VERITIV CORP, 10-Q filed on 11/6/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
Nov. 01, 2018
Document and Entity Information [Abstract]    
Entity Registrant Name VERITIV CORPORATION  
Emerging Growth Company false  
Entity Small Business false  
Entity Central Index Key 0001599489  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Document Type 10-Q  
Document Period End Date Sep. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus (Q1,Q2,Q3,FY) Q3  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   15,846,590
v3.10.0.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Income Statement [Abstract]        
Net sales (including sales to related party of $6.6, $8.6, $21.3 and $24.9, respectively) $ 2,192.5 $ 2,116.8 $ 6,465.4 $ 6,140.3
Cost of products sold (including purchases from related party of $39.3, $45.7, $117.2 and $138.0, respectively) (exclusive of depreciation and amortization shown separately below) 1,805.8 1,736.6 5,323.8 5,026.4
Distribution expenses 135.0 132.0 400.1 380.9
Selling and administrative expenses 209.8 229.4 656.1 652.7
Depreciation and amortization 13.1 13.1 41.5 39.9
Integration and acquisition expenses 7.9 14.2 24.6 28.1
Restructuring charges, net 5.4 2.7 28.7 30.0
Operating income (loss) 15.5 (11.2) (9.4) (17.7)
Interest expense, net 11.0 8.3 30.5 22.1
Other (income) expense, net (0.4) (1.2) (13.8) (1.1)
Income (loss) before income taxes 4.9 (18.3) (26.1) (38.7)
Income tax expense (benefit) 3.5 (4.0) (1.1) (13.1)
Net income (loss) $ 1.4 $ (14.3) $ (25.0) $ (25.6)
Earnings (loss) per share:        
Basic earnings (loss) per share (in dollars per share) $ 0.09 $ (0.91) $ (1.58) $ (1.63)
Diluted earnings (loss) per share (in dollars per share) $ 0.09 $ (0.91) $ (1.58) $ (1.63)
Weighted average shares outstanding:        
Basic (in shares) 15,850 15,700 15,820 15,700
Diluted (in shares) 16,470 15,700 15,820 15,700
v3.10.0.1
Condensed Consolidated Statements of Operations (Parenthetical) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Income Statement [Abstract]        
Related party sales $ 6.6 $ 8.6 $ 21.3 $ 24.9
Related party cost of products sold $ 39.3 $ 45.7 $ 117.2 $ 138.0
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Statement of Comprehensive Income [Abstract]        
Net income (loss) $ 1.4 $ (14.3) $ (25.0) $ (25.6)
Other comprehensive income (loss):        
Foreign currency translation adjustments 2.5 2.4 (1.6) 7.8
Change in fair value of cash flow hedge, net of $0.1, $0.1, $0.3 and $0.1 tax, respectively 0.2 0.1 0.3 0.0
Pension liability adjustments, net of $0.0, $0.0, $0.7 and $0.0 tax, respectively 0.0 0.0 (0.6) 0.1
Other comprehensive income (loss) 2.7 2.5 (1.9) 7.9
Total comprehensive income (loss) $ 4.1 $ (11.8) $ (26.9) $ (17.7)
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Statement of Comprehensive Income [Abstract]        
Change in fair value of cash flow hedge, tax $ 0.1 $ 0.1 $ 0.3 $ 0.1
Pension liability adjustments, tax $ 0.0 $ 0.0 $ 0.7 $ 0.0
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Sep. 30, 2018
Dec. 31, 2017
Current assets:    
Cash $ 70.9 $ 80.3
Accounts receivable, less allowances of $56.2 and $44.0, respectively 1,212.5 1,174.3
Related party receivable 3.2 3.3
Inventories 737.8 722.7
Other current assets 152.5 133.5
Total current assets 2,176.9 2,114.1
Property and equipment (net of depreciation and amortization of $315.3 and $314.6, respectively) 210.1 340.2
Goodwill 99.6 99.6
Other intangibles, net 58.5 64.1
Deferred income tax assets 62.4 59.6
Other non-current assets 27.0 30.8
Total assets 2,634.5 2,708.4
Current liabilities:    
Accounts payable 723.4 680.1
Related party payable 11.8 8.5
Accrued payroll and benefits 55.9 73.5
Other accrued liabilities 139.6 134.6
Current maturities of long-term debt 6.6 2.9
Financing obligations, current portion (including obligations to related party of $0.0 and $7.1, respectively) 0.7 7.8
Total current liabilities 938.0 907.4
Long-term debt, net of current maturities 997.6 908.3
Financing obligations, less current portion (including obligations to related party of $0.0 and $155.2, respectively) 25.1 181.6
Defined benefit pension obligations 20.6 24.4
Other non-current liabilities 116.5 137.0
Total liabilities 2,097.8 2,158.7
Commitments and contingencies (Note 12)
Shareholders' equity:    
Preferred stock, $0.01 par value, 10.0 million shares authorized, none issued 0.0 0.0
Common stock, $0.01 par value, 100.0 million shares authorized; shares issued - 16.2 million and 16.0 million, respectively; shares outstanding - 15.9 million and 15.7 million, respectively 0.2 0.2
Additional paid-in capital 603.3 590.2
Accumulated (deficit) earnings (17.8) 6.4
Accumulated other comprehensive loss (35.4) (33.5)
Treasury stock at cost - 0.3 million shares at September 30, 2018 and December 31, 2017 (13.6) (13.6)
Total shareholders' equity 536.7 549.7
Total liabilities and shareholders' equity $ 2,634.5 $ 2,708.4
v3.10.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Sep. 30, 2018
Dec. 31, 2017
Assets    
Allowance for doubtful accounts $ 56.2 $ 44.0
Depreciation and amortization $ 315.3 $ 314.6
Shareholders' equity:    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 10,000,000 10,000,000
Preferred stock, shares issued (in shares) 0 0
Common stock par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 100,000,000 100,000,000
Common stock, shares issued (in shares) 16,200,000 16,000,000
Common stock, shares outstanding (in shares) 15,900,000 15,700,000
Treasury stock, at cost (in shares) 300,000 300,000
Liabilities    
Obligations to related parties current $ 0.0 $ 7.1
Obligations to related parties noncurrent $ 0.0 $ 155.2
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Operating activities    
Net income (loss) $ (25.0) $ (25.6)
Depreciation and amortization 41.5 39.9
Amortization of deferred financing fees 2.0 1.9
Net (gains) on dispositions of property and equipment (2.2) (4.0)
Long-lived asset impairment charges 0.2 8.4
Provision for allowance for doubtful accounts 18.5 11.6
Deferred income tax (benefit) (3.2) (14.3)
Stock-based compensation 15.2 11.6
Other non-cash items, net (6.8) 2.5
Changes in operating assets and liabilities    
Accounts receivable and related party receivable (60.6) (87.5)
Inventories (17.2) (17.9)
Other current assets (26.1) (6.7)
Accounts payable and related party payable 78.1 69.6
Accrued payroll and benefits (17.5) (23.4)
Other accrued liabilities 15.4 8.9
Other (4.8) 7.3
Net cash provided by (used for) operating activities 7.5 (17.7)
Investing activities    
Property and equipment additions (33.7) (26.0)
Proceeds from asset sales 4.1 23.1
Cash paid for purchase of business, net of cash acquired 0.0 (144.8)
Net cash used for investing activities (29.6) (147.7)
Financing activities    
Change in book overdrafts (30.3) (43.9)
Borrowings of long-term debt 4,058.1 3,685.2
Repayments of long-term debt (3,988.4) (3,446.5)
Payments under equipment capital lease obligations (5.3) (2.2)
Payments under financing obligations (including obligations to related party of $8.6 and $11.5, respectively) (9.1) (12.9)
Payments under Tax Receivable Agreement (9.9) (8.5)
Other (2.1) 0.0
Net cash provided by financing activities 13.0 171.2
Effect of exchange rate changes on cash (0.3) 1.1
Net change in cash (9.4) 6.9
Cash at beginning of period 80.3 69.6
Cash at end of period 70.9 76.5
Supplemental cash flow information    
Cash paid for income taxes, net of refunds 1.3 3.2
Cash paid for interest 28.0 19.4
Non-cash investing and financing activities    
Non-cash additions to property and equipment 29.8 8.6
Contingent consideration for purchase of business: Earn-out $ 0.0 $ 30.0
v3.10.0.1
Condensed Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Statement of Cash Flows [Abstract]    
Repayments of related party obligation $ 8.6 $ 11.5
v3.10.0.1
Business and Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business and Summary of Significant Accounting Policies
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Veritiv Corporation ("Veritiv" or the "Company") is a North American business-to-business distributor of packaging, facility solutions, print and publishing products and services. Additionally, Veritiv provides logistics and supply chain management solutions to its customers. Veritiv was established in 2014, following the merger (the "Merger") of International Paper Company's xpedx distribution solutions business ("xpedx") and UWW Holdings, Inc. ("UWWH"), the parent company of Unisource Worldwide, Inc. ("Unisource"). Veritiv operates from approximately 160 distribution centers primarily throughout the U.S., Canada and Mexico.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for a complete set of annual audited financial statements.

The accompanying unaudited financial information should be read in conjunction with the Consolidated Financial Statements and Notes contained in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") for the year ended December 31, 2017. In the opinion of management, all adjustments, including normal recurring accruals and other adjustments, considered necessary for a fair presentation of the interim financial information have been included. Additionally, certain prior-year amounts have been reclassified to conform to the current year presentation. The operating results for the interim periods are not necessarily indicative of results for the full year. These financial statements include all of the Company's subsidiaries. All significant intercompany transactions between Veritiv's businesses have been eliminated.

Use of Estimates

The preparation of unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and certain financial statement disclosures. Estimates and assumptions are used for, but not limited to, revenue recognition (including determining the transaction price and allocating the revenue to performance obligations), accounts receivable valuation, inventory valuation including estimated returns, employee benefit plans, income tax contingency accruals and valuation allowances, recognition of the Tax Cuts and Jobs Act (the "Tax Act"), multi-employer pension plan withdrawal liabilities, contingency accruals and goodwill and other intangible asset valuations. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Estimates are revised as additional information becomes available.

Accounting Pronouncements

Effective January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) ("Topic 606"). The standard replaces previous revenue recognition standards and significantly expands the disclosure requirements for revenue arrangements. The guidance may be adopted either retrospectively or on a modified retrospective basis for new contracts and existing contracts with remaining performance obligations as of the effective date. The effective date for Veritiv, without early adoption, was January 1, 2018. Veritiv adopted this ASU applying the modified retrospective transition method; accordingly, prior periods have not been adjusted to conform to the new guidance. There was determined to be no cumulative effect after applying the new guidance to all contracts with customers that were not completed as of January 1, 2018. The adoption is not expected to have a material impact on future financial results, as the adoption did not change the recognition pattern for the Company's existing revenue streams. The Company implemented new internal controls related to contract reviews and revenue recognition disclosures. Additional disclosures will be made as needed in future reports as a result of the adoption. See Note 2, Revenue Recognition, for additional information related to the Company's revenues and the Topic 606 adoption impacts.

Effective January 1, 2018, the Company adopted ASU 2017-07, Compensation-Retirement Benefits (Topic 715). The standard requires employers to disaggregate the service cost component from the other components of net benefit cost and disclose by line item the amount of net benefit cost that is included in the statement of operations or capitalized in assets. The standard requires employers to report the service cost component in the same line item(s) as other compensation costs and to report other pension-related costs (which include interest costs, amortization of pension-related costs from prior periods and the gains or losses on plan assets) separately and exclude them from the subtotal of operating income. The standard also allows only the service cost component to be eligible for capitalization when applicable. The guidance requires application on a retrospective basis for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the statement of operations and on a prospective basis for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The effective date for Veritiv, without early adoption, was January 1, 2018. The Company adopted this guidance on a retrospective basis; accordingly, prior periods have been adjusted to conform to the new guidance. The Company elected to use the practical expedient that permits entities to use the amounts disclosed in their pension and other postretirement benefit plan notes for the prior comparative periods as the basis of estimation for applying the retrospective presentation requirements. The Company does not currently capitalize service costs. The effect of the retrospective presentation change related to the net periodic cost of the Company's defined benefit pension and other postretirement employee benefits plans on the Condensed Consolidated Statements of Operations was as follows:

 
Three Months Ended September 30, 2017
(in millions)
As Revised
 
Previously Reported
 
Effect of Change Higher/(Lower)
Selling and administrative expenses
$
229.4

 
$
228.7

 
$
0.7

Operating income (loss)
(11.2
)
 
(10.5
)
 
(0.7
)
Other (income) expense, net
(1.2
)
 
(0.5
)
 
(0.7
)

 
Nine Months Ended September 30, 2017
(in millions)
As Revised
 
Previously Reported
 
Effect of Change Higher/(Lower)
Selling and administrative expenses
$
652.7

 
$
650.4

 
$
2.3

Operating income (loss)
(17.7
)
 
(15.4
)
 
(2.3
)
Other (income) expense, net
(1.1
)
 
1.2

 
(2.3
)


Effective January 1, 2018, the Company early adopted ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220). The standard allows companies to reclassify the effect of the change in tax laws and rates on deferred tax assets and liabilities as part of the Tax Act from accumulated other comprehensive income (loss) to retained earnings. The guidance is to be applied to each period in which the effect of the Tax Act (or portion thereof) is recorded and companies may apply it either (i) retrospectively as of the date of enactment or (ii) as of the beginning of the period of adoption. The Company elected to apply the guidance as of the beginning of the period of adoption. The guidance would have been effective for Veritiv on January 1, 2019 had the Company not early adopted. See Note 6, Income Taxes, for additional information related to the adoption impact of ASU 2018-02.

Effective March 31, 2018, the Company adopted ASU 2018-05, Income Taxes (Topic 740). The standard amends SEC paragraphs in Accounting Standards Codification ("ASC") 740 to reflect Staff Accounting Bulletin 118 (“SAB 118”) to provide guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Act in the period of enactment. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The guidance is effective upon addition to the Financial Accounting Standards Board ("FASB") ASC and early adoption is permitted. See Note 6, Income Taxes, for additional information regarding the adoption of this standard.

Recently Issued Accounting Standards Not Yet Adopted
 
 
 
 
Standard
 
Description
 
Effective Date
 
Effect on the Financial Statements or Other Significant Matters
ASU 2016-02, Leases (Topic 842)
 
The standard requires lessees to put most leases on their balance sheet but recognize expenses in their statement of operations in a manner similar to current accounting guidance. The new standard also eliminates the current guidance related to real estate specific provisions. The guidance requires application on a modified retrospective basis to leases that existed at the beginning of the earliest period presented and those entered into thereafter but prior to the effective date. The standard permits entities to elect a package of practical expedients which must be applied consistently to all leases that commenced prior to the effective date. If the package of practical expedients is elected, entities do not need to reassess: (i) whether expired or existing contracts contain leases; (ii) lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. The guidance also allows entities to make certain policy elections under the new standard, including: (i) the use of hindsight to determine lease term and when assessing existing right of use assets for impairment; (ii) a policy to not record short-term leases on the balance sheet; and (iii) a policy to not separate lease and non-lease components.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), to provide another optional transition method in addition to the existing transition method by allowing entities to initially apply the new leases standard at the adoption date (January 1, 2019, for the Company) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases).


 
January 1, 2019; early adoption is permitted
 
The Company is currently evaluating this standard and anticipates that its adoption will have a material impact on the Consolidated Financial Statements and related disclosures as it will result in recording substantially all operating leases on the balance sheet as a lease obligation and a right of use asset. Lease software has been implemented that will better enable the Company to implement the standard. The Company's efforts are focused on financial reporting and developing new internal controls. The Company currently anticipates electing to apply the package of practical expedients to all leases that commenced prior to the date of adoption. Based on the analysis performed to date, the Company anticipates making a policy election to exclude short-term leases from the Consolidated Balance Sheet and to separate lease and non-lease components for most lease categories. The Company currently does not anticipate making a policy election to use hindsight to determine lease term. The assessment is ongoing and the preliminary conclusions are subject to change. Based on the preliminary analysis, the Company anticipates recording both operating lease obligations and related right of use assets of approximately $400 million. The impact to the Company’s retained earnings is still being assessed, with the largest impact expected to be driven by the derecognition of the deferred gain from the sale of the Austin, Texas property in 2016, net of tax. The Company currently plans to adopt this ASU on January 1, 2019, using the transition method provided by ASU 2018-11.
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326)
 
The standard will replace the currently required incurred loss impairment methodology with guidance that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to be considered in making credit loss estimates. The guidance requires application on a modified retrospective basis. Other application requirements exist for specific assets impacted by a more-than-insignificant credit deterioration since origination.
 
January 1, 2020; early adoption is permitted for fiscal years beginning after December 15, 2018
 
The Company is currently evaluating the impact this ASU will have on its Consolidated Financial Statements and related disclosures. The Company currently plans to adopt this ASU on January 1, 2020.
 
 
 
 
 
 
 
Recently Issued Accounting Standards Not Yet Adopted (continued)
 
 
 
 
Standard
 
Description
 
Effective Date
 
Effect on the Financial Statements or Other Significant Matters
ASU 2018-13, Fair Value Measurement (Topic 820)

 
The standard modifies the disclosure requirements on fair value measurements by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date.

 
January 1, 2020; early adoption is permitted
 
The Company is currently evaluating the impact this ASU will have on its disclosures. The Company currently plans to adopt this ASU on January 1, 2020.

ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20)
 
The standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. The amendments in this update are effective for fiscal years ending after December 15, 2020. The amendments in this update should be applied on a retrospective basis to all periods presented.
 
December 31, 2020; early adoption is permitted
 
The Company does not expect the adoption of this standard to have a material impact on its disclosures. The Company currently plans to adopt this ASU on December 31, 2020.

ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)

 
The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this update also require companies to expense capitalized implementation costs over the term of the hosting arrangement, including periods covered by renewal options that are reasonably certain to be exercised. The amendments also stipulate presentation requirements for the Statement of Operations, Balance Sheet and Statement of Cash Flows. The amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

 
January 1, 2020; early adoption is permitted
 
The Company does not expect the adoption of this standard to have a material impact on its Consolidated Financial Statements and related disclosures. The Company currently plans to adopt this ASU on January 1, 2020.

 
 
 
 
 
 
 
Other Recently Adopted Accounting Standards
 
 
 
 
Standard
 
Description
 
Effective Date
 
Effect on the Financial Statements or Other Significant Matters
ASU 2016-15, Statement of Cash Flows (Topic 230)
 
The standard addresses eight specific cash flow issues and is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance requires application on a retrospective basis.
 
January 1, 2018
 
The Company adopted this ASU on January 1, 2018. The adoption did not materially impact the Company's historical Consolidated Statements of Cash Flows or related disclosures. Impacts to future results and disclosures will be dependent upon the presence of any items noted in the standard.
ASU 2017-01, Business Combinations (Topic 805)
 
The standard clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance requires application on a prospective basis.
 
January 1, 2018
 
The Company adopted this ASU on January 1, 2018.
v3.10.0.1
Revenue Recognition
9 Months Ended
Sep. 30, 2018
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
2. REVENUE RECOGNITION

Adoption
    
In May 2014, the FASB issued Topic 606, including Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which requires the deferral of incremental costs of obtaining a contract with a customer, and costs to fulfill a contract when the costs meet certain criteria. The new standard is effective for public business entities with annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. The new guidance replaces numerous requirements in U.S. GAAP and provides a single revenue recognition model for recognizing revenue from contracts with customers. The adoption of Topic 606 represents a change in accounting principle that will more closely depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The two permitted transition methods are (i) the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect would be recognized at the earliest period shown, or (ii) the modified retrospective method in which an entity would apply the new guidance only to contracts not completed at the adoption date, would not adjust prior reporting periods and the cumulative effect would be recognized in retained earnings in the period of adoption.

The Company adopted Topic 606, on January 1, 2018, using the modified retrospective method for all contracts not completed as of the date of adoption, with no impact to the opening retained earnings. Results for periods beginning after January 1, 2018 are presented following the guidance of Topic 606, while prior period amounts are not adjusted and continue to be reported following the Company's historical accounting under the accounting standards in effect for those periods. For information regarding these prior period accounting policies, refer to the information disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2017. The Company elected to adopt certain practical expedients outlined in Topic 606. As such, Veritiv does not include sales tax in the transaction price and does recognize revenue in the amount to which it has a right to invoice the customer as it believes that amount corresponds directly with the value provided to the customer. Additionally, Veritiv has utilized certain exceptions allowed under Topic 606 including not assessing whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer and not disclosing the value of unsatisfied performance obligations for contracts with an original estimated length of time to convert of one year or less.

Revenue Recognition

In order to achieve compliance with the accounting principles of Topic 606, Veritiv applies the five step model to assess its contracts with customers. The Company's revenue is reported as net sales and is measured as the determinable transaction price, net of any variable consideration (e.g., sales incentives and rights to return product) and any taxes collected from customers and remitted to governmental authorities.

When the Company enters into a sales arrangement with a customer, it believes it is probable that it will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. The Company has established credit and collection processes whereby collection assessments are performed and allowances for bad debt are recognized. As a normal business practice, Veritiv does not enter into contracts that require more than one year to complete or that contain significant financing components.
    
Additionally, Veritiv enters into incentive programs with certain of its customers, which are generally based on sales to those same customers. Veritiv follows the expected value method when estimating its retrospective incentives and records the estimated amount as a reduction to gross sales when revenue is recognized. Estimates of the variable consideration are based primarily on contract terms, current customer forecasts as well as historical experience.

Customer product returns are estimated based on historical experience and the identification of specific events necessitating an adjustment. The estimated return value is recognized as a reduction of gross sales and related cost of products sold. The estimated inventory returns value is recognized as part of inventories, while the estimated customer refund liability is recognized as part of other accrued liabilities on the Condensed Consolidated Balance Sheet.

In accordance with Topic 606, a customer contract liability will arise when Veritiv has received payment for goods and services, but has not yet transferred the items to a customer and satisfied its performance obligations. Veritiv records a customer contract liability for performance obligations outstanding related to payments received in advance for customer deposits on equipment sales and its bill-and-hold arrangements. Veritiv expects to satisfy these remaining performance obligations and recognize the related revenues upon delivery of the goods and services to the customer's designated location within 12 months following receipt of the payment. Most equipment sales deposits are held for approximately 90 days and most bill-and-hold arrangements initially cover a 90 day period, but can be renewed by the customer.

As of September 30, 2018, the Company recognized estimated inventory returns of approximately $2.4 million, which is included in inventories on the Condensed Consolidated Balance Sheet. Additionally, the Company recognized approximately $18.1 million of customer contract liabilities related to its customer deposits for equipment sales and payments received for bill-and-hold arrangements, which are included in accounts payable on the Condensed Consolidated Balance Sheet. See the table below for a summary of the changes to the customer contract liabilities for the nine months ended September 30, 2018:

(in millions)
Customer Contract Liabilities
Balance at January 1, 2018
$
20.5

    Payments received
41.1

    Revenue recognized from beginning balance
(18.1
)
    Revenue recognized from current year receipts
(25.4
)
Balance at September 30, 2018
$
18.1



Revenue Composition
    
Veritiv’s revenues are primarily derived from purchase orders and rate agreements associated with (i) the delivery of standard listed products with observable standalone sale prices or (ii) transportation and warehousing services. Revenue generally consists of a single performance obligation to transfer a promised good or service and is short-term in nature. Revenues are recognized when control of the promised goods or services is transferred to Veritiv’s customers and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services. Sales transactions with customers are designated free on board ("f.o.b.") destination and revenue is recorded at the point in time when the product is delivered to the customer’s designated location or when the customer has otherwise obtained the benefit of the goods, when title and risk of loss are transferred. Revenues from Veritiv's transportation services are recognized upon completion of the related delivery services and revenues from warehousing services are recognized over time as the storage services are provided. Certain revenues are derived from shipments which are made directly from a manufacturer to a Veritiv customer. The Company is considered to be a principal to these transactions because, among other factors, it maintains control of the goods after they leave the supplier and before they are received at the customer's location, in most cases it selects the supplier and sets the price to the customer, and it bears the risk of the customer defaulting on payment or rejecting the goods. Revenues from these sales are reported on a gross basis in the Condensed Consolidated Statements of Operations and have historically represented approximately one-third of Veritiv's total net sales.

The Company has determined that certain services provided to customers represent activities necessary to obtain or fulfill the contract and deliver the end product to the customer's designated location. These costs have been evaluated and do not meet the criteria for recognition as capitalizable costs. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from both net sales and expenses.

Veritiv evaluated the nature of the products and services provided to its customers as well as the nature of the customer and the geographical distribution of its customer base and determined that the best representative level of disaggregated revenue is the product category basis as shown in the segment results. The Company is able to serve a wide variety of customers, from large national companies to small local customers through its distribution network. Historically, the Company's ten largest customers have generated less than 10% of its consolidated annual net sales. Veritiv’s principal markets are concentrated across North America, primarily the U.S. (90%), Canada (8%) and Mexico (1%).

The following is a brief description of the four reportable segments, organized by major product category:

Packaging – The Packaging segment provides standard as well as custom and comprehensive packaging solutions for customers based in North America and in key global markets. The business is strategically focused on higher growth industries including light industrial/general manufacturing, food production, fulfillment and internet retail, as well as niche verticals based on geographical and functional expertise. This segment also provides supply chain solutions, structural and graphic packaging design and engineering, automation, workflow and equipment services and kitting and fulfillment.

Facility Solutions – The Facility Solutions segment sources and sells cleaning, break-room and other supplies such as towels, tissues, wipers and dispensers, can liners, commercial cleaning chemicals, soaps and sanitizers, sanitary maintenance supplies and equipment, safety and hazard supplies, and shampoos and amenities primarily in the U.S., Canada and Mexico. Additionally, the Company offers total cost of ownership solutions with re-merchandising, budgeting and compliance reporting, and inventory management.

Print – The Print segment sells and distributes commercial printing, writing, copying, digital, wide format and specialty paper products, graphics consumables and graphics equipment primarily in the U.S., Canada and Mexico. This segment also includes customized paper conversion services of commercial printing paper for distribution to document centers and form printers. Veritiv's broad geographic platform of operations coupled with the breadth of paper and graphics products, including exclusive private brand offerings, provides a foundation to service national, regional and local customers across North America.

Publishing – The Publishing segment sells and distributes coated and uncoated commercial printing papers to publishers, retailers, converters, printers and specialty businesses for use in magazines, catalogs, books, directories, gaming, couponing, retail inserts and direct mail. This segment also provides print management, procurement and supply chain management solutions to simplify paper and print procurement processes for its customers.

The Company’s consolidated financial results also include a "Corporate & Other" category which includes certain assets and costs not primarily attributable to any of the reportable segments. Corporate & Other also includes the Veritiv logistics solutions business which provides transportation and warehousing solutions.

See Note 13, Segment Information, for the disaggregation of revenue and other information related to the Company’s reportable segments and Corporate & Other.
v3.10.0.1
2017 Acquisition
9 Months Ended
Sep. 30, 2018
Business Combinations [Abstract]  
2017 Acquisition
3. 2017 ACQUISITION

Acquisition of All American Containers - August 2017

On August 31, 2017 (the "Acquisition Date"), Veritiv completed its acquisition of 100% of the equity interest in various All American Containers entities (collectively, "AAC"), a family owned and operated distributor of rigid packaging products, including plastic, glass and metal containers, caps, closures and plastic pouches.
    
See Note 4, Integration, Acquisition and Restructuring Charges, for information regarding the charges incurred for the AAC integration and acquisition activities. These charges related primarily to legal, consulting and other professional fees, retention and other costs to integrate the business.

The acquisition of AAC was accounted for in the Company's financial statements using the acquisition method of accounting. The total consideration to complete the acquisition was approximately $169.8 million. The purchase price was allocated to tangible and intangible assets and liabilities based upon their respective estimated fair values. The following table summarizes the components of the purchase price for AAC:

Purchase price:
 
(in millions)
Cash consideration
$
112.0

Loan pay-off
34.3

Contingent consideration
22.2

Other
1.3

Total purchase price
$
169.8



The following table summarizes the allocation, as of September 30, 2018, of the purchase price to assets acquired and liabilities assumed as of the Acquisition Date based on available valuation information, estimates and assumptions. See Note 9, Fair Value Measurements, for additional information related to the fair value of the contingent consideration related to the earn-out.    
    
Purchase price allocation:
 
(in millions)
Cash
$
1.5

Accounts receivable
30.4

Inventories
38.5

Other current assets
5.7

Property and equipment
3.5

Goodwill
55.5

Other intangible assets
49.0

Other non-current assets
1.4

Accounts payable
(12.4
)
Other current liabilities
(2.7
)
Other non-current liabilities
(0.6
)
Total purchase price
$
169.8



Goodwill of $55.5 million arising from the acquisition of AAC consists largely of the expected synergies and other benefits from combining operations. The goodwill was allocated 100% to the Company's Packaging reportable segment. All costs associated with the AAC acquisition are expected to be deductible for tax purposes.

Pro Forma Impact (unaudited)

During the quarter of acquisition, the operating results of AAC were included in the Company's financial statements from September 1, 2017 through September 30, 2017 and were reported as part of the Packaging reportable segment. Net sales and operating loss attributable to AAC during this period and included in the Company's Condensed Consolidated Statements of Operations were $16.0 million and $(0.9) million, respectively.

The following unaudited pro forma financial information presents results as if the acquisition of AAC occurred on January 1, 2016. The historical consolidated financial information of the Company and AAC has been adjusted in the pro forma information to give effect to pro forma events that are directly attributable to the transaction and are factually supportable. The unaudited pro forma results do not reflect events that have occurred or may occur after the transaction, including the impact of any synergies expected to result from the acquisition. Accordingly, the unaudited pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed date, nor is it necessarily an indication of future operating results.

(Unaudited)
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions, except share and per share data)
2017
 
2017
Net sales
$
2,157.8

 
$
6,303.2

Net loss
(11.3
)
 
(21.5
)
Loss per share:
 
 
 
Basic and diluted loss per share
$
(0.72
)
 
$
(1.37
)
Weighted-average shares outstanding
 
 
 
Basic and diluted
15.70

 
15.70



The unaudited pro forma information reflects primarily the following pre-tax adjustments for the respective periods:
Acquisition and integration expenses: Acquisition and integration expenses of $6.9 million and $7.4 million incurred during the three and nine months ended September 30, 2017, respectively, have been eliminated.
Incremental amortization expense: Pro forma net loss for the three and nine months ended September 30, 2017 includes incremental amortization expense of $1.1 million and $4.4 million, respectively.
Interest expense: Pro forma net loss for the three and nine months ended September 30, 2017 includes incremental interest expense of $0.5 million and $2.0 million, respectively.

A combined U.S. federal statutory and state rate of 39.0% was used to determine the after-tax impact on net loss of the pro forma adjustments.
v3.10.0.1
Integration Acquisition and Restructuring Charges
9 Months Ended
Sep. 30, 2018
Restructuring and Related Activities [Abstract]  
Integration Acquisition and Restructuring Charges
4. INTEGRATION, ACQUISITION AND RESTRUCTURING CHARGES

Merger of xpedx and Unisource

The Company currently expects net costs and charges associated with achieving anticipated cost savings and other synergies from the Merger (excluding charges relating to the complete or partial withdrawal from multi-employer pension plans ("MEPP"), some of which are uncertain at this time, and including cash proceeds from sales of assets related to consolidation), to be approximately $250 million to $275 million through December 31, 2018. Included in the estimate is approximately $105 million for capital expenditures, primarily consisting of information technology infrastructure, systems integration and planning. Through September 30, 2018, the Company has incurred approximately $283 million in costs and charges, including approximately $102 million for capital expenditures. See Note 14, Subsequent Events, for additional information related to cash proceeds received from the sale of properties made after September 30, 2018.
    
Integration and Acquisition Expenses

During the three and nine months ended September 30, 2018 and 2017, Veritiv incurred costs and charges related primarily to: internally dedicated integration management resources, retention compensation, information technology conversion costs, rebranding, professional services and other costs to integrate its businesses.

The following table summarizes the components of integration and acquisition expenses:

 
Three Months Ended 
 September 30,

Nine Months Ended 
 September 30,
(in millions)
2018

2017

2018

2017
Integration management
$
4.4

 
$
3.8

 
$
13.3

 
$
10.5

Retention compensation
0.0

 

 
0.1

 
0.2

Information technology conversion costs
2.2

 
2.8

 
6.7

 
6.8

Rebranding

 
0.1

 
0.0

 
0.4

Legal, consulting and other professional fees
0.0

 
0.4

 
0.3

 
1.3

Other
0.9

 
0.6

 
2.4

 
2.4

AAC integration and acquisition
0.4

 
6.5

 
1.8

 
6.5

Total integration and acquisition expenses
$
7.9

 
$
14.2

 
$
24.6

 
$
28.1




Veritiv Restructuring Plan: Merger Related
As part of the Merger, the Company is executing on a multi-year restructuring program of its North American operations intended to integrate the legacy xpedx and Unisource operations, generate cost savings and capture synergies across the combined company. The restructuring plan includes initiatives to: (i) consolidate warehouse facilities in overlapping markets, (ii) improve efficiency of the delivery network, (iii) consolidate customer service centers, (iv) reorganize the field sales and operations functions and (v) restructure the corporate general and administrative functions. As part of its restructuring efforts, the Company continues to evaluate its operations outside of North America to identify additional cost saving opportunities. The Company may elect to restructure its operations in specific countries, which may include staff reductions, lease terminations and facility closures, or the complete exit of a market. The Company may continue to record restructuring charges in the future as restructuring activities progress, which may include gains or losses from the disposition of assets. See Note 13, Segment Information, for the impact these charges had on the Company's reportable segments.

Related to these company-wide initiatives, the Company recorded net restructuring charges of $4.8 million and $2.7 million for the three months ended September 30, 2018 and 2017, respectively, and $18.5 million and $30.0 million for the nine months ended September 30, 2018 and 2017, respectively. As described in Note 5, Debt and Other Obligations, on June 30, 2018, the related party failed sale-leaseback agreements, originally entered into with Georgia-Pacific, expired in accordance with their terms. The agreements contained provisions that required Veritiv to incur costs during the lease term related to general repairs and maintenance. Certain termination and repair costs were incurred at or near the end of the agreements' expirations. For those costs related to properties that were exited as part of the restructuring plan, they were classified within restructuring charges, net, on the Condensed Consolidated Statements of Operations, and totaled $10.4 million for the nine months ended September 30, 2018. During the nine months ended September 30, 2018, the Company recognized a $2.1 million gain on the sale of a facility. In addition, the Company recognized net non-cash gains of $1.8 million and $2.6 million related to vacating certain of its facilities for the three and nine months ended September 30, 2017, respectively. As of September 30, 2018, the Company held for sale $1.3 million in assets related to these activities, which are included in other current assets on the Condensed Consolidated Balance Sheets.
    
Other direct costs reported in the tables below include facility closing costs, actual and estimated MEPP withdrawal charges and other incidental costs associated with the development, communication, administration and implementation of these initiatives.
    
The following table presents a summary of restructuring charges, net, that were incurred during the current fiscal year and prior fiscal year, as well as the cumulative recorded amounts since the initiative began:

(in millions)
Severance and Related Costs
 
Other Direct Costs
 
(Gain) Loss on Sale of Assets and Other (non-cash portion)
 
Total
2018 (year-to-date)
$
2.6

 
$
18.0

 
$
(2.1
)
 
$
18.5

2017
7.5

 
33.6

 
(24.4
)
 
16.7

Cumulative
22.6

 
65.9

 
(24.5
)
 
64.0



The following is a summary of the Company's restructuring liability activity for the three and nine months ended September 30, 2018 (costs incurred exclude any non-cash portion of restructuring gains or losses on asset disposals):

(in millions)
Severance and Related Costs
 
Other Direct Costs
 
Total
Balance at December 31, 2017
$
4.4

 
$
25.2

 
$
29.6

Costs incurred
0.2

 
2.4

 
2.6

Payments
(1.0
)
 
(2.1
)
 
(3.1
)
Balance at March 31, 2018
3.6

 
25.5

 
29.1

Costs incurred
0.3

 
13.3

 
13.6

Payments
(0.3
)
 
(8.9
)
 
(9.2
)
Balance at June 30, 2018
3.6

 
29.9

 
33.5

Costs incurred
2.1

 
2.3

 
4.4

Payments
(0.6
)
 
(6.5
)
 
(7.1
)
Balance at September 30, 2018
$
5.1

 
$
25.7

 
$
30.8



The following is a summary of the Company's restructuring liability activity for the three and nine months ended September 30, 2017 (costs incurred exclude any non-cash portion of restructuring gains or losses on asset disposals):

(in millions)
Severance and Related Costs
 
Other Direct Costs
 
Total
Balance at December 31, 2016
$
1.8

 
$
8.0

 
$
9.8

Costs incurred
1.4

 
3.1

 
4.5

Payments
(1.2
)
 
(2.8
)
 
(4.0
)
Balance at March 31, 2017
2.0

 
8.3

 
10.3

Costs incurred
3.9

 
19.7

 
23.6

Payments
(2.0
)
 
(5.4
)
 
(7.4
)
Balance at June 30, 2017
3.9

 
22.6

 
26.5

Costs incurred
0.7

 
3.8

 
4.5

Payments
(0.7
)
 
(4.7
)
 
(5.4
)
Balance at September 30, 2017
$
3.9

 
$
21.7

 
$
25.6


    
    
    
Veritiv Restructuring Plan: Print Segment

To ensure Veritiv is appropriately positioned to respond to the secular decline in the paper industry, the Company is currently focused on restructuring its Print segment. The restructuring plan includes initiatives within the Company's Print segment to improve the sustainability of the print business, better serve its customers’ needs and work more effectively with suppliers.  The Company is streamlining and shifting its Print segment to incorporate a more customer focused, collaborative, team-selling approach as well as to better align its support functions. For the three and nine months ended September 30, 2018 the Company incurred charges of $0.6 million and $10.2 million, respectively, related to this restructuring plan. The Company anticipates recording additional restructuring charges during 2018 as its activities progress. The restructuring plan is still evolving and total charges related to the Print segment restructuring plan are not expected to exceed $15.0 million.

The following is a summary of the Company's Print restructuring liability activity for the three and nine months ended September 30, 2018:

(in millions)
Severance and Related Costs
 
Other Direct Costs
 
Total
Balance at December 31, 2017
$

 
$

 
$

Costs incurred
9.2

 
0.1

 
9.3

Payments
(0.7
)
 
0.0

 
(0.7
)
Balance at March 31, 2018
8.5

 
0.1

 
8.6

Costs incurred
0.0

 
0.3

 
0.3

Payments
(3.0
)
 
(0.3
)
 
(3.3
)
Balance at June 30, 2018
5.5

 
0.1

 
5.6

Costs incurred
0.4

 
0.2

 
0.6

Payments
(2.3
)
 
(0.3
)
 
(2.6
)
Balance at September 30, 2018
$
3.6

 
$
0.0

 
$
3.6

v3.10.0.1
Debt And Other Obligations
9 Months Ended
Sep. 30, 2018
Debt Disclosure [Abstract]  
Debt And Other Obligations
5. DEBT AND OTHER OBLIGATIONS

The Company's long-term debt obligations were as follows:

(in millions)
September 30, 2018
 
December 31, 2017
Asset-Based Lending Facility (the "ABL Facility")
$
966.0

 
$
897.7

Equipment capital leases
38.2

 
13.5

Total debt
1,004.2

 
911.2

Less: current maturities of long-term debt
(6.6
)
 
(2.9
)
Long-term debt, net of current maturities
$
997.6

 
$
908.3



Availability under the ABL Facility is determined based upon a monthly borrowing base calculation which includes eligible customer receivables and inventory, less outstanding borrowings, letters of credit and certain designated reserves. As of September 30, 2018, the available additional borrowing capacity under the ABL Facility was approximately $262.2 million. As of September 30, 2018, the Company held $11.5 million in outstanding letters of credit.

The ABL Facility has a springing minimum fixed charge coverage ratio of at least 1.00 to 1.00 on a trailing four-quarter basis, which will be tested only when specified availability is less than the limits outlined under the ABL Facility. At September 30, 2018, the above test was not applicable and it is not expected to be applicable in the next 12 months.

The Company's long-term financing obligations were as follows:

(in millions)
September 30, 2018
 
December 31, 2017
Obligations to related party
$

 
$
162.3

Obligations - other financing
25.8

 
27.1

Total financing obligations
25.8

 
189.4

Less: current portion of financing obligations
(0.7
)
 
(7.8
)
Financing obligations, less current portion
$
25.1

 
$
181.6



As of June 30, 2018, the financing obligations for all of the related party financed properties were either terminated early or expired in accordance with their terms. Through formal termination or natural expiration of these agreements, the involvement of Georgia-Pacific (the related party) ceased and the leases no longer qualified as failed sale-leaseback financing obligations. Of the original 38 financing obligations to related party properties, 27 were settled by the return of the properties to the landlord.
    
Upon termination or expiration of a property's financing agreement, the Company recognized the non-cash effects of the derecognition of (i) the property and equipment and (ii) the corresponding financing obligation, as other non-cash items, net, on the Condensed Consolidated Statements of Cash Flows. Any gain or loss realized upon derecognition has been included in other (income) expense, net or restructuring charges, net on the Condensed Consolidated Statements of Operations, based upon the rationale for the termination. See the table below for the non-cash effects of the derecognition of (i) the property and equipment and (ii) the corresponding financing obligation (total of current and non-current portions):

 
Nine Months Ended September 30,
(in millions)
2018
 
2017
Property and equipment
$
155.2

 
$
14.6

Financing obligations
155.6

 
15.2



In April 2016, Veritiv assumed ownership of a warehouse and distribution facility located in Austin, Texas that had been sub-leased from Georgia-Pacific and was a related party financed obligation. The transaction was accounted for as a settlement of the financing obligation. In May 2017, the Company entered into a purchase and sale agreement under which Veritiv agreed to sell the previously acquired Austin, Texas facility to an unrelated third party. Upon the closing of the sale, Veritiv entered into a lease of the facility for an initial period of ten years with two optional five-year renewal terms. The sale-leaseback transaction does not provide for any continuing involvement by the Company other than a normal lease for use of the property during the lease term. The transaction resulted in net cash proceeds of $9.1 million and a related deferred gain of $5.4 million. The Company is currently recognizing the gain over the initial ten-year lease period on a straight-line basis as a reduction to selling and administrative expenses in the Condensed Consolidated Statements of Operations. The current portion of the deferred gain is included in other accrued liabilities and the non-current portion of the deferred gain is included in other non-current liabilities on the Condensed Consolidated Balance Sheets.

See Note 4, Integration, Acquisition and Restructuring Charges, for additional information related to charges incurred as a result of the termination or expiration of the related party financing obligations.
v3.10.0.1
Income Taxes
9 Months Ended
Sep. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
6. INCOME TAXES

The Company has historically calculated the provision or benefit for income taxes during interim reporting periods, including the three and nine months ended September 30, 2017, by applying an estimate of the annual effective tax rate ("AETR") for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. In 2018, the Company determined it could no longer reliably estimate income taxes utilizing an AETR for interim reporting periods. The AETR estimate is highly sensitive to estimates of ordinary income (loss) and permanent differences, including additional permanent differences required by the Tax Act, such that minor fluctuations in these estimates could result in significant fluctuations of the Company’s AETR. Accordingly, Veritiv used its actual year-to-date effective tax rate to calculate taxes for the three and nine months ended September 30, 2018.


The following table presents the expense (benefit) for income taxes and the effective tax rates for the three and nine months ended September 30, 2018 and 2017:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2018
 
2017
 
2018
 
2017
Income (loss) before income taxes
$
4.9

 
$
(18.3
)
 
$
(26.1
)
 
$
(38.7
)
Income tax expense (benefit)
3.5

 
(4.0
)
 
(1.1
)
 
(13.1
)
Effective tax rate
71.4
%
 
21.9
%
 
4.2
%
 
33.9
%


The difference between the Company’s effective tax rates for the three and nine months ended September 30, 2018 and 2017 and the U.S. statutory tax rates of 21.0% and 35.0%, respectively, primarily relates to state income taxes (net of federal income tax benefit), non-deductible expenses, tax credits, and the Company's income (loss) by jurisdiction. Additionally, the effective tax rates for the three and nine months ended September 30, 2018 include estimates for tax expense for stock compensation vesting, true up of certain return estimates, Global Intangible Low-Taxed Income ("GILTI") and updated provisional estimates adjusting the cumulative impact of the Tax Act. The effective tax rate for full year 2018 may vary significantly due to potential fluctuations in the amount and source, including both foreign and domestic, of pre-tax income and changes in amounts of non-deductible expenses, analysis of the Tax Act, and other items that could impact the effective tax rate. The effective tax rates for the three and nine months ended September 30, 2017 include the impact of impairing non-deductible goodwill. In conjunction with the third quarter of 2017's filing of Veritiv's 2016 U.S. federal tax return and amended 2015 and 2014 U.S. federal tax returns, the Company recognized a $3.1 million benefit for credits related to foreign taxes and research and experimentation activities.

The Tax Act was enacted on December 22, 2017. The Tax Act reduced the U.S. federal corporate income tax rate from 35.0% to 21.0%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings. The Company is applying the guidance in SAB 118 when accounting for the enactment date effects of the Tax Act. The Company determined that remeasurement of its deferred tax assets and liabilities, one-time transition tax, impact of the Tax Act on state taxes, and tax liability associated with investments in non-U.S. subsidiaries where book basis exceeds tax basis are provisional amounts and reasonable estimates at December 31, 2017. At September 30, 2018, the Company has not completed its accounting for all of the tax effects of the Tax Act, but has recognized an additional provisional estimate of $1.4 million of expense for certain measurement-period adjustments during the quarter. To date, the cumulative impact of the Tax Act is estimated to be $31.6 million tax expense, of which $24.1 million is related primarily to the remeasurement of the Company’s deferred taxes to the 21% rate and $7.5 million is related to the one-time transition tax. Management continues to complete the analysis of attributes including foreign earnings and profits computations and foreign income tax calculations for the Company's non-U.S. subsidiaries. Additional work is necessary for a more detailed analysis of Veritiv's deferred tax assets and liabilities and its historical foreign earnings as well as potential adjustments. The Company expects to complete its accounting within the prescribed measurement period and any subsequent adjustment to these amounts will be recorded to income tax expense (benefit).

The Tax Act subjects a U.S. shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for GILTI, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has evaluated the effects of the GILTI provisions and determined its accounting policy election is to account for it as a period expense. As of September 30, 2018, the Company has included estimated GILTI effects in its calculation of tax expense for the three and nine months ended September 30, 2018.

In January 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from accumulated other comprehensive income (AOCI) ("AOCI"), which gives companies the option to reclassify to retained earnings tax effects resulting from the Tax Act related to items in AOCI that the FASB refers to as having been stranded in AOCI. Veritiv elected to early adopt ASU 2018-02 as of January 1, 2018. As a result of adopting this standard, the Company reclassified $0.8 million from Veritiv's accumulated other comprehensive loss to retained earnings.
v3.10.0.1
Related Party Transactions
9 Months Ended
Sep. 30, 2018
Related Party Transactions [Abstract]  
Related Party Transactions
7. RELATED PARTY TRANSACTIONS

Agreements with the UWWH Stockholder

In January 2018 and 2017, in connection with the Tax Receivable Agreement ("TRA") executed at the time of the Merger, Veritiv paid $10.1 million and $8.7 million, respectively, in principal and interest, to UWW Holdings, LLC (the "UWWH Stockholder"), one of Veritiv's existing stockholders and the former sole stockholder of UWWH, for the utilization of pre-merger net operating losses ("NOL" or "NOLs") in its 2016 and 2015 federal and state tax returns, respectively. See Note 9, Fair Value Measurements, for additional information regarding the TRA.

On March 22, 2017, the UWWH Stockholder sold 1.80 million shares of Veritiv common stock in a block trade. The Company did not sell or repurchase any shares and did not receive any of the proceeds in this transaction. In conjunction with this transaction, Veritiv incurred approximately $0.2 million in transaction-related fees, which are included in selling and administrative expenses on the Condensed Consolidated Statements of Operations.

On September 25, 2018, the UWWH Stockholder sold 1.50 million shares of Veritiv common stock in a block trade. The Company did not sell or repurchase any shares and did not receive any of the proceeds in this transaction. In conjunction with this transaction, Veritiv recognized approximately $0.2 million in transaction-related fees, which are included in selling and administrative expenses on the Condensed Consolidated Statements of Operations. The UWWH Stockholder beneficially owned 2,783,840 shares of Veritiv's outstanding common stock as of September 30, 2018.
    
Transactions with Georgia-Pacific

Veritiv purchases certain inventory items from, and sells certain inventory items to, Georgia-Pacific in the normal course of business. As a result of the Merger and related private placement, Georgia-Pacific, as joint owner of the UWWH Stockholder, is a related party.

The following tables summarize the financial impact of these related party transactions with Georgia-Pacific:

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Sales to Georgia-Pacific, reflected in net sales
 
$
6.6

 
$
8.6

 
$
21.3

 
$
24.9

Purchases of inventory from Georgia-Pacific, recognized in cost of products sold
 
39.3

 
45.7

 
117.2

 
138.0


(in millions)
 
September 30, 2018
 
December 31, 2017
Inventories purchased from Georgia-Pacific that remained on Veritiv's balance sheet
 
$
19.4

 
$
22.7

Related party payable to Georgia-Pacific
 
11.8

 
8.5

Related party receivable from Georgia-Pacific
 
3.2

 
3.3

v3.10.0.1
Defined Benefit Plans
9 Months Ended
Sep. 30, 2018
Retirement Benefits [Abstract]  
Defined Benefit Plans
8. DEFINED BENEFIT PLANS

In conjunction with the Merger, Veritiv assumed responsibility for Unisource’s defined benefit plans and Supplemental Executive Retirement Plans in the U.S. and Canada. Net periodic benefit (credit) cost associated with these plans is summarized below:

    
 
Three Months Ended September 30, 2018
 
Three Months Ended September 30, 2017
(in millions)
U.S.
 
Canada
 
U.S.
 
Canada
Components of net periodic benefit (credit) cost:
 
 
 
 
 
 
 
Service cost
$
0.5

 
$
0.0

 
$
0.5

 
$
0.0

 
 
 
 
 
 
 
 
Interest cost
$
0.6

 
$
0.7

 
$
0.6

 
$
0.8

Expected return on plan assets
(1.4
)
 
(0.9
)
 
(1.2
)
 
(1.0
)
Settlement loss
0.0

 
0.1

 

 

Amortization of net loss

 
0.0

 
0.1

 
0.0

 Total other components
$
(0.8
)
 
$
(0.1
)
 
$
(0.5
)
 
$
(0.2
)
Net periodic benefit (credit) cost
$
(0.3
)
 
$
(0.1
)
 
$
0.0

 
$
(0.2
)

        
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
Nine Months Ended September 30, 2017
(in millions)
U.S.
 
Canada
 
U.S.
 
Canada
Components of net periodic benefit (credit) cost:
 
 
 
 
 
 
 
Service cost
$
1.5

 
$
0.2

 
$
1.5

 
$
0.2

 
 
 
 
 
 
 
 
Interest cost
$
1.9

 
$
2.1

 
$
2.0

 
$
2.1

Expected return on plan assets
(4.1
)
 
(2.9
)
 
(3.8
)
 
(2.8
)
Settlement loss
0.0

 
0.1

 

 

Amortization of net loss

 
0.1

 
0.1

 
0.1

 Total other components
$
(2.2
)
 
$
(0.6
)
 
$
(1.7
)
 
$
(0.6
)
Net periodic benefit (credit) cost
$
(0.7
)
 
$
(0.4
)
 
$
(0.2
)
 
$
(0.4
)
v3.10.0.1
Fair Value Measurements
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
9. FAIR VALUE MEASUREMENTS

At September 30, 2018 and December 31, 2017, the carrying amounts of cash, receivables, payables and other components of other current assets and other accrued liabilities approximate their fair values due to the short maturity of these items.

Borrowings under the ABL Facility are at variable market interest rates and, accordingly, the carrying amount approximates fair value.

Certain of the Company's assets and liabilities are also subject to nonrecurring fair value measurements. Generally, assets are recorded at their fair values on a nonrecurring basis as a result of impairment charges. The Company recorded $0.2 million in impairment charges for the three and nine months ended September 30, 2018, included in selling and administrative expenses on the Condensed Consolidated Statements of Operations, related to a software asset which was not placed into service and had no alternative use. During the third quarter of 2017, the Company reviewed its intangible assets for possible impairment indicators, and management determined that the carrying values of the goodwill and customer relationship intangible assets allocated to the logistics solutions business were fully impaired. The impairments were determined after a review of the business's forecasted revenues and estimated cash flows (Level 3 data). The impairment charges were primarily a result of lower forecasted sales growth due to changes in the Company's growth strategy and margin compression due to increased competition. The fair value of these assets was derived using discounted cash flow analyses based on Level 3 inputs. As a result, the Company recorded $7.7 million in non-restructuring impairment charges related to its logistics solutions business's goodwill and customer relationship intangible assets, included in selling and administrative expenses on the Condensed Consolidated Statements of Operations. For the nine months ended September 30, 2017, the Company recognized $8.4 million in non-restructuring impairment charges related to the logistics solutions business's goodwill and customer relationship intangible asset impairments, and a software asset which was not placed into service and had no alternative use. The impairment charges for 2017 were recorded in selling and administrative expenses on the Condensed Consolidated Statements of Operations.

The Company's liabilities disclosed at fair value at September 30, 2018 were as follows:

(in millions)
 
Total

Level 1

Level 2

Level 3
ABL Facility
 
$
966.0


 
 
$
966.0

 
 
Tax Receivable Agreement
 
39.8


 
 
 
 
39.8

AAC contingent consideration
 
13.2

 
 
 
 
 
13.2



The Company's liabilities disclosed at fair value at December 31, 2017 were as follows:

(in millions)
 
Total
 
Level 1
 
Level 2
 
Level 3
ABL Facility
 
$
897.7

 

 
$
897.7

 

Tax Receivable Agreement
 
50.0

 

 

 
50.0

AAC contingent consideration
 
24.2

 
 
 
 
 
24.2



At the time of the Merger, the Company recorded a $59.4 million contingent liability associated with the TRA at fair value using a discounted cash flow model that reflected management's expectations about probability of payment. The fair value of the TRA is a Level 3 measurement, which relied upon both Level 2 data (publicly observable data such as market interest rates) and Level 3 data (internal data such as the Company’s projected revenues, taxable income and assumptions about the utilization of Unisource’s NOLs, attributable to taxable periods prior to the Merger, by the Company). The amount payable under the TRA is contingent on the Company generating a certain level of taxable income prior to the expiration of the NOL carryforwards. Moreover, future trading of Company stock by significant shareholders may result in additional ownership changes as defined under Section 382 of the Internal Revenue Code, further limiting the use of Unisource's NOLs and the amount ultimately payable under the TRA. The contingent liability is remeasured at fair value at each reporting period-end with the change in fair value recognized in other (income) expense, net on the Condensed Consolidated Statements of Operations. At September 30, 2018, the Company remeasured the contingent liability using a discount rate of 4.9% (Moody's daily long-term corporate BAA bond yield). For the TRA contingent liability, there have been no transfers between the fair value measurement levels for the three and nine months ended September 30, 2018. The Company recognizes transfers between the fair value measurement levels at the end of the reporting period.

The following table provides a reconciliation of the beginning and ending balance of the TRA contingent liability for the three and nine months ended September 30, 2018:    

(in millions)
 
TRA Contingent Liability
Balance at December 31, 2017
 
$
50.0

Change in fair value adjustment recorded in other (income) expense, net
 
(0.2
)
Principal payment
 
(9.9
)
Balance at March 31, 2018
 
39.9

Change in fair value adjustment recorded in other (income) expense, net
 
(0.2
)
Balance at June 30, 2018
 
39.7

Change in fair value adjustment recorded in other (income) expense, net
 
0.1

Balance at September 30, 2018
 
$
39.8



The following table provides a reconciliation of the beginning and ending balance of the TRA contingent liability for the three and nine months ended September 30, 2017:    

(in millions)
 
TRA Contingent Liability
Balance at December 31, 2016
 
$
67.9

Change in fair value adjustment recorded in other (income) expense, net
 
0.9

Principal payment
 
(8.5
)
Balance at March 31, 2017
 
60.3

Change in fair value adjustment recorded in other (income) expense, net
 
1.1

Balance at June 30, 2017
 
61.4

Change in fair value adjustment recorded in other (income) expense, net
 
(0.4
)
Balance at September 30, 2017
 
$
61.0



The purchase price allocation for the acquisition of AAC, described in Note 3, 2017 Acquisition, includes $22.2 million for the estimated fair value of contingent consideration. The maximum amount payable for the contingent consideration was $50.0 million, with up to $25.0 million payable at each of the first and second anniversaries of the Acquisition Date. As of the first anniversary of the Acquisition Date, the Company anticipates it will need to pay $2.5 million in the fourth quarter of 2018. The amount payable as of the second anniversary of the Acquisition Date will be determined based on actual growth rates in revenue and gross profit. The initial fair value estimate was based on historic growth patterns and future forecasts, which are Level 3 data. The valuation of contingent consideration uses assumptions and estimates to forecast a range of outcomes and probabilities for the contingent consideration. The contingent consideration is valued using a Monte Carlo simulation model. The Company assesses these assumptions and estimates on a quarterly basis as additional data impacting the assumptions is obtained. Any changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized within other (income) expense, net, in the Condensed Consolidated Statements of Operations during the period in which the change occurs.

The following table provides a reconciliation of the beginning and ending balance of the AAC contingent liability for the three and nine months ended September 30, 2018:

(in millions)
 
AAC Contingent Liability
Balance at December 31, 2017
 
$
24.2

Change in fair value adjustment recorded in other (income) expense, net
 
(8.3
)
Balance at March 31, 2018
 
15.9

Change in fair value adjustment recorded in other (income) expense, net
 
(3.0
)
Balance at June 30, 2018
 
12.9

Change in fair value adjustment recorded in other (income) expense, net
 
0.3

Balance at September 30, 2018
 
$
13.2

v3.10.0.1
Earnings (Loss) Per Share
9 Months Ended
Sep. 30, 2018
Earnings Per Share [Abstract]  
Earnings (Loss) Per Share
10. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share for Veritiv common stock is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is similarly calculated, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued, except where the inclusion of such common shares would have an antidilutive impact.

A summary of the numerators and denominators used in the basic and diluted income (loss) per share calculations is as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in millions, except per share data)
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
1.4

 
$
(14.3
)
 
$
(25.0
)
 
$
(25.6
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average number of shares outstanding – basic
15.85

 
15.70

 
15.82

 
15.70

Dilutive effect of stock-based awards
0.62

 

 

 

Weighted-average number of shares outstanding – diluted
16.47

 
15.70

 
15.82

 
15.70

 
 
 
 
 
 
 
 
Earnings (loss) per share:
 
 
 
 
 
 
 
     Basic earnings (loss) per share
$
0.09

 
$
(0.91
)
 
$
(1.58
)
 
$
(1.63
)
     Diluted earnings (loss) per share
$
0.09

 
$
(0.91
)
 
$
(1.58
)
 
$
(1.63
)
 
 
 
 
 
 
 
 
Antidilutive stock-based awards excluded from computation of diluted earnings per share ("EPS")
0.09

 
0.68

 
1.13

 
0.66

Performance stock-based awards excluded from computation of diluted EPS because performance conditions had not been met
0.49

 
0.48

 
0.49

 
0.48



During the first and second quarters of 2018, in accordance with the Company's 2014 Omnibus Incentive Plan, as amended and restated as of March 8, 2017, shares of the Company's common stock were issued to plan participants whose Restricted Stock Units and/or Performance Condition Share Units vested during those periods. The Company issued approximately 200,000 and 13,000 shares, respectively, and simultaneously recovered approximately 70,000 and 5,000 shares, respectively, for purposes of covering the related minimum tax withholdings. An insignificant number of shares were issued and recovered during the third quarter of 2018. The net share issuance is included in additional paid-in capital on the Condensed Consolidated Balance Sheet at September 30, 2018. For additional information related to these plans refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2017.
v3.10.0.1
Accumulated Other Comprehensive Loss
9 Months Ended
Sep. 30, 2018
Equity [Abstract]  
Accumulated Other Comprehensive Loss
11. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table provides the components of accumulated other comprehensive loss ("AOCL") at September 30, 2018 (amounts are shown net of their related income tax effect, if any):

(in millions)
 
Foreign currency translation adjustments
 
Retirement liabilities
 
Interest rate swap
 
AOCL
Balance at December 31, 2017
 
$
(23.5
)
 
$
(9.3
)
 
$
(0.7
)
 
$
(33.5
)
     Unrealized net (losses) arising during the period
 
(0.2
)
 

 

 
(0.2
)
     Amounts reclassified from AOCL
 

 
(0.6
)
 

 
(0.6
)
Net current period other comprehensive (loss)
 
(0.2
)
 
(0.6
)
 

 
(0.8
)
Balance at March 31, 2018
 
(23.7
)
 
(9.9
)
 
(0.7
)
 
(34.3
)
     Unrealized net (losses) gains arising during the period
 
(3.9
)
 

 
0.1

 
(3.8
)
Net current period other comprehensive (loss) income
 
(3.9
)
 

 
0.1

 
(3.8
)
Balance at June 30, 2018
 
(27.6
)
 
(9.9
)
 
(0.6
)
 
(38.1
)
     Unrealized net gains (losses) arising during the period
 
2.5

 

 
(0.1
)
 
2.4

     Amounts reclassified from AOCL
 

 

 
0.3

 
0.3

Net current period other comprehensive income
 
2.5

 

 
0.2

 
2.7

Balance at September 30, 2018
 
$
(25.1
)
 
$
(9.9
)
 
$
(0.4
)
 
$
(35.4
)
    
The following table provides the components of AOCL at September 30, 2017 (amounts are shown net of their related income tax effect, if any):

(in millions)
 
Foreign currency translation adjustments
 
Retirement liabilities
 
Interest rate swap
 
AOCL
Balance at December 31, 2016
 
$
(29.2
)
 
$
(9.1
)
 
$
(0.7
)
 
$
(39.0
)
     Unrealized net gains (losses) arising during the period
 
2.8

 
0.1

 
(0.1
)
 
2.8

Net current period other comprehensive income (loss)
 
2.8

 
0.1

 
(0.1
)
 
2.8

Balance at March 31, 2017
 
(26.4
)
 
(9.0
)
 
(0.8
)
 
(36.2
)
     Unrealized net gains arising during the period
 
2.6

 

 

 
2.6

Net current period other comprehensive income
 
2.6

 

 

 
2.6

Balance at June 30, 2017
 
(23.8
)
 
(9.0
)
 
(0.8
)
 
(33.6
)
     Unrealized net gains arising during the period
 
2.4

 

 

 
2.4

     Amounts reclassified from AOCL
 

 

 
0.1

 
0.1

Net current period other comprehensive income
 
2.4

 

 
0.1

 
2.5

Balance at September 30, 2017
 
$
(21.4
)
 
$
(9.0
)
 
$