CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The fair value of identifiable assets acquired and liabilities assumed for all acquisitions at closing during 2020, 2019, and 2018 respectively, net of cash acquired, and contingent consideration liabilities incurred in relation to the acquisitions are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019(1)
|
|
2018
|
Current assets
|
$
|
742,867
|
|
|
$
|
2,137
|
|
|
$
|
706
|
|
Property and equipment, net
|
16,853
|
|
|
86
|
|
|
—
|
|
Finite-lived intangible assets
|
5,442,445
|
|
|
38,719
|
|
|
7,928
|
|
|
|
|
|
|
|
Goodwill
|
4,700,137
|
|
|
44,779
|
|
|
21,527
|
|
Other non-current assets
|
103,008
|
|
|
2
|
|
|
38
|
|
Total assets
|
$
|
11,005,310
|
|
|
$
|
85,723
|
|
|
$
|
30,199
|
|
|
|
|
|
|
|
Current liabilities
|
798,753
|
|
|
4,366
|
|
|
491
|
|
Non-current liabilities
|
459,961
|
|
|
8,920
|
|
|
2,054
|
|
Total liabilities
|
1,258,714
|
|
|
13,286
|
|
|
2,545
|
|
Net assets acquired
|
$
|
9,746,596
|
|
|
$
|
72,437
|
|
|
$
|
27,654
|
|
|
|
|
|
|
|
(1) Net assets acquired includes $3,500 related to the SequenceBase acquisition.
|
None of the goodwill associated with any of the business combinations above will be deductible for income tax purposes. Pro forma information is not presented for these acquisitions as the aggregate operations of the acquired acquisitions were not significant to the overall operations of the Company.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 5: Assets Held for Sale and Divested Operations
On November 6, 2020, the Company completed the sale of certain assets and liabilities of the Techstreet business to The International Society of Interdisciplinary Engineers LLC for a total purchase price of $42,832, of which $4,300 will be held in escrow and paid to the Company in a future period. As a result of the sale, the Company recorded a net gain on sale of $28,140, inclusive of incurred transaction costs of $115 in connection with the divestiture. The gain on sale is included in Other operating income, net within the Consolidated Statements of Operations during the year ended December 31, 2020. As a result of the sale, the Company wrote off balances associated with Techstreet including intangible assets of $10,179 and Goodwill in the amount of $9,129. The Company used the proceeds for general business purposes.
On November 3, 2019, the Company entered into an agreement with OpSec Security for the sale of certain assets and liabilities of its MarkMonitor Product Line within its IP Group. The divestiture closed on January 1, 2020 for a total purchase price of $3,751. An impairment charge of $18,431 was recognized in the Consolidated Statements of Operations during the year ended December 31, 2019, to write down the Assets and Liabilities of the disposal group to fair value. Of the total impairment charge, $17,967 related to the write down of intangible assets and $468 to the write down of goodwill. There was an immaterial loss on the divestiture recorded to Other operating income (expense), net during the year ended December 31, 2020. The Company used the proceeds for general business purposes. After impairment, Current Assets of $2,274 and Long Term Assets of $28,345 were reclassified to Current Assets Held for Sale as of December 31, 2019, while Current Liabilities of $21,170 and Long Term Liabilities of $5,698 were reclassified to Current Liabilities Held For Sale as of December 31, 2019.
The carrying amount of major classes of assets and liabilities that are included in Assets held for sale and Liabilities held for sale at December 31, 2019 related to certain assets and liabilities of its MarkMonitor Product Line consist of the following:
|
|
|
|
|
|
|
As of December 31,
|
|
2019
|
Assets:
|
|
Current assets:
|
|
Cash and cash equivalents
|
$
|
384
|
|
|
|
|
|
Prepaid expenses
|
1,692
|
|
Other current assets
|
198
|
|
Total current assets
|
2,274
|
|
Computer hardware and other property, net
|
2,961
|
|
Other intangible assets, net
|
18,957
|
|
|
|
Other non-current assets
|
1,993
|
|
|
|
Operating lease right-of-use assets
|
4,434
|
|
Total Assets held for sale
|
$
|
30,619
|
|
|
|
Liabilities:
|
|
Current liabilities:
|
|
Accounts payable
|
$
|
25
|
|
Accrued expenses and other current liabilities
|
1,764
|
|
Current portion of deferred revenues
|
18,067
|
|
Current portion of operating lease liabilities
|
1,314
|
|
|
|
Total current liabilities
|
21,170
|
|
|
|
Non-current portion of deferred revenues
|
834
|
|
Other non-current liabilities
|
163
|
|
|
|
Operating lease liabilities
|
4,701
|
|
Total Liabilities held for sale
|
$
|
26,868
|
|
On October 1, 2018, all assets, liabilities and equity interest of the IP Management ("IPM") Product Line and related assets were sold to CPA Global for a total purchase price of $100,130. As a result of the sale, the Company recorded a net gain on
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
sale of $36,072, inclusive of incurred transaction costs of $3,032 in connection with the divestiture. The gain on sale is included in Other operating income, net within the Consolidated Statements of Operations for the year ended December 31, 2018. As a result of the sale, the Company wrote off Goodwill in the amount of $49,349. The Company used $31,378 of the proceeds to pay down the Term Loan Facility on October 31, 2018.
The divestitures of Techstreet, certain assets and liabilities of MarkMonitor and IPM Product Line do not represent a strategic shift and are not expected to have a major effect on the Company’s operations or financial results, as defined by ASC 205-20, Discontinued Operations; as a result, these divestitures do not meet the criteria to be classified as discontinued operations.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 6: Accounts Receivable
Our accounts receivable balance consists of the following as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2020
|
|
2019
|
Accounts receivable
|
$
|
760,191
|
|
|
$
|
350,369
|
|
Less: Accounts receivable allowance
|
(8,745)
|
|
|
(16,511)
|
|
Accounts receivable, net
|
$
|
751,446
|
|
|
$
|
333,858
|
|
The Company estimates credit losses for trade receivables by aggregating similar customer types together, because they tend to share similar credit risk characteristics, taking into consideration the number of days the receivable is past due. Provision rates for the allowance for doubtful accounts are based upon the historical loss method by evaluating factors such as the length of time receivables that are past due and historical collection experience. Additionally, provision rates are based upon current and future economic and competitive environment factors that could impact the collectability of the receivable. Trade and other receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include past due status greater than 360 days or bankruptcy of the debtor. The activity in our accounts receivable allowance consists of the following for the years ended December 31, 2020, 2019, and 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Balance at beginning of year
|
$
|
16,511
|
|
|
$
|
14,076
|
|
|
$
|
8,495
|
|
Additional provisions
|
4,339
|
|
|
4,662
|
|
|
6,469
|
|
Write-offs
|
(22,205)
|
|
|
(2,321)
|
|
|
(870)
|
|
Opening balance sheet adjustment- ASU 2016 -13 adoption
|
10,097
|
|
|
—
|
|
|
—
|
|
Exchange differences
|
3
|
|
|
94
|
|
|
(18)
|
|
Balance at the end of year
|
$
|
8,745
|
|
|
$
|
16,511
|
|
|
$
|
14,076
|
|
The potential for credit losses is mitigated because customer creditworthiness is evaluated before credit is extended.
The Company recorded write-offs against the reserve of $22,205, $2,321 and $870 for the years ended December 31, 2020, 2019, and 2018, respectively.
We are monitoring the impacts from the COVID-19 pandemic on our customers and various counterparties. During the year ended December 31, 2020, the Company’s allowance for doubtful accounts and credit losses considered additional risk related to the pandemic. However, this risk to-date was not considered material.
Note 7: Leases
As the lessee, we currently lease real estate space, automobiles, and certain equipment under non-cancelable operating lease agreements. Some of the leases include options to extend the leases for up to an additional 10 years. We do not include any of our renewal options in our lease terms for calculating our lease liability as the renewal options allow us to maintain operational flexibility, and we are not reasonably certain we will exercise these renewal options at this time.
We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use assets, Current portion of operating lease liabilities, and Operating lease liabilities on our Consolidated Balance Sheets. The Company assesses its ROU asset and other lease-related assets for impairment consistent with other long-lived assets. As of December 31, 2020, we did not record an impairment related to these assets beyond the impairments recorded due to restructuring activity recorded within Note 25 - Restructuring. Refer to Note 27 - Subsequent Events.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. As such, the Company used judgment to determine an appropriate incremental borrowing rate. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our variable lease payments consist of non-lease services related to the lease and lease payments that are based on annual changes to an index. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components, which are accounted as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
The following illustrates the lease costs for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
Operating lease cost
|
$
|
24,438
|
|
|
$
|
27,812
|
|
|
|
|
|
Short-term lease cost
|
701
|
|
|
296
|
|
|
|
|
|
Variable lease cost
|
1,317
|
|
|
1,213
|
|
|
|
|
|
Total lease cost
|
$
|
26,456
|
|
|
$
|
29,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
Other information
|
|
|
|
|
|
Cash Paid for amounts included in measurement of lease liabilities
|
|
|
|
|
|
Operating cash flows from operating leases
|
$31,841
|
|
$24,303
|
|
|
Right-of-use assets obtained in exchange for lease obligations
|
|
|
|
|
|
Operating leases
|
$8,542
|
|
$6,386
|
|
|
Weighted-average remaining lease term - operating leases
|
6
|
|
6
|
|
|
Weighted-average discount rate - operating leases
|
5.2
|
%
|
|
5.8
|
%
|
|
|
The future aggregate minimum lease payments as of December 31, 2020 under all non-cancelable operating leases for the years noted are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
2021
|
$
|
35,963
|
|
2022
|
30,808
|
|
2023
|
26,960
|
|
2024
|
21,976
|
|
2025
|
15,048
|
|
2026 & Thereafter
|
29,142
|
|
Total operating lease commitments
|
159,897
|
|
Less imputed interest
|
(21,624)
|
|
Total
|
$
|
138,273
|
|
In connection with certain leases, the Company guarantees the restoration of the leased property to a specified condition after completion of the lease period. As of December 31, 2020 and December 31, 2019, the liability of $4,396 and $3,455, respectively, associated with these restorations is recorded within Other non-current liabilities.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
There were no material future minimum sublease payments to be received under non-cancelable subleases at December 31, 2020. There was no material sublease income for the years ended December 31, 2020, 2019 and 2018 respectively.
Disclosures related to periods prior to adoption of Topic 842
As discussed above, the Company adopted Topic 842 effective January 1, 2019 using a modified retrospective approach. For comparability purposes, and as required, the following disclosure is provided for periods prior to adoption. The Company’s total future minimum annual rental payments in effect at December 31, 2018 for noncancellable operating leases, which were accounted for under the previous leasing standard, Accounting Standards Codification 840, were as follows:
|
|
|
|
|
|
Year ended December 31,
|
|
2019
|
$
|
22,140
|
|
2020
|
19,531
|
|
2021
|
17,240
|
|
2022
|
15,333
|
|
2023
|
14,944
|
|
Thereafter
|
40,367
|
|
Total operating lease commitments
|
$
|
129,555
|
|
Total rental expense under operating leases amounted to $24,439 and $25,527 the years ended December 31, 2020 and 2019, respectively.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 8: Property and Equipment, Net
Property and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Computer hardware
|
$
|
38,253
|
|
|
$
|
24,620
|
|
Leasehold improvements
|
21,614
|
|
|
12,496
|
|
Furniture, fixtures and equipment
|
13,201
|
|
|
4,412
|
|
Total property and equipment, gross
|
73,068
|
|
41,528
|
Accumulated depreciation
|
(36,801)
|
|
|
(23,486)
|
|
Total property and equipment, net
|
$
|
36,267
|
|
|
$
|
18,042
|
|
Depreciation amounted to $12,709, $9,181, and $9,422 for the years ended December 31, 2020, 2019, and 2018 respectively.
Note 9: Other Intangible Assets, net and Goodwill
Other Intangible Assets, net
The following tables summarize the gross carrying amounts and accumulated amortization of the Company’s identifiable intangible assets by major class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Finite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
5,598,175
|
|
|
$
|
(261,350)
|
|
|
$
|
5,336,825
|
|
|
$
|
280,493
|
|
|
$
|
(180,571)
|
|
|
$
|
99,922
|
|
Databases and content
|
1,848,041
|
|
|
(464,683)
|
|
|
1,383,358
|
|
|
1,755,323
|
|
|
(342,385)
|
|
|
1,412,938
|
|
Computer software
|
658,976
|
|
|
(209,611)
|
|
|
449,365
|
|
|
285,701
|
|
|
(135,919)
|
|
|
149,782
|
|
Trade names
|
18,606
|
|
|
(2,360)
|
|
|
16,246
|
|
|
1,570
|
|
|
—
|
|
|
1,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
29,216
|
|
|
(5,905)
|
|
|
23,311
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Finite-lived intangible assets
|
8,153,014
|
|
|
(943,909)
|
|
|
7,209,105
|
|
|
2,323,087
|
|
|
(658,875)
|
|
|
1,664,212
|
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
161,245
|
|
|
—
|
|
|
161,245
|
|
|
164,428
|
|
|
—
|
|
|
164,428
|
|
Total intangible assets
|
$
|
8,314,259
|
|
|
$
|
(943,909)
|
|
|
$
|
7,370,350
|
|
|
$
|
2,487,515
|
|
|
$
|
(658,875)
|
|
|
$
|
1,828,640
|
|
The Company performed the indefinite-lived impairment test as of October 1, 2020 and 2019. Additionally, the Company reviewed goodwill for indicators of impairment at December 31, 2020 and 2019. As part of this analysis, the Company determined that its trade name, with a carrying value of $161,245, and $164,428 as of December 31, 2020 and 2019, respectively, was not impaired and will continue to be reported as indefinite-lived intangible assets.
In September and November 2019, the Company purchased the key business assets of SequenceBase and Darts-ip. As a result of the purchase, customer relations balance increased $3,641, computer software increased $11,525, databases and content increased $22,012 and finite-lived trade names increased $1,541. See Note 4 - Business Combinations for further details.
On January 1, 2020, all assets, liabilities, and equity interest of the Brand Protection, AntiPiracy, and AntiFraud solutions of the MarkMonitor Product Line were sold to OpSec Security for a purchase price of $3,751, which was determined to be the approximation of the fair value. At December 31, 2019, the assets and liabilities related to the divestment met the criteria for classification as Assets held for sale on the Company’s balance sheet, which included $36,924 of intangible assets. In addition, the Company compared the book value of the assets and liabilities to the purchase price and recorded a total
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
impairment charge during the year ended December 31, 2019 of $18,431, which included the write down of the $17,967 intangible assets classified as Assets held for sale. See Note 5 - Assets Held for Sale and Divested Operations for further details.
In June 2020, the Company acquired the assets of CustomersFirst Now for a purchase price of $6,446, which was accounted for as an asset acquisition. As a result, the Company's identifiable intangible assets increased by $6,446, which consisted of $5,446 of databases and content and $1,000 of computer software. The databases and process methodology and the computer software have a remaining weighted average amortization period of 5.0 years and 3.0 years, respectively. The total remaining weighted average amortization period is 4.7 years.
The weighted-average amortization period for each class of finite-lived intangible assets and for total finite-lived intangible assets, which range between 2 and 20 years, is as follows:
|
|
|
|
|
|
|
Remaining Weighted - Average Amortization Period (in years)
|
Customer relationships
|
22.22
|
Databases and content
|
13.68
|
Computer software
|
9.62
|
Trade names
|
5.39
|
Backlog
|
4.04
|
Total
|
19.73
|
Amortization amounted to $290,441, $191,361, and $227,803 for the years ended December 31, 2020, 2019, and 2018, respectively.
Estimated amortization for each of the five succeeding years as of December 31, 2020 is as follows:
|
|
|
|
|
|
2021
|
$
|
503,174
|
|
2022
|
466,526
|
|
2023
|
422,536
|
|
2024
|
400,836
|
|
2025
|
392,076
|
|
Thereafter
|
5,002,280
|
|
Subtotal finite-lived intangible assets
|
7,187,428
|
|
Internally developed software projects in process
|
21,677
|
|
Total finite-lived intangible assets
|
7,209,105
|
|
Intangibles with indefinite lives
|
161,245
|
|
Total intangible assets
|
$
|
7,370,350
|
|
Goodwill
The change in the carrying amount of goodwill is shown below:
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Science Segment
|
|
Intellectual Property Segment
|
|
Consolidated Total
|
Balance as of December 31, 2018
|
$
|
908,406
|
|
|
$
|
374,513
|
|
|
$
|
1,282,919
|
|
Acquisition
|
—
|
|
|
44,779
|
|
|
44,779
|
|
Transferred to Assets held for sale
|
—
|
|
|
(468)
|
|
|
(468)
|
|
Impact of foreign currency fluctuations and other
|
1,531
|
|
|
(716)
|
|
|
815
|
|
Balance as of December 31, 2019
|
$
|
909,937
|
|
|
$
|
418,108
|
|
|
$
|
1,328,045
|
|
Acquisition
|
497,263
|
|
|
4,202,875
|
|
|
4,700,138
|
|
Divestiture
|
—
|
|
|
(9,129)
|
|
|
(9,129)
|
|
Impact of foreign currency fluctuations and other
|
607
|
|
|
232,975
|
|
|
233,582
|
|
Balance as of December 31, 2020
|
$
|
1,407,807
|
|
|
$
|
4,844,829
|
|
|
$
|
6,252,636
|
|
|
|
The Company performed the goodwill impairment test as of October 1, 2020 and 2019. Additionally, the Company reviewed goodwill for indicators of impairment at December 31, 2020 and 2019. As of December 31, 2020, 2019 and 2018, the accumulated goodwill impairment was $0.
Goodwill represents the purchase price in excess of the fair value of the net assets acquired in a business combination. If the carrying value of a reporting unit exceeds the implied fair value of that reporting unit, an impairment charge to goodwill is recognized for the excess. The Company’s reporting units are one level below the operating segment, as determined in accordance with ASC 350. For the years ended December 31, 2020 and 2019, the Company had six and five reporting units, respectively.
The Company estimates the fair value of its reporting units using the income approach. Under the income approach, the fair value of a reporting unit is calculated based on the present value of estimated cash flows. No indicators of impairment existed as a result of the Company’s assessments, except for the sale of the Brand Protection, AntiPiracy, and AntiFraud solutions of the MarkMonitor Product Line.
On January 1, 2020, all assets, liabilities, and equity interest of the Brand Protection, AntiPiracy, and AntiFraud solutions of the MarkMonitor Product Line were sold to OpSec Security for a purchase price of $3,751, which was determined to be the approximation of the fair value. At December 31, 2019, the assets and liabilities related to the divestment met the criteria for classification as Assets held for sale on the Company’s balance sheet, which included $468 of goodwill. In addition, the Company compared the book value of the assets and liabilities to the purchase price and recorded a total impairment charge during the year ended December 31, 2019 of $18,431, which included the write down of the $468 goodwill classified as Assets held for sale. See Note 5 - Assets Held for Sale and Divested Operations for further details.
On November 23, 2020, the Company acquired Hanlim IPS. Co., Ltd. (Hanlim), which included $2,861 of goodwill. See Note 4 - Business Combinations for further details. This goodwill balance is allocated to the Intellectual Property segment.
On October 26, 2020, the Company acquired Beijing IncoPat Technology Co. Ltd., which included $40,474 of goodwill. See Note 4 - Business Combinations for further details. This goodwill balance is allocated to the Intellectual Property segment.
On October 1, 2020, the Company acquired CPA Global, which included $4,123,165 of goodwill. See Note 4 - Business Combinations for further details.
On February 28, 2020, the Company acquired DRG, which included $497,263 of goodwill. See Note 4 - Business Combinations for further details.
On November 27, 2019, the Company acquired Darts-ip, which included $44,779 of goodwill. See Note 4 - Business Combinations for further details.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 10: Derivative Instruments
Effective March 31, 2017, the Company entered into interest rate swap arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $300,000 of its outstanding Term Loan arrangements. Additionally, effective February 28, 2018, the Company entered into another interest rate swap relating to interest payments on $50,000 of its outstanding Term Loan arrangements. These hedging instruments mature on March 31, 2021. The Company applies hedge accounting by designating the interest rate swaps as a hedge on applicable future quarterly interest payments.
In April 2019, the Company entered into interest rate swap arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $50,000 of its term loans, effective April 30, 2021. Additionally, in May 2019, the Company entered into additional interest rate swap arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $100,000 of its term loan, effective March 2021. Both of these derivatives have notional amounts that amortize downward, and both have a maturity of September 2023. The Company will apply hedge accounting by designating the interest rate swaps as a hedge in applicable future quarterly interest payments.
Changes in the fair value are recorded in Accumulated other comprehensive income(loss) ("AOCI") and the amounts reclassified out of AOCI are recorded to Interest expense, net. The fair value of the interest rate swaps is recorded in Other current assets or Accrued expenses and other current liabilities and Other non-current assets or liabilities, according to the duration of related cash flows. The total fair value of the interest rate swaps was a liability of $5,159 as of December 31, 2020 and a liability of $2,778 as of December 31, 2019.
In March 2020, the Company amended all of its interest rate derivatives to reduce the 1% LIBOR floor to a 0% LIBOR floor. For the current derivatives, all other terms and conditions remain unchanged. The Company collected $1,737 in the year ended December 31, 2020, for the amendments of these derivatives. For the two forward starting swaps, an adjustment was made to reduce the weighted average fixed rate from 2.183% at December 31, 2019 to 1.695% at the amendment date.
The Company had a period of ineffectiveness related to the cash flow hedges in the three months ended March 31, 2020. The ineffectiveness was due to a drop in LIBOR rates below the LIBOR floor defined per the credit facilities, which were amended on March 31, 2020, resulting in a highly effective hedge. As a result of the ineffectiveness, the Company recognized a loss of $978 for the year ended December 31, 2020, which was recorded to Interest expense, net on the Consolidated Statements of Operations. As of December 31, 2020, there was no hedge ineffectiveness associated with the Company’s interest rate swaps.
The following table summarizes the changes in AOCI (net of tax) related to cash flow hedges for the year ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
AOCI Balance at December 31, 2017
|
$
|
1,107
|
|
|
|
Derivative gains recognized in Other comprehensive loss
|
2,313
|
|
|
|
Amount reclassified out of Other comprehensive loss to Net loss
|
224
|
|
|
|
AOCI Balance at December 31, 2018
|
$
|
3,644
|
|
|
|
Derivative losses recognized in Other comprehensive loss
|
(7,107)
|
|
|
|
Amount reclassified out of Other comprehensive loss to Net loss
|
685
|
|
|
|
AOCI Balance at December 31, 2019
|
$
|
(2,778)
|
|
|
|
Derivative losses recognized in Other comprehensive loss
|
(4,432)
|
|
|
|
Amount reclassified out of Other comprehensive loss to Net loss
|
3,454
|
|
|
|
AOCI Balance at December 31, 2020
|
$
|
(3,756)
|
|
|
|
Foreign Currency Forward Contracts
The IPM Product Line and related assets, which were divested on October 1, 2018, had forward contracts with notional values of $0 as of December 31, 2020 and December 31, 2019. Gains on the forward contracts amounted to $0, $0 and $240
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
for the years ended December 31, 2020, 2019 and 2018, respectively. These amounts were recorded in Revenues, net in the Consolidated Statements of Operations.
In September 2020, the Company entered into two foreign exchange forward contracts to reduce its exposure to variability in cash flows relating to funding of the repayment of CPA Global's parent company outstanding debt on October 1, 2020. This contract was settled as of October 1, 2020. The Company recognized a gain from the mark to market adjustment of $2,903, in Other operating income, net on the Consolidated Statements of Operations for the year ended December 31, 2020. The nominal amount of outstanding foreign currency contracts was $0 and $0 as of December 31, 2020 and December 31, 2019.
The Company periodically enters into foreign currency contracts. The purpose of these derivative instruments is to help manage the Company’s exposure to foreign exchange rate risks within the acquired CPA Global business. These contracts generally do not exceed 180 days in duration. The Company recognized a gain from the mark to market adjustment of $17,902, in Other operating income, net on the Consolidated Statements of Operations for the year ended December 31, 2020. The nominal amount of outstanding foreign currency contracts was $354,751 and $0 as of December 31, 2020 and December 31, 2019, respectively.
The Company accounts for these forward contracts at fair value and recognizes the associated realized and unrealized gains and losses in Other operating income, net in the Consolidated Statements of Operations, as the contracts are not designated as accounting hedges under the applicable sections of ASC Topic 815. The total fair value of the forward contracts represented an asset balance of $8,574 and $0 and a liability balance of $106 and $0 as of December 31, 2020 and December 31, 2019, respectively, which was classified within Other current assets and Accrued expenses and other current liabilities ,respectively, on the Consolidated Balance Sheets. The Company recognized gains from the mark to market adjustment of $20,805, $0, and $0 in Other operating income, net on the Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018, respectively.
See Note 11 - Fair Value Measurements for additional information on derivative instruments.
Note 11: Fair Value Measurements
The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3 — Unobservable inputs that are supported by little or no market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
Below is a summary of the valuation techniques used in determining fair value:
Derivatives - Derivatives consist of foreign exchange contracts and interest rate swaps. The fair value of foreign exchange contracts is based on observable market inputs of spot and forward rates or using other observable rates. The fair value of the interest rate swaps is the estimated amount that the Company would receive or pay to terminate such agreements, taking into account market interest rates and the remaining time to maturities or using market inputs with mid-market pricing as a practical expedient for bid-ask spread. See Note 10 - Derivative Instruments for additional information.
Contingent consideration - The Company values contingent cash consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. Key assumptions used to estimate the fair value of contingent consideration include revenue, net
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
new business and operating forecasts and the probability of achieving the specific targets. The Company values contingent stock consideration related to business combinations using observable market data, adjusted for indemnity losses and claims for indemnity losses valued using other indirect market inputs observable in the marketplace.
The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other accruals readily convertible into cash approximate fair value because of the short-term nature of the instruments. The carrying value of the Company's variable interest rate debt, excluding unamortized debt issuance costs and original issue discount, approximates fair value due to the short-term nature of the interest rate benchmark rates. The fair value of the fixed rate debt is estimated based on market observable data for debt with similar prepayment features. The fair value of the Company's debt was $3,574,282 and $1,692,750 at December 31, 2020 and 2019, respectively. The fair value is considered Level 2 under the fair value hierarchy.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The Company has determined that its forward contracts, included in other current assets, along with its interest rate swaps, included in Accrued expenses and other current liabilities and Other non-current liabilities according to the duration of related cash flows, reside within Level 2 of the fair value hierarchy.
In accordance with ASC 805, we estimated the fair value of the earn-outs using a Monte Carlo simulation. The amount of the earn-outs approximate fair value due to the short term nature of their remaining payments as of December 31, 2020 and December 31, 2019. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. As of December 31, 2020, the Company paid the remaining earn-out liabilities related to Publons and TrademarkVision. These acquisitions occurred in 2017 and 2018, respectively. The amount payable was contingent upon the achievement of certain company specific milestones and performance metrics including number of cumulative users, cumulative reviews and annual revenue over a 1-year and 3-year period. Changes in the earn-out are recorded to Selling, general and administrative costs in the Consolidated Statements of Operations.
As of December 31, 2020, the Company maintains a contingent stock liability based on observable market data relating to the DRG acquisition that occurred on February 28, 2020. Changes in the contingent stock liability are recorded to Selling, general and administrative costs in the Consolidated Statements of Operations. The contingent stock liability is recorded in Accrued expenses and other current liabilities and is classified as Level 2 in the fair value hierarchy. The amount is payable on the one year anniversary of the acquisition date and is contingent upon any indemnity losses or claims for indemnity losses as defined in the purchase agreement. This fair value measurement is based on observable market data and other indirect observable market inputs and thus represents a Level 2 measurement as defined in ASC 820.
As of December 31, 2020, the Company maintains a contingent stock liability based on observable market data relating to the CPA Global acquisition that occurred on October 1, 2020. Changes in the contingent stock liability are recorded to Selling, general and administrative costs in the Consolidated Statements of Operations. The contingent stock liability is recorded in Accrued expenses and other current liabilities and is classified as Level 2 in the fair value hierarchy. The amount is payable 110 days after the acquisition date and is contingent upon any indemnity losses or claims for indemnity losses as defined in the purchase agreement. This fair value measurement is based on observable market data and other indirect observable market inputs and thus represents a Level 2 measurement as defined in ASC 820.
As of December 31, 2020, the Company maintains an employee phantom share plan receivable asset and liability, including an accrued liability for the employer's portion of payroll withholding taxes, which was recorded in connection with the acquisition opening balance sheet. The legacy CPA Global phantom share plan contained a change in control provision for an exit event which included the sale of CPA Global. Upon the exit event, the phantom shares converted into CLVT shares and the funds were placed into an employee benefit trust to be passed to the Company for payment to the respective employees via Clarivate payroll. The Company is required to withhold employee payroll taxes and will be required to fund and pay employer payroll taxes. The associated asset and liability balances are based on observable market data relating to the CPA Global acquisition that occurred on October 1, 2020. Changes in the receivable asset and liability are recorded to Selling, general and administrative costs in the Consolidated Statements of Operations. The current and non-current portions of the liability are recorded in Accrued expenses and other current liabilities and Other non-current liabilities, respectively. The current and non-current portions of the receivable asset is recorded in Other current assets and Other non-current assets, respectively. The balances are classified as Level 2 in the fair value hierarchy. This fair value measurement is based on observable market data and other indirect observable market inputs and thus represents a Level 2 measurement as defined in ASC 820.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The Company enters into foreign currency contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivatives instruments is to help manage the Company's exposure to foreign exchange rate risks. These contracts are initially recognized at fair value at the date of the contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. These contracts generally do not exceed 180 days in duration, and these instruments are carried as assets when the fair value is positive (Other current assets on the Consolidated Balance Sheets), and as liabilities when the fair value is negative (Other current liabilities on the Consolidated Balance Sheets) The resulting gain or loss is recognized in profit or loss (other operating income (expense), net) immediately.
The Company assesses the fair value of these instruments, considering current and anticipated movements in future interest rates and the relevant currency spot and future rates available in the market. The Company receives third party valuation reports to corroborate our determination of fair value. Accordingly, these instruments are classified as Level 2 inputs.
There were no transfers of assets or liabilities between levels during the years ended December 31, 2020 and 2019.
The following table presents the changes in the earn-out, the only Level 3 item, for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
Balance at December 31, 2018
|
$
|
7,075
|
|
Payment of earn-out liability(1)
|
(2,371)
|
|
Revaluations included in earnings
|
6,396
|
|
Balance at December 31, 2019
|
$
|
11,100
|
|
Payment of earn-out liability (1)
|
(11,701)
|
|
Revaluations included in earnings
|
601
|
|
Balance at December 31, 2020
|
$
|
—
|
|
|
|
(1) See Note 23 - Commitments and Contingencies for further details.
|
|
|
|
|
|
|
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The following table provides a summary of the Company’s assets and liabilities that were recognized at fair value on a recurring basis as at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Fair Value
|
Assets
|
|
|
|
|
|
|
|
Forward contracts asset
|
$
|
—
|
|
|
$
|
8,574
|
|
|
$
|
—
|
|
|
$
|
8,574
|
|
Employee phantom share receivable asset
|
—
|
|
|
188,770
|
|
|
—
|
|
|
188,770
|
|
|
—
|
|
|
197,344
|
|
|
—
|
|
|
197,344
|
|
Liabilities
|
|
|
|
|
|
|
|
Employee phantom share liability - current
|
—
|
|
|
193,162
|
|
|
—
|
|
|
193,162
|
|
Employee phantom share liability - non-current
|
—
|
|
|
18,670
|
|
|
—
|
|
|
18,670
|
|
Forward contracts liability
|
—
|
|
|
106
|
|
|
—
|
|
|
106
|
|
Interest rate swap liability
|
—
|
|
|
5,159
|
|
|
—
|
|
|
5,159
|
|
Earn-out liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Contingent stock liability
|
—
|
|
|
130,594
|
|
|
—
|
|
|
130,594
|
|
Total
|
$
|
—
|
|
|
$
|
347,691
|
|
|
$
|
—
|
|
|
$
|
347,691
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swap liability
|
$
|
—
|
|
|
$
|
2,778
|
|
|
$
|
—
|
|
|
$
|
2,778
|
|
Earn-out liability
|
—
|
|
|
—
|
|
|
11,100
|
|
|
11,100
|
|
Total
|
$
|
—
|
|
|
$
|
2,778
|
|
|
$
|
11,100
|
|
|
$
|
13,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Financial Assets Valued on a Non-Recurring Basis
The Company’s long-lived assets, including goodwill, indefinite-lived intangible and finite-lived intangible assets subject to amortization, are measured at fair value on a non-recurring basis. These assets are measured at cost but are written-down to fair value, if necessary, as a result of impairment.
Finite-lived Intangible Assets — If a triggering event occurs, the Company determines the estimated fair value of finite-lived intangible assets by determining the present value of the expected cash flows.
Indefinite-lived Intangible Asset — If a qualitative analysis indicates that it is more likely than not that the estimated fair value is less than the carrying value of an indefinite-lived intangible asset, the Company determines the estimated fair value of the indefinite-lived intangible asset (trade name) by determining the present value of the estimated royalty payments on an after-tax basis that it would be required to pay the owner for the right to use such trade name. If the carrying amount exceeds the estimated fair value, an impairment loss is recognized in an amount equal to the excess.
Goodwill — Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets resulting from business combinations. The Company evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment or one level below an operating segment, annually as of October 1 or more frequently if impairment indicators arise in accordance with ASC Topic 350. The Company performs qualitative analysis of macroeconomic conditions, industry and market considerations, internal cost factors, financial performance, fair value history and other company specific events. If this qualitative analysis indicates that it is more likely than not that the estimated fair value is less than the book value for the respective reporting unit, the Company applies a two-step impairment test in which the Company determines whether the estimated fair value of the reporting unit is in excess of its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the estimated fair value of the reporting
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
unit, the Company performs the second step of the impairment test to determine the implied estimated fair value of the reporting unit’s goodwill. The Company determines the implied estimated fair value of goodwill by determining the present value of the estimated future cash flows for each reporting unit and comparing the reporting unit’s risk profile and growth prospects to selected, reasonably similar publicly traded companies.
Effective January 1, 2020, all assets, liabilities, and equity interest of the Brand Protection, AntiPiracy, and AntiFraud solutions of the MarkMonitor Product Line were sold to OpSec Security for a purchase price of $3,751, which approximates fair value of the assets as of December 31, 2019. To measure the amount of impairment related to the divestiture, the Company compared the fair values of assets and liabilities at the evaluation date to the carrying amounts as of December 31, 2019. The loss on impairment was $18,431 as of December 31, 2019. The sale of the Brand Protection, AntiPiracy, and AntiFraud solutions of the MarkMonitor Product Line assets and liabilities are categorized as Level 2 within the fair value hierarchy. The key assumption included the negotiated sales price of the assets and the assumptions of the liabilities. See Note 5 - Assets Held for Sale and Divested Operations for additional information.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 12: Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities, consisted of the following as of December 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Employee phantom share plan liability (1)
|
$
|
193,162
|
|
|
$
|
—
|
|
Contingent stock liability(2)
|
130,594
|
|
|
—
|
|
Employee related accruals(3)
|
98,481
|
|
|
55,155
|
|
Accrued professional fees(4)
|
67,628
|
|
|
46,161
|
|
Tax related accruals (5)
|
45,119
|
|
|
6,994
|
|
Other accrued expenses and other current liabilities(6)
|
181,372
|
|
|
50,907
|
|
Total accrued expenses and other current liabilities
|
$
|
716,356
|
|
|
$
|
159,217
|
|
(1) See Note 11 - Fair Value Measurements for further information with respect to the employee phantom share plan liabilities.
(2) Contingent stock consideration associated with the CPA Global and DRG acquisitions. See Note 4 - Business Combinations and Note 23 - Commitments and Contingencies for further information.
(3) Employee related accruals include accrued payroll, bonus and employee commissions.
(4) Professional fee related accruals include accrued legal fees, audit fees and contractor fees.
(5) Tax related accruals include value-added tax payable and other current taxes payable.
(6) Includes current liabilities due to customers, royalty accruals, interest payable, and a collection of miscellaneous other current liabilities.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 13: Pension and Other Post‑Retirement Benefits
Retirement Benefits
Defined contribution plans
Employees participate in various defined contribution savings plans that provide for Company-matching contributions. Costs for future employee benefits are accrued over the periods in which employees earn the benefits. Total expense related to defined contribution plans was $13,262, $12,143 and $13,170 for the years ended December 31, 2020, 2019 and 2018, respectively, which approximates the cash outlays related to the plans.
Defined benefit plans
A limited number of employees participate in noncontributory defined benefit pension plans that are maintained in certain international markets. The plans are managed and funded to provide pension benefits to covered employees in accordance with local regulations and practices. The Company’s obligations related to the defined benefit pension plans is in Accrued expenses and other current liabilities and Other non-current liabilities.
The following table presents the changes in projected benefit obligations, the plan assets, and the funded status of the defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Obligation and funded status:
|
|
|
|
Change in benefit obligation
|
|
|
|
Projected benefit obligation at beginning of year
|
$
|
16,563
|
|
|
$
|
14,486
|
|
Service costs
|
1,136
|
|
|
870
|
|
Interest cost
|
292
|
|
|
311
|
|
Plan participant contributions
|
124
|
|
|
114
|
|
Actuarial losses
|
695
|
|
|
1,492
|
|
Acquisition/Business Combination/Divestiture
|
2,393
|
|
|
—
|
|
Benefit payments
|
(357)
|
|
|
(312)
|
|
Expenses paid from assets
|
(40)
|
|
|
(36)
|
|
Settlements
|
—
|
|
|
(89)
|
|
Curtailment
|
(510)
|
|
|
—
|
|
Effect of foreign currency translation
|
1,319
|
|
|
(273)
|
|
Projected benefit obligation at end of year
|
$
|
21,615
|
|
|
$
|
16,563
|
|
Change in plan assets
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
5,487
|
|
|
$
|
5,184
|
|
Actual return on plan assets
|
213
|
|
|
198
|
|
Settlements
|
—
|
|
|
(89)
|
|
Plan participant contributions
|
124
|
|
|
113
|
|
Acquisition/Business Combination/Divestiture
|
99
|
|
|
—
|
|
Employer contributions
|
583
|
|
|
533
|
|
Benefit payments
|
(357)
|
|
|
(312)
|
|
Expenses paid from assets
|
(40)
|
|
|
(36)
|
|
Effect of foreign currency translation
|
556
|
|
|
(104)
|
|
Fair value of plan assets at end of year
|
6,665
|
|
|
5,487
|
|
Unfunded status
|
$
|
(14,950)
|
|
|
$
|
(11,076)
|
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The following table summarizes the amounts recognized in the Consolidated Balance Sheets related to the defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
Current liabilities
|
$
|
(902)
|
|
|
$
|
(635)
|
|
Non-current liabilities
|
$
|
(14,048)
|
|
|
$
|
(10,441)
|
|
AOCI
|
$
|
1,195
|
|
|
$
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides information for those pension plans with an accumulated benefit obligation in excess of plan assets and projected benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Plans with accumulated benefit obligation in excess of plan assets:
|
|
|
|
Accumulated benefit obligation
|
$
|
18,991
|
|
|
$
|
15,465
|
|
Fair value of plan assets
|
$
|
6,665
|
|
|
$
|
5,487
|
|
Plans with projected benefit obligation in excess of plan assets:
|
|
|
|
Projected benefit obligation
|
$
|
21,615
|
|
|
$
|
16,563
|
|
Fair value of plan assets
|
$
|
6,665
|
|
|
$
|
5,487
|
|
The components of net periodic benefit cost changes in plan assets and benefit obligations recognized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
2018
|
Service cost
|
$1,136
|
|
$
|
870
|
|
|
$
|
888
|
|
Interest cost
|
292
|
|
311
|
|
|
283
|
|
Expected return on plan assets
|
(178)
|
|
(157)
|
|
|
(150)
|
|
Amortization of actuarial gains
|
(46)
|
|
(76)
|
|
|
(78)
|
|
Settlement/(Curtailment)
|
(499)
|
|
7
|
|
|
—
|
|
Net periodic benefit cost
|
$705
|
|
$
|
955
|
|
|
$
|
943
|
|
The following table presents the weighted-average assumptions used to determine the net periodic benefit cost as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Discount rate
|
1.60
|
%
|
|
2.26
|
%
|
Expected return on plan assets
|
3.00
|
%
|
|
3.00
|
%
|
Rate of compensation increase
|
3.78
|
%
|
|
3.68
|
%
|
Social Security increase rate
|
2.50
|
%
|
|
2.50
|
%
|
Pension increase rate
|
1.80
|
%
|
|
1.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The following table presents the weighted-average assumptions used to determine the benefit obligations as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Discount rate
|
1.66
|
%
|
|
1.60
|
%
|
Rate of compensation increase
|
5.18
|
%
|
|
3.77
|
%
|
Social Security increase rate
|
2.50
|
%
|
|
2.50
|
%
|
Pension increase rate
|
1.80
|
%
|
|
1.80
|
%
|
The Company determines the assumptions used to measure plan liabilities as of the December 31 measurement date.
The discount rate represents the interest rate used to determine the present value of the future cash flows currently expected to be required to settle the Company’s defined benefit pension plan obligations. The discount rates are derived using weighted average yield curves on corporate bonds. The cash flows from the Company’s expected benefit obligation payments are then matched to the yield curve to derive the discount rates. At December 31, 2020, the discount rates ranged from 0.35% to 5.20% for the Company’s pension plan and postretirement benefit plan. At December 31, 2019, the discount rates ranged from 0.45% to 6.45% for the Company’s pension plan and postretirement benefit plan.
Plan Assets
The general investment objective for our plan assets is to obtain a rate of investment return consistent with the level of risk being taken and to earn performance rates of return as required by local regulations for our defined benefit plans. For such plans, the strategy is to invest primarily 100% in insurance contracts. Plan assets held in insurance contracts do not have target asset allocation ranges. The expected long-term return on plan assets is estimated based off of historical and expected returns. As of December 31, 2020, the expected weighted-average long-term rate of return on plan assets was 3%.
The fair value of our plan assets and the respective level in the far value hierarchy by asset category is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Fair value measurement of pension plan assets:
|
Level 1
|
Level 2
|
Level 3
|
Total Assets
|
|
Level 1
|
Level 2
|
Level 3
|
Total Assets
|
Insurance contract
|
$
|
—
|
|
—
|
|
6,665
|
|
$
|
6,665
|
|
|
$
|
—
|
|
—
|
|
5,487
|
|
$
|
5,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the insurance contracts is an estimate of the amount that would be received in an orderly sale to a market participant at the measurement date. The amount the plan would receive from the contract holder if the contracts were terminated is the primary input and is unobservable. The insurance contracts are therefore classified as Level 3 investments.
The following table provides the estimated pension benefit payments that are payable from the plans to participants as of December 31, 2020 for the following years:
|
|
|
|
|
|
2021
|
$
|
1,005
|
|
2022
|
1,284
|
|
2023
|
1,240
|
|
2024
|
1,397
|
|
2025
|
1,510
|
|
2026 to 2030
|
6,985
|
|
Total
|
$
|
13,421
|
|
Based on the current status of our defined benefit obligations, we expect to make payments in the amount of $357 to fund these plans in 2021. However, this estimate may change based on future regulatory changes.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 14: Debt
The following is a summary of the Company’s debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Type
|
|
Maturity
|
|
Effective
Interest
Rate
|
|
Carrying
Value
|
|
Effective
Interest
Rate
|
|
Carrying
Value
|
Senior Secured Notes (2026)
|
|
2026
|
|
4.500
|
%
|
|
$
|
700,000
|
|
|
4.500
|
%
|
|
$
|
700,000
|
|
Term Loan Facility (2026)
|
|
2026
|
|
3.626
|
%
|
|
2,847,400
|
|
|
5.049
|
%
|
|
900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
The Revolving Credit Facility
|
|
2024
|
|
—
|
%
|
|
—
|
|
|
5.049
|
%
|
|
65,000
|
|
Total debt outstanding
|
|
|
|
|
|
3,547,400
|
|
|
|
|
1,665,000
|
|
Debt issuance costs
|
|
|
|
|
|
(51,309)
|
|
|
|
|
(25,205)
|
|
Term Loan Facility, discount
|
|
|
|
|
|
(9,591)
|
|
|
|
|
(2,184)
|
|
Short-term debt, including current portion of long-term debt
|
|
|
|
|
|
(28,600)
|
|
|
|
|
(9,000)
|
|
Long-term debt, net of current portion and debt issuance costs
|
|
|
|
|
|
$
|
3,457,900
|
|
|
|
|
$
|
1,628,611
|
|
The loans were priced at market terms and collectively have a weighted average interest rate and term of 3.799% and 4.818% for the year ended December 31, 2020 and 2019, respectively.
Financing Transactions
Senior Secured Notes due 2026
On October 31, 2019, we closed a private placement offering of $700,000 in aggregate principal amount of Senior Secured Notes ("Notes") due 2026 bearing interest at 4.50% per annum, payable semi-annually to holders of record in May and November. The first interest payment was paid in May 2020. The Notes due 2026 were issued by Camelot Finance S.A., an indirect wholly-owned subsidiary of Clarivate, and are secured on a first-lien pari passu basis with borrowings under the Credit Facilities. These Notes are guaranteed on a joint and several basis by certain Clarivate subsidiaries. The Notes will be general senior secured obligations of the Issuer and will be secured on a first-priority basis by the collateral now owned or hereafter acquired by the Issuer and each of the Guarantors that secures the Issuer’s and such Guarantor’s obligations under the New Senior Credit Facility (subject to permitted liens and other exceptions).
We used the net proceeds from the offering of the Notes due 2026, together with proceeds from the $900,000 Term Loan Facility and a $250,000 Revolving Credit Facility with a $40,000 letter of credit sub-limit, collectively the "Credit Facilities" discussed below to, among other things, redeem the 7.875% senior notes due 2024 issued by Camelot Finance S.A. ("Prior Notes") in full, refinance all amounts outstanding under the $175,000 revolving credit facility which was governed by the credit agreement dated as of October 3, 2016 ("Prior Revolving Credit Facility") and the $1,550,000 term loan facility ("Prior Term Loan Facility"), collectively the "Prior Credit Facilities", fund in full the TRA Termination Payment pursuant to the TRA Buyout Agreement and pay fees and expenses related to the foregoing. We redeemed the Prior Notes at a fixed price of 103.938%, plus accrued and unpaid interest to the date of the purchase. The total loss on the extinguishment of debt, including the transactions noted below, was $3,179.
In connection with the DRG acquisition, the Company incurred an incremental $360,000 of borrowings under our term loan facility and used the net proceeds from such borrowings to fund a portion of the DRG acquisition and to pay related fees and expenses.
In addition, the Company secured the backstop of a $950,000 fully committed bridge facility in connection with the DRG acquisition. However, the Company obtained all required financing with proceeds from the additional term loan borrowings and through a primary equity offering in February 2020. As such, the bridge facility remained undrawn through its expiration on closing of the acquisition.
On October 1, 2020, in connection with the CPA Global acquisition, the Company incurred an incremental $1,600,000 of borrowings under our term loan facility and used the net proceeds from such borrowings to fund the repayment of CPA
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Global's parent company outstanding debt of $2,055,822 of outstanding debt. Previously, the Company had secured the backstop of a $1,500,000 fully committed bridge facility. However, the Company obtained all required financing with proceeds from the additional term loan borrowings and the bridge facility remained undrawn through its expiration on closing of the acquisition.
The Notes are subject to redemption as a result of certain changes in tax laws or treaties of (or their interpretation by) a relevant taxing jurisdiction at 100% of the principal amount, plus accrued and unpaid interest to the date of redemption, and upon certain changes in control at 101% of the principal amount, plus accrued and unpaid interest to the date of purchase. Additionally, at the Company’s election the Notes may be redeemed (i) prior to November 1, 2022 at a redemption price equal to 100% of the aggregate principal amount of Notes being redeemed plus a “make-whole” premium, plus accrued and unpaid interest to the date of redemption or (ii) prior to November 1, 2022, the Company may use funds in an aggregate amount not exceeding the net cash proceeds of one or more specified equity offerings to redeem up to 40% of the aggregate principal amount of the Notes at a redemption price equal to 104.500% of the aggregate principal amount of the Notes being redeemed, plus accrued and unpaid interest and additional amounts to the date of redemption provided that at least 50% of the original aggregate principal amount of the Notes issued on the Closing Date remains outstanding after the redemption (or all Notes are redeemed substantially concurrently) and the redemption occurs within 120 days of the date of the closing of such equity offering or (iii) on November 1, 2022 of each of the years referenced below based on the call premiums listed below, plus accrued and unpaid interest to the date of redemption.
|
|
|
|
|
|
Period
|
Redemption Price
(as a percentage of principal)
|
2022
|
102.250
|
%
|
2023
|
101.125
|
%
|
2024 and thereafter
|
100.000
|
%
|
The Indenture governing the senior secured notes due 2026 contains covenants which, among other things, limit the incurrence of additional indebtedness (including acquired indebtedness), issuance of certain preferred stock, the payment of dividends, making restricted payments and investments, the purchase or acquisition or retirement for value of any equity interests, the provision of loans or advances to restricted subsidiaries, the sale or lease or transfer of any properties to any restricted subsidiaries, the transfer or sale of assets, and the creation of certain liens. As of December 31, 2020, we were in compliance with the indenture covenants.
Credit Facilities
On October 31, 2019, we entered into the Credit Facilities. The Credit Facilities consist of a $900,000 Term Loan Facility, which was fully drawn at closing, and a $250,000 Revolving Credit Facility with a $40,000 letter of credit sublimit, which was undrawn at closing. The Revolving Credit Facility carries an interest rate at LIBOR plus 3.25% per annum or Prime plus a margin of 2.25% per annum, as applicable depending on the borrowing, and matures on October 31, 2024. The Revolving Credit Facility interest rate margins will decrease upon the achievement of certain first lien net leverage ratios (as the term is used in the Credit Agreement). The Term Loan Facility matures on October 31, 2026. Principal repayments under the Term Loan Facility are due quarterly in an amount equal to 0.25% of the aggregate outstanding principal amount borrowed under the Term Loan Facility on October 31, 2019 and on the maturity date, in an amount equal to the aggregate outstanding principal amount on such date, together in each case, with accrued and unpaid interest. The Prior Credit facility and Prior Notes were replaced by the Credit Facility and Notes. $41,980 of old unamortized discount and fees were written off as part of the restructuring, and of the new costs incurred under the Credit Facility and the Notes, $17 was expensed and $25,818 was deferred.
On October 1, 2020, the Company borrowed $60,000 on the existing Revolving Credit Facility and used the net proceeds from such borrowings to fund the debt extinguishment costs in connection with funding of the repayment of CPA Global's parent company outstanding debt.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
During the year ended December 31, 2020, the Company paid down $125,000 on the revolving credit facility. The revolving credit facility has remained undrawn in the period subsequent to the pay down. The revolving credit facility is subject to a commitment fee of 0.375% per annum.
Borrowings under the Credit Facility bear interest at a floating rate which can be, at our option, either (i) a Eurocurrency rate plus an applicable margin or (ii) an alternate base rate (equal to the highest of (i) the rate which Bank of America, N.A. announces as its prime lending rate, (ii) the Federal Funds Effective Rate plus one-half of 1.00% and (iii) the Eurocurrency rate for an interest period of one month for loans denominated in dollars plus 1.00% plus an applicable margin, in either case, subject to a Eurocurrency rate floor of 0.00%. Commencing with the last day of the first full quarter ending after the closing date of the Credit Facilities, the Term Loan Facility will amortize in equal quarterly installments in an amount equal to 1.00% per annum of the original par principal amount thereof, with the remaining balance due at final maturity.
The Credit Facilities are secured by substantially all of our assets and the assets of all of our U.S. restricted subsidiaries and certain of our non-U.S. subsidiaries, including those that are or may be borrowers or guarantors under the Credit Facilities, subject to customary exceptions. The Credit Agreement governing the Credit Facilities contains customary events of default and restrictive covenants that limit us from, among other things, incurring certain additional indebtedness, issuing preferred stock, making certain restricted payments and investments, certain transfers or sales of assets, entering into certain affiliate transactions or incurring certain liens.
The Credit Facilities provide that, upon the occurrence of certain events of default, our obligations thereunder may be accelerated and the lending commitments terminated. Such events of default include payment defaults to the lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness (including the senior secured notes due 2026), voluntary and involuntary bankruptcy proceedings, material money judgments, loss of perfection over a material portion of collateral, material ERISA/pension plan events, certain change of control events and other customary events of default, in each case subject to threshold, notice and grace period provisions.
The Revolving Credit Facility provides for revolving loans, same-day borrowings and letters of credit pursuant to commitments in an aggregate principal amount of $250,000 with a letter of credit sublimit of $40,000. Proceeds of loans made under the Revolving Credit Facility may be borrowed, repaid and reborrowed prior to the maturity of the Revolving Credit Facility. Our ability to draw under the Revolving Credit Facility or issue letters of credit thereunder will be conditioned upon, among other things, delivery of required notices, accuracy of the representations and warranties contained in the Credit Agreement and the absence of any default or event of default under the Credit Agreement.
With respect to the Credit Facilities, the Company may be subject to certain negative covenants, including either a fixed charge coverage ratio, total first lien net leverage ratio, or total net leverage ratio if certain conditions are met. These conditions were not met and the Company was not required to perform these covenants as of December 31, 2020 .
The obligations of the borrowers under the Credit Agreement are guaranteed by UK Holdco and certain of its restricted subsidiaries and are collateralized by substantially all of UK Holdco’s and certain of its restricted subsidiaries’ assets (with customary exceptions described in the Credit Agreement). UK Holdco and its restricted subsidiaries are subject to certain covenants including restrictions on UK Holdco’s ability to pay dividends, incur indebtedness, grant a lien over its assets, merge or consolidate, make investments, or make payments to affiliates.
As of December 31, 2020, letters of credit totaling $5,262 were collateralized by the Revolving Credit Facility. Notwithstanding the Revolving Credit Facility, as of December 31, 2020 the Company had an unsecured corporate guarantee outstanding for $11,466 and cash collateralized letters of credit totaling $38, all of which were not collateralized by the Revolving Credit Facility. The Company borrowed $0 and $65,000 against the Revolving Credit Facility as of December 31, 2020 and 2019, respectively, to support current operations.
Amounts due under all of the outstanding borrowings as of December 31, 2020 for the next five years are as follows:
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
|
|
|
|
|
|
2021
|
$
|
28,600
|
|
2022
|
28,600
|
|
2023
|
28,600
|
|
2024
|
28,600
|
|
2025
|
28,600
|
|
Thereafter
|
3,404,400
|
|
Total maturities
|
3,547,400
|
|
Less: capitalized debt issuance costs and original issue discount
|
(60,900)
|
|
Total debt outstanding as of December 31, 2020
|
$
|
3,486,500
|
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 15: Revenue
Disaggregated Revenues
The tables below show the Company’s disaggregated revenue for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Subscription revenues
|
$
|
867,731
|
|
|
$
|
805,518
|
|
|
$
|
794,097
|
|
Transactional revenues
|
294,889
|
|
|
169,265
|
|
|
177,523
|
|
Re-occurring revenues
|
114,528
|
|
|
—
|
|
|
—
|
|
Total revenues, gross
|
1,277,148
|
|
|
974,783
|
|
|
971,620
|
|
Deferred revenues adjustment(1)
|
(23,101)
|
|
|
(438)
|
|
|
(3,152)
|
|
Total revenues, net
|
$
|
1,254,047
|
|
|
$
|
974,345
|
|
|
$
|
968,468
|
|
|
|
|
|
|
|
(1) Reflects the deferred revenue adjustment as a result of purchase accounting.
|
Cost to Obtain a Contract
The Company has prepaid sales commissions included in both Prepaid expenses and Other non-current assets on the balance sheets. The amount of prepaid sales commissions included in Prepaid expenses was $13,970 and $12,387 as of December 31, 2020 and 2019, respectively. The amount of prepaid sales commissions included in Other non-current assets was $14,102 and $11,620 as of December 31, 2020 and 2019, respectively. The Company has not recorded any impairments against these prepaid sales commissions.
Contract Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
Current portion of deferred revenues
|
|
Non-current portion of deferred revenues
|
Opening (1/1/2020)
|
$
|
333,858
|
|
|
$
|
407,325
|
|
|
$
|
19,723
|
|
Closing (12/31/2020)
|
751,446
|
|
|
707,318
|
|
|
41,399
|
|
(Increase)/decrease
|
$
|
(417,588)
|
|
|
$
|
(299,993)
|
|
|
$
|
(21,676)
|
|
|
|
|
|
|
|
Opening (1/1/2019)
|
$
|
331,295
|
|
|
$
|
391,102
|
|
|
$
|
17,112
|
|
Closing (12/31/2019)
|
333,858
|
|
|
407,325
|
|
|
19,723
|
|
(Increase)/decrease
|
$
|
(2,563)
|
|
|
$
|
(16,223)
|
|
|
$
|
(2,611)
|
|
|
|
|
|
|
|
Opening (1/1/2018)
|
$
|
317,808
|
|
|
$
|
361,260
|
|
|
$
|
15,796
|
|
Closing (12/31/2018)
|
331,295
|
|
|
391,102
|
|
|
17,112
|
|
(Increase)/decrease
|
$
|
(13,487)
|
|
|
$
|
(29,842)
|
|
|
$
|
(1,316)
|
|
The amounts of revenues recognized in the period that were included in the opening deferred revenues balances $400,656, $391,102 and $361,260 for years ended 2020, 2019, and 2018, respectively. This revenue consists primarily of subscription revenue.
Transaction Price Allocated to the Remaining Performance Obligation
As of December 31, 2020, approximately $70,576 of revenues is expected to be recognized in the future from remaining performance obligations, excluding contracts with a remaining duration of one year or less. The Company expects to recognize revenue on approximately 48.8% of these performance obligations over the next 12 months. Of the remaining
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
51.2%, 24.5% is expected to be recognized within the following year, with the final 26.7% expected to be recognized within years 3 to 10.
Note 16: Shareholders’ Equity
Pre-2019 Transaction
In March 2017, the Company formed the Management Incentive Plan under which certain employees of the Company may be eligible to purchase shares of the Company. In exchange for each share purchase subscription, the purchaser is entitled to a fully vested right to an ordinary share. Additionally, along with a subscription, employees receive a corresponding number of options to acquire additional ordinary shares subject to five years vesting. See Note 17 - Employment and Compensation Arrangements for additional detail related to the options. There were no share subscriptions received prior to or following the close of the 2019 Transaction as of December 31, 2020.
Post-2019 Transaction
Immediately prior to the closing of the 2019 Transaction, there were 87,749,999 shares of Churchill common stock issued and outstanding, consisting of (i) 68,999,999 public shares (Class A) and (ii) 18,750,000 founder shares (Class B). On May 13, 2019, in connection with the 2019 Transaction, all of the Class B common stock converted into Class A common stock of the post-combination company on a one-for-one basis, and effected the reclassification and conversion of all of the Class A common stock and Class B common stock into a single class of common stock of Clarivate Plc. One stockholder elected to have one share redeemed in connection with the 2019 Transaction.
In June 2019, the Company formed the 2019 Incentive Award Plan under which employees of the Company may be eligible to purchase shares of the Company. See Note 17 - Employment and Compensation Arrangements for additional detail related to the 2019 Incentive Award Plan. In exchange for each share subscription purchased, the purchaser is entitled to a fully vested right to an ordinary share. At December 31, 2020 there were unlimited shares of common stock authorized, and 606,329,598 shares issued and outstanding, with a par value of $0.00. The Company did not hold any shares as treasury shares as of December 31, 2020 or December 31, 2019. The Company’s common stockholders are entitled to one vote per share.
Warrants
Upon consummation of the 2019 Transaction, the Company had warrants outstanding to purchase an aggregate of 52,800,000 ordinary shares. Each outstanding whole warrant of Churchill represents the right to purchase one ordinary share of the Company in lieu of one share of Churchill common stock upon closing of the 2019 Transaction at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing upon the later of (i) 30 days after the completion of the 2019 Transaction and (ii) September 11, 2019. The holder does not have the right to exercise the Warrants to the extent that they would beneficially own in excess of 4.9% or 9.8% (as specified by the holder) of the shares of common stock outstanding immediately after giving effect to such exercise. As of December 31, 2019, 100,114 warrants had been exercised.
During the period January 1, 2020 through February 21, 2020, 24,132,666 of the Company’s outstanding public warrants were exercised for one ordinary share per whole public warrant at a price of $11.50 per share. On February 20, 2020, we announced the redemption of all of our outstanding public warrants to purchase our ordinary shares that were issued as part of the units sold in the Churchill Capital Corp initial public offering that remained outstanding at 5:00 p.m. New York City time on March 23, 2020, for a redemption price of $0.01 per public warrant. In addition, our board of directors elected that, upon delivery of the notice of the redemption on February 20, 2020, all public warrants were to be exercised only on a “cashless basis.” Accordingly, by virtue of the cashless exercise of public warrants, exercising public warrant holders received 0.4626 of an ordinary share for each public warrant, and 4,747,432 ordinary shares were issued for public warrants exercised on a cashless basis and 4,649 public warrants were redeemed for $0.01 per public warrant. As of December 31, 2020, no public warrants were outstanding.
Merger Shares
Upon consummation of the 2019 Transaction, there were 7,000,000 ordinary shares of Clarivate that are issuable to persons designated by Messrs. Stead and Klein, including themselves, if the last sale price of Clarivate’s ordinary shares is at least
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
$20.00 for 40 days over a 60 consecutive trading day period on or before the sixth anniversary of the closing of the 2019 Transaction. On January 31, 2020, our Board agreed to waive all performance vesting conditions associated with the Merger Shares (as defined below). The Merger Shares were issued as ordinary shares to persons designated by Jerre Stead and Michael Klein on June 1, 2020 as part of the June 2020 underwritten public offering. See Note 17 - Employment and Compensation Arrangements for additional detail related to the Merger Shares.
DRG Acquisition Shares
In connection with the DRG acquisition, up to 2,895,638 ordinary shares of the Company are issuable to PEL following the one-year anniversary of the closing, which will take place on February 28, 2021. See Note 4 - Business Combinations for additional details.
CPA Global Acquisition Shares
In connection with the CPA Global acquisition, on October 1, 2020, the Company issued as part of the purchase consideration, 216,683,778 ordinary shares of the Company. See Note 4 - Business Combinations for additional details and see also Note 27 - Subsequent Events.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 17: Employment and Compensation Arrangements
Employee Incentive Plans
Prior to the 2019 Transaction, the Company operated under its 2016 Equity Incentive Plan, which provided for certain employees of the Company to be eligible to participate in equity ownership in the Company. On May 8, 2019, in anticipation of the 2019 Transaction, the Board adopted the 2019 Incentive Award Plan, which was an amendment, restatement and continuation of the 2016 Equity Incentive Plan. Upon closing of the 2019 Transaction, awards under the 2016 Equity Incentive Plan were converted using the exchange ratio established during the 2019 Transaction and assumed into the 2019 Incentive Award Plan (See Note 4 - Business Combinations). The 2019 Incentive Award Plan permits the granting of awards in the form of incentive stock options, non-qualified stock options, share appreciation rights, restricted shares, restricted share units and other stock-based or cash based awards. Equity awards may be issued in the form of restricted shares or restricted share units with dividend rights or dividend equivalent rights subject to vesting terms and conditions specified in individual award agreements. The Company’s Management Incentive Plan provides for employees of the Company to be eligible to purchase shares of the Company. See Note 16 - Shareholders’ Equity for additional information.
A maximum aggregate amount of 60,000,000 ordinary shares are reserved for issuance under the 2019 Incentive Award Plan. Equity awards under the 2019 Incentive Award Plan may be issued in the form of options to purchase shares of the Company which are exercisable upon the occurrence of conditions specified within individual award agreements. As of December 31, 2020 and 2019, 42,785,926 and 37,302,599, respectively, awards have not been granted. The 2020 figure includes PSU awards at grant. Refer to the PSU section below for specifications of payout of these awards deemed probable.
Total share-based compensation expense included in the Consolidated Statements of Operations amounted to $41,650, $51,383, and $13,715 for the years ended December 31, 2020, 2019, and 2018, respectively. The total associated tax benefits recognized amounted to $30,620, $751, and $2,740 for the years ended December 31, 2020, 2019, and 2018, respectively.
The Company’s Management Incentive Plan provides for certain employees of the Company to be eligible to purchase shares of the Company. See Note 16 - Shareholders’ Equity for additional information. Along with each subscription, employees may receive a corresponding number of options to acquire additional ordinary shares subject to five years vesting.
As of December 31, 2020 and 2019, there was $0 and $6,873, respectively, of total unrecognized compensation cost related to outstanding stock options.
Stock Options
The Company’s stock option activity is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted
Average Exercise
Price per Share
|
|
Weighted-Average
Remaining
Contractual Life
(in years)
|
|
Aggregate
Intrinsic
Value
|
Balance at December 31, 2019
|
20,880,225
|
|
|
$
|
12.18
|
|
|
7.3
|
|
$
|
105,119
|
|
Granted
|
—
|
|
|
—
|
|
|
0
|
|
—
|
|
Expired
|
(3,964)
|
|
|
29.33
|
|
|
0
|
|
—
|
|
Forfeited
|
(972,781)
|
|
|
12.07
|
|
|
0
|
|
—
|
|
Exercised
|
(12,042,862)
|
|
|
11.67
|
|
|
0
|
|
—
|
|
Outstanding as of December 31, 2020
|
7,860,618
|
|
|
$
|
12.95
|
|
|
6.2
|
|
$
|
131,956
|
|
Vested and exercisable at December 31, 2020
|
7,860,618
|
|
|
$
|
12.95
|
|
|
6.2
|
|
$
|
131,956
|
|
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. 12,042,862 and 2,416,534 stock options were exercised as of December 31, 2020 and 2019, respectively. The total intrinsic value of stock options exercised was approximately $150,381 and $25,123 during the years ended December 31, 2020 and 2019, respectively.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The Company accounts for awards issued under the 2019 Incentive Award Plan as additional contributions to equity. Share-based compensation includes expense associated with stock option grants which is estimated based on the grant date fair value of the award issued. Share-based compensation expense related to stock options is recognized over the vesting period of the award which is generally five years, on a graded-scale basis. The weighted-average fair value of options granted per share was $0 and $2.94 as of December 31, 2020 and 2019, respectively.
In connection with the sale and divestiture of non-core assets and liabilities within the IP segment on November 6, 2020, the Company accelerated 43,605 unvested stock options, which resulted in recognition of $791 of compensation expense during the year ended December 31, 2020.
On November 30, 2020, the Company accelerated the vesting of approximately 3,530,000 remaining unvested stock options of the original 28,400,000 issued pursuant to the private company equity plan adopted in 2016 at the time of the formation of Clarivate as a standalone business after its divestiture from Thomson Reuters, including the previously disclosed unvested options held by key officers of the Company. The Company views this as an appropriate step to take at this time to streamline the Company’s equity compensation program by easing the administration of the plan and by allowing the Company to better manage the logistics and vesting of these options. The accelerated vesting resulted in the recognition of approximately $2,007 of compensation expense during the year ended December 31, 2020.
The Company uses the Black-Scholes option pricing model to estimate the fair value of options granted. The Black-Scholes model takes into account the fair value of an ordinary share and the contractual and expected term of the stock option, expected volatility, dividend yield, and risk-free interest rate. Prior to becoming a public company, the fair value of the Company’s ordinary shares were determined utilizing an external third-party pricing specialist.
The contractual term of the option ranges from the one to ten years. Expected volatility is the average volatility over the expected terms of comparable public entities from the same industry. The risk-free interest rate is based on a treasury rate with a remaining term similar to the contractual term of the option. The Company is recently formed and at this time does not expect to distribute any dividends. The Company recognizes forfeitures as they occur.
The assumptions used to value the Company’s options granted during the period presented and their expected lives were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
2018
|
Weighted-average expected dividend yield
|
—
|
|
—
|
|
—
|
%
|
Expected volatility
|
34.05% - 39.43%
|
|
19.52% - 20.26%
|
|
21.00% - 23.05%
|
Weighted-average expected volatility
|
34.79 %
|
|
19.87
|
%
|
|
21.86
|
%
|
Weighted-average risk-free interest rate
|
0.14 %
|
|
2.43
|
%
|
|
3.02
|
%
|
Expected life (in years)
|
1
|
|
7.3
|
|
8.5
|
Restricted Stock Units (“RSUs”)
RSUs typically vest from one to three years and are generally subject to either cliff vesting or graded vesting. RSUs do not have non-forfeitable rights to dividends or dividend equivalents. The fair value of RSUs is typically based on the fair value of our common shares on the date of grant. We amortize the value of these awards to expense over the vesting period on a graded-scale basis. The Company recognizes forfeitures as they occur.
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value per Share
|
Outstanding as of December 31, 2019
|
293,182
|
|
|
$
|
16.75
|
|
Granted
|
1,918,288
|
|
|
22.12
|
|
Vested
|
(289,641)
|
|
|
17.17
|
|
Forfeited
|
(111,283)
|
|
|
21.19
|
|
Outstanding as of December 31, 2020
|
1,810,546
|
|
|
$
|
19.30
|
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
During the fourth quarter, as a result of divestitures and restructuring activities, there was an acceleration of 5,846 unvested RSUs, which resulted in recognition of $121 of compensation expense during the year ended December 31, 2020.
On November 12, 2020, 354,096 RSU awards were granted with a one year vesting period, which resulted in recognition of $1,300 of compensation expense during the year ended December 31, 2020.
The total fair value of RSUs that vested during the year ended December 31, 2020 and 2019 was $4,972 and $544, respectively.
Performance Stock Units (“PSUs”)
The Company began granting PSUs (the "Original PSUs") to certain members of management on April 1, 2020 under the 2019 Incentive Award Plan. The Original PSUs typically vest over three years and are subject to performance condition with a modifier of relative TSR as compared to the S&P 500 for vesting. The fair value of the PSUs is based on the fair value of our ordinary shares on the date of grant and valued using a Monte Carlo simulation. In years one and two of the three year vesting period, it was not possible to predict the likelihood of achieving the target and therefore, the performance condition was deemed not probable as of December 31, 2020. Accordingly, no compensation expense was recognized for the year ended December 31, 2020.
During December of 2020, the Human Resources and Compensation Committee (the “HRCC”) considered the need to continue to align the interests of our named executive officers with those of Clarivate’s shareholders and to compensate our named executive officers for the significant value created for shareholders in 2020. In addition, the HRCC considered the effects of the Covid-19 pandemic on the value of the Original PSUs granted to our named executive officers earlier in 2020, which are eligible to vest based on the achievement of certain three-year financial performance metrics. In choosing the primary performance goals for the Original PSUs, the HRCC had not anticipated the Covid-19 pandemic and its impact on certain elements of performance, which significantly reduced the anticipated value of the Original PSUs.
The Company made a one-time grant of additional PSUs to certain key employees, including its named executive officers on December 17, 2020 under the 2019 Incentive Award Plan. The PSUs are eligible to vest based upon Clarivate’s three-year total shareholder return (“TSR”) as compared to the TSR of the S&P 500 for the same period (the “TSR PSUs”). The TSR PSUs cover the period from January 1, 2020 to December 31, 2022 and have a payout range of 0% to 120% of target. The TSR PSU grants vest over three years and are subject to market conditions for vesting. The probability of achieving the market conditions are incorporated into the fair value of the award, and related expense is recognized over the vesting period. The fair value of the PSUs is based on the fair value of our ordinary shares on the date of grant and valued using a Monte Carlo simulation. Accordingly, the Company recognized $178 of compensation expense for the year ended December 31, 2020. In the event that the Original PSUs vest, the TSR PSUs will be forfeited.
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares (1)
|
|
Weighted
Average Grant Date Fair Value per Share
|
Outstanding as of December 31, 2019
|
—
|
|
|
$
|
—
|
|
Granted - Original PSUs
|
582,217
|
|
|
22.51
|
|
|
|
|
|
|
|
|
|
Granted - TSR PSUs
|
291,108
|
|
|
$
|
30.46
|
|
Outstanding as of December 31, 2020
|
873,325
|
|
|
$
|
25.16
|
|
(1) The PSUs number of shares are at grant amount and are not reflective of the maximum shares that may ultimately be issued, if any.
Warrants
In connection with the acquisition of Churchill Capital Corp consummated on May 13, 2019, the Company had warrants outstanding for certain individuals to purchase an aggregate of 52,800,000 ordinary shares with an exercise price of $11.50 per share. On November 23, 2020, one individual exercised warrants for 274,000 ordinary shares through a cashless redemption in which 110,484 shares were withheld to cover the exercise price. The net impact of the redemption was an issuance of 163,516 shares.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
2019 Transaction Related Awards
Upon consummation of the 2019 Transaction, there were 7,000,000 ordinary shares of Clarivate (the "Merger Shares") issuable if the last sale price of Clarivate’s ordinary shares is at least $20.00 for 40 days over a 60 consecutive trading day period on or before the sixth anniversary of the closing of the 2019 Transaction. In accordance with the terms of the Sponsor Agreement and in connection with our merger with Churchill in 2019, the Merger Shares were issued to persons designated by Messrs. Stead and Klein. On January 31, 2020, our Board agreed to waive the performance vesting condition, and the Merger Shares became issuable on or prior to December 31, 2020 to persons designated by Messrs. Stead and Klein. We engaged a third party specialist to fair value the awards at the modification date using the Monte Carlo simulation approach. The assumptions in the model included, but were not limited to, risk-free interest rate, 1.33%; expected volatility of the Company's and its peer group's stock prices, 20.00%; and dividend yield, 0.00%. The Company has evaluated and recorded additional stock compensation expense as required upon the assignment of Merger Shares as applicable. The Merger Shares were issued as ordinary shares to persons designated by Jerre Stead and Michael Klein on June 1, 2020 as part of the June 2020 underwritten public offering. The Company recognized $13,720 of expense during the year ended December 31, 2020, in Share-based compensation expense as a result of the waived performance vesting conditions.
The Sponsor Agreement provided that certain ordinary shares of Clarivate available for distribution to persons designated in the Sponsor Agreement in connection with the Transactions, and certain Clarivate warrants available for distribution to such persons, in each case, were subject to certain time and performance-based vesting provisions described below.
The vesting conditions added to certain ordinary shares include the following:
5,309,713 ordinary shares of Clarivate held by persons designated in the Sponsor Agreement, will vest in three equal annual installments on the first, second and third anniversaries of the closing of the 2019 Transaction, respectively, and are not contingent on continuing or future service of the respective holders to the Company.
2,654,856 ordinary shares of Clarivate held by such persons will vest at such time as the last sale price of Clarivate’s ordinary shares is at least $15.25 on or before the date that is 42 months after the closing of the 2019 Transaction; provided that none of such Clarivate ordinary shares will vest prior to the first anniversary of the closing of the 2019 Transaction, not more than 1/3 of such Clarivate warrants will vest prior to the second anniversary of the closing of the 2019 Transaction, and not more than 2/3 of such Clarivate warrants will vest prior to the third anniversary of the closing of the 2019 Transaction. Further, such vesting is not contingent on continuing or future service of the respective holders to the Company.
2,654,856 ordinary shares of Clarivate held by such persons will vest at such time as the last sale price of Clarivate’s ordinary shares is at least $17.50 on or before the fifth anniversary of the closing of the 2019 Transaction; provided that none of such Clarivate ordinary shares will vest prior to the first anniversary of the closing of the 2019 Transaction, not more than 1/3 of such Clarivate warrants will vest prior to the second anniversary of the closing of the 2019 Transaction, and not more than 2/3 of such Clarivate warrants will vest prior to the third anniversary of the closing of the 2019 Transaction. Further, such vesting is not contingent on continuing or future service of the respective holders to the Company.
The vesting conditions added to certain warrants include the following:
17,265,826 of certain warrants held by persons designated in the Sponsor Agreement, will vest at such time as the last sale price of Clarivate’s ordinary shares is at least $17.50 on or before the fifth anniversary of the closing of the 2019 Transaction; provided that none of such Clarivate warrants will vest prior to the first anniversary of the closing of the 2019 Transaction, not more than 1/3 of such Clarivate warrants will vest prior to the second anniversary of the closing of the 2019 Transaction, and not more than 2/3 of such Clarivate warrants will vest prior to the third anniversary of the closing of the 2019 Transaction. Further, such vesting is not contingent on continuing or future service of the respective holders to the Company.
In considering the terms of the transaction related awards, the Company notes that the time based vesting restrictions were not conditioned on any continuing or future service of the holders to the Company, and reflect “lock-up” periods of the issuable shares. Further, the above mentioned performance-based restrictions were considered market conditions pursuant to ASC 718, and are contemplated in the value of the awards. As such vesting restrictions were contemplated in conjunction with the granting of the merger shares (See Note 16 - Shareholders’ Equity), the Company considered such terms of the
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
total basket of transaction awards in determination of the fair value of the awards. As no continued or future service was required by the holders of such awards, the Company recognized compensation expense in the second quarter of 2019 based on the fair value of such awards upon closing of the 2019 Transaction. The Company recognized $25,013 expense, net in Share-based compensation expense as of the date of the 2019 Transaction in accordance with the issuance of the merger shares offset by the addition of vesting terms to certain ordinary shares and warrants, as described above. The expense included the increases in value of $48,102 for the granting of merger shares, the increase in value of $1,193 for ordinary shares with only time vesting conditions, and the increase in value of shares purchased by the Founders immediately prior to the transaction of $4,411, all offset by the reduction in value of $9,396 for ordinary shares with performance vesting condition of $15.25, the reduction in value of $13,101 for ordinary shares with performance vesting condition of $17.50 and the reduction in value of $6,297 related to warrants. Pursuant to the Sponsor Agreement, certain founders of Churchill Capital Corp purchased an aggregate of 1,500,000 shares of Class B common stock of Churchill immediately prior to the closing of the 2019 Transaction for an aggregate purchase price of $15,000.
We used a third-party specialist to fair value the awards at the 2019 Transaction close date of May 13, 2019 using the Monte Carlo simulation approach. The assumptions included in the model include, but are not limited to, risk-free interest rate, 2.20%; expected volatility of the Company’s and the peer group’s stock prices, 20.00%; and dividend yield, 0.00%. A discount for lack of marketability (“DLOM”) was applied to shares that are subject to remaining post vesting lock up restrictions. The DLOM was between 3% - 7% dependent on the length of the post vesting restriction period.
On August 14, 2019, Clarivate (on its behalf and on behalf of its subsidiaries) agreed to waive the performance and time vesting conditions, described above, subject to the consummation of the secondary offering. These shares and warrants nevertheless remain subject to a lock-up for a period ranging from two to three years following the closing of the Mergers. We used a third-party specialist to fair value the awards at the modification date using the Monte Carlo simulation approach. The assumptions included in the model include, but are not limited to, risk-free interest rate, 1.42%; expected volatility of the Company’s and the peer group’s stock prices, 20.00%; and dividend yield, 0.00%. A (DLOM) was applied to shares that are subject to remaining post vesting lock up restrictions. The DLOM was between 3% - 7% dependent on the length of the post vesting restriction period. Waiving the performance and time vesting conditions resulted in an immaterial impact to the Consolidated Statements of Operations.
Note 18: Income Taxes
Income tax (benefit)/expense on income/(loss) analyzed by jurisdiction is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Current
|
|
|
|
|
|
|
|
U.K.
|
$
|
818
|
|
|
$
|
677
|
|
|
$
|
1,014
|
|
|
|
U.S. Federal
|
17,514
|
|
|
6,917
|
|
|
6,395
|
|
|
|
U.S. State
|
2,861
|
|
|
988
|
|
|
2,146
|
|
|
|
Other
|
15,847
|
|
|
9,959
|
|
|
11,061
|
|
|
|
Total current
|
37,040
|
|
|
18,541
|
|
|
20,616
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
U.K.
|
(15,860)
|
|
|
—
|
|
|
85
|
|
|
|
U.S. Federal
|
(15,018)
|
|
|
(824)
|
|
|
(5,465)
|
|
|
|
U.S. State
|
(1,014)
|
|
|
(223)
|
|
|
(227)
|
|
|
|
Other
|
(7,947)
|
|
|
(7,293)
|
|
|
(9,360)
|
|
|
|
Total deferred
|
(39,839)
|
|
|
(8,340)
|
|
|
(14,967)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes
|
$
|
(2,799)
|
|
|
$
|
10,201
|
|
|
$
|
5,649
|
|
|
|
|
|
|
|
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The components of pre-tax loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
U.K. loss
|
$
|
(112,355)
|
|
|
$
|
(199,032)
|
|
|
$
|
(222,043)
|
|
|
|
U.S. income (loss)
|
(38,817)
|
|
|
3,733
|
|
|
(11,880)
|
|
|
|
Other loss
|
42,063
|
|
|
(5,477)
|
|
|
(2,590)
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax loss
|
$
|
(109,109)
|
|
|
$
|
(200,776)
|
|
|
$
|
(236,513)
|
|
|
|
A reconciliation of the statutory U.K. income tax rate to the Company’s effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Loss before tax:
|
$
|
(109,109)
|
|
|
$
|
(200,776)
|
|
|
$
|
(236,513)
|
|
|
|
Income tax (benefit) provision
|
(2,799)
|
|
|
10,201
|
|
|
5,649
|
|
|
|
|
|
|
|
|
|
|
|
Statutory rate
|
19.0
|
%
|
|
19.0
|
%
|
|
19.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of different tax rates
|
5.8
|
%
|
|
(4.4)
|
%
|
|
(1.2)
|
%
|
|
|
BEAT
|
(6.1)
|
%
|
|
(1.2)
|
%
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
Valuation Allowances
|
(28.4)
|
%
|
|
(17.8)
|
%
|
|
(18.0)
|
%
|
|
|
Share-based compensation
|
21.3
|
%
|
|
(0.2)
|
%
|
|
(0.3)
|
%
|
|
|
Other permanent differences
|
(3.5)
|
%
|
|
(1.1)
|
%
|
|
(0.4)
|
%
|
|
|
Non-deductible transaction costs
|
(4.6)
|
%
|
|
(2.1)
|
%
|
|
—
|
%
|
|
|
Withholding tax
|
(0.5)
|
%
|
|
(0.7)
|
%
|
|
(0.2)
|
%
|
|
|
Tax indemnity
|
—
|
%
|
|
3.7
|
%
|
|
(2.7)
|
%
|
|
|
Sale of Subsidiary
|
—
|
%
|
|
—
|
%
|
|
2.2
|
%
|
|
|
Other
|
(0.4)
|
%
|
|
(0.3)
|
%
|
|
(0.8)
|
%
|
|
|
Effective rate
|
2.6
|
%
|
|
(5.1)
|
%
|
|
(2.4)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The tax effects of the significant components of temporary differences giving rise to the Company’s deferred income tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Accounts receivable
|
$
|
1,564
|
|
|
$
|
1,346
|
|
Accrued expenses
|
4,271
|
|
|
4,461
|
|
Deferred revenue
|
12,020
|
|
|
2,679
|
|
Other assets
|
11,230
|
|
|
5,721
|
|
Unrealized gain/loss
|
208
|
|
|
94
|
|
Fixed assets, net
|
6,298
|
|
|
—
|
|
Debt issuance costs
|
14,879
|
|
|
3,176
|
|
Goodwill
|
125,880
|
|
|
—
|
|
Operating losses and tax attributes
|
355,334
|
|
|
177,853
|
|
Total deferred tax assets
|
531,684
|
|
|
195,330
|
|
Valuation allowances
|
(354,409)
|
|
|
(165,157)
|
|
Net deferred tax assets
|
177,275
|
|
|
30,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other identifiable intangible assets, net
|
(437,540)
|
|
|
(32,834)
|
|
Other liabilities
|
(72,210)
|
|
|
(21,012)
|
|
|
|
|
|
Goodwill
|
—
|
|
|
(4,233)
|
|
Fixed assets, net
|
—
|
|
|
(1,153)
|
|
Total deferred tax liabilities
|
(509,750)
|
|
|
(59,232)
|
|
Net deferred tax liabilities
|
$
|
(332,475)
|
|
|
$
|
(29,059)
|
|
In the Consolidated Balance Sheets, deferred tax assets and liabilities are shown net if they are in the same jurisdiction. The components of the net deferred tax liabilities as reported on the Consolidated Balance Sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Deferred tax asset
|
$
|
29,786
|
|
|
$
|
19,488
|
|
Deferred tax liability
|
(362,261)
|
|
|
(48,547)
|
|
Net deferred tax liability
|
$
|
(332,475)
|
|
|
$
|
(29,059)
|
|
The Tax Cuts and Jobs Act (the Act) was enacted in the US on December 22, 2017. Of most relevance to the Company, the Act reduced the US federal corporate income tax rate to 21% from 35%, established a Base Erosion Anti-Abuse Tax (“BEAT”) regime and changed the provisions limiting current interest deductions and use of NOL carryforwards. Certain new provisions are effective for the Company beginning December 1, 2018 and did not have a material impact to the 2018 financial statements.
Deferred Tax Assets and Liabilities
As of December 31, 2017, we remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future (which was generally 21% for the US and 25% for Belgium), by recording a tax benefit amount of $2,237 (provisional) related to the US and $14,290 related to Belgium. Upon further analysis and refinement of our calculations during the 12 months ended December 31, 2018, it was determined that no adjustment to these amounts was necessary.
The Company is required to assess the realization of its deferred tax assets and the need for a valuation allowance. The assessment requires judgment on the part of management with respect to benefits that could be realized from future taxable income. The valuation allowance is $354,409 and $165,157 at December 31, 2020 and 2019, respectively against certain
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
deferred tax assets, as it more likely than not that such amounts will not be fully realized. During the years ended December 31, 2020 and 2019, the valuation allowance increased by $189,252 and $31,301, respectively.
At December 31, 2020, the Company had U.S. federal tax loss carryforwards of $548,700, U.K. tax loss carryforwards of $512,052, U.S. state tax loss carryforwards of $444,023, Japan tax loss carryforwards of $67,281, and tax loss carryforwards in other foreign jurisdictions of $132,983, respectively. The majority of the unrecognized tax loss carryforwards relate to UK and U.S. The carryforward period for US federal tax losses is twenty years for losses generated in tax years ended prior to December 31, 2017. The expiration period for these losses begins in 2036. For US losses generated in tax years beginning after January 1, 2018, the carryforward period is indefinite. The carryforward period for the U.K. tax losses is indefinite. The carryforward period for US state losses varies, and the expiration period is between 2020 and 2039. The carryforward period for the Japan tax losses is nine years, and the expiration period begins in 2025. The carryforward period of other losses varies by jurisdiction.
The Company has not provided income taxes and withholding taxes on the undistributed earnings of foreign subsidiaries as of December 31, 2020 because the Company has determined that the amount of such taxes would not be significant. The Company is not permanently reinvesting its foreign earnings offshore.
Deferred Tax Valuation Allowance
The following table shows the change in the deferred tax valuation as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Beginning Balance, January 1
|
$
|
165,157
|
|
|
$
|
133,856
|
|
|
$
|
92,944
|
|
|
|
Change Charged to Expense/(Income)
|
49,984
|
|
|
30,854
|
|
|
41,629
|
|
|
|
Change Charged to CTA
|
1,667
|
|
|
447
|
|
|
381
|
|
|
|
Change Charged to OCI
|
—
|
|
|
—
|
|
|
(1,098)
|
|
|
|
Change Charged to Goodwill
|
137,601
|
|
|
—
|
|
|
—
|
|
|
|
Ending Balance, December 31
|
$
|
354,409
|
|
|
$
|
165,157
|
|
|
$
|
133,856
|
|
|
|
Uncertain Tax Positions
Unrecognized tax benefits represent the difference between the tax benefits that the Company is able to recognize for financial reporting purposes and the tax benefits that have been recognized or expect to be recognized in filed tax returns. The total amount of net unrecognized tax benefits that, if recognized, would impact the Company's effective tax rate were $13,721 and $1,145 as of December 31, 2020 and 2019, respectively. As a result of the acquisition of CPA Global, a reserve of $12,098 has been recorded as part of the acquisition accounting related to positions taken in prior tax years by CPA Global.
The Company recognizes accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of December 31, 2020, the interest and penalties are $5,454 and, as of December 31, 2019, the interest and penalties are $354. It is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months by approximately $16,500.
The Company files income tax returns in the United Kingdom, the United States and various other jurisdictions. As of December 31, 2020, the Company’s open tax years subject to examination were 2015 through 2020, which includes the Company’s major jurisdictions in the United Kingdom and the United States.
The following table summarizes the Company’s unrecognized tax benefits, excluding interest and penalties:
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
2018
|
Balance at the Beginning of the year
|
$
|
1,145
|
|
|
$
|
1,450
|
|
|
$
|
91
|
|
Increases for tax positions taken in prior years
|
12,098
|
|
|
—
|
|
|
1,339
|
|
|
|
|
|
|
|
Increases for tax positions taken in the current year
|
518
|
|
|
412
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decreases due to statute expirations
|
(40)
|
|
|
—
|
|
|
(52)
|
|
Decrease due to payment
|
—
|
|
|
(717)
|
|
|
—
|
|
Balance at the End of the year
|
$
|
13,721
|
|
|
$
|
1,145
|
|
|
$
|
1,450
|
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 19: Earnings Per Share
Potential ordinary shares of 32,966,127, 80,873,293, and 24,524,698 of Private Placement Warrants, DRG Transaction Shares, options, RSUs, and PSUs related to the 2019 Incentive Award Plan were excluded from diluted EPS for the year ended December 31, 2020, 2019 and 2018, respectively, as the Company had a net loss and their inclusion would have been anti-dilutive or their performance metric was not met. Potential ordinary shares of 32,966,127 related to Private Placement Warrants, Public Warrants, Merger Shares and options related to the 2019 Incentive Award Plan were excluded from diluted EPS for the year ended December 31, 2020, as the Company had a net loss and their inclusion would have been anti-dilutive or their performance metric was not met. See Note 16 - Shareholders’ Equity and Note 17 - Employment and Compensation Arrangements for a description.
The 2019 Transaction was accounted for as a reverse recapitalization in accordance with U.S. GAAP. See Note 4 - Business Combinations. Accordingly, weighted-average shares outstanding for purposes of the EPS calculation have been retroactively recasted as shares reflecting the exchange ratio established in the 2019 Transaction (1.0 Jersey share to 132.13667 Clarivate shares).
The basic and diluted EPS computations for our common stock are calculated as follows (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Basic/Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common stockholders
|
$
|
(106,310)
|
|
|
$
|
(210,977)
|
|
|
$
|
(242,162)
|
|
|
|
|
|
|
|
Basic and diluted weighted-average number of common shares outstanding
|
428,600,690
|
|
|
273,883,342
|
|
|
217,472,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted EPS
|
$
|
(0.25)
|
|
|
$
|
(0.77)
|
|
|
$
|
(1.11)
|
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 20: Other Operating Income, Net
Other operating income, net, consisted of the following for the years ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Net gain on sale of business and other assets (1)
|
$
|
28,140
|
|
|
$
|
—
|
|
|
$
|
36,072
|
|
Tax indemnity asset (2)
|
—
|
|
|
—
|
|
|
(33,819)
|
|
Net foreign exchange gain (loss)
|
19,771
|
|
|
(191)
|
|
|
3,574
|
|
Miscellaneous income, net
|
4,470
|
|
|
5,017
|
|
|
552
|
|
Other operating income, net
|
$
|
52,381
|
|
|
$
|
4,826
|
|
|
$
|
6,379
|
|
(1) Includes the net gain on sale of Techstreet in 2020 and gain on sale of IPM Product Line in 2018.
(2) Reflects the write down of a tax indemnity asset.
Note 21: Tax Receivable Agreement
At the completion of the 2019 Transaction, we recorded an initial liability of $264,600 payable to the pre-business combination equity holders under the TRA, representing approximately 85% of the calculated tax savings based on the portion of the Covered Tax Assets we anticipate being able to utilize in future years. Based on current projections of taxable income, and before deduction of any specially allocated depreciation and amortization, we anticipated having enough taxable income to utilize a significant portion of these specially allocated deductions related to the original Covered Tax Assets (as defined in the TRA). Total payments related to the TRA could be up to a maximum of $507,326 if all Covered Tax Assets are utilized. TRA payments were expected to commence in 2021 (with respect to taxable periods ending in 2019) and would have been subject to deferral, at the Company’s election, for payment amounts in excess of $30,000 for payments to be made in 2021 and 2022, but would not be subject to deferral thereafter.
The projection of future taxable income involves significant judgment. Actual taxable income may differ from our estimates, which could significantly impact the liability under the TRA. We have determined it is more-likely-than-not we will be unable to utilize all of our deferred tax assets (“DTAs”) subject to the TRA; therefore, we have not recorded a liability under the TRA related to the tax savings we may realize from the utilization of NOL carryforwards and the amortization related to basis adjustments created by the Transaction. If utilization of these DTAs becomes more-likely-than-not in the future, at such time, we will record liabilities under the TRA of up to an additional $134,377 as a result of basis adjustments under the Internal Revenue Code and up to an additional $108,350 related to the utilization of NOL and credit carryforwards, which will be recorded through charges to our statements of operations. However, if the tax attributes are not utilized in future years, it is possible no amounts would be paid under the TRA. In this scenario, the reduction of the liability under the TRA would result in a benefit to our statements of operations.
On August 21, 2019, the Company entered into a Buyout Agreement among the Company and Onex Partners IV LP (“TRA Buyout Agreement”), pursuant to which all future payment obligations of the Company under the Tax Receivable Agreement would terminate in exchange for a payment of $200,000 (the “TRA Termination Payment”), which the Company paid on November 7, 2019 with a portion of the net proceeds from the Refinancing 2019 Transaction. As a result of the payment, a gain was recorded to shareholders equity of $64,600. As of December 31, 2020, our liability under the TRA was $0.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 22: Segment Information
The Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”). Prior to the fourth quarter of 2020, the Company’s CODM previously assessed the Company-wide performance and allocated resources based on consolidated financial information. During the four quarter of 2020, in connection with the CPA Global combination, the company realigned its reporting structure and changed the manner in which the CODM allocates resources and assesses performance. The CODM organizes the Company within products lines and, as a result, two new operating segments were created including the Science Group and Intellectual Property Group. The segment reporting changes were retrospectively applied to all periods presented. The CODM evaluates segment performance based primarily on revenue and segment Adjusted EBITDA, as described below. The CODM does not review assets by operating segment for the purposes of assessing performance or allocated resources.
Each of the Company’s reportable segments, Science Group and Intellectual Property Group, recognizes revenue in accordance with the revenue recognition policy within Note 3 - Summary of Significant Accounting Policies. No single customer accounted for more than 1% of revenues and our ten largest customers represented only 6%, 5%, and 6% of revenues for the years ended December 31, 2020, 2019, and 2018, respectively. Below is the overview of the solutions offered within each reportable segment.
Science: The Science segment consists of the Web of Science and Life Science Product Lines. Both provide curated, high-value, structured information that is delivered and embedded into the workflows of our customers, which include research-intensive corporations, life science organizations and universities world-wide.
Intellectual Property: The Intellectual Property segment consists of the Derwent, CompuMark, MarkMonitor and CPA Global Product Lines. These Product Lines help manage customer’s end-to-end portfolio of intellectual property from patents to trademarks to corporate website domains.
Each of the two operating segments represent the segments for which discrete financial information is available and upon which operation results are regularly evaluated by the CODM in order to assess performance and allocate resources. The CODM evaluates performance based primarily on revenue and segment Adjusted EBITDA. Adjusted EBITDA represents net (loss) income before provision for income taxes, depreciation and amortization, interest income and expense adjusted to exclude acquisition or disposal-related transaction costs (such costs include net income from continuing operations before provision for income taxes, depreciation and amortization and interest income and expense from divestitures), losses on extinguishment of debt, stock-based compensation, unrealized foreign currency gains/(losses), costs associated with the transition services agreement with Thomson Reuters, separation and integration costs, transformational and restructuring expenses, acquisition-related adjustments to deferred revenues, costs related to our merger with Churchill Capital Corp in 2019, non-cash income/(loss) on equity and cost method investments, non-operating income or expense, the impact of certain non-cash, legal settlements and other items that are included in net income for the period that the Company does not consider indicative of its ongoing operating performance and certain unusual items impacting results in a particular period.
The following table summarizes revenue by reportable segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Science Segment
|
$
|
736,765
|
|
|
$
|
547,542
|
|
|
$
|
526,164
|
|
Intellectual Property Segment (1)
|
517,282
|
|
|
426,803
|
|
|
442,304
|
|
Total Revenues
|
$
|
1,254,047
|
|
|
$
|
974,345
|
|
|
$
|
968,468
|
|
(1) The year ended December 31, 2018 includes revenue of $20,450 generated by the IPM Product Line. We sold the IPM Product Line in October 2018.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Adjusted EBITDA by segment
The following table presents segment profitability and a reconciliation to net income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Science Segment Adjusted EBITDA
|
344,000
|
|
|
240,602
|
|
|
227,709
|
Intellectual Property Segment Adjusted EBITDA
|
142,600
|
|
|
53,463
|
|
|
45,152
|
Total Adjusted EBITDA
|
$
|
486,600
|
|
|
$
|
294,065
|
|
|
$
|
272,861
|
|
Benefit (provision) for income taxes
|
2,799
|
|
|
(10,201)
|
|
|
(5,649)
|
|
Depreciation and amortization
|
(303,150)
|
|
|
(200,542)
|
|
|
(237,225)
|
|
Interest, net
|
(111,914)
|
|
|
(157,689)
|
|
|
(130,805)
|
|
Transition services agreement costs
|
(650)
|
|
|
(10,481)
|
|
|
(55,764)
|
|
Transition, transformation and integration expense
|
(3,440)
|
|
|
(24,372)
|
|
|
(69,185)
|
|
Deferred revenues adjustment
|
(23,101)
|
|
|
(438)
|
|
|
(3,152)
|
|
Transaction related costs
|
(97,499)
|
|
|
(46,214)
|
|
|
(2,457)
|
|
Share-based compensation expense
|
(41,650)
|
|
|
(51,383)
|
|
|
(13,715)
|
|
Gain on sale of assets1
|
28,140
|
|
|
—
|
|
|
36,072
|
|
Tax indemnity asset
|
—
|
|
|
—
|
|
|
(33,819)
|
|
IPM adjusted operating margin
|
—
|
|
|
—
|
|
|
5,897
|
|
Restructuring
|
(47,595)
|
|
|
(15,670)
|
|
|
—
|
|
Legal Settlement
|
—
|
|
|
39,399
|
|
|
—
|
|
Impairment on assets held for sale
|
—
|
|
|
(18,431)
|
|
|
—
|
|
Other
|
5,150
|
|
|
(9,020)
|
|
|
(5,221)
|
|
Net income attributable to Clarivate
|
$
|
(106,310)
|
|
|
$
|
(210,977)
|
|
|
$
|
(242,162)
|
|
(1) Represents a gain on the sale of the Techstreet for the year ended December 31, 2020. Represents a gain on the sale of the IPM Product Line for the year ended December 31, 2018.
Consolidated Revenue and Long-Lived Assets Information by Geographic Area
Revenues recognized in the U.S. represented 45%, 43%, and 37% of revenues for the years ended December 31, 2020, 2019, and 2018, respectively and no other country accounted for more than 10% of revenues.
Revenue by Geography
The following table summarizes revenue from external customers by geography, which is based on the location of the customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
Revenue:
|
2020
|
|
2019
|
|
2018
|
Americas
|
$
|
631,222
|
|
|
$
|
463,041
|
|
|
$
|
475,897
|
|
Europe/Middle East/Africa
|
365,599
|
|
|
278,738
|
|
|
273,744
|
|
APAC
|
280,327
|
|
|
233,004
|
|
|
221,979
|
|
Deferred revenues adjustment
|
(23,101)
|
|
|
(438)
|
|
|
(3,152)
|
|
Total
|
$
|
1,254,047
|
|
|
$
|
974,345
|
|
|
$
|
968,468
|
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Assets by Geography
Assets are allocated based on operations and physical location. The following table summarizes non-current assets other than financial instruments, operating lease right-of-use assets and deferred tax assets by geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
Assets:
|
2020
|
|
2019
|
Americas
|
$
|
3,252,695
|
|
|
$
|
992,469
|
|
Europe/Middle East/Africa
|
11,245,248
|
|
|
2,099,777
|
|
APAC
|
699,401
|
|
|
101,113
|
|
Total Assets
|
$
|
15,197,344
|
|
|
$
|
3,193,359
|
|
Note 23: Commitments and Contingencies
The Company does not have any recorded or unrecorded guarantees of the indebtedness of others.
Contingencies
Lawsuits and Legal Claims
The Company is engaged in various legal proceedings, claims, audits and investigations that have arisen in the ordinary course of business. These matters may include among others, antitrust/competition claims, intellectual property infringement claims, employment matters and commercial matters. The outcome of all of the matters against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the ultimate resolution of any such matters, individually or in the aggregate, will not have a material impact on the Company’s financial condition taken as a whole.
Contingent Liabilities
In conjunction with the acquisition of Publons, the Company agreed to pay former shareholders up to an additional $9,500 through 2020. Amounts payable are contingent upon Publons’ achievement of certain milestones and performance metrics. The Company paid $3,701 and $2,371 of the contingent purchase price in the year ended December 31, 2020 and 2019, respectively, as a result of Publons achieving the first tier of milestones and performance metrics. The Company had an outstanding liability for $0 and $3,100 related to the estimated fair value of this contingent consideration as of December 31, 2020 and 2019, respectively. The outstanding liability balance is included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively.
In conjunction with the acquisition of Kopernio, the Company paid former shareholders $2,184 during the year ended December 31, 2020, due to the achievement of certain milestones and performance metrics. As a result of the payment, no further obligations exist as of December 31, 2020.
In conjunction with the acquisition of TrademarkVision, the Company agreed to pay former shareholders a potential earn-out dependent upon achievement of certain milestones and financial performance metrics through 2020. Amounts payable are contingent upon TrademarkVision’s achievement of certain milestones and performance metrics. During the year ended December 31, 2020, the Company paid $8,000 of the contingent purchase price to complete the earn-out. As of December 31, 2020 and 2019, the Company had an outstanding liability for $0 and $8,000, respectively, related to the estimated fair value of this contingent consideration. The outstanding balance was included in Accrued expenses and other current liabilities as of December 31, 2019, in the Consolidated Balance Sheets.
In conjunction with the acquisition of DRG, the Company agreed to pay up to 2,895,638 shares as contingent stock consideration, valued at $58,897 on the closing date of the acquisition. See Note 4 - Business Combinations for more information on the contingent stock consideration. Amounts payable are contingent upon any indemnity losses or claims to indemnity losses occurring within that one-year period. The liability increased by $27,132 during the year ended December 31, 2020, due to an increase in the estimated fair value of this contingent stock consideration, which resulted in a liability of
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
$86,029 as of December 31, 2020. The outstanding balance was included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets as of December 31, 2020.
In conjunction with the acquisition of CPA Global, the Company agreed to pay up to 1,500,000 shares as contingent stock consideration, valued at $46,485 on the closing date of the acquisition. See Note 4 - Business Combinations for more information on the contingent stock consideration. The amount is payable 110 days after the acquisition date and is contingent upon any indemnity losses or claims for indemnity losses as defined in the purchase agreement. The liability decreased by $1,920 during the year ended December 31, 2020, due to an decrease in the estimated fair value of this contingent stock consideration, which resulted in a liability $44,565 as of December 31, 2020. The outstanding balance was included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets as of December 31, 2020.
The Company is engaged in various legal proceedings and has been notified of certain purported claims that have arisen in the ordinary course of business. Clarivate does not believe any of these legal proceedings and claims have merit and will vigorously defend against such proceedings and claims. Clarivate has taken what it believes to be adequate reserves related to its litigation and threatened claims.
Tax Indemnity
In connection with the 2016 Transaction, the Company recorded certain tax indemnification assets pursuant to the terms of the separation and indemnified liabilities identified therein. As a result of counterparty dispute related to certain of the indemnification claims, the Company wrote off $33,819 during the 4th quarter of 2018, which represented a portion of the amount originally recorded, plus accumulated foreign currency impacts. Management continues to interpret the contractual obligation due from Former Parent and its controlled entities (“Thomson Reuters”) as due in full. The asset write down was recorded within Other operating income (expense), net within the Consolidated Statement of Operations.
Legal Settlement
In September 2019, the Company settled a confidential claim that resulted in a gain. The net gain was recorded in Legal settlement within the Consolidated Statements of Operations during the year ended December 31, 2019.
Commitments
Unconditional purchase obligations
Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable pricing provisions and the approximate timing of the transactions. The Company has various purchase obligations for materials, supplies, outsourcing and other services contracted in the ordinary course of business. These items are not recognized as liabilities in our Consolidated Financial Statements but are required to be disclosed. The contractual terms of these purchase obligations extend through 2025. The Company paid $39,779 towards these purchase obligations during the year ended December 31, 2020.
The future unconditional purchase obligations as of December 31, 2020 are as follows:
|
|
|
|
|
|
Year ending December 31,
|
|
2021
|
58,061
|
|
2022
|
36,018
|
|
2023
|
26,144
|
|
2024
|
24,367
|
|
Thereafter
|
14,093
|
|
Total
|
$
|
158,683
|
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 24: Related Party and Former Parent Transactions
Onex Partners Advisor LP (“Onex”), an affiliate of the Company, is considered a related party. Concurrent with the 2016 Transaction, the Company entered into a Consulting Services Agreement with Onex, pursuant to which the Company is provided certain ongoing strategic and financing consulting services in exchange for a quarterly management fee. In connection with this agreement, the Company recognized $0, $470 and $920 in operating expenses related to this agreement for the year ended December 31, 2020, 2019, and 2018, respectively. The Company pays 0.1% interest per annum to Onex for the Credit Agreement. For the year ended December 31, 2020, 2019 and 2018, the Company recognized interest expense, for Onex related interest, of $0, $327 and $905, respectively. The Company had an outstanding liability of $4, $3 and $450 to Onex as of December 31, 2020, 2019 and 2018, respectively. In addition, the Company paid Onex a management fee of $5,400 in connection with the 2019 Transaction in the second quarter of 2019. See Note 4 - Business Combinations for additional information.
BPEA, an affiliate of the Company, is considered a related party. Concurrently with the 2016 Transaction, the Company entered into a Management Services Agreement with Baring, pursuant to which the Company is provided certain ongoing strategic and financing consulting services. In connection with this agreement, the Company recognized $0, $246 and $669, in operating expenses related to this agreement for the years ended December 31, 2020, 2019 and 2018, respectively. The Company had an outstanding liability of $0 and $0 to Baring as of December 31, 2020, and 2019, respectively. In addition, the Company paid BPEA a management fee of $2,100 in connection with the 2019 Transaction in the second quarter of 2019. See Note 4 - Business Combinations for additional information.
In connection with the 2016 Transaction, Bidco and a subsidiary of the Former Parent entered into the Transition Service Agreement, which became effective on October 3, 2016, pursuant to which such subsidiary of the Former Parent will, or will cause its affiliates and/or third-party service providers to, provide Bidco, its affiliates and/or third-party service providers with certain technology, facilities management, human resources, sourcing, financial, accounting, data management, marketing and other services to support the operation of the IP&S business as an independent company. Such services are provided by such subsidiary of the Former Parent or its affiliates and/or third-party service providers for various time periods and at various costs based upon the terms set forth in the Transition Service Agreement.
Two controlled affiliate of Baring are vendors of ours. Total payments to these vendors were $830, $765 and $691 for the years ended December 31, 2020, 2019 and 2018, respectively. The Company had an outstanding liability of $237, $160 and $158 as of December 31, 2020, 2019 and 2018, respectively.
Three controlled affiliate of Leonard Green & Partners, L.P. are customers of ours. Total revenue with this customer during the period they were a related party was $129, $10,857 and $136 for the year ended December 31, 2020. The Company had an outstanding receivable of $31, $54,656 and $264 as of December 31, 2020. These customers were not a related party in 2019 and 2018.
Three controlled affiliate of Leonard Green is a vendor of ours. Total payments to this vendor were $295, $6,934 and $1,817 for the year ended December 31, 2020. The Company had an outstanding liability of $0, $0 and $1,995 as of December 31, 2020. These vendors were not a related party in 2019 and 2018.
Jerre Stead, Chief Executive Officer of the Company, is the Co-founder of a vendor of ours. Total payments to this vendor were $0 and $756 for the year ended December 31, 2020 and 2019 the Company had an outstanding liability of $0 and $10 as of December 31, 2020 and 2019. This vendor was not a related party in 2018 or 2020.
A former member of our key management is the co-founder of a vendor of ours. Total payments to this vendor were $0, $278 and $865 for the year ended December 31, 2020, 2019 and 2018, respectively. The Company had an outstanding liability of $0, $0 and $332 as of December 31, 2020, and 2019 and 2018, respectively.
One of our independent directors has an immediate family member who is a member of management within one of Clarivate’s customers. Total revenue from the Customer was $1,497 for the years ended December 31, 2020 and 2019, respectively. The Company had $100 and $4 outstanding receivables as of December 31, 2020 and 2019, respectively. This vendor was not a related party in 2018.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 25: Restructuring and Impairment
During both 2020 and 2019, we engaged a strategic consulting firm to assist us in optimizing our structure and cost base. As a result, we have implemented several cost-saving and margin improvement programs designed to generate substantial incremental cash flow including the Operation, Simplification and Optimization Program, the DRG Acquisition Integration Program and the CPA Global Acquisition, Integration and Optimization Program.
Operation Simplification and Optimization Program
During the fourth quarter of 2019, the Company approved restructuring actions designed to streamline our operations by simplifying our organization and focusing on two segments in planned phases. The following table summarizes the activity related to the restructuring reserves for the Operation, Simplification and Optimization Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operation Simplification and Optimization Program
|
|
Severance and Related Benefit Costs
|
|
Costs Associated with Exit and Disposal Costs (1)
|
|
Total
|
Reserve Balance as of December 31, 2019
|
|
$
|
9,506
|
|
|
$
|
—
|
|
|
$
|
9,506
|
|
Expenses recorded
|
|
16,069
|
|
|
10,578
|
|
|
26,647
|
|
Payments made
|
|
(20,435)
|
|
|
(4,241)
|
|
|
(24,676)
|
|
Noncash items and other adjustments (2)
|
|
228
|
|
|
(5,744)
|
|
|
(5,516)
|
|
Reserve Balance as of December 31, 2020
|
|
$
|
5,368
|
|
|
$
|
593
|
|
|
$
|
5,961
|
|
(1) Relates primary to lease exit costs and legal and advisory fees.
|
(2) Includes $5,025 of impairment charges, $326 of other noncash lease-exit charges, and $393 of other immaterial noncash items relating to contract exits, offset by noncash severance and related benefit costs of $228.
|
Restructuring charges incurred during 2019 included actions to reduce operational costs. Components of the pre-tax charges include $15,424 in severance costs and $246 in other costs incurred during the year ended December 31, 2019. The Science and IP segments incurred $6,924 and $8,746 of the 2019 expense, respectively.
The following table is a summary of charges incurred related to the Operation, Simplification and Optimization Program in the year ended December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2020
|
|
2019
|
|
|
Severance and related benefit costs
|
$
|
16,069
|
|
|
$
|
15,424
|
|
|
|
Costs associated with exit and disposal activities (1)
|
4,567
|
|
|
246
|
|
|
|
Costs associated with lease exit costs including impairment (2)
|
6,011
|
|
|
—
|
|
|
|
Total
|
$
|
26,647
|
|
|
$
|
15,670
|
|
|
|
(1) Relates primarily to contract exit costs, legal and advisory fees.
|
|
|
(2) Includes $5,025 of charges related to impairment of leases and $986 of lease exit costs.
|
|
|
|
|
|
|
|
|
The Science and IP segments incurred $13,559 and $13,087 of the 2020 expense, respectively. The Company does not expect to incur any material expenses after December 31, 2020 with these restructuring efforts.
DRG Acquisition Integration Program
During the second quarter of 2020, the Company approved restructuring actions designed to eliminate duplicative costs following the acquisition of DRG in planned phases. The following table summarizes the activity related to the restructuring reserves for the DRG Acquisition Integration:
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DRG Acquisition Integration
|
|
Severance and Related Benefit Costs
|
|
Costs Associated with Exit and Disposal Costs (1)
|
|
Total
|
Reserve Balance as of December 31, 2019
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Expenses recorded
|
|
5,133
|
|
|
1,464
|
|
|
6,597
|
|
Payments made
|
|
(4,392)
|
|
|
(850)
|
|
|
(5,242)
|
|
Noncash items and other adjustments (2)
|
|
$
|
—
|
|
|
$
|
(374)
|
|
|
$
|
(374)
|
|
Reserve Balance as of December 31, 2020
|
|
$
|
741
|
|
|
$
|
240
|
|
|
$
|
981
|
|
(1) Relates primary to lease exit costs and legal and advisory fees.
|
(2) Relates to a write-off of prepaid rent resulting from restructuring activities.
|
The following table is a summary of charges incurred related to the DRG Acquisition Integration in the year ended December 31, 2020.
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020
|
|
Severance and related benefit costs
|
$
|
5,133
|
|
|
|
|
Costs associated with exit and disposal activities (1)
|
487
|
|
|
|
|
Costs associated with lease exit costs including impairment (2)
|
977
|
|
|
|
|
Total
|
$
|
6,597
|
|
|
|
|
(1) Relates primary to lease exit costs and legal and advisory fees.
|
|
|
|
(2) Includes $977 of lease exit costs.
|
|
|
|
The Science and IP segments incurred $3,286 and $3,311 of the 2020 expense, respectively. The Company does not expect to incur any material expenses after December 31, 2020 with these restructuring efforts.
CPA Global Acquisition Integration and Optimization Program
During the fourth quarter of 2020, the Company approved restructuring actions designed to eliminate duplicative costs following the acquisition of CPA Global and to streamline our operations simplifying our organization and reducing our leasing portfolio. The following table summarizes the activity related to the restructuring reserves for the CPA Global Acquisition, Integration and Optimization Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPA Global Acquisition Integration and Optimization Program
|
|
Severance and Related Benefit Costs
|
|
Costs Associated with Exit and Disposal Costs (1)
|
|
Total
|
Reserve Balance as of December 31, 2019
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Expenses recorded
|
|
10,173
|
|
|
4,179
|
|
|
14,352
|
|
Payments made
|
|
(591)
|
|
|
(251)
|
|
|
(842)
|
|
Noncash items and other adjustments (2)
|
|
1,478
|
|
|
(286)
|
|
|
1,192
|
|
Reserve Balance as of December 31, 2020
|
|
$
|
11,060
|
|
|
$
|
3,642
|
|
|
$
|
14,702
|
|
(1) Relates primary to lease exit costs and legal and advisory fees.
|
(2) Includes a $1,200 bonus accrual for severed employees and $278 immaterial noncash items, offset by a $286 lease impairment charge.
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The following table is a summary of charges incurred related to the CPA Global Acquisition Integration in the year ended December 31, 2020.
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020
|
|
Severance and related benefit costs
|
$
|
10,173
|
|
|
|
|
Costs associated with exit and disposal activities (1)
|
3,472
|
|
|
|
|
Costs associated with lease exit costs including impairment (2)
|
707
|
|
|
|
|
Total
|
$
|
14,352
|
|
|
|
|
(1) Relates primary to lease exit costs and legal and advisory fees.
|
|
|
|
(2) Includes $286 of charges related to impairment of leases and $421 of lease exit costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Science and IP segments incurred $7,414 and $6,938 of the December 31, 2020 expense, respectively. The Company expects to incur $82,415 of expense after December 31, 2020 with these restructuring efforts expected to conclude in 2022.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 26: Quarterly Financial Data (Unaudited)
The following table summarizes certain quarterly results of operations (in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
First
Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Revenues
|
$
|
240,592
|
|
|
$
|
273,500
|
|
|
$
|
284,360
|
|
|
$
|
455,595
|
|
Income (loss) from operations
|
$
|
(28,308)
|
|
|
$
|
14,246
|
|
|
$
|
(12,664)
|
|
|
$
|
29,531
|
|
Net income (loss)
|
$
|
(74,001)
|
|
|
$
|
(1,491)
|
|
|
$
|
(37,233)
|
|
|
$
|
6,415
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic and diluted
|
$
|
(0.22)
|
|
|
$
|
—
|
|
|
$
|
(0.10)
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
First
Quarter
|
|
Second Quarter
|
|
Third Quarter (1)
|
|
Fourth Quarter
|
Revenues
|
$
|
234,025
|
|
|
$
|
242,309
|
|
|
$
|
242,998
|
|
|
$
|
255,013
|
|
Income (loss) from operations
|
$
|
(25,920)
|
|
|
$
|
(36,580)
|
|
|
$
|
(3,555)
|
|
|
$
|
(16,431)
|
|
Net income (loss)
|
$
|
(59,261)
|
|
|
$
|
(77,760)
|
|
|
$
|
10,831
|
|
|
$
|
(84,787)
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.27)
|
|
|
$
|
(0.29)
|
|
|
$
|
0.04
|
|
|
$
|
(0.28)
|
|
Diluted
|
$
|
(0.27)
|
|
|
$
|
(0.29)
|
|
|
$
|
0.03
|
|
|
$
|
(0.28)
|
|
(1) In September 2019, the Company settled a confidential claim that resulted in a gain of $39,399. The net gain was recorded in Legal settlement within the Interim Condensed Consolidated Statement of Operations during the three months ended September 30, 2019 and the year ended December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 27: Subsequent Events
Management has evaluated the impact of events that have occurred subsequent to December 31, 2020.
During January 2021, the Company issued 1,500,000 shares as per the purchase agreement for the acquisition of CPA Global related to a hold-back clause for a total of $43,890 which was satisfied.
The Company exited multiple leased sites on January 31, 2021, resulting in impairment charges of $7,180 to the respective right-of-use assets upon the cease-use date of each site.
Management has evaluated the impact of events that have occurred subsequent to December 31, 2020. Based on this evaluation, other than disclosed within these Consolidated Financial Statements and related notes or described below, the Company has determined no other events were required to be recognized or disclosed.