FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

3 Months Ended

Mar. 31, 2026

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

(9) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

In accordance with Accounting Standards Codification ("ASC") 820, the Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. Observable inputs are from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. These tiers include the following:

Level 1 — inputs include observable unadjusted quoted prices in active markets for identical assets or liabilities

Level 2 — inputs include other than quoted prices in active markets that are either directly or indirectly observable

Level 3 — inputs include unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions

In determining fair value, the Company uses various valuation techniques and prioritizes the use of observable inputs. The availability of observable inputs varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the instrument. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management judgment. For other financial instruments, pricing inputs are less observable in the marketplace and may require management judgment.

Recurring fair value measurements

A summary of the Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows:


		As of March 31, 2026
	Balance Sheet Location	Total		Quoted prices in active markets for identical assets (Level 1)		Other observable inputs (Level 2)		Unobservable inputs (Level 3)
Assets:
Cash	Cash and cash equivalents	$	2,150.6	$	2,150.6	$	—	$	—

Foreign currency exchange forwards	Other current assets	2.4		—		2.4		—
Economic hedges	Other current assets	14.4		—		14.4		—

Total assets		$	2,167.4	$	2,150.6	$	16.8	$	—

Liabilities:
Contingent consideration	Accrued expenses and other liabilities	$	177.3	$	—	$	—	$	177.3

Total liabilities		$	177.3	$	—	$	—	$	177.3


		As of December 31, 2025
	Balance Sheet Location	Total		Quoted prices in active markets for identical assets (Level 1)		Other observable inputs (Level 2)		Unobservable inputs (Level 3)
Assets:
Cash	Cash and cash equivalents	$	1,728.4	$	1,728.4	$	—	$	—
Interest rate swaps	Other current assets	23.4		—		23.4		—
Foreign currency exchange forwards	Other current assets	9.7		—		9.7		—
Economic hedges	Other current assets	26.1		—		26.1		—
Interest rate swaps	Other noncurrent assets	4.8		—		4.8		—
Total assets		$	1,792.4	$	1,728.4	$	64.0	$	—

Liabilities:


Contingent consideration	Other long-term liabilities	$	144.1	$	—	$	—	$	144.1
Total liabilities		$	144.1	$	—	$	—	$	144.1

Contingent consideration — In conjunction with the PurgeRite Acquisition, the Company records contingent consideration at fair value based on the estimated discounted contingent payments expected to be made, and may increase or decrease based on the financial performance of PurgeRite for the year ended December 31, 2026. The Company estimates the fair value of contingent consideration utilizing Monte Carlo simulations in a risk-neutral framework. Key assumptions include certain projected post-closing performance metrics, discount rate and volatility associated with the relevant metric. Contingent consideration is classified as Level 3 due to the reliance on unobservable inputs. For the three months ended March 31, 2026, the Company recognized a loss of $33.2 within "Other operating expense (income)" of the Unaudited Consolidated Statement of Earnings (Loss). Refer to "Note 3 - Acquisitions" for additional information on this Acquisition.

Interest rate swaps — From time to time the Company may enter into derivative financial instruments designed to hedge the variability in interest expense on floating rate debt. Derivatives are recognized as assets or liabilities in the Unaudited Condensed Consolidated Balance Sheets at their fair value. When the derivative instrument qualifies as a cash flow hedge changes in the fair value are deferred through other comprehensive income, depending on the effectiveness of the offset.

The Company uses interest rate swaps to manage the interest rate risk of the Company’s total debt portfolio and related overall cost of borrowing. At December 31, 2025, interest rate swap agreements designated as cash flow hedges effectively swapped a notional amount of $1,000.0 of SOFR-based floating rate debt for fixed rate debt. The Company’s interest rate swaps mature in March 2027. On March 3, 2026, in connection with the repayment of the Term Loan Credit Agreement, the hedged forecasted transactions became probable of not occurring, and therefore the Company settled all outstanding interest rate swaps. Refer to "Note 10 - Accumulated Other Comprehensive Income (Loss)" for additional information on the settlement. During the three months ended March 31, 2026, and 2025 the Company recognized $29.6, $8.3, respectively, within “Interest expense (income), net” on the Unaudited Condensed Consolidated Statements of Earnings (Loss).

The interest rate swaps are valued using the SOFR yield curves at the reporting date and are classified in Level 2. Counterparties to these contracts are highly rated financial institutions. The fair values of the Company’s interest rate swaps are adjusted for nonperformance risk and creditworthiness of the counterparty through the Company’s credit valuation adjustment (“CVA”). The CVA is calculated at the counterparty level utilizing the fair value exposure at each payment date and applying a weighted probability of the appropriate survival and marginal default percentages.

Foreign currency exchange forwards — The Company may enter into derivative financial instruments designed to hedge the exposure to changes in foreign currency exchange rates. Derivatives are recognized as assets or liabilities in the Unaudited Condensed Consolidated Balance Sheets at their fair value. The duration of the derivatives are generally less than one year. The Company values foreign currency exchange swaps using broker quotations or market transactions on the listed or over-the-counter market; as such, these derivative instruments are classified in Level 2. When the derivative instrument qualifies as a cash flow hedge changes in the fair value are deferred through other comprehensive income depending on the effectiveness of the instrument. The Company reclassifies the gain or loss associated with the cash flow hedges into earnings when the underlying exposure is recognized. At March 31, 2026 and December 31, 2025, we had derivative instruments which hedge our exposure to certain foreign currency exchange rates with a notional amount of $309.0 and $149.8, respectively. For the three months ended March 31, 2026, and 2025 there was $3.5, and $(4.7) in realized gains (losses) associated with the foreign currency exchange swaps within "Cost of sales - products" on the Unaudited Condensed Consolidated Statements of Earnings (Loss).

Economic hedges — At March 31, 2026 and December 31, 2025 we had derivative instruments which hedge our purchases of aluminum with notional amounts of 10,789.0 and 10,310.0 metric tons, respectively, and copper with notional amounts of 17,971.0 and 8,754.8 metric tons, respectively. The Company values these instruments using broker quotations, market transactions or option pricing model based on observable market inputs, as such, these derivative instruments are classified in Level 2. These derivative instruments are treated as economic hedges and for the three months ended March 31, 2026 and 2025 the Company recognized mark-to-market gains of $0.8 and $(0.3), respectively, within "Other operating expense (income)" on the Unaudited Condensed Consolidated Statement of Earnings (Loss).

Net investment hedge — From time to time the Company designates certain intercompany debt to hedge a portion of its investment in foreign subsidiaries and affiliates. The net impact of translation adjustments from these hedges was $(1.1) and, $0.1 respectively, for the three months ended March 31, 2026 and 2025, respectively, and is included in “Foreign currency translation” in the Unaudited Condensed Consolidated Statement of Other Comprehensive Income (Loss). As of March 31, 2026 and 2025, $42.9 and $24.1, respectively, of the Company’s intercompany debt was designated to hedge investments in certain foreign subsidiaries and affiliates.

Other fair value measurements

The Company determines the fair value of debt using Level 2 inputs based on quoted market prices. The following table presents the estimated fair value and carrying value of long-term debt, including the current portion of long-term debt as of March 31, 2026 and December 31, 2025.


	March 31, 2026				December 31, 2025
	Fair Value		Par Value(1)		Fair Value		Par Value(1)
Term Loan due 2032	$	—	$	—	$	2,089.1	$	2,076.1
Senior Secured Notes due 2028	834.8		850.0		840.9		850.0
Senior Notes due 2036 at 4.850% at March 31, 2026	583.8		600.0		—		—
Senior Notes due 2046 at 5.650% at March 31, 2026	477.1		500.0		—		—
Senior Notes due 2056 at 5.800% at March 31, 2026	481.0		500.0		—		—
Senior Notes due 2066 at 5.950% at March 31, 2026	478.7		500.0		—		—

(1)See “Note 6 — Debt” for additional information.

Marketable securities — The Company classifies marketable securities with maturities in excess of three months and less than one year at acquisition as held-to-maturity. These investments primarily consist of U.S. Treasury bills and bank deposits. The Company does not purchase and hold securities principally for the purpose of selling them in the near future, and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases. At March 31, 2026 and December 31, 2025, the Company recorded "Short-term investments" on the Condensed Consolidated Balance Sheets at amortized cost of $349.9 and $99.5, respectively. At March 31, 2026 and December 31, 2025, the short-term investments had a fair value of $349.9 and $99.6. The Company values these investments by reference to quoted prices of similar assets in active markets, adjusted for any terms specific to that asset, which are classified within level 2.

Vertiv Holdings Co 10-Q