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

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.


	Balance Sheet Location	Total		Quoted prices in active markets for identical assets (Level 1)		Other observable inputs (Level 2)		Unobservable inputs (Level 3)
December 31, 2021
Assets:
Interest rate swaps	Other noncurrent assets	$	16.1	$	—	$	16.1	$	—
Total assets		$	16.1	$	—	$	16.1	$	—

Liabilities:
Interest rate swaps	Accrued expenses and other liabilities	$	7.4	$	—	$	7.4	$	—
Contingent consideration	Accrued expenses and other liabilities	3.7		—		—		3.7
Private warrants	Warrant liabilities	149.6		—		149.6		—
Total liabilities		$	160.7	$	—	$	157.0	$	3.7


	Balance Sheet Location	Total		Quoted prices in active markets for identical assets (Level 1)		Other observable inputs (Level 2)		Unobservable inputs (Level 3)
December 31, 2020
Liabilities:
Tax Receivable Agreement	Other long-term liabilities	$	155.6	$	—	$	—	$	155.6
Interest rate swaps	Accrued expenses and other liabilities	10.3		—		10.3		—
Interest rate swaps	Other long-term liabilities	22.5		—		22.5		—
Public warrants	Current portion of warrant liabilities	68.5		68.5		—		—
Private warrants	Warrant liabilities	87.7		—		87.7		—
Total liabilities		$	344.6	$	68.5	$	120.5	$	155.6

Tax Receivable Agreement — On the Closing Date of the Business Combination, the Company entered into the Tax Receivable Agreement, which generally provides for the payment by us to the Vertiv Stockholder of 65% of the cash tax savings in U.S. federal, state, local and certain foreign taxes, that we actually realize (or are deemed to realize) in periods after the closing of the Business Combination as a result of (i) increases in the tax basis of certain intangible assets of Vertiv resulting from certain pre-Business Combination acquisitions, (ii) certain U.S. federal income tax credits for increasing research activities (so-called “R&D credits”) and (iii) tax deductions in respect of certain Business Combination expenses. We expect to retain the benefit of the remaining 35% of these cash tax savings.

For purposes of the Tax Receivable Agreement, the applicable tax savings will generally be computed by comparing our actual tax liability for a given taxable year to the amount of such taxes that we would have been required to pay in such taxable year without the tax basis in certain intangible assets, the U.S. federal income tax R&D credits and the tax deductions for certain Business Combination expenses described above. Except as described below, the term of the Tax Receivable Agreement will continue for twelve taxable years following the closing of the Business Combination. However, the payments described in (i) and (ii) above will generally be deferred until the close of our third taxable year following the closing of the Business Combination. The payments described in (iii) above will generally be deferred until the close of our fourth taxable year following the closing of the Business Combination and then payable ratably over the following three taxable year periods regardless of whether we actually realize such tax benefits. Payments under the Tax Receivable Agreement are not conditioned on the Vertiv Stockholder’s continued ownership of our stock.

The Tax Receivable Agreement provided for the payment by us to the Vertiv Stockholder of 65% of the cash tax savings realized (or deemed realized) over a twelve-year period after the closing of the Business Combination as described above. In the twelfth year of the Tax Receivable Agreement, an additional payment will be made to the Vertiv Stockholder based on 65% of the remaining tax benefits that have not been realized. The timing of expected future payments under the Tax Receivable Agreement were dependent upon various factors, including the existing tax bases at the time of the Business Combination, the realization of tax benefits, and changes in tax laws. However, as the Company is obligated to

settle the remaining tax benefits after 12 years, the Company had concluded that the liability should be measured at fair value. The fair value of the estimated liability on the closing date of $133.4 was included as an adjustment to additional paid in capital. Subsequent measurements were recorded in interest expense, net and accumulated other comprehensive income, as appropriate based on the passage of time, change in risk-free rate and implied credit spread. Cash flows of the Tax Receivable Agreement were discounted at an appropriate rate for the applicable duration of the instrument adjusted for our own credit spread. The fair value movement on the tax receivable agreement attributable to our own credit risk spread was recorded in other comprehensive income.

On December 31, 2021, the Company and the Vertiv Stockholder agreed to amend and supplement the prior Tax Receivable Agreement to replace the Company’s remaining payment obligations under the prior agreement with an obligation to pay $100 million in cash in two equal installments. The first installment payment will be due on or before June 15, 2022, and the second installment payment will be due on or before September 15, 2022. Upon receipt of the second installment payment, the agreement will terminate and the Company will not be required to make any further payments to the Vertiv Stockholder.

We recorded $4.5 and $21.3 of accretion expense in "Interest expense, net" for the years ended December 31, 2021 and 2020, respectively, in the Consolidated Statement of Earnings (Loss). An unrealized loss of $(3.2) and $(0.9) was recorded in "Accumulated other comprehensive income" in the Consolidated Balance Sheets, related to the change in fair value of the tax receivable liability for the years ended December 31, 2021 and 2020 , respectively. Upon execution of the amended Tax Receivable Agreement, the Company reversed $4.1 previously recorded in "Accumulated other comprehensive income", and recognized a gain of $59.2 for the difference between the amount accrued for this obligation in comparison to the amount at which the obligation will be settled.

Prior to entering into the amendment to the Tax Receivable Agreement, its value was determined using Level 3 inputs. The measurement was calculated using unobservable inputs based on the Company’s own assumptions including the timing and amount of future taxable income and realizability of tax attributes. When valuing the tax receivable liability at December 31, 2020, the Company utilized a discount rate of 3.4%. The discount rate was determined based on the risk-free rate and Vertiv's implied credit spread. The tax receivable liability at December 31, 2021 of $100.0 represents the agreed upon settlement value with the Vertiv Stockholder as detailed above.


	2021		2020
Beginning fair value liability balance, January 1,	$	155.6	$	—
Tax receivable agreement, initially recorded	—		133.4
Change in fair value	7.7		22.2
Gain on Tax Receivable Agreement	(59.2)		—
Amounts previously recorded in accumulated other comprehensive income (loss)	(4.1)		—
Reclassification to accrued expenses and other liabilities	(100.0)		—
Ending fair value liability balance, December 31,	$	—	$	155.6

Contingent consideration — In conjunction with the E&I acquisition, there is $3.7 of contingent earnout related to their projected future results recorded in "Accrued expenses and other liabilities" in the Consolidated Balance Sheets. Changes in fair value will be included within ""Other operating expense (income)" on the Consolidated Statements of Earnings(Loss). Refer to "Note 2 - Acquisition" for more details.

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

The Company uses interest rate swaps to manage the interest rate mix of our total debt portfolio and related overall cost of borrowing. At December 31, 2021 interest rate swap agreements designated as cash flow hedges effectively swapped an initial amount of $1,000.0 of LIBOR based floating rate debt for fixed rate debt. Our interest rate swaps mature in March 2027. The Company recognized $10.5 and $6.4 in earnings for the years ended December 31, 2021 and 2020, respectively. At December 31, 2021, the Company expects that approximately $7.4 of pre-tax net losses on cash flow hedges will be reclassified from Accumulated other comprehensive income (loss) into earnings during the next twelve months.

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

Net investment hedge — During the year ended December 31, 2021, the Company designated certain intercompany debt to hedge a portion of its investment in foreign subsidiaries and affiliates. Realized and unrealized translation adjustments from these hedges were $1.3 and are included in "Foreign currency translation" in the Consolidated Statement of Other comprehensive income (loss). As of December 31, 2021, approximately $193.2 of the Company's intercompany debt were designated to hedge investments in certain foreign subsidiaries and affiliates.

Private Placement Warrants — The fair value of the Private Placement Warrants is considered a Level 2 valuation and is determined using the Black-Sholes-Merton valuation model. The significant assumptions which the Company used in the model are:


Private Placement Warrant valuation inputs	December 31, 2021			December 31, 2020
Stock price	$	24.97		$	18.67
Strike price	$	11.50		$	11.50
Remaining life	3.10			4.10
Volatility	34.2		%	30.6		%
Interest rate (1)	0.98		%	0.27		%
Dividend yield (2)	0.04		%	0.05		%

We determine the fair value of debt using Level 2 inputs based on quoted market prices. The following table presents the estimated fair value and carrying value of long-term debt, including the current portion of long-term debt as of December 31, 2021 and 2020.