25%, to 2.75% in respect of term loans bearing interest based on the LIBOR rate and to 1.75% in respect of term loans bearing interest based on a base rate defined in the Credit Agreement. The Company recognized a loss on the extinguishment of debt of $0.4 related to the Amendment for the nine months ended September 30, 2021.
The maturity date for such term loans remains March 2, 2027, and all other material provisions of the Credit Agreement remain materially unchanged.
ABL Revolving Credit Facility
At September 30, 2021, Vertiv Group as the Borrower and certain subsidiaries of the Borrower as co-borrowers (the "Co-Borrowers") had $435.2 of availability under the Asset Based Revolving Credit Facility (the "ABL Revolving Credit Facility") (subject to customary conditions, and subject to separate sublimits for letters of credit, swingline borrowings and borrowings made to certain non-U.S. Co-Borrowers), net of letters of credit outstanding in the aggregate principal amount of $19.8, and taking into account the borrowing base limitations set forth in the ABL Revolving Credit Facility. At September 30, 2021, there was no borrowing balance on the ABL Revolving Credit Facility.
(6) 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, which are recorded in "Property, Plant, and Equipment", are immaterial to our condensed consolidated financial statements.
Operating lease expenses are recorded in "Cost of sales" and "Selling, general and administrative expenses" on the Unaudited Condensed Consolidated Statements of Earnings (Loss). Refer to the below table for a summary of these lease expenses:
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|
|
|
Three months ended September 30, 2021
|
|
Three months ended September 30, 2020
|
|
Nine months ended September 30, 2021
|
|
Nine months ended September 30, 2020
|
Operating lease cost
|
$
|
14.0
|
|
|
$
|
12.8
|
|
|
$
|
42.6
|
|
|
$
|
38.3
|
|
Short-term and variable lease cost
|
5.6
|
|
|
6.7
|
|
|
16.1
|
|
|
19.5
|
|
Total lease cost
|
$
|
19.6
|
|
|
$
|
19.5
|
|
|
$
|
58.7
|
|
|
$
|
57.8
|
|
Supplemental cash flow information related to operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2021
|
|
Nine months ended September 30, 2020
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash outflows - Payments on operating leases
|
$
|
42.1
|
|
|
$
|
38.3
|
|
Right-of-use assets obtained in exchange for new lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
$
|
52.5
|
|
|
$
|
42.0
|
|
|
|
|
|
Supplemental balance sheet information related to operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial statement line item
|
September 30, 2021
|
|
December 31, 2020
|
|
|
|
|
|
Operating lease right-of-use assets
|
Other assets
|
$
|
158.0
|
|
|
$
|
145.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
Accrued expenses and other liabilities
|
45.9
|
|
|
42.3
|
|
|
|
|
|
|
Operating lease liabilities
|
Other long-term liabilities
|
115.9
|
|
|
107.3
|
|
|
|
|
|
|
Total lease liabilities
|
|
$
|
161.8
|
|
|
$
|
149.6
|
|
Weighted average remaining lease terms and discount rates for operating leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Weighted Average Remaining Lease Term
|
5.6 years
|
|
4.5 years
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
5.4
|
%
|
|
5.8
|
%
|
|
|
|
|
Maturities of lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
|
Operating Leases
|
|
|
2021
|
$
|
13.7
|
|
|
$
|
51.0
|
|
|
|
2022
|
49.9
|
|
|
41.4
|
|
|
|
2023
|
41.4
|
|
|
33.4
|
|
|
|
2024
|
28.7
|
|
|
20.9
|
|
|
|
2025
|
17.4
|
|
|
10.4
|
|
|
|
Thereafter
|
42.9
|
|
|
17.2
|
|
|
|
Total Lease Payments
|
194.0
|
|
|
174.3
|
|
|
|
Less: Imputed Interest
|
(32.2)
|
|
|
(24.7)
|
|
|
|
Present value of lease liabilities
|
$
|
161.8
|
|
|
$
|
149.6
|
|
|
|
(7) INCOME TAXES
The Company's effective tax rate was 38.8%, 32.5%, (31.0)% and (16.7)% for the three and nine months ended September 30, 2021 and 2020, respectively. The effective rates in the current three and nine month periods are influenced by the mix of income between our U.S. and non-U.S. operations, net of changes in valuation allowances, and reflect the impact of non-taxable/non-deductible changes in fair value of the warrant liabilities, as well as a discrete tax adjustment related to legislative changes enacted in the second quarter. The effective tax rate in the nine months ended September 30, 2021 includes the benefit of certain internal reorganizations and tax elections outside the U.S. recognized in the second quarter. The effective rates for the comparative three and nine month periods were primarily influenced by the mix of income between our U.S. and non-U.S. operations, net of changes in valuation allowances. The prior periods also reflect a discrete tax benefit related to a change in our indefinite reinvestment liability caused by legislative changes enacted during the periods and movement in foreign currencies.
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 considered indefinitely reinvested. As of September 30, 2021, the Company has certain earnings of certain foreign affiliates that continue to be indefinitely reinvested, but it was not practicable to determine the impact.
(8) RELATED PARTY TRANSACTIONS
Services Agreement
The Company received certain corporate and advisory services from Platinum Equity Advisors, LLC ("Advisors"), and affiliates of Advisors. These services were provided pursuant to a corporate advisory services agreement (the "CASA") between Advisors and the Company. During the three months ended March 31, 2020, the Company recorded $0.5 in charges related to the CASA. This agreement was terminated on February 7, 2020.
During the three months ended March 31, 2020, 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.
During the three months ended March 31, 2020, the Company recorded $5.5 of cash related to a true-up of merger consideration in connection with the business combination.
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 and nine months ended September 30, 2021 and 2020 purchases were $24.8, $64.9, $17.0 and $40.3, respectively. For the three and nine months ended September 30, 2021 sales were $45.8 and $45.9, respectively. Accounts payable to affiliates of Advisors were $2.6 as of September 30, 2021. Accounts receivable from affiliates of Advisors were $31.9 as of September 30, 2021. There were an insignificant amount of sales, accounts receivable, and accounts payable in 2020 with affiliates of Advisors.
Tax Receivable Agreement
See Note 10 — Financial Instruments and Risk Management for additional information.
(9) OTHER FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Reconciliation of cash, cash equivalents, and restricted cash
|
|
|
|
Cash and cash equivalents
|
$
|
743.6
|
|
|
$
|
534.6
|
|
Restricted cash included in other current assets
|
8.0
|
|
|
8.0
|
|
Total cash, cash equivalents, and restricted cash
|
$
|
751.6
|
|
|
$
|
542.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Inventories
|
|
|
|
Finished products
|
$
|
240.7
|
|
|
$
|
201.0
|
|
Raw materials
|
229.4
|
|
|
155.7
|
|
Work in process
|
107.3
|
|
|
89.9
|
|
Total inventories
|
$
|
577.4
|
|
|
$
|
446.6
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Property, plant and equipment, net
|
|
|
|
Machinery and equipment
|
$
|
338.1
|
|
|
$
|
322.4
|
|
Buildings
|
242.8
|
|
|
255.5
|
|
Land
|
42.4
|
|
|
47.4
|
|
Construction in progress
|
19.2
|
|
|
23.1
|
|
Property, plant and equipment, at cost
|
642.5
|
|
|
648.4
|
|
Less: Accumulated depreciation
|
(254.1)
|
|
|
(220.8)
|
|
Property, plant and equipment, net
|
$
|
388.4
|
|
|
$
|
427.6
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Accrued expenses and other liabilities
|
|
|
|
Deferred revenue
|
$
|
234.4
|
|
|
$
|
199.6
|
|
Accrued payroll and other employee compensation
|
129.1
|
|
|
138.5
|
|
Litigation reserve (see note 14)
|
—
|
|
|
96.6
|
|
Contract liabilities (see note 3)
|
61.8
|
|
|
36.1
|
|
Operating lease liabilities
|
45.9
|
|
|
42.3
|
|
Product warranty
|
29.9
|
|
|
36.5
|
|
Restructuring (see note 4)
|
43.7
|
|
|
69.3
|
|
Other
|
280.8
|
|
|
282.9
|
|
Total
|
$
|
825.6
|
|
|
$
|
901.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
Change in product warranty accrual
|
|
|
|
Beginning balance, January 1
|
$
|
36.5
|
|
|
$
|
43.3
|
|
Provision charge to expense
|
11.2
|
|
|
18.6
|
|
Paid/utilized
|
(17.8)
|
|
|
(28.7)
|
|
Ending balance, September 30,
|
$
|
29.9
|
|
|
$
|
33.2
|
|
(10) 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
Total
|
|
Quoted prices in active markets for identical assets (Level 1)
|
|
Other observable inputs (Level 2)
|
|
Unobservable inputs (Level 3)
|
September 30, 2021
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
Other noncurrent assets
|
$
|
5.4
|
|
|
$
|
—
|
|
|
$
|
5.4
|
|
|
$
|
—
|
|
Total assets
|
|
$
|
5.4
|
|
|
$
|
—
|
|
|
$
|
5.4
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
Accrued expenses and other liabilities
|
$
|
10.2
|
|
|
$
|
—
|
|
|
$
|
10.2
|
|
|
$
|
—
|
|
Tax Receivable Agreement
|
Other long-term liabilities
|
162.0
|
|
|
—
|
|
|
—
|
|
|
162.0
|
|
Private warrants
|
Warrant liabilities
|
140.0
|
|
|
—
|
|
|
140.0
|
|
|
—
|
|
Total liabilities
|
|
$
|
312.2
|
|
|
$
|
—
|
|
|
$
|
150.2
|
|
|
$
|
162.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
Total
|
|
Quoted prices in active markets for identical assets (Level 1)
|
|
Other observable inputs (Level 2)
|
|
Unobservable inputs (Level 3)
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Tax Receivable Agreement
|
Other long-term liabilities
|
$
|
155.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
155.6
|
|
Interest rate swaps
|
Accrued expenses and other liabilities
|
10.3
|
|
|
—
|
|
|
10.3
|
|
|
—
|
|
Interest rate swaps
|
Other long-term liabilities
|
22.5
|
|
|
—
|
|
|
22.5
|
|
|
—
|
|
Public warrants
|
Current portion of warrant liabilities
|
68.5
|
|
|
68.5
|
|
|
—
|
|
|
—
|
|
Private warrants
|
Warrant liabilities
|
87.7
|
|
|
—
|
|
|
87.7
|
|
|
—
|
|
Total liabilities
|
|
$
|
344.6
|
|
|
$
|
68.5
|
|
|
$
|
120.5
|
|
|
$
|
155.6
|
|
Tax Receivable Agreement — The Company has estimated total payments of approximately $191.5 on an undiscounted basis. The initial fair value of the estimated liability resulting from the business combination of $133.4 was included as an adjustment to Additional paid in capital. Subsequent measurements are recorded in "Interest expense, net" in the Unaudited Condensed Consolidated Statements of Earnings (Loss) and "Accumulated other comprehensive income" in the Unaudited Condensed Consolidated Balance Sheets, 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 "Accumulated other comprehensive income" in the Unaudited Condensed Consolidated Balance Sheets. These estimates and assumptions are subject to change, which may materially affect the measurement of the liability.
We recorded $1.6, $3.3, $2.7 and $18.8 of accretion expense in "Interest expense, net" for the three and nine months ended September 30, 2021 and 2020, respectively, in the Unaudited Condensed Consolidated Statement of Earnings (Loss). An unrealized gain (loss) of $2.2, $(3.1), $(11.1) and $5.1 was recorded in "Accumulated other comprehensive income" in the Unaudited Condensed Consolidated Balance Sheets, related to the change in fair value of the tax receivable liability for the three and nine months ended September 30, 2021 and 2020, respectively.
The value of the Tax Receivable Agreement 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 September 30, 2021, we utilized a discount rate of 3.1%. 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 $11.0 at September 30, 2021. Significant changes in unobservable inputs could result in material changes to the tax receivable liability.
Details of the changes in value for the Tax Receivable Agreement are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
|
Beginning liability balance, January 1
|
$
|
155.6
|
|
|
$
|
—
|
|
|
|
Tax receivable agreement, initially recorded
|
—
|
|
|
133.4
|
|
|
|
Change in fair value
|
6.4
|
|
|
13.7
|
|
|
|
Ending liability balance, September 30,
|
$
|
162.0
|
|
|
$
|
147.1
|
|
|
|
Interest rate swaps — 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 effectively swapping such amount in LIBOR based floating rate debt for fixed rate debt.
The Company uses interest rate swaps to manage the interest rate mix of our total debt portfolio and related overall cost of borrowing. At September 30, 2021 interest rate swap agreements designated as cash flow hedges effectively swapped a notional amount of $1,000.0 of LIBOR based floating rate debt for fixed rate debt. Our interest rate swaps mature in March 2027. As of September 30, 2021 the fair value of interest rate swaps was $4.8 and was recorded in "Accumulated other comprehensive (loss) income" on the Unaudited Condensed Consolidated Balance Sheets. The total fair value at September 30, 2021 consisted of $10.2 current portion recorded in "Accrued expenses and other liabilities" in the Unaudited Condensed Consolidated Balance Sheets and a $5.4 non-current portion recorded in "Other assets". The Company recognized $2.7, $7.9, $2.9 and $3.4 in earnings for the three and nine months ended September 30, 2021 and 2020, respectively. At September 30, 2021, the Company expects that approximately $10.2 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.
The interest rate swaps are 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.
Net investment hedge — During the three months ended September 30, 2021, the Company designated certain intercompany debt to hedge a portion of its investment in foreign subsidiaries and affiliates. Realized and unrealized translation adjustments from these hedges were insignificant and are included in "Foreign currency translation" in the Unaudited Condensed Consolidated Statement of Other comprehensive income (loss). As of September 30, 2021, approximately $50 of the Company's intercompany debt were designated to hedge investments in certain foreign subsidiaries and affiliates.
Public warrants — as the Company's Public warrants were traded in active markets, their value was derived using quoted market prices and are classified as Level 1 financial instruments.
Private warrants — the fair value of the Private warrants is considered a Level 2 valuation and is determined using the Black-Sholes-Merton valuation model.
The significant assumptions which the Company used in the model are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant valuation inputs
|
|
September 30, 2021
|
|
December 31, 2020
|
Stock price
|
|
$
|
24.09
|
|
|
$
|
18.67
|
|
Strike price
|
|
$
|
11.50
|
|
|
$
|
11.50
|
|
Remaining life
|
|
3.35
|
|
4.10
|
Volatility
|
|
33.4
|
%
|
|
29.0
|
%
|
Interest rate (1)
|
|
0.61
|
%
|
|
0.27
|
%
|
Dividend yield (2)
|
|
0.04
|
%
|
|
0.05
|
%
|
(1) Interest rate determined from a constant maturity treasury yield
(2) September 30, 2021 and December 31, 2020 dividend yield assumes $0.01 per share per annum.
Foreign currency exchange rate risk management
We conduct business in several major international currencies and are, therefore, subject to risks associated with changing foreign currency exchange rates. We enter into various contracts that change in value as foreign currency exchange rates change to manage this exposure. Such contracts limit exposure to both favorable and unfavorable currency exchange rate fluctuations.
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 September 30, 2021 and December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Fair Value
|
|
Par Value (1)
|
|
Fair Value
|
|
Par Value (1)
|
Term Loan due 2027
|
$
|
2,153.6
|
|
|
$
|
2,167.1
|
|
|
$
|
2,169.9
|
|
|
$
|
2,183.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)See Note 5 — Debt for additional information
(11) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Activity in accumulated other comprehensive income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2021
|
|
Three months ended September 30, 2020
|
|
Nine months ended September 30, 2021
|
|
Nine months ended September 30, 2020
|
Foreign currency translation, beginning
|
$
|
89.0
|
|
|
$
|
(9.5)
|
|
|
$
|
104.9
|
|
|
$
|
32.9
|
|
Other comprehensive income (loss)
|
(28.0)
|
|
|
46.1
|
|
|
(43.9)
|
|
|
3.7
|
|
Foreign currency translation, ending
|
61.0
|
|
|
36.6
|
|
|
61.0
|
|
|
36.6
|
|
Interest rate swaps, beginning
|
(7.5)
|
|
|
(35.5)
|
|
|
(32.8)
|
|
|
—
|
|
Unrealized gain (loss) deferred during the period (1)
|
2.7
|
|
|
(2.3)
|
|
|
28.0
|
|
|
(37.8)
|
|
Interest rate swaps, ending
|
(4.8)
|
|
|
(37.8)
|
|
|
(4.8)
|
|
|
(37.8)
|
|
Pension, beginning
|
(20.3)
|
|
|
(15.0)
|
|
|
(19.7)
|
|
|
(14.8)
|
|
Actuarial gains (losses) recognized during the period, net of income taxes
|
0.1
|
|
|
—
|
|
|
(0.5)
|
|
|
(0.2)
|
|
Pension, ending
|
(20.2)
|
|
|
(15.0)
|
|
|
(20.2)
|
|
|
(15.0)
|
|
Tax receivable agreement, beginning
|
(6.2)
|
|
|
16.2
|
|
|
(0.9)
|
|
|
—
|
|
Unrealized gain (loss) during the period (2)
|
2.2
|
|
|
(11.1)
|
|
|
(3.1)
|
|
|
5.1
|
|
Tax receivable agreement, ending
|
(4.0)
|
|
|
5.1
|
|
|
(4.0)
|
|
|
5.1
|
|
Accumulated other comprehensive income (loss)
|
$
|
32.0
|
|
|
$
|
(11.1)
|
|
|
$
|
32.0
|
|
|
$
|
(11.1)
|
|
(1)During the three and nine months ended September 30, 2021 and 2020, $2.7, $7.9, $2.9 and $3.4, respectively, was reclassified into earnings.
(2)The fair value movement on the Tax Receivable Agreement attributable to our own credit risk spread is recorded in other comprehensive (loss) income.
(12) SEGMENT INFORMATION
Beginning in 2021, the primary income measure used for assessing segment performance and making operating decisions is operating profit (loss). Segment performance is assessed exclusive of Corporate and other costs, foreign currency gain (loss), and amortization of intangibles. Corporate and other costs primarily include headquarters management costs, stock-based compensation, other incentive compensation, global IT costs, change in warrant liabilities, asset impairments, and costs that support global product platform development and offering management.
Vertiv determines its reportable segments based on how operations are managed internally for the products and services sold to customers, including how the results are reviewed by the chief operating decision maker (CODM), which includes determining resource allocation methodologies used for reportable segments. During 2021, we reorganized our internal reporting and realigned our operating segment structure to how our CODM, our Chief Executive Officer, now allocates resources and makes decisions. The changes resulted in the identification of two new operating segments, 1) Greater China and 2) Australia & New Zealand, South East Asia and India (ASI) which previously were reported as our legacy Asia Pacific operating segment. Given the similarities of economic characteristics and other qualitative factors, we aggregate these operating segments, such that our reportable segments are unchanged.
In conjunction with the realignment, the Company concluded the new operating segments also comprised reporting units and the company tested goodwill for impairment for each reporting unit both immediately before and immediately after the business realignment. The Company allocated goodwill to the two new reporting units based on their relative fair value. The goodwill impairment tests under both the legacy and new reporting unit structures concluded that no impairment existed as of the date of the change.
Summarized information about the Company’s results of operations by reportable 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 & solutions includes AC and DC power management, thermal management, and modular hyperscale type data center sites.
•Integrated rack solutions includes racks, rack power, rack power distribution, rack thermal systems, and configurable integrated solutions; and hardware for managing I.T. equipment.
•Services & spares 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 North Asia and ASI. 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.
Reportable Segments
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Sales
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Three months ended September 30, 2021
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Three months ended September 30, 2020
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Nine months ended September 30, 2021
|
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Nine months ended September 30, 2020
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Americas
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$
|
542.1
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|
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$
|
537.4
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|
|
$
|
1,616.2
|
|
|
$
|
1,494.8
|
|
Asia Pacific
|
417.2
|
|
|
395.6
|
|
|
1,211.1
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|
|
975.2
|
|
Europe, Middle East & Africa
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306.4
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|
|
262.7
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|
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867.0
|
|
|
690.6
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|
|
1,265.7
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|
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1,195.7
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|
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3,694.3
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|
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3,160.6
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Eliminations
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(36.8)
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(33.7)
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(106.7)
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(95.6)
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Total
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$
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1,228.9
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|
|
$
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1,162.0
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|
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$
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3,587.6
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|
|
$
|
3,065.0
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|
|
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Intersegment sales (1)
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Three months ended September 30, 2021
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Three months ended September 30, 2020
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Nine months ended September 30, 2021
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Nine months ended September 30, 2020
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Americas
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$
|
4.9
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|
|
$
|
5.4
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|
|
$
|
12.6
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|
|
$
|
11.5
|
|
Asia Pacific
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22.6
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|
|
16.0
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|
|
61.2
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|
|
48.8
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Europe, Middle East & Africa
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9.3
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|
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12.3
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32.9
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35.3
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Total
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$
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36.8
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$
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33.7
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$
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106.7
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|
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$
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95.6
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(1)Intersegment selling prices approximate market prices.
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Operating profit (loss) (1)
|
Three months ended September 30, 2021
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|
Three months ended September 30, 2020
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|
Nine months ended September 30, 2021
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Nine months ended September 30, 2020
|
Americas
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$
|
113.4
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|
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$
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133.1
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|
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$
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368.4
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|
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$
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354.6
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Asia Pacific
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69.4
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53.6
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|
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185.3
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|
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130.6
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Europe, Middle East & Africa
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59.0
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|
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0.9
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|
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154.8
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|
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49.2
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Total reportable segments
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241.8
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187.6
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708.5
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534.4
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Foreign currency gain (loss)
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(4.9)
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(11.7)
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(2.1)
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(16.3)
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Corporate and other
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(123.5)
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|
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(108.3)
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(347.3)
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|
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(327.5)
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Total corporate, other and eliminations
|
(128.4)
|
|
|
(120.0)
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|
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(349.4)
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|
|
(343.8)
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Amortization of intangibles
|
(31.6)
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|
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(32.5)
|
|
|
(95.3)
|
|
|
(97.1)
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Operating profit (loss)
|
$
|
81.8
|
|
|
$
|
35.1
|
|
|
$
|
263.8
|
|
|
$
|
93.5
|
|
(1)Beginning in the first quarter of 2021, operating profit (loss) is the primary income measure used for assessing segment performance and making operating decisions. Comparative results for the three and nine months ended September 30, 2020 have been presented in conformity with the updated format.
(13) EARNINGS (LOSS) PER SHARE
Basic earnings per ordinary share is computed by dividing net earnings attributable to holders of the Company's Class A common shares 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 holders of the Company's Class A common shares 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 and nine months ended September 30, 2021 and 2020 are as follows (in millions, except per share and per share amounts):
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|
|
|
Three months ended September 30, 2021
|
|
Three months ended September 30, 2020
|
|
Nine months ended September 30, 2021
|
|
Nine months ended September 30, 2020
|
Net income (loss) attributable to common shareholders
|
$
|
56.2
|
|
|
$
|
(103.5)
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|
|
$
|
97.6
|
|
|
$
|
(367.8)
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|
|
|
|
|
|
|
|
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Weighted-average number of ordinary shares outstanding - basic
|
352,482,900
|
|
|
328,411,705
|
|
|
351,439,095
|
|
|
299,266,849
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Dilutive effect of equity-based compensation and warrants
|
10,715,801
|
|
|
—
|
|
|
4,535,533
|
|
|
—
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|
Weighted-average number of ordinary shares outstanding - diluted
|
363,198,701
|
|
|
328,411,705
|
|
|
355,974,628
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|
|
299,266,849
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Net income per share attributable to common shareholders
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Basic
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$
|
0.16
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|
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$
|
(0.32)
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|
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$
|
0.28
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|
|
$
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(1.23)
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Diluted
|
0.15
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|
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(0.32)
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|
|
0.27
|
|
|
(1.23)
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The dilutive effect of stock awards and warrants was 10.7 million and 4.5 million shares during the three and nine months ended September 30, 2021, respectively. Additional stock awards and warrants were also outstanding during the three and nine months ended September 30, 2021, but were not included in the computation of diluted earnings per common share because the effect would be anti-dilutive. Such anti-dilutive stock awards represented 1.8 million shares for the three months ended September 30, 2021. Such anti-dilutive stock awards and warrants represented 2.1 million and 5.7 million shares for the nine months ended September 30, 2021, respectively.
The dilutive effect of stock awards was zero during the three and nine months ended September 30, 2020. Additional stock awards and warrants were also outstanding during the three and nine months ended September 30, 2020, but were not included in the computation of diluted earnings per common share because the effect would be anti-dilutive. Such anti-dilutive stock awards and warrants represented zero and 33.5 million shares for the three months ended September 30, 2020, and 1.6 million and 33.5 million shares for the nine months ended September 30, 2020, respectively.
(14) 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 submitted an appeal, and in connection with the appeal submitted a surety bond underwritten by a third-party insurance company in the amount of $120.1. As of December 31, 2020, the Company had accrued $96.2 in accrued expenses, the full amount of the judgment, and recorded an offsetting indemnification receivable of $96.2 in other current assets related to this matter.
On August 30, 2021, the appellate court entered a judgment that the district court erred in its prior rulings and vacated the district court's judgment and post-verdict orders on appeal and remanded the case back to the district court for a new trial; and further vacated orders related to attorneys' and expert witness' fees. As a result of the appellate court’s ruling, the Company reversed the prior accrual of $96.2 in accrued expenses for the full amount of the judgment, and reversed the associated indemnification receivable as of September 30, 2021. On September 27, 2021 Bladeroom filed a petition requesting a rehearing en banc with the 9th Circuit.
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 September 30, 2021 and December 31, 2020, the Company had accrued $2.8 in accrued expenses. Discovery is underway and a trial has been scheduled for February 2022. 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.
On August 3, 2021, an American Arbitration Association arbitration hearing commenced with respect to a 2018 claim filed by Vertiv against SVO Building One, LLC (“SVO”) alleging damages of approximately $12.0 with respect to (i) unremitted payment for work and materials in connection with, the design, engineering, procurement, installation, construction, and commissioning of a data center located in Sacramento, California and (ii) damages and injunctive relief relating to SVO’s unauthorized use of Vertiv’s intellectual property and work product. SVO filed a counterclaim in 2018 alleging damages of approximately $18.0 relating to (i) allegations that Vertiv was not a duly licensed contractor at all times during the project in violation of California’s contractor license regulations, (ii) breach of warranty, and (iii) gross negligence. On September 3, 2021, the arbitrator issued an interim phase one ruling finding (1) that Vertiv was in violation of California contractor license regulations and was barred from recovery of approximately $9.0 for work performed and equipment delivered in connection with the project, as well as requiring disgorgement plus interest of $10.0, (2) SVO was not in violation of California’s contractor license regulations, and (3) Vertiv and SVO agreed to a traditional baseball arbitration provision under the terms and conditions for the project, wherein each party is required to submit a proposed final award to the arbitrator for consideration, and the arbitrator is required to select one of the proposed awards submitted by the parties as the final award in the arbitration and is prohibited from issuing an alternative award. The second phase of the arbitration is expected to commence in the fourth quarter of 2021. As of September 30, 2021, SVO has amended its damages claim to approximately $75.0. While Vertiv believes its claims are meritorious and defenses against certain assertions of SVO, Vertiv is unable at this time to predict the outcome of this dispute. Vertiv also has both a right to appeal the ultimate arbitration ruling and claims for indemnification against third parties and insurers for part or all of any judgment that may ultimately be entered against it.
At September 30, 2021, 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.
(15) SUBSEQUENT EVENTS
Acquisition
On September 8, 2021, Vertiv Holdings Ireland DAC, a private company limited by shares incorporated in Ireland (the "Irish buyer"), Vertiv International Holding Corporation, an Ohio corporation (the “US Buyer” and together with the Irish Buyer, the “Buyers” and each a “Buyer”) and the Company entered into a sale and purchase agreement (the "Acquisition Agreement") to acquire the shares of E+I Engineering Ireland Limited, a private company limited by shares incorporated in Ireland, and Powerbar Gulf LLC - Foreign Direct Investment, a non-freezone limited liability company incorporated and registered in Ras Al Khaimah Economic Zone-Government of Ras Al Khaimah ("E+I"). Under the terms of the Acquisition Agreement, E+I will receive upfront consideration of approximately $1.8 billion, consisting of $1.2 billion in cash and approximately $630.0 of Vertiv common stock, issued at the volume-weighted average closing price per share over the 60-day trading period ended September 7, 2021, and equating to 23.1 million shares of Vertiv common stock. Vertiv will pay $100.0 of additional cash consideration if E+I achieves EBITDA of $146.0 in 2022 and an incremental $100.0 cash consideration if E+I achieves EBITDA of $156.0 or higher in 2022. The Acquisition closed on November 1, 2021.
E+I was founded in 1986 and is a leading independent provider of switchgear, busway and modular power units serving data center and C&I customers in Europe. The combination is expected to broaden our power infrastructure portfolio, expand our services opportunities by providing additional upfront project start-up and ongoing maintenance services, enable us to offer complete integrated power and modular solutions, help Vertiv continue its participation with Hyperscale cloud providers and expand its existing relationships as well as gain new customers with enhanced offerings and ultimately, offer customers more flexible and scalable power deployment options.
In conjunction with the acquisition mentioned above, the Company, through a wholly owned subsidiary, issued $850.0 of Senior Secured Notes as of October 22, 2021.
Senior Secured Notes due 2028
On October 22, 2021, Vertiv Group Corporation (the “Issuer”), completed its offering (the “Offering”) of $850.0 aggregate principal amount of its Senior Secured Notes due 2028 (the “Notes”) in a private placement at par. The Notes will bear interest at 4.125% per annum and mature on November 15, 2028. The Company incurred $12.0 of debt issuance costs that will be capitalized as part of the Notes.