SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐No☒

The number of shares outstanding of the registrant's common stock as of ~~November 1, 2018~~October 31, 2019 was ~~15,846,590.~~16,099,720.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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VERITIV CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions, unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017			2018			2017			2019			2018		2019			2018
Net income (loss)	$	1.4	$	(14.3	)	$	(25.0	)	$	(25.6	)	$	5.1		$	1.4	$	(32.9	)	$	(25.0	)
Other comprehensive income (loss):
Foreign currency translation adjustments	2.5		2.4			(1.6		)	7.8			(2.2		)	2.5		1.5			(1.6		)
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
Change in fair value of cash flow hedge, net of $(0.1), $0.1, $0.0 and $0.3 tax, respectively												(0.3		)	0.2		0.0			0.3
Pension liability adjustments, net of $0.0, $0.0, $0.0 and $0.7 tax, respectively												0.0			0.0		0.1			(0.6		)
Other comprehensive income (loss)	2.7		2.5			(1.9		)	7.9			(2.5		)	2.7		1.6			(1.9		)
Total comprehensive income (loss)	$	4.1	$	(11.8	)	$	(26.9	)	$	(17.7	)	$	2.6		$	4.1	$	(31.3	)	$	(26.9	)

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VERITIV CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in millions, except par value, unaudited)


	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
Assets
Current assets:
Cash	$	70.9		$	80.3		$	59.3		$	64.3
Accounts receivable, less allowances of $56.2 and $44.0, respectively	1,212.5			1,174.3
Accounts receivable, less allowances of $50.9 and $62.0, respectively							968.2			1,181.4
Related party receivable	3.2			3.3			2.8			3.2
Inventories	737.8			722.7			602.6			688.2
Other current assets	152.5			133.5			137.8			147.2
Total current assets	2,176.9			2,114.1			1,770.7			2,084.3
Property and equipment (net of depreciation and amortization of $315.3 and $314.6, respectively)	210.1			340.2
Property and equipment (net of accumulated depreciation and amortization of $337.3 and $320.7, respectively)							199.6			206.7
Goodwill	99.6			99.6			99.6			99.6
Other intangibles, net	58.5			64.1			53.4			57.2
Deferred income tax assets	62.4			59.6			58.3			56.5
Other non-current assets	27.0			30.8			456.1			25.4
Total assets	$	2,634.5		$	2,708.4		$	2,637.7		$	2,529.7
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	723.4		$	680.1		$	592.7		$	641.9
Related party payable	11.8			8.5			6.5			9.3
Accrued payroll and benefits	55.9			73.5			50.8			56.5
Other accrued liabilities	139.6			134.6			223.3			134.7
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
Current portion of debt							9.9			6.7
Financing obligations, current portion							—			0.6
Total current liabilities	938.0			907.4			883.2			849.7
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
Long-term debt, net of current portion							726.2			963.6
Financing obligations, less current portion							—			23.6
Defined benefit pension obligations	20.6			24.4			20.8			21.1
Other non-current liabilities	116.5			137.0			482.9			128.6
Total liabilities	2,097.8			2,158.7			2,113.1			1,986.6
Commitments and contingencies (Note 12)
Shareholders' equity:
Preferred stock, $0.01 par value, 10.0 million shares authorized, none issued	—			—			—			—
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
Common stock, $0.01 par value, 100.0 million shares authorized; shares issued - 16.4 million and 16.2 million, respectively; shares outstanding - 16.1 million and 15.9 million, respectively							0.2			0.2
Additional paid-in capital	603.3			590.2			615.8			605.7
Accumulated (deficit) earnings	(17.8		)	6.4			(38.7		)	(8.5		)
Accumulated other comprehensive loss	(35.4		)	(33.5		)	(39.1		)	(40.7		)
Treasury stock at cost - 0.3 million shares at September 30, 2018 and December 31, 2017	(13.6		)	(13.6		)
Treasury stock at cost - 0.3 million shares at September 30, 2019 and December 31, 2018							(13.6		)	(13.6		)
Total shareholders' equity	536.7			549.7			524.6			543.1
Total liabilities and shareholders' equity	$	2,634.5		$	2,708.4		$	2,637.7		$	2,529.7

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

⁽¹⁾Accumulated other comprehensive loss.

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VERITIV CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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~~150 distribution centers primarily throughout the United States ("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.~~2018. 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.

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~~right-of-use ("ROU") asset and ~~allocating the revenue to performance obligations),~~liability valuations, 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,~~2019, the Company adopted Accounting Standards Update ("ASU") ~~2014-09,~~ ~~Revenue from Contracts with Customers~~2016-02, Leases (Topic ~~606)~~842) ("Topic ~~606"~~842") and its related interpretations. The standard ~~replaces previous revenue~~requires lessees to recognize ROU assets and liabilities for leases with a lease term greater than twelve months on their balance sheet. The pattern and classification of expense recognition ~~standards~~in a lessee's statement of operations remains similar to prior accounting guidance. The new standard also eliminates the prior guidance related to real estate specific provisions. Upon adoption, the Company recorded (i) operating lease obligations and ~~significantly expands~~related ROU assets of approximately $428 million and (ii) an increase to retained earnings of $2.7 million, primarily driven by the ~~disclosure~~derecognition of the unamortized deferred gain from the 2017 sale of the Austin, Texas property. The Company's debt covenants and bank capital requirements ~~for revenue arrangements.~~ were not impacted by the adoption of this ASU.

The guidance ~~may be adopted~~allows an entity to make an election to adopt the standard using either ~~retrospectively or on~~ a modified retrospective ~~basis for new contracts and existing contracts with remaining performance obligations as~~approach, applying the standard to leases that existed at the beginning of the ~~effective date.~~earliest period presented and those entered into thereafter with restated comparative period financial statements, or an additional transition approach (under ASU 2018-11), which allows an entity to initially apply the new lease 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 the period in which it adopts the new lease standard, will not be restated and will continue to be in accordance with prior U.S. GAAP (Topic 840, Leases). The ~~effective date for Veritiv, without early adoption, was January 1, 2018. Veritiv~~Company adopted this ASU applying the ~~modified retrospective~~additional 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.~~approach.

~~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~~elect a package of practical expedients which must be applied consistently to all leases that commenced 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~~effective date. If the package of ~~the Company's defined benefit pension~~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 ~~other postretirement employee benefits plans on the Condensed Consolidated Statements of Operations was as follows:~~

~~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.(iii) initial direct costs for any existing leases. The Company elected to apply the ~~guidance as~~package of practical expedients to all leases that commenced prior to the ~~beginning of the period~~date of adoption. The guidance ~~would have been effective~~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 ROU assets for ~~Veritiv~~impairment; (ii) a policy to not record short-term leases on ~~January 1, 2019 had~~ the balance sheet; and (iii) a policy to not separate lease and non-lease components. The Company ~~not early adopted. See~~ ~~Note 6, Income Taxes, for additional information related~~made a policy election 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 yearexclude short-term leases from the ~~Tax Act enactment date~~balance sheet and to separate lease and non-lease components for ~~companies~~most lease categories. The Company also made a policy election 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 ablenot use hindsight 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

~~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).

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326)




Recently Issued Accounting Standards Not Yet Adopted (continued)
Standard	Description	Effective Date	Effect on the Financial Statements or Other Significant Matters
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~~beneficial. This standard requires new disclosures for the ~~specific requirements~~weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of ~~disclosures~~the reasons for significant gains and ~~adds disclosure requirements identified as relevant.~~losses related to changes in the benefit obligation for the period. 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.

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~~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.~~

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 ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("Topic ~~606,~~606") on January 1, 2018 using the modified retrospective ~~method~~approach 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~~including: (i) not assessing whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer and (ii) not disclosing the value of unsatisfied performance obligations for contracts with an original estimated length of time to convert of one year or less.

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Revenue Recognition

~~In order to achieve compliance with the accounting principles of Topic 606,~~ Veritiv applies the ~~five step~~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. When management cannot conclude collectability is probable for shipments to a particular customer, revenue associated with that customer is not recognized until cash is collected or management is otherwise able to establish that collectability is probable. 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.~~Sheets.

~~In accordance with Topic 606, a~~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, 2019 and December 31, 2018, the Company recognized estimated inventory returns of approximately ~~$2.4~~$2.2 million and $2.5 million, respectively, which isare included in inventories on the Condensed Consolidated Balance ~~Sheet.~~Sheets. 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.~~Sheets. See the table below for a summary of the changes to the customer contract liabilities for the nine months ended September 30, 2019 and 2018:



	Customer Contract Liabilities
(in millions)	2019			2018
Balance at January 1,	$	17.7		$	20.5
Payments received	35.2			41.1
Revenue recognized from beginning balance	(17.7		)	(18.1		)
Revenue recognized from current year receipts	(22.4		)	(25.4		)
Balance at September 30,	$	12.8		$	18.1

(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~~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~~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

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transactions with customers are designated free on board ~~("f.o.b.")~~ destination and revenue is recorded at the point in time

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when the product is delivered to the ~~customer’s~~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. The Company considers handling and delivery as activities to fulfill its performance obligations. Billings for third-party freight are accounted for as net sales and handling and delivery costs are accounted for as distribution expenses.

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~~Veritiv's principal markets are concentrated primarily across North America ~~primarily~~with net sales in the U.S. ~~(90%)~~, Canada ~~(8%)~~ and Mexico ~~(1%).~~of approximately 90%, 8% and 1%, respectively.

The following is a brief description of the ~~four~~Company's 4 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 processing, 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.

•

Print – The Print segment sells and distributes commercial printing, writing, copying, digital, paper-based wide format and specialty 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.

~~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.

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~~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~~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~~Company's reportable segments and Corporate & Other.

~~Table~~

3. LEASES

The Company adopted Topic 842 and its related interpretations on January 1, 2019, applying the additional transition approach, available under ASU 2018-11, Leases, whereby the new lease standard is applied at the adoption date recognizing a cumulative-effect adjustment to the opening balance of ~~Contents~~

~~3. 2017 ACQUISITION~~

~~Acquisition~~retained earnings in the period of ~~All American Containers - August 2017~~

~~On August 31, 2017 (the "Acquisition Date"), Veritiv completed its acquisition of 100% of~~adoption. Consequently, 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~~reporting 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~~comparative periods presented in the ~~Company's~~ financial statements ~~using~~in which the ~~acquisition method~~new lease standard is adopted will continue to be reported in accordance with Topic 840, Leases. The Company elected the package of ~~accounting.~~practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed for the carry-forward of historical lease classification. The ~~total consideration~~Company did not elect the hindsight practical expedient in determining lease terms for existing leases and when assessing existing ROU assets for impairment. The Company does not expect the new accounting standard to ~~complete~~have a material effect on future financial results as the ~~acquisition was approximately $169.8 million.~~adoption did not change the lease classifications of its historical operating leases. The ~~purchase price was allocated to tangible~~Company's accounting for finance leases, previously reported as capital leases and ~~intangible assets and liabilities based upon their respective estimated fair values. The following table summarizes the components of the purchase price~~financing obligations, remained unchanged except 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~~1 non-related party failed sale-leaseback. The Company determined that upon transition to Topic 842, the previously reported failed sale-leaseback financing obligation would be reported as a finance lease, and its land operating lease would now be combined with ~~the AAC acquisition~~its building finance lease and reported together as one finance lease. Finance leases are ~~expected to be deductible for tax purposes.~~

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~~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 property and equipment, net and debt obligations on the ~~Packaging reportable segment. Net~~Condensed Consolidated Balance Sheets. The Company elected the practical expedients permitted under Topic 842 and made accounting policy elections to (i) not include short-term leases on the balance sheets and (ii) not separate lease and non-lease components for its delivery equipment leases. The Company determines if an arrangement is a lease at lease inception and reviews lease arrangements for finance or operating lease classification at their commencement date. The Company leases certain property and equipment used for operations to limit exposure to risks related to ownership. The major leased asset categories include: real estate, delivery equipment, material handling equipment and computer and office equipment.

As of September 30, 2019, the Company operated from approximately 150 distribution centers of which approximately 140 were leased. These facilities are strategically located throughout the U.S., Canada and Mexico in order to efficiently serve the customer base in the surrounding areas while also facilitating expedited delivery services for special orders. The Company also leases various office spaces for corporate and sales functions. Real estate leases generally carry lease terms of three to seven years. Delivery equipment leases generally carry lease terms of three to eight years and ~~operating~~ ~~loss attributable~~other non-real estate leases generally carry lease terms of three to ~~AAC during this~~five years. In order to value the ROU assets and related liabilities, the Company makes certain estimates and assumptions related to establishing the lease term, discount rates and variable lease payments (e.g., rent escalations tied to changes in the Consumer Price Index). The exercise of any lease renewal or asset purchase option is at the Company's sole discretion. The lease term for all of the Company's leases includes the noncancelable period of the lease and any periods covered by renewal options that the Company is reasonably certain to exercise. Certain leases include rent escalations pre-set in the agreements, which are factored into the lease payment stream. Similar to a variable lease payment, certain delivery equipment leases include a provision for an amount the Company may be required to pay at the end of the lease for any residual value deficiency incurred by the lessor upon resale of the underlying asset. The Company uses the implicit rate of interest when it is available; however, as most of the Company's leases do not provide an implicit rate of interest, the Company uses its incremental borrowing rate based on information available at the lease commencement date in determining the discounted value of the lease payments. Lease expense and depreciation expense are recognized on a straight-line basis over the lease term, or for a finance lease, over the shorter of the life of the underlying asset or the lease term.

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The components of lease expense were as follows:



(in millions)		Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Lease Classification	Financial Statement Classification	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Short-term lease expense⁽¹⁾	Operating expenses	$	1.7	$	5.8

Operating lease expense⁽²⁾	Operating expenses	$	29.6	$	84.3

Finance lease expense:
Amortization of right-of-use assets	Depreciation and amortization	$	2.7	$	7.6
Interest expense	Interest expense, net	0.6		1.6
Total finance lease expense		$	3.3	$	9.2

Total Lease Cost		$	34.6	$	99.3

⁽¹⁾ Short-term lease expense includes expenses related to leases with a term of one month or less.

⁽²⁾ Sublease income and variable lease expense are not included in the ~~Company's Condensed Consolidated Statements of Operations~~above table as the amounts 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~~immaterial for the three and nine months ended September 30, ~~2017 includes incremental amortization expense~~2019.

Supplemental balance sheet and other information were as follows:



(in millions, except weighted-average data)		September 30, 2019
Lease Classification	Financial Statement Classification	September 30, 2019
Operating Leases:
Operating lease right-of-use assets	Other non-current assets	$	431.8

Operating lease obligations - current	Other accrued liabilities	$	88.0
Operating lease obligations - non-current	Other non-current liabilities	380.3
Total operating lease obligations		$	468.3

Weighted-average remaining lease term in years		6.8
Weighted-average discount rate		4.6		%

Finance Leases:
Finance lease right-of-use assets	Property and equipment	$	67.0

Finance lease obligations - current	Current portion of debt	$	9.5
Finance lease obligations - non-current	Long-term debt, net of current portion	60.8
Total finance lease obligations		$	70.3

Weighted-average remaining lease term in years		8.3
Weighted-average discount rate		3.3		%

Table of ~~$1.1 million and $4.4 million, respectively.~~Contents

~~Interest expense: Pro forma net loss~~

Cash paid for amounts included in the ~~three and nine months ended~~measurement of lease liabilities was as follows:



(in millions)		Nine Months Ended September 30, 2019
Lease Classification	Financial Statement Classification	Nine Months Ended September 30, 2019
Operating Leases:
Operating cash flows from operating leases	Operating activities	$	81.3

Finance Leases:
Operating cash flows from finance leases	Operating activities	$	1.6
Financing cash flows from finance leases	Financing activities	6.8

Lease Commitments

Future minimum lease payments at September 30, ~~2017 includes incremental~~2019 were as follows:



(in millions)	Finance Leases			Operating Leases⁽¹⁾
2019 (excluding the nine months ended September 30, 2019)	$	3.0		$	27.6
2020	11.7			105.3
2021	11.1			90.2
2022	10.6			75.7
2023	9.4			55.3
2024	7.7			45.4
Thereafter	27.4			151.8
Total future minimum lease payments	80.9			551.3
Amount representing interest	(10.6		)	(83.0		)
Total future minimum lease payments, net of interest	$	70.3		$	468.3

⁽¹⁾Future sublease income is not included in the above table as the amount is immaterial.

Total future minimum lease payments at September 30, 2019 for finance and operating leases, including the amount representing interest, ~~expense~~are comprised of ~~$0.5~~$553.4 million for real estate leases and ~~$2.0~~$78.8 million ~~respectively.~~for non-real estate leases.

~~A combined U.S. federal statutory~~At September 30, 2019, the Company had committed to additional future obligations of approximately $21 million for operating leases of real estate that have not yet commenced and ~~state rate~~therefore are not included in the table above. These leases will commence over the next six months with an average lease term of ~~39.0% was used to determine the after-tax impact on net loss of the pro forma adjustments.~~six years.

Future minimum lease payments at December 31, 2018 were as follows:



	Financing Obligation and Equipment Capital Leases			Operating Leases
(in millions)	Financing Obligation and Equipment Capital Leases			Lease Obligations		Sublease Income			Total
2019	$	9.3		$	108.3	$	(0.3	)	$	108.0
2020	9.0			98.3		(0.1		)	98.2
2021	8.3			82.2		—			82.2
2022	7.9			69.3		—			69.3
2023	6.8			49.4		—			49.4
Thereafter	23.0			173.4		—			173.4
Total future minimum lease payments	64.3			580.9		(0.4		)	580.5
Amount representing interest	(11.6		)	—		—			—
Total future minimum lease payments, net of interest	$	52.7		$	580.9	$	(0.4	)	$	580.5

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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~~$330 million to ~~$275~~$340 million through December 31, ~~2018.~~2019. Included in the estimate is approximately ~~$105~~$120 million for capital expenditures, primarily consisting of information technology infrastructure, systems integration and planning. Through September 30, ~~2018,~~2019, the Company has incurred approximately ~~$283~~$317 million in costs and charges, including approximately ~~$102~~$113 million for capital expenditures. ~~See~~ ~~Note 14, Subsequent Events, for additional information related~~The Company expects to ~~cash proceeds received from the sale of properties made after September 30, 2018.~~substantially complete its Merger-related integration and restructuring efforts by December 31, 2019.

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Integration and Acquisition Expenses

During the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, 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)	2019		2018		2019		2018
Integration management	$	2.7	$	4.4	$	8.1	$	13.3
Retention compensation	0.1		0.0		0.0		0.1
Information technology conversion costs	1.1		2.2		2.9		6.7
Legal, consulting and other professional fees	—		0.0		—		0.3
Other	0.4		0.9		1.6		2.4
All American Containers ("AAC") integration and acquisition	0.2		0.4		0.7		1.8
Total integration and acquisition expenses	$	4.5	$	7.9	$	13.3	$	24.6

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:~~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~~$7.6 million and ~~$2.7~~$4.8 million for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$18.5~~$16.9 million and ~~$30.0~~$18.5 million for the nine months ended September 30, 2019 and 2018, respectively. Costs related to exiting a branded re-distribution business were included in restructuring charges, net, on the Condensed Consolidated Statements of Operations, and ~~2017, respectively. As described in~~ ~~Note 5, Debt~~totaled $5.4 million for the three and ~~Other Obligations,~~ onnine months ended September 30, 2019. 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

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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~~Costs related to properties that were exited as part of the restructuring plan ~~they~~ were ~~classified within~~included in restructuring charges, net, on the Condensed Consolidated Statements of Operations, and totaled $10.4 million for the nine months ended September 30, 2018. ~~During~~Also, 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,~~2019, the Company held for sale ~~$1.3~~$10.1 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.

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The following table presents a summary of restructuring charges, net, related to active restructuring initiatives that were incurred during the current fiscal year, ~~and~~ prior fiscal ~~year, as well as~~years and the cumulative recorded amounts since the ~~initiative~~initiatives began:



(in millions)	Severance and Related Costs		Other Direct Costs		(Gain) Loss on Sale of Assets and Other (non-cash portion)			Total
2019 (through September 30)	$	6.8	$	10.2	$	(0.1	)	$	16.9
2018	3.3		22.3		(15.0		)	10.6
Prior years	20.0		47.9		(22.4		)	45.5
Cumulative	$	30.1	$	80.4	$	(37.5	)	$	73.0

The following is a summary of the Company's restructuring liability activity for the three and nine months ended September 30, 2019 (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, 2018	$	4.7		$	25.1		$	29.8
Costs incurred	1.3			1.3			2.6
Payments	(1.0		)	(3.1		)	(4.1		)
Balance at March 31, 2019	5.0			23.3			28.3
Costs incurred	3.2			3.7			6.9
Payments	(1.3		)	(2.2		)	(3.5		)
Balance at June 30, 2019	6.9			24.8			31.7
Costs incurred	2.3			5.2			7.5
Payments	(1.5		)	(3.5		)	(5.0		)
Balance at September 30, 2019	$	7.7		$	26.5		$	34.2

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(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

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Veritiv Restructuring Plan: Print Segment

To ensure that Veritiv is appropriately positioned to respond to the secular decline in the paper industry, the Company ~~is currently focused on restructuring~~restructured its Print ~~segment.~~segment in 2018. The restructuring plan ~~includes~~included initiatives within the Company's Print segment to improve the sustainability of the print business, better serve its ~~customers’~~customers' needs and work more effectively with ~~suppliers. The Company is streamlining and shifting its Print segment to incorporate~~suppliers by incorporating a more customer focused, collaborative, team-selling approach as well as to better ~~align~~aligning its support functions. ~~For~~The Company completed its efforts as of December 31, 2018 incurring costs of $10.7 million. During the three and nine months ended September 30, ~~2018~~2019, the Company ~~incurred charges of $0.6~~paid $0.1 million and ~~$10.2~~$1.8 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 toof the Print segment restructuring ~~plan are not expected to exceed $15.0 million.~~liability and had a remaining balance of $0.2 million at September 30, 2019.

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

(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

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5. DEBT AND OTHER OBLIGATIONS

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



(in millions)	September 30, 2019			December 31, 2018
Asset-Based Lending Facility (the "ABL Facility")	$	665.4		$	932.1
Commercial card program	0.4			—
Finance and capital leases, respectively	70.3			38.2
Total debt	736.1			970.3
Less: current portion of debt	(9.9		)	(6.7		)
Long-term debt, net of current portion	$	726.2		$	963.6

(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

The Company determined that, upon transition to Topic 842, the previously reported failed sale-leaseback financing obligation would be reported as a finance lease, and its land operating lease would now be combined with its building finance lease and reported together as one finance lease, which is reported as part of the debt obligations in the table above. As the Company adopted Topic 842 using an approach whereby the prior reporting periods have not been restated to reflect the new guidance, the financing obligation value of that one previously reported failed sale-leaseback is shown below as of December 31, 2018:



(in millions)	December 31, 2018
Obligations - other financing	$	24.2
Less: current portion of financing obligations	(0.6		)
Financing obligations, less current portion	$	23.6

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,~~2019, the available additional borrowing capacity under the ABL Facility was approximately ~~$262.2~~$354.1 million. As of September 30, ~~2018,~~2019, the Company held ~~$11.5~~$12.1 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,~~2019, the above test was not applicable and it is not expected to be applicable in the next 12 months.

Interest Rate Caps

The Company’s indebtedness under the ABL Facility creates interest rate risk. The Company actively monitors this risk with the objective to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in the interest rate. In July 2015, the Company entered into an interest rate cap agreement which expired on July 1, 2019; all related impacts to the Company's consolidated financial statements for the three and nine months ended September 30, 2019 and 2018 were insignificant.

Effective September 13, 2019, the Company entered into a new interest rate cap agreement with an expiration date of September 13, 2022. The interest rate cap effectively limits the floating LIBOR-based portion of the interest rate. The notional amount of the interest rate cap covers $350.0 million of the Company’s floating-rate debt at 2.75% plus the applicable credit spread. The Company paid $0.6 million for the interest rate cap. As of September 30, 2019, the interest rate cap had a fair value that was not significant. The interest rate cap is classified within other non-current assets on the Condensed Consolidated Balance Sheets as of September 30, 2019 and amounts expected to be reclassified from AOCL into earnings within the following 12 months are not significant. The fair value was estimated using observable market-based inputs including interest rate curves and implied volatilities (Level 2). The Company designated the new interest rate cap as a cash flow hedge of exposure to changes in cash flows due to changes in the LIBOR-based portion of the interest rate above 2.75%. The Company has determined that the 2019 interest rate cap hedging relationship is effective.

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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

AsCompany is exposed to counterparty credit risk for nonperformance and, in the event of ~~June 30, 2018,~~nonperformance, to market risk for changes in the ~~financing obligations for all~~interest rate. The Company attempts to manage exposure to counterparty credit risk primarily by selecting only those counterparties that meet certain credit and other financial standards. The Company believes there has been no material change in the creditworthiness of its counterparty and believes the ~~related~~risk of nonperformance by such 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.is minimal.

~~Upon termination or expiration of a property's financing agreement,~~Commercial Card Program

In May 2019, the Company ~~recognized~~entered into a commercial purchasing card agreement with a financial institution. The commercial card is used for business purpose purchasing and must be paid in-full monthly. The card currently carries a maximum credit limit of $37.5 million. At September 30, 2019, $0.4 million was outstanding on the ~~non-cash effects of the derecognition of (i) the property~~commercial card and ~~equipment and (ii) the corresponding~~was classified as financing ~~obligation, as other non-cash items, net, on the~~activity in our 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.~~

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~~month periods ended September 30, ~~2017,~~2019, by applying an estimate of the annual effective tax rate ("AETR") for the full fiscal year to ~~“ordinary”~~"ordinary" income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. InFor the 2018 periods presented, the Company determined that it could ~~no longer~~not reliably estimate income taxes utilizing an AETR for interim reporting periods. The 2018 AETR estimate iswas highly sensitive to estimates of ordinary income ~~(loss) and permanent differences, including additional permanent differences required by the Tax Act,~~or loss 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 income taxes for the three and nine months ended September 30, 2018.

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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~~2019 and ~~2017:~~2018:



	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2019			2018			2019			2018
Income (loss) before income taxes	$	12.7		$	4.9		$	(32.7	)	$	(26.1	)
Income tax expense (benefit)	7.6			3.5			0.2			(1.1		)
Effective tax rate	59.8		%	71.4		%	(0.6		)%	4.2		%

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~~Company's effective tax rates for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 and the U.S. statutory tax ~~rates~~rate of 21.0% ~~and 35.0%, respectively,~~ primarily relates to state income taxes (net of federal income tax benefit), tax expense for stock compensation vesting, Global Intangible Low-Taxed Income, non-deductible expenses, tax credits and the Company's pre-tax book income (loss) by jurisdiction. ~~Additionally,~~The Company's net operating loss ("NOL" or "NOLs") carryforwards continue to be subject to Section 382 limitations. In accordance with Notice 2003-65, the ~~effective tax rates for~~Company was in a net unrealized built-in gain position at the ~~three and~~time of the Merger. During the nine months ended September 30, ~~2018 include estimates for~~2019, the Company's five year recognition period to recognize built-in gain ended. As such, the deferred tax ~~expense for stock compensation vesting, true up~~asset and valuation allowance representing the book basis in excess of ~~certain return estimates, Global Intangible Low-Taxed Income ("GILTI") and updated provisional estimates adjusting the cumulative~~tax basis of various assets was written-off. There was no 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~~Financial Accounting Standards Board ("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

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result of adopting this standard, the Company reclassified $0.8 million from Veritiv's accumulated other comprehensive loss to retained earnings.

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7. RELATED PARTY TRANSACTIONS

Agreements with the UWWH Stockholder

In January ~~2018~~2019 and ~~2017,~~2018, in connection with the Tax Receivable Agreement ("TRA") executed at the time of the Merger, Veritiv paid ~~$10.1~~$8.1 million and ~~$8.7~~$10.1 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")~~NOLs in its ~~2016~~2017 and ~~2015~~2016 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,				Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2018		2017		2018		2017		2019		2018		2019		2018
Sales to Georgia-Pacific, reflected in net sales	$	6.6	$	8.6	$	21.3	$	24.9	$	5.7	$	6.6	$	17.3	$	21.3
Purchases of inventory from Georgia-Pacific, recognized in cost of products sold	39.3		45.7		117.2		138.0		20.0		39.3		66.2		117.2

8. DEFINED BENEFIT PLANS

~~In conjunction with~~Veritiv does not maintain any active defined benefit plans for its non-union employees. Veritiv maintains a defined benefit pension plan in the ~~Merger,~~U.S. for employees covered by certain collective bargaining agreements. Veritiv also assumed responsibility for ~~Unisource’s~~Unisource's defined benefit plans, ~~and Supplemental Executive Retirement Plans in the U.S. and Canada. Net~~which include frozen cash balance accounts for certain former Unisource employees. Total net periodic benefit cost (credit) ~~cost~~ associated with these plans is summarized below:



	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
(in millions)	U.S.			Canada			U.S.			Canada
Components of net periodic benefit cost (credit):
Service cost	$	0.5		$	0.0		$	0.5		$	0.0

Interest cost	$	0.5		$	0.7		$	0.6		$	0.7
Expected return on plan assets	(0.9		)	(0.8		)	(1.4		)	(0.9		)
Settlement loss	0.0			—			0.0			0.1
Amortization of net loss	(0.1		)	0.1			—			0.0
Total other components	$	(0.5	)	$	0.0		$	(0.8	)	$	(0.1	)
Net periodic benefit cost (credit)	$	0.0		$	0.0		$	(0.3	)	$	(0.1	)



	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
(in millions)	U.S.			Canada			U.S.			Canada
Components of net periodic benefit (credit) cost:
Service cost	$	1.4		$	0.2		$	1.5		$	0.2

Interest cost	$	1.6		$	2.2		$	1.9		$	2.1
Expected return on plan assets	(2.6		)	(2.7		)	(4.1		)	(2.9		)
Settlement loss	0.0			—			0.0			0.1
Amortization of net loss	0.0			0.1			—			0.1
Total other components	$	(1.0	)	$	(0.4	)	$	(2.2	)	$	(0.6	)
Net periodic benefit (credit) cost	$	0.4		$	(0.2	)	$	(0.7	)	$	(0.4	)

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 )
The components of net periodic benefit cost (credit) other than the service cost component are included in other (income) expense, net in the Condensed Consolidated Statements of Operations.

9. FAIR VALUE MEASUREMENTS

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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~~ See Note 5, Debt and Other Obligations, for additional information regarding the Company's ~~assets~~ABL Facility 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,its 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 impairmentinterest rate caps.

The Company's liabilities disclosed at fair value at September 30, ~~2018~~2019 were as follows:

The Company's liabilities disclosed at fair value at December 31, ~~2017~~2018 were as follows:



(in millions)	Total		Level 1	Level 2		Level 3
ABL Facility	$	932.1		$	932.1
TRA contingent liability	38.9					38.9
AAC contingent consideration	9.4					9.4

(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 contingent liability 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~~Company's projected revenues, taxable income and assumptions about the utilization of ~~Unisource’s~~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,~~2019, the Company remeasured the contingent liability using a discount rate of ~~4.9%~~3.9% (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.~~2019. 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, 2019:

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~~On August 31, 2017 (the "Acquisition Date"), Veritiv completed its acquisition of 100% of the ~~beginning and ending balance of the TRA contingent liability for the three and nine months ended September 30, 2017:~~

equity interests in various AAC entities. The purchase price allocation for the acquisition of AAC ~~described in~~ ~~Note 3, 2017 Acquisition, includes~~included $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. AsThe Company paid $2.5 million on December 26, 2018 for contingent consideration earned 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.~~Date. The estimated amount payable as of the second anniversary of the Acquisition Date ~~will~~was calculated to be ~~determined based on actual growth rates~~approximately $20.0 million and is expected to be paid in ~~revenue~~the fourth quarter of 2019.

The following table provides a reconciliation of the beginning and ~~gross profit. The initial fair value estimate was based on historic growth patterns and future forecasts, which are Level 3 data. The valuation~~ending balance of the AAC contingent ~~consideration uses assumptions and estimates to forecast a range of outcomes and probabilities~~liability for the ~~contingent consideration. The contingent consideration is valued using a Monte Carlo simulation model. The Company assesses these assumptions~~three 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.nine months ended September 30, 2019:

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:

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~~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~~earnings (loss) per share calculations for the reportable periods is as follows:

~~During the first and second quarters of 2018, in~~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,~~See the table below for ~~purposes of covering the~~information related ~~minimum tax withholdings. An insignificant number of shares were~~to these transactions. Shares issued and ~~recovered during~~withheld in the third ~~quarter~~quarters of ~~2018.~~ 2019 and 2018 were not material:

The net share issuance is included ~~in additional paid-in capital~~ on the Condensed Consolidated ~~Balance Sheet at~~Statements of Shareholders' Equity for the three and nine months ended September 30, 2019 and 2018. For additional information related to these plans refer to the Company's Annual Report on Form 10-K filed with the SEC for the year ended December 31, ~~2017.~~2018.

11. ACCUMULATED OTHER COMPREHENSIVE LOSS ("AOCL")

Comprehensive income (loss) is reported in the Condensed Consolidated Statements of Comprehensive Income (Loss) and consists of net income (loss) and other gains and losses affecting shareholders' equity that, under U.S. GAAP, are excluded from net income (loss).

The following table provides the components of ~~accumulated other comprehensive loss ("AOCL")~~AOCL at September 30, 2019 (amounts are shown net of their related income tax effect, if any):

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

~~The following table provides the components of AOCL at September 30, 2017 (amounts are shown net of their related income tax effect, if any):~~

See Note 6, Income Taxes, for information related to the Company's adoption of ASU ~~2018-02.~~2018-02 in January 2018.

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12. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company is involved in various lawsuits, claims and regulatory and administrative proceedings arising out of its business relating to general commercial and contractual matters, governmental regulations, intellectual property rights, labor and employment matters, tax and other actions.

Although the ultimate outcome of any legal proceeding or investigation cannot be predicted with certainty, based on present information, including the Company's assessment of the merits of the particular claim, the Company does not expect that any asserted or unasserted legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on its results of operations, financial condition or cash flows.

Escheat Audit

In 2013, Unisource was notified by the State of Delaware that it intended to examine the books and records of Unisource to determine compliance with Delaware escheat laws. Since that date, ~~seven~~7 other states have joined with Delaware in the audit process, which is conducted by an outside firm on behalf of the states.

During the fourth quarter of 2017, the Company filed an election to convert the Delaware portion of the audit into a review under the State of ~~Delaware’s~~Delaware's Voluntary Disclosure Agreement Program ~~(“VDA”~~("VDA"). Under the VDA, the Company will continue to identify source documents that support the historical treatment of the transactions at issue to determine the amount it believes is owed to Delaware. Similarly, the Company will continue to identify source documents that support the historical treatment of the transactions under audit by the other participating states.

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company has recognized an estimated liability of approximately ~~$8.3~~$16.0 million and ~~$7.5~~$10.0 million, respectively, based upon the information available to date. The Company ~~anticipates that it may take more than a year~~currently expects to complete the VDA and ~~audit.~~audit no later than early 2020. Due to the inherent uncertainties with respect to the ultimate outcome of these matters, any updates to this estimate of loss could have a material impact on the Company's results of operations, financial condition or cash flows.

Western Pennsylvania Teamsters and Employers Pension Fund

In April 2019, in the course of negotiations for a collective bargaining agreement, the Company negotiated a partial withdrawal from the Western Pennsylvania Teamsters and Employers Pension Fund (the "Fund"), a multi-employer pension plan. During the second quarter of 2019, the Company recorded an estimated withdrawal liability of $6.5 million, which was unchanged as of September 30, 2019. The withdrawal charge was recorded in distribution expenses as it was not related to a restructuring activity. To date, Veritiv has not received a final determination letter from the Fund for the partial withdrawal. The Company expects that payments will occur over an approximate 20-year period.

13. SEGMENT INFORMATION

Veritiv's business is organized under ~~four~~4 reportable segments: Packaging, Facility Solutions, Print, and Publishing and Print Management ("Publishing"). This segment structure is consistent with the way the Chief Operating Decision Maker, who is Veritiv's Chief Executive Officer, makes operating decisions and manages the growth and profitability of the ~~Company’s~~Company's business. The Company also has a Corporate & Other category, which includes certain assets and costs not primarily attributable to any of the reportable segments, as well as the Veritiv logistics solutions business which provides transportation and warehousing solutions.

The following tables present net sales, Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, restructuring charges, net, integration and acquisition expenses and other similar charges including any severance costs, costs associated with warehouse and office openings or closings, consolidation, and relocation and other business optimization expenses, stock-based compensation expense, changes in the LIFO reserve, non-restructuring asset impairment charges, non-restructuring severance charges, non-restructuring pension charges, net, fair value adjustments related to contingent liabilities assumed in mergers and acquisitions and certain other adjustments), which is the metric management uses to assess operating performance of the segments, and certain other measures for each of the reportable segments and Corporate & Other for the periods presented:

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(in millions)	Packaging		Facility Solutions		Print		Publishing			Total Reportable Segments		Corporate & Other			Total
Three Months Ended September 30, 2019
Net sales	$	871.4	$	307.9	$	523.0	$	190.1		$	1,892.4	$	32.1		$	1,924.5
Adjusted EBITDA	67.4		11.0		10.6		4.6			93.6		(48.6		)
Depreciation and amortization	4.6		1.8		2.1		0.0			8.5		4.8			13.3
Restructuring charges, net	5.8		6.1		4.3		(8.5		)	7.7		(0.1		)	7.6

Three Months Ended September 30, 2018
Net sales	$	899.3	$	330.3	$	668.2	$	258.5		$	2,156.3	$	36.2		$	2,192.5
Adjusted EBITDA	64.0		8.1		14.5		5.6			92.2		(39.5		)
Depreciation and amortization	4.5		1.6		2.0		0.2			8.3		4.8			13.1
Restructuring charges, net	2.5		1.9		0.9		0.0			5.3		0.1			5.4

Nine Months Ended September 30, 2019
Net sales	$	2,598.3	$	918.1	$	1,605.5	$	603.7		$	5,725.6	$	98.6		$	5,824.2
Adjusted EBITDA	181.1		23.5		30.1		15.0			249.7		(141.0		)
Depreciation and amortization	13.8		5.3		6.3		0.4			25.8		13.7			39.5
Restructuring charges, net	8.5		7.3		6.2		(8.2		)	13.8		3.1			16.9

Nine Months Ended September 30, 2018
Net sales	$	2,631.6	$	985.3	$	2,008.1	$	734.9		$	6,359.9	$	105.5		$	6,465.4
Adjusted EBITDA	182.0		19.8		47.6		17.2			266.6		(138.8		)
Depreciation and amortization	15.1		5.1		6.8		0.6			27.6		13.9			41.5
Restructuring charges, net	8.4		4.4		15.5		0.0			28.3		0.4			28.7

(in millions) Packaging Facility Solutions Print Publishing Total Reportable Segments Corporate & Other Total
Three Months Ended September 30, 2018
Net sales $ 899.3
$ 330.3
$ 668.2
$ 258.5
$ 2,156.3
$ 36.2
$ 2,192.5
Adjusted EBITDA 64.0
8.1
14.5
5.6
92.2
(39.5 )

Depreciation and amortization 4.5
1.6
2.0
0.2
8.3
4.8
13.1
Restructuring charges, net 2.5
1.9
0.9
0.0
5.3
0.1
5.4

Three Months Ended September 30, 2017
Net sales $ 799.6
$ 339.6
$ 701.6
$ 238.7
$ 2,079.5
$ 37.3
$ 2,116.8
Adjusted EBITDA 62.1
10.3
13.1
5.5
91.0
(46.9 )

Depreciation and amortization 4.0
1.6
2.7
0.2
8.5
4.6
13.1
Restructuring charges, net 5.8
1.9
5.9
0.0
13.6
(10.9 ) 2.7

Nine Months Ended September 30, 2018
Net sales $ 2,631.6
$ 985.3
$ 2,008.1
$ 734.9
$ 6,359.9
$ 105.5
$ 6,465.4
Adjusted EBITDA 182.0
19.8
47.6
17.2
266.6
(138.8 )
Depreciation and amortization 15.1
5.1
6.8
0.6
27.6
13.9
41.5
Restructuring charges, net 8.4
4.4
15.5
0.0
28.3
0.4
28.7

Nine Months Ended September 30, 2017
Net sales $ 2,266.0
$ 975.5
$ 2,095.1
$ 696.6
$ 6,033.2
$ 107.1
$ 6,140.3
Adjusted EBITDA 166.7
25.1
44.8
17.6
254.2
(137.8 )
Depreciation and amortization 10.5
4.5
7.9
1.3
24.2
15.7
39.9
Restructuring charges, net 12.3
5.2
12.2
0.0
29.7
0.3
30.0

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The table below presents a reconciliation of income (loss) before income taxes as reflected in the Condensed Consolidated Statements of Operations to Adjusted EBITDA for the reportable segments:



	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2019			2018			2019			2018
Income (loss) before income taxes	$	12.7		$	4.9		$	(32.7	)	$	(26.1	)
Interest expense, net	8.9			11.0			30.5			30.5
Depreciation and amortization	13.3			13.1			39.5			41.5
Restructuring charges, net	7.6			5.4			16.9			28.7
Stock-based compensation	3.4			4.5			12.4			15.2
LIFO reserve (decrease) increase	(3.9		)	4.0			(1.0		)	18.4
Non-restructuring asset impairment charges	—			0.2			—			0.2
Non-restructuring severance charges	1.3			0.5			4.0			2.3
Non-restructuring pension charges, net	0.0			(0.1		)	6.6			(0.8		)
Integration and acquisition expenses	4.5			7.9			13.3			24.6
Fair value adjustment on TRA contingent liability	0.3			0.1			1.8			(0.3		)
Fair value adjustment on contingent consideration liability	(2.5		)	0.3			10.6			(11.0		)
Escheat audit contingent liability	(1.0		)	0.8			6.0			0.8
Other	0.4			0.1			0.8			3.8
Adjustment for Corporate & Other	48.6			39.5			141.0			138.8
Adjusted EBITDA for reportable segments	$	93.6		$	92.2		$	249.7		$	266.6

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 )
Interest expense, net 11.0
8.3
30.5
22.1
Depreciation and amortization 13.1
13.1
41.5
39.9
Restructuring charges, net 5.4
2.7
28.7
30.0
Stock-based compensation 4.5
3.8
15.2
11.6
LIFO reserve increase 4.0
3.7
18.4
3.4
Non-restructuring asset impairment charges 0.2
7.7
0.2
8.4
Non-restructuring severance charges 0.5
0.5
2.3
1.5
Non-restructuring pension charges, net (0.1 ) 3.2
(0.8 ) 2.1
Integration and acquisition expenses 7.9
14.2
24.6
28.1
Fair value adjustments on TRA contingent liability 0.1
(0.4 ) (0.3 ) 1.6
Fair value adjustment on contingent consideration liability 0.3
—
(11.0 ) —
Escheat audit contingent liability 0.8
4.5
0.8
4.5
Other 0.1
1.1
3.8
1.9
Adjustment for Corporate & Other 39.5
46.9
138.8
137.8
Adjusted EBITDA for reportable segments $ 92.2
$ 91.0
$ 266.6
$ 254.2

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~~14. SUBSEQUENT EVENTS~~

~~Property Sales~~

During October 2018, the Company sold four properties for which it received approximately $19.4 million in net cash proceeds and recognized a gain on the sale of assets of approximately $15.8 million. Three of the properties were disposed of as part of the Company's restructuring efforts; see ~~Note 4, Integration, Acquisition and Restructuring Charges,~~ ~~for additional information related to the Company's restructuring activities. The cash proceeds were immediately used to pay-down a portion of the ABL Facility.~~

~~Pension Obligation~~

~~During October 2018, the Company settled its pension obligation related to participants currently in receipt of benefits (i.e., retirees) in the U.S. by purchasing a group annuity insurance contract.~~ By purchasing an insurance contract, the Company eliminated its obligation related to paying and managing these participants and passed the full obligation to the selected insurer. The Company expects to record a settlement gain of approximately $1.4 million and reduce the projected benefit obligation and plan assets by approximately $21.6 million.

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ITEM 2. ~~MANAGEMENT’S~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained in this report regarding the ~~Company’s~~Company's future operating results, performance, business plans, prospects, guidance and any other statements not constituting historical fact are "forward-looking statements" subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, the words "believe," "expect," "anticipate," "continue," "intend," "should," "will," "would," "planned," "estimated," "potential," "goal," "outlook," "may," "predicts," "could," or the negative of such terms, or other comparable expressions, as they relate to the Company or its business, have been used to identify such forward-looking statements. All forward-looking statements reflect only the ~~Company’s~~Company's current beliefs and assumptions with respect to future operating results, performance, business plans, prospects, guidance and other matters, and are based on information currently available to the Company. Accordingly, the statements are subject to significant risks, uncertainties and contingencies, which could cause the ~~Company’s~~Company's actual operating results, performance, business plans or prospects to differ materially from those expressed in, or implied by, these statements.

Factors that could cause actual results to differ materially from current expectations include risks and other factors described under "Risk Factors" in our Annual Report on Form 10-K and elsewhere in the ~~Company’s~~Company's publicly available reports filed with the Securities and Exchange Commission ("SEC"), which contain a discussion of various factors that may affect the ~~Company’s~~Company's business or financial results. Such risks and other factors, which in some instances are beyond the ~~Company’s~~Company's control, include: the industry-wide decline in demand for paper and related products; increased competition from existing and non-traditional sources; adverse developments in general business and economic conditions as well as conditions in the global capital and credit ~~markets;~~markets impacting our Company and our customers; foreign currency fluctuations; our ability to attract, train and retain highly qualified employees; the effects of work stoppages, union negotiations and labor disputes; the loss of any of our significant customers; changes in business conditions in our international operations; procurement and other risks in obtaining packaging, paper and facility products from our suppliers for resale to our customers; changes in prices for raw materials; increases in the cost of fuel ~~cost increases;~~and third-party freight and the availability of third-party freight providers; changes in trade policies and regulations; inclement weather, anti-terrorism measures and other disruptions to the transportation network; our dependence on a variety of ITinformation technology and telecommunications systems and the Internet; our reliance on third-party vendors for various services; cyber-security risks; costs to comply with laws, rules and regulations, including environmental, health and safety laws, and to satisfy any liability or obligation imposed under such laws; regulatory changes and judicial rulings impacting our business; adverse results from litigation, governmental investigations or audits, or tax-related proceedings or audits; our inability to renew existing leases on acceptable terms, negotiate rent decreases or concessions and identify affordable real estate; our ability to adequately protect our material intellectual property and other proprietary rights, or to defend successfully against intellectual property infringement claims by third parties; our pension and health care costs and participation in multi-employer pension, health and welfare plans; increasing interest rates; our ability to generate sufficient cash to service our debt; our ability to comply with the covenants contained in our debt agreements; our ability to refinance or restructure our debt on reasonable terms and conditions as might be necessary from time to time; changes in accounting standards and methodologies; our ability to realize the full benefit of the anticipated synergies, cost savings and growth opportunities from the merger transaction and our ability to integrate the xpedx business with the Unisource business; the possibility of incurring expenditures in excess of those currently budgeted in connection with the ~~integration;~~integration, and other events of which we are presently unaware or that we currently deem immaterial that may result in unexpected adverse operating results.

For a more detailed discussion of these factors, see the information under the heading "Risk Factors" in our Annual Report on Form 10-K and in other filings we make with the SEC. Forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, historical information should not be considered as an indicator of future performance.

The following discussion of the ~~Company’s~~Company's results of operations for the three and nine months ended September 30, ~~2018~~2019 should be read in conjunction with the CondensedConsolidated Financial Statements and Notes thereto, included elsewhere in this report.

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Executive Overview

Business Overview

Veritiv Corporation ("Veritiv" or the "Company") is a leading 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 and UWW Holdings, Inc., the parent company of Unisource Worldwide, Inc. Veritiv operates from approximately 150 distribution centers primarily throughout the U.S., Canada and Mexico.

~~As described~~Veritiv's business is organized under four reportable segments: Packaging, Facility Solutions, Print, and Publishing and Print Management ("Publishing"). This segment structure is consistent with the way the Chief Operating Decision Maker, who is Veritiv's Chief Executive Officer, makes operating decisions and manages the growth and profitability of the Company's business. The Company also has a Corporate & Other category, which includes certain assets and costs not primarily attributable to any of the reportable segments as well as the Veritiv logistics solutions business, which provides transportation and warehousing solutions. The following summary describes the products and services offered in ~~Note 3, 2017 Acquisition~~,each of the reportable segments:

•

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 processing, fulfillment and internet retail, as well as niche verticals based on geographical and functional expertise. Veritiv's packaging professionals create customer value through 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. Veritiv is a leading distributor in the Facility Solutions segment. Through this segment, Veritiv manages a world class network of leading suppliers in most facilities solutions categories. Additionally, the Company offers total cost of ownership solutions with re-merchandising, budgeting and compliance reporting, inventory management and a sales-force trained to bring leading vertical expertise to the major North American geographies.

•

On August 31, 2017, Veritiv completed its acquisition of 100% of the equity interest in various All American Containers entities (collectively, "AAC") through additional borrowings under the Company's asset-based lending facility (the "ABL Facility"). AAC was a family owned and operated distributor of rigid packaging products, including plastic, glass and metal containers, caps, closures and plastic pouches.

~~Veritiv operates from approximately 160 distribution centers primarily throughout the U.S., Canada and Mexico.~~

Veritiv's business is organized under four reportable segments: Packaging, Facility Solutions, Print, and Publishing and Print Management ("Publishing"). This segment structure is consistent with the way the Chief Operating Decision Maker, who is Veritiv's Chief Executive Officer, makes operating decisions and manages the growth and profitability of the Company’s business. The Company also has a Corporate & Other category, which includes certain assets and costs not primarily attributable to any of the reportable segments, as well as the Veritiv logistics solutions business, which provides transportation and warehousing solutions. The following summary describes the products and services offered in each of the reportable segments:

~~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. Veritiv’s packaging professionals create customer value through 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. Veritiv is a leading distributor in the Facility Solutions segment. Through this segment, Veritiv manages a world class network of leading suppliers in most facilities solutions categories. Additionally, the Company offers total cost of ownership solutions with re-merchandising, budgeting and compliance reporting, inventory management and a sales-force trained to bring leading vertical expertise to the major North American geographies.

Seasonality

The ~~Company’s~~Company's operating results are subject to seasonal influences. Historically, the Company's higher consolidated net sales occur during the third and fourth quarters while the lowest consolidated net sales occur during the first quarter. The Packaging segment net sales tend to increase each quarter throughout the year and net sales for the first quarter are typically

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less than net sales for the fourth quarter of the preceding year. Production schedules for non-durable goods that build up to the holidays and peak in the fourth quarter drive this seasonal net sales pattern. Net sales for the Facility Solutions segment tend to

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~~be highest during~~ peak in the third ~~and fourth quarters~~quarter due to increased summer demand in the away-from-home resort, cruise and hospitality markets ~~activities related to~~and from back-to-school ~~and increased retail activity during the holidays.~~activities. Within the Print and Publishing segments, seasonality is driven by increased magazine advertising page counts, retail inserts, catalogs and direct mail primarily due to back-to-school, political election and holiday-related advertising and promotions in the second half of the year.

Results of Operations, Including Business Segments

The following discussion compares the consolidated operating results of Veritiv for the three and nine months ended September 30, ~~2018~~2019 and ~~2017:~~2018:



	Three Months Ended September 30,						Increase (Decrease)					Nine Months Ended September 30,						Increase (Decrease)
(in millions)	2019			2018			$			%		2019			2018			$			%
Net sales	$	1,924.5		$	2,192.5		$	(268.0	)	(12.2	)%	$	5,824.2		$	6,465.4		$	(641.2	)	(9.9	)%
Cost of products sold (exclusive of depreciation and amortization shown separately below)	1,550.8			1,805.8			(255.0		)	(14.1	)%	4,726.5			5,323.8			(597.3		)	(11.2	)%
Distribution expenses	124.9			135.0			(10.1		)	(7.5	)%	387.3			400.1			(12.8		)	(3.2	)%
Selling and administrative expenses	204.3			209.8			(5.5		)	(2.6	)%	631.6			656.1			(24.5		)	(3.7	)%
Depreciation and amortization	13.3			13.1			0.2			1.5	%	39.5			41.5			(2.0		)	(4.8	)%
Integration and acquisition expenses	4.5			7.9			(3.4		)	(43.0	)%	13.3			24.6			(11.3		)	(45.9	)%
Restructuring charges, net	7.6			5.4			2.2			40.7	%	16.9			28.7			(11.8		)	(41.1	)%
Operating income (loss)	19.1			15.5			3.6			23.2	%	9.1			(9.4		)	18.5			(196.8	)%
Interest expense, net	8.9			11.0			(2.1		)	(19.1	)%	30.5			30.5			0.0			0.0	%
Other (income) expense, net	(2.5		)	(0.4		)	(2.1		)	*		11.3			(13.8		)	25.1			(181.9	)%
Income (loss) before income taxes	12.7			4.9			7.8			159.2	%	(32.7		)	(26.1		)	(6.6		)	25.3	%
Income tax expense (benefit)	7.6			3.5			4.1			117.1	%	0.2			(1.1		)	1.3			(118.2	)%
Net income (loss)	$	5.1		$	1.4		$	3.7		264.3	%	$	(32.9	)	$	(25.0	)	$	(7.9	)	31.6	%

Three Months Ended
September 30, Increase (Decrease) Nine Months Ended
September 30, Increase (Decrease)
(in millions) 2018 2017 $ % 2018 2017 $ %
Net sales $ 2,192.5
$ 2,116.8
$ 75.7
3.6 % $ 6,465.4
$ 6,140.3
$ 325.1
5.3 %
Cost of products sold (exclusive of depreciation and amortization shown separately below) 1,805.8
1,736.6
69.2
4.0 % 5,323.8
5,026.4
297.4
5.9 %
Distribution expenses 135.0
132.0
3.0
2.3 % 400.1
380.9
19.2
5.0 %
Selling and administrative expenses 209.8
229.4
(19.6 ) (8.5 )% 656.1
652.7
3.4
0.5 %
Depreciation and amortization 13.1
13.1
0.0
0.0 % 41.5
39.9
1.6
4.0 %
Integration and acquisition expenses 7.9
14.2
(6.3 ) (44.4 )% 24.6
28.1
(3.5 ) (12.5 )%
Restructuring charges, net 5.4
2.7
2.7
100.0 % 28.7
30.0
(1.3 ) (4.3 )%
Operating income (loss) 15.5
(11.2 ) 26.7
*
(9.4 ) (17.7 ) 8.3
(46.9 )%
Interest expense, net 11.0
8.3
2.7
32.5 % 30.5
22.1
8.4
38.0 %
Other (income) expense, net (0.4 ) (1.2 ) 0.8
(66.7 )% (13.8 ) (1.1 ) (12.7 ) *
Income (loss) before income taxes 4.9
(18.3 ) 23.2
(126.8 )% (26.1 ) (38.7 ) 12.6
(32.6 )%
Income tax expense (benefit) 3.5
(4.0 ) 7.5
(187.5 )% (1.1 ) (13.1 ) 12.0
(91.6 )%
Net income (loss) $ 1.4
$ (14.3 ) $ 15.7
(109.8 )% $ (25.0 ) $ (25.6 ) $ 0.6
(2.3 )%

* - not meaningful

Net Sales

For the three and nine months ended September 30, ~~2018,~~2019, net sales ~~increased primarily due to increases~~decreased in ~~the Packaging and Publishing segments, partially offset by declines~~all reportable segments. Declines in the Print ~~and Facility Solutions segments. In addition, there were $46.1 million of~~segment's net sales were responsible for ~~two months with no comparable sales related to~~over half of the ~~AAC acquisition on August 31, 2017.~~total decline in both the three and nine month periods. See the ~~“Segment Results”~~"Segment Results" section for additional discussion.

For the nine months ended September 30, 2018, net sales increased primarily due to increases in the Packaging, Publishing and Facility Solutions segments, partially offset by declines in the Print segment. In addition, there were $172.5 million of net sales for eight months with no comparable sales related to the AAC acquisition on August 31, 2017. See the “Segment Results” section for additional discussion.

Cost of Products Sold (exclusive of depreciation and amortization shown separately below)

For the three and nine months ended September 30, ~~2018,~~2019, cost of products sold ~~increased~~decreased primarily due to ~~higher~~lower net sales.

Distribution Expenses

For the three months ended September 30, ~~2018,~~2019, distribution expenses ~~increased~~decreased by ~~$3.0~~$10.1 million, or ~~2.3%~~7.5%. The ~~increase~~decrease was primarily due to (i) a $7.4 million decrease in freight and logistics expense and (ii) a $3.0 million decrease in personnel expense. The decrease in freight and logistics expense was primarily driven by a decrease in third-party freight and fuel expenses. The decrease in personnel expense was primarily due to lower wages and temporary employee expenses.

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For the nine months ended September 30, 2019, distribution expenses decreased by $12.8 million, or 3.2%. The decrease was primarily due to (i) a $17.2 million decrease in freight and logistics expense, primarily driven by a decrease in third-party freight and fuel expenses and (ii) a $2.9 million decrease related to replacing certain equipment leases, previously treated as operating leases (expenses included in distribution expense), with capital leases (expenses included in depreciation and amortization and interest expense, net), partially offset by a $7.5 million increase in ~~facilities rent and other related~~storage expenses,primarilydueto replacing certain

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property leases, ~~which were~~ previously treated as financing arrangements (expenses included in depreciation and amortization and interest expense, net) with operating ~~leases (expenses included in distribution expense)~~leases. Personnel expenses were flat as lower wages and ~~(ii) a $2.7 million increase for the two months with no comparable sales related to the AAC acquisition on August 31, 2017, partially~~temporary employee expenses were offset by a ~~$3.7~~$6.5 million ~~decrease in compensation expense primarily due to~~charge associated with the partial withdrawal from a multi-employer pension plan in the three month period ~~ending September~~ended June 30, ~~2017. The withdrawal was unrelated to the Company's restructuring activities.~~2019.

For the nine months ended September 30, 2018, distribution expenses increased by $19.2 million or 5.0%. The increase was primarily due to (i) a $10.3 million increase for the eight months with no comparable sales related to the AAC acquisition on August 31, 2017, (ii) a $4.4 million increase in facilities rent and other related expenses, primarily due to replacing certain property leases, which were previously treated as financing arrangements, with operating leases and (iii) a $4.2 million increase in freight and logistics expenses driven mostly by increased third-party freight and diesel fuel prices.

Selling and Administrative Expenses

For the three months ended September 30, ~~2018,~~2019, selling and administrative expenses decreased by ~~$19.6~~$5.5 million, or ~~8.5%~~2.6%. The decrease was primarily due to (i) a ~~$10.0~~$3.4 million decrease in bad debt expense and (ii) a $1.8 million decrease in compensation expense,mainly driven by a decrease in ~~personnel~~commission expenses primarily related to the Print and Publishing segments.

For the nine months ended September 30, 2019, selling and administrative expenses decreased by $24.5 million, or 3.7%. The decrease was primarily due to (i) a $21.3 million decrease in compensation expense,mainly driven by a decrease in commission expenses primarily related to the Print segment, as well as a decrease in incentive compensation expense, (ii) a ~~$7.7~~$5.2 million decrease ~~from asset impairments related to goodwill and customer relationships~~ in ~~the Veritiv logistics solutions business in the period ending September 30, 2017~~professional fees expense and (iii) a ~~$4.0~~$4.7 million decrease in ~~legal~~bad debt expense, partially offset by a ~~$4.7~~$5.2 million increase ~~for the two months with no comparable sales~~ related to the ~~AAC acquisition on August 31, 2017.~~Escheat Audit liability and a $2.4 million increase in casualty insurance losses. See Note ~~4, Integration, Acquisition and Restructuring Charges~~12, of the Notes to ~~the~~ Condensed Consolidated Financial Statements for information regarding the ~~Print segment restructuring plan.~~

For the nine months ended September 30, 2018, selling and administrative expenses increased by $3.4 million or 0.5%. The increase was primarily due to (i) a $17.6 million increase for the eight months with no comparable sales related to the AAC acquisition on August 31, 2017 and (ii) a $6.8 million increase in bad debt expense primarily driven by the Print segment, partially offset by (i) a $7.7 million decrease from asset impairments related to goodwill and customer relationships in the Veritiv logistics solutions business in the period ending September 30, 2017, (ii) a $3.8 million decrease in compensation expense, (iii) a $3.6 million decrease in travel and entertainment expenses, (iv) a $2.7 million decrease in legal expense and (v) a $2.1 million decrease in marketing and communications expense. See ~~Note 4, Integration, Acquisition and Restructuring Charges, to the Condensed Consolidated Financial Statements for information regarding the Print segment restructuring plan.~~Escheat Audit liability.

Depreciation and Amortization

For the three and nine months ended September 30, ~~2018,~~2019, depreciation and amortization ~~was flat and~~ increased by ~~$1.6~~$0.2 million and decreased by $2.0 million, respectively. The ~~increase for~~decrease in the nine ~~months ended September 30, 2018~~month period was ~~largely related~~primarily attributable to ~~the eight months~~replacing certain property leases, previously treated as financing arrangements, with ~~no comparable sales related to the AAC acquisition on August 31, 2017.~~operating leases.

Integration and Acquisition Expenses

See Note 4 ~~Integration, Acquisition and Restructuring Charges~~, of the Notes to ~~the~~ Condensed Consolidated Financial Statements for information related to the Company's integration ~~and acquisition efforts.~~efforts as well as its AAC acquisition-related expenses, which were incurred in 2018.

Restructuring Charges, Net

For the three and nine months ended September 30, ~~2018,~~2019, restructuring charges, net, increased by ~~$2.7~~$2.2 million and decreased by ~~$1.3~~$11.8 million, respectively. ~~Restructuring charges were incurred during~~See Note 4 of the ~~nine months ended September 30, 2018, totaling $10.4 million, for termination and repair costs related~~Notes to the exit of certain facilities categorized as financing obligations with related party. Additionally, during the nine months ended September 30, 2018, the Company recognized a $2.1 million gain on the sale of a facility. See ~~Note 4, Integration, Acquisition and Restructuring Charges, to the~~ Condensed Consolidated Financial Statements for additional information related to the Company's restructuring efforts. 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.

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Interest Expense, Net

For the three ~~and nine~~ months ended September 30, ~~2018,~~2019, interest expense, net, ~~increased $2.7 million and $8.4 million, respectively. Interest expense increased~~decreased by $2.1 million. The decrease was primarily due to ~~(i) an increased~~a lower average balance on the Company's ABL ~~Facility and (ii) increased~~Facility. For the nine months ended September 30, 2019, interest ~~rates due primarily to~~expense, net was flat as an increase in ~~LIBOR.~~LIBOR was offset by a lower average balance on the Company's ABL Facility. See Note 5 ~~Debt and Other Obligations~~, of the Notes to ~~the~~ Condensed Consolidated Financial Statements for information related to the ABL Facility. ~~The increased average balance on the ABL Facility was primarily due to the acquisition of AAC on August 31, 2017. See~~ ~~Note 3, 2017 Acquisition, to the Condensed Consolidated Financial Statements for additional details related to the acquisition of AAC.~~

Other (Income) Expense, Net

For the three months ended September 30, ~~2018,~~2019, other (income) expense, net, was income of $0.4 million. This was a net other income decrease of $0.8 million, compared to the same period in 2017. The decrease for the three months ended September 30, 2018 was primarily driven by pension expense.

~~For the nine months ended September 30, 2018, other (income) expense, net, was income of $13.8~~$2.5 million. This was a net other income increase of ~~$12.7~~$2.1 million as compared to the same period in ~~2017.~~2018. For the ~~nine~~three months ended September 30, ~~2018,~~2019, there was ~~an $11.0~~a $2.5 million ~~reduction~~decrease in the estimated fair value of the AAC contingent ~~consideration. See~~ ~~Note 9, Fair Value Measurements~~,consideration as compared to an increase of $0.3 million in the same period in 2018.

For the nine months ended September 30, 2019, other (income) expense, net, was expense of $11.3 million. This was a net other expense increase of $25.1 million as compared to the ~~Condensed Consolidated Financial Statements for additional information.~~same period in 2018. For the nine months ended September 30, 2019, there was a $10.6 million increase in the estimated fair value of the AAC contingent consideration as compared to a reduction of $11.0 million in the same period in 2018. The remaining ~~income~~expense increase was primarily driven by changes associated with the Tax Receivable Agreement.

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See Note 9 of the Notes to Condensed Consolidated Financial Statements for information related to the AAC contingent consideration.

Effective Tax Rate

Veritiv's effective tax rates were ~~71.4%~~59.8% and ~~21.9%~~71.4% for the three months ended September 30, 2019 and 2018, ~~and 2017, respectively,~~respectively. Veritiv's effective tax rates were (0.6)% and 4.2% ~~and 33.9%~~ for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The difference between the ~~Company’s~~Company's effective tax rates and the U.S. statutory tax ~~rates~~rate of 21.0% ~~and 35.0%, respectively,~~ primarily relates to state income taxes (net of federal income tax benefit), tax expense for stock compensation vesting, Global Intangible Low-Taxed Income, non-deductible expenses, tax credits and the Company's pre-tax book 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 and updated provisional estimates related to the cumulative impact of the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code that were included as provisional estimates in the Company’s income tax during 2017 as well as changes included in the Company’s 2018 income tax estimate. The Company made an additional measurement-period adjustment related to the provisional estimates during the three months ended September 30, 2018 of $1.4 million. As of September 30, 2018, 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. 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 filing of Veritiv's 2016 U.S. federal tax return and amended 2015 and 2014 U.S. federal tax returns in the third quarter of 2017, the Company recognized a $3.1 million benefit for credits related to foreign taxes and research and experimentation activities.

The volatility of the Company's effective tax rate has been primarily due to both the level of pre-tax book income (loss) as well as variations in the Company's income (loss) by jurisdiction. For the three and nine months ended September 30, ~~2018,~~2019, the ~~Company’s~~Company's provision for income taxes ~~continued~~was calculated by applying an estimate of the annual effective tax rate (AETR) to bepre-tax book income. For the three and nine months ended September 30, 2018, the Company determined it could not reliably estimate income taxes utilizing an AETR for interim reporting. The 2018 AETR estimate was highly sensitive to ~~changes in certain~~ estimates of ordinary income ~~(loss)~~ or ~~permanent items~~loss resulting in the use of an actual year-to-date effective tax rate method. The Company expects ~~a volatile~~continued volatility of the effective tax rate for the full year 2018, significantly different than the September 30, 2018 year-to-date rate. However, cash taxes paid in 2018 likely will not exceed $5 million. The effective tax rate may continue to vary significantlyforeseeable future due to potential fluctuations in the amount and source, including both foreign and domestic, of pre-tax book income ~~and~~(loss) by jurisdiction, potential deferred tax valuation allowance increases in certain jurisdictions, changes in amounts of non-deductible expenses, ~~uncertainty related to the future impact of the Tax Act,~~ and other items that could impact the effective tax rate. ~~Pending further evaluation of the Tax Act, over time and with increasing pre-tax income, the Company estimates its effective tax rate will trend toward approximately 26%.~~

Segment Results

Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, restructuring charges, net, integration and acquisition expenses and other similar charges including any severance costs, costs associated with warehouse and office openings or closings, consolidation, and relocation and other business optimization expenses, stock-based compensation expense, changes in the LIFO reserve, non-restructuring asset impairment charges, non-restructuring severance charges, non-restructuring pension charges, net, fair value adjustments related to contingent liabilities assumed in mergers and acquisitions and certain other adjustments) is the primary financial performance measure Veritiv uses to manage its businesses, to monitor its results of operations, to measure its performance against the ABL Facility and to incentivize its management.

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Veritiv believes investors commonly use Adjusted EBITDA as a key financial metric for valuing companies. In addition, the credit agreement governing the ABL Facility permits the Company to exclude these and other charges in calculating Consolidated EBITDA, as defined in the ABL Facility. This common metric is intended to align shareholders, debt holders and management. Adjusted EBITDA is a non-GAAP financial measure and is not an alternative to net income, operating income or any other measure prescribed by U.S. generally accepted accounting principles ("U.S. GAAP").

Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of ~~Veritiv’s~~Veritiv's results as reported under U.S. GAAP. For example, Adjusted EBITDA:

Does not reflect the ~~Company’s~~Company's income tax expenses or the cash requirements to pay its taxes; and

Although depreciation and amortization charges are non-cash charges, it does not reflect that the assets being depreciated and amortized will often have to be replaced in the future and the foregoing ~~metrics do~~metric does not reflect any cash requirements for such replacements.

Other companies in the industry may calculate Adjusted EBITDA differently than Veritiv does, limiting its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to Veritiv to invest in the growth of its business. Veritiv compensates for these limitations by relying on the Company's U.S. GAAP results and by using Adjusted EBITDA for supplemental purposes. Additionally, Adjusted EBITDA is not an alternative measure of financial performance under U.S. GAAP and therefore should be considered in conjunction with net income and other performance measures such as operating income or net cash provided by operating activities and not as an alternative to such U.S. GAAP measures.

Due to the shared nature of the distribution network, distribution expenses are not a specific charge to each segment, but are instead allocated to each segment based primarily on operational metrics that correlate with changes in volume. Accordingly, distribution expenses allocated to each segment are highly interdependent on the results of other segments. Lower volume in any segment that is not offset by a reduction in distribution expenses can result in the other segments absorbing a larger share of distribution expenses. Conversely, higher volume in any segment can result in the other segments absorbing a smaller share of distribution expenses. The impact of this at the segment level is that the changes in distribution expense trends may not correspond with volume trends within a particular segment.

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The Company sells thousands of products. In the Packaging and Facility Solutions segments, Veritiv is unable to compute the impact of changes in sales volume based on changes in sales of each individual product. Rather, the Company assumes that the margin stays constant and estimates the volume impact based on changes in cost of products sold as a proxy for the change in sales volume. After any other significant sales variances are identified, the remaining sales variance is attributed to price/mix. As a result of the information technology conversion efforts under the Company's integration plan, the Company has enhanced its insight into the Print segment's changes in volume and thus it no longer needs to rely on using cost of products sold as a proxy for the changes in sales volumes.

The Company approximates foreign currency effects by applying the foreign currency exchange rate for the prior period to the local currency results for the current period. The Company believes the elimination of the foreign currency translation impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.

The Company believes that the decline in demand for paper and related products is due to the widespread use of electronic media and permanent product substitution, more e-commerce, less print advertising, fewer catalogs and a reduced volume of direct mail, among other factors. This trend is expected to continue and will place continued pressure on the Company’s revenues and profit margins and make it more difficult to maintain or grow Adjusted EBITDA within the Print and Publishing segments.

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Included in the following table are net sales and Adjusted EBITDA for each of the reportable segments and Corporate & Other:


(in millions)	Packaging			Facility Solutions			Print			Publishing			Corporate & Other			Packaging			Facility Solutions			Print			Publishing			Corporate & Other
Three Months Ended September 30, 2019
Net sales																$	871.4		$	307.9		$	523.0		$	190.1		$	32.1
Adjusted EBITDA																67.4			11.0			10.6			4.6			(48.6		)
Adjusted EBITDA as a % of net sales																7.7		%	3.6		%	2.0		%	2.4		%	*


Three Months Ended September 30, 2018
Net sales	$	899.3		$	330.3		$	668.2		$	258.5		$	36.2		$	899.3		$	330.3		$	668.2		$	258.5		$	36.2
Adjusted EBITDA	64.0			8.1			14.5			5.6			(39.5		)	64.0			8.1			14.5			5.6			(39.5		)
Adjusted EBITDA as a % of net sales	7.1		%	2.5		%	2.2		%	2.2		%	*			7.1		%	2.5		%	2.2		%	2.2		%	*

Three Months Ended September 30, 2017

Nine Months Ended September 30, 2019
Net sales	$	799.6		$	339.6		$	701.6		$	238.7		$	37.3		$	2,598.3		$	918.1		$	1,605.5		$	603.7		$	98.6
Adjusted EBITDA	62.1			10.3			13.1			5.5			(46.9		)	181.1			23.5			30.1			15.0			(141.0		)
Adjusted EBITDA as a % of net sales	7.8		%	3.0		%	1.9		%	2.3		%	*			7.0		%	2.6		%	1.9		%	2.5		%	*


Nine Months Ended September 30, 2018
Net sales	$	2,631.6		$	985.3		$	2,008.1		$	734.9		$	105.5		$	2,631.6		$	985.3		$	2,008.1		$	734.9		$	105.5
Adjusted EBITDA	182.0			19.8			47.6			17.2			(138.8		)	182.0			19.8			47.6			17.2			(138.8		)
Adjusted EBITDA as a % of net sales	6.9		%	2.0		%	2.4		%	2.3		%	*			6.9		%	2.0		%	2.4		%	2.3		%	*

Nine Months Ended September 30, 2017
Net sales	$	2,266.0		$	975.5		$	2,095.1		$	696.6		$	107.1
Adjusted EBITDA	166.7			25.1			44.8			17.6			(137.8		)
Adjusted EBITDA as a % of net sales	7.4		%	2.6		%	2.1		%	2.5		%	*

* - not meaningful

See Note 13 ~~Segment Information~~, of the Notes to ~~the~~ Condensed Consolidated Financial Statements for additional information related to Adjusted EBITDA, including a reconciliation of income (loss) before income taxes as reflected in the Condensed Consolidated Statements of Operations to Adjusted EBITDA for reportable segments.

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Packaging

The table below presents selected data for the Packaging segment:


	Three Months Ended September 30,						Increase (Decrease)				Nine Months Ended September 30,						Increase (Decrease)				Three Months Ended September 30,						Increase (Decrease)					Nine Months Ended September 30,						Increase (Decrease)
(in millions)	2018			2017			$		%		2018			2017			$		%		2019			2018			$			%		2019			2018			$			%
Net sales	$	899.3		$	799.6		$	99.7	12.5	%	$	2,631.6		$	2,266.0		$	365.6	16.1	%	$	871.4		$	899.3		$	(27.9	)	(3.1	)%	$	2,598.3		$	2,631.6		$	(33.3	)	(1.3	)%
Adjusted EBITDA	64.0			62.1			1.9		3.1	%	182.0			166.7			15.3		9.2	%	67.4			64.0			3.4			5.3	%	181.1			182.0			(0.9		)	(0.5	)%
Adjusted EBITDA as a % of net sales	7.1		%	7.8		%					6.9		%	7.4		%					7.7		%	7.1		%						7.0		%	6.9		%

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The table below presents the components of the net sales change compared to the prior year:


	Increase (Decrease)						Increase (Decrease)
	Three Months Ended September 30,			Nine Months Ended September 30,			Three Months Ended September 30,			Nine Months Ended September 30,
(in millions)	2018 vs. 2017			2018 vs. 2017			2019 vs. 2018			2019 vs. 2018
Volume	$	109.4		$	378.4		$	(45.7	)	$	(57.5	)
Foreign currency	(2.9		)	3.9			(1.2		)	(8.0		)
Price/Mix	(6.8		)	(16.7		)	19.0			32.2
Total change	$	99.7		$	365.6		$	(27.9	)	$	(33.3	)

Comparison of the Three Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

Net sales ~~increased $99.7~~decreased $27.9 million, or ~~12.5%~~3.1%, as compared to the same period in ~~2017.~~2018. The net sales ~~increase~~decrease was primarily attributable to ~~an increase in~~decreased sales of ~~corrugated products,~~films, equipment and parts and cushioning products due to increases in volume. In addition, $46.1 million of rigid packaging products were sold for the two months with no comparable sales related to the AAC acquisition on August 31, 2017.ancillary packaging.

Adjusted EBITDA increased ~~$1.9~~$3.4 million, or ~~3.1%~~5.3%, as compared to the same period in ~~2017.~~2018. The increase in Adjusted EBITDA was primarily attributable to ~~the increase in~~cost of products sold decreasing at a faster rate than net ~~sales. The increase in net~~ sales, ~~was~~ partially offset by (i) ~~an $8.9 million increase~~a decline in ~~distribution expenses,~~net sales and (ii) a ~~$7.1~~$5.1 million increase in selling and administrative expenses and (iii) cost of products sold increasing at a faster rate than net sales. The increase in distribution expenses was primarily driven by increased utilization of the distribution network, which was evidenced by (i) a $3.6 million increase in facilities rent and other related expenses and (ii) a $1.5 million increase in personnel expenses. Facilities rent and other related expenses increased due to replacing certain properties previously treated as financing arrangements with operating leases. Under financing arrangements, facility rent expenses were included in depreciation and amortization and interest expense, net, versus distribution expenses for operating leases. Additionally, there was a $2.7 million increase in distribution expenses for the two months with no comparable sales related to the AAC acquisition on August 31, 2017. The increase in selling and administrative expenses was primarily driven by (i) a $4.7 million increase for the two months with no comparable sales related to the AAC acquisition on August 31, 2017 and (ii) a $2.7 million increase in personnel expenses associated with increased headcount to support the Company's Packaging growth strategy.

Net sales increased $365.6 million, or 16.1%, compared to the same period in 2017. The net sales increase was primarily attributable to an increase in sales of corrugated products, equipment and parts and cushioning products due to increases in volume and market prices. In addition, $172.5 million of rigid packaging products were sold for the eight months with no comparable sales related to the AAC acquisition on August 31, 2017.

Adjusted EBITDA increased $15.3 million, or 9.2%, compared to the same period in 2017. The increase in Adjusted EBITDA was primarily attributable to the increase in net sales. The increase in net sales was partially offset by (i) a $30.0 million increase in distribution expenses, (ii) a $27.9 million increase in selling and administrative expenses and (iii) cost of products sold increasing at a faster rate than net sales. The increase in distribution expenses was primarily driven by increased utilization of the distribution network, which was evidenced by (i) an $8.8 million increase in facilities rent and other related expenses, (ii) a $5.1 million increase in personnel expenses and (iii) a $4.1 million increase in freight and logistics expenses driven mostly by increased third-party freight and diesel fuel prices. Additionally, there was a $10.3 million increase in distribution expenses for the eight months with no comparable sales related to the AAC acquisition on August 31, 2017. The increase in selling and administrative expenses was driven by (i) a $17.6 million increase for the eight months with no comparable sales related to the AAC acquisition on August 31, 2017, (ii) an $8.4$3.2 million increase in personnel expenses associated with increased headcount to support the Company's Packaging growth strategy and ~~(iii)~~(ii) a ~~$2.2~~$1.0 million increase in bad debt expense.

Comparison of the Nine Months Ended September 30, 2019 and September 30, 2018

Net sales decreased $33.3 million, or 1.3%, as compared to the same period in 2018. The net sales decrease was primarily attributable to decreased sales of films and corrugated products, partially offset by increased sales of rigid packaging products.

Adjusted EBITDA decreased $0.9 million, or 0.5%, as compared to the same period in 2018. The decrease in Adjusted EBITDA was primarily attributable to (i) a $12.5 million increase in selling and administrative expenses, (ii) a $5.9 million increase in distribution expenses and (iii) a decline in net sales, partially offset by cost of products sold decreasing at a faster rate than net sales. The increase in selling and administrative expenses was primarily driven by (i) a $9.5 million increase in personnel expenses associated with increased headcount to support the Company's Packaging growth strategy and (ii) a $1.9 million increase in bad debt expense. The increase in distribution expenses was primarily dueto an increase in facility rent related to replacing certain property leases, previously treated as financing arrangements (expenses included in depreciation and amortization and interest expense, net) with operating leases (expenses included in distribution expense).

The table below presents selected data for the Facility Solutions segment:

The table below presents the components of the net sales change compared to the prior year:

Comparison of the Three Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

Net sales decreased ~~$9.3~~$22.4 million, or ~~2.7%~~6.8%, as compared to the same period in ~~2017.~~2018. The net sales decrease was primarily attributable to decreased sales of food service products, towels and tissues, and retail, ~~store supplies, janitorial supplies~~office and ~~chemicals.~~school supplies. The decrease in net sales was also due to strategic decisions to exit certain customer relationships that were not aligned with the Company's product and service capabilities. During the three months ended September 30, 2019 the Company began exiting a branded re-distribution business. Net sales associated with this business have historically been approximately 12% of the Facility Solutions segment.

Adjusted EBITDA ~~decreased $2.2~~increased $2.9 million, or ~~21.4%~~35.8%, as compared to the same period in ~~2017.~~2018. The increase in Adjusted EBITDA ~~decrease~~ was primarily ~~driven by~~attributable to (i) a $4.1 million decrease in distribution expenses, (ii) a $1.7 million decrease in selling and administrative expenses and (iii) cost of products sold ~~increasing~~decreasing at a faster rate than net sales, ~~and (ii) the decline in net sales,~~ partially offset by a ~~$3.0~~decline in net sales. The decrease in distribution expenses was primarily driven by (i) a $2.2 million decrease in ~~selling~~freight and ~~administrative~~logistics expense, primarily driven by a decrease in third-party freight and fuel expenses and (ii) a $1.0 million decrease in personnel expenses. The decrease in selling and administrative expenses was primarily driven by ~~(i)~~ a ~~$1.2~~$2.0 million decrease in personnel ~~expense and (ii) a $0.7 million decrease in bad debt expense.~~expenses.

Comparison of the Nine Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

Net sales ~~increased $9.8~~decreased $67.2 million, or ~~1.0%~~6.8%, as compared to the same period in ~~2017.~~2018. The net sales ~~increase~~decrease was primarily attributable to ~~increased~~decreased sales of food service products, ~~towel~~retail, office and ~~tissue products, can liners~~school supplies and ~~safety supplies.~~chemicals. The decrease in net sales was also due to strategic decisions to exit certain customer relationships that were not aligned with the Company's product and service capabilities.

Adjusted EBITDA ~~decreased $5.3~~increased $3.7 million, or ~~21.1%~~18.7%, as compared to the same period in ~~2017.~~2018. The increase in ~~net sales~~Adjusted EBITDA was ~~more than offset by~~primarily attributable to (i) a $10.6 million decrease in distribution expenses, (ii) a $5.0 million decrease in selling and administrative expenses and (iii) cost of products sold ~~increasing~~decreasing at a faster rate than net sales, ~~and (ii) a $4.1 million increase in distribution expenses,~~ partially offset by a ~~$3.1 million~~decline in net sales. The decrease ~~in selling and administrative expenses. The increase~~ in distribution expenses was primarily driven by ~~increased utilization of the distribution network and was evidenced by~~ (i) a ~~$2.3~~$5.0 million ~~increase~~decrease in freight and logistics expense, primarily driven by a decrease in third-party freight and fuel expenses, (ii) a ~~$1.2~~$3.1 million ~~increase~~decrease in personnel ~~expense.~~expenses and (iii) a $2.2 million decrease in facilities rent and other related expenses. The decrease in selling and administrative expenses was primarily driven by ~~(i)~~ a ~~$1.6~~$4.1 million decrease in personnel ~~expenses and (ii) a $0.7 million decrease in marketing and communications expense.~~expenses.

The table below presents selected data for the Print segment:

The table below presents the components of the net sales change compared to the prior year:

Comparison of the Three Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

Net sales decreased ~~$33.4~~$145.2 million, or ~~4.8%~~21.7%, as compared to the same period in ~~2017.~~2018. The net sales decrease was primarily attributable to the continued secular decline in the paper industry as well as managing risk in the Print segment through strategic adjustments to the Company's customer base and product offerings, partially offset by higher market prices.

Adjusted EBITDA ~~increased $1.4~~decreased $3.9 million, or ~~10.7%~~26.9%, as compared to the same period in ~~2017.~~2018. The Adjusted EBITDA ~~increase~~decrease was primarily driven by the decline in net sales and cost of products sold decreasing at a slower rate than net sales, partially offset by (i) ~~a $5.7~~an $11.4 million decrease in selling and ~~administration~~administrative expenses and (ii) a ~~$0.7~~$7.6 million decrease in distribution ~~expenses, which more than offset the decline in net sales.~~expenses. The decrease in selling and administration expenses was primarily due to (i) a ~~$6.6~~$6.7 million decrease in personnel expenses due to a decrease in commission expense driven by lower net sales and a decrease in headcount and commission expense ~~primarily~~ related to the Print segment restructuring plan and ~~a decrease in net sales and~~ (ii) a ~~$0.6~~$4.5 million decrease ~~in professional fees expense, partially offset by a $1.7 million increase~~ in bad debt expense. ~~The increase in bad debt expense was primarily due to additional reserves related to certain customers with declining financial conditions. See~~ ~~Note 4, Integration, Acquisition and Restructuring Charges, to the Condensed Consolidated Financial Statements for information regarding the Print segment restructuring plan.~~ The decrease in distribution expenses was driven by ~~decreased utilization of the distribution network~~(i) a $3.7 million decrease in freight and ~~was evidenced~~logistics expense, primarily driven by a ~~$0.8~~decrease in third-party freight and fuel expenses and (ii) a $2.9 million decrease in personnel expenses.

Comparison of the Nine Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

Net sales decreased ~~$87.0~~$402.6 million, or ~~4.2%~~20.0%, as compared to the same period in ~~2017.~~2018. The net sales decrease was primarily attributable to the continued secular decline in the paper industry as well as managing risk in the Print segment through strategic adjustments to the Company's customer base and product offerings, partially offset by higher market prices.

Adjusted EBITDA ~~increased $2.8~~decreased $17.5 million, or ~~6.3%~~36.8%, as compared to the same period in ~~2017.~~2018. The Adjusted EBITDA ~~increase~~decrease was primarily driven by the decline in net sales and cost of products sold decreasing at a slower rate than net sales, partially offset by (i) a ~~$16.4~~$29.0 million decrease in selling and administrative expenses and (ii) a ~~$7.2~~$16.3 million decrease in distribution ~~expenses, which more than offset the decline in net sales and the impact of cost of products sold increasing at a faster rate than net sales.~~expenses. The decrease in selling and ~~administrative~~administration expenses was ~~driven by~~primarily due to (i) a $20.4 million decrease in personnel expenses due to a decrease in commission expense driven by lower net sales and a decrease in headcount and commission expense ~~primarily~~ related to the Print segment restructuring plan and (ii) a ~~decrease in net sales, partially offset by a $6.2~~$7.4 million ~~increase~~decrease in bad debt expense. The ~~increase~~decrease in ~~bad debt~~distribution expenses was driven by (i) an $8.9 million decrease in freight and logistics expense, ~~was~~ primarily ~~due to additional reserves related to certain customers with declining financial conditions.~~ driven by a decrease in third-party freight and fuel expenses and (ii) a $6.7 million decrease in personnel expenses.

See Note 4 ~~Integration, Acquisition and Restructuring Charges~~, of the Notes to ~~the~~ Condensed Consolidated Financial Statements for information regarding the 2018 Print segment restructuring plan. The decrease in distribution expenses was primarily due to decreased utilization of the distribution network and was evidenced by (i) a $3.9 million decrease in personnel expenses and (ii) a $3.4 million decrease in facilities rent and other related expenses.

The table below presents selected data for the Publishing segment:

The table below presents the components of the net sales change compared to the prior year:

Comparison of the Three Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

Net sales ~~increased $19.8~~decreased $68.4 million, or ~~8.3%~~26.5%, as compared to the same period in ~~2017.~~2018. The net sales ~~increase~~decrease was primarily attributable to ~~increases~~the continued secular decline in ~~price.~~the paper industry as well as managing risk in the Publishing segment through strategic adjustments to the Company's customer base, partially offset by higher market prices.

Adjusted EBITDA ~~increased $0.1~~decreased $1.0 million, or ~~1.1%~~17.9%, as compared to the same period in ~~2017.~~2018. The Adjusted EBITDA ~~increase~~decrease was primarily attributable to the ~~increase~~decline in net sales, partially offset by cost of products sold decreasing at a faster rate than net sales and a ~~$1.3~~$1.2 million decrease in selling and administrative expenses, ~~partially offset by cost of products sold increasing at a faster rate than net sales. The decrease in selling and administrative expenses~~which was primarily driven by a ~~$0.9 million~~ decrease in ~~bad debt expense.~~personnel expenses.

Comparison of the Nine Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

Net sales ~~increased $38.3~~decreased $131.2 million, or ~~5.5%~~17.9%, as compared to the same period in ~~2017.~~2018. The net sales ~~increase~~decrease was primarily attributable to ~~increases~~the continued secular decline in ~~price and volume.~~the paper industry as well as managing risk in the Publishing segment through strategic adjustments to the Company's customer base, partially offset by higher market prices.

Adjusted EBITDA decreased ~~$0.4~~$2.2 million, or ~~2.3%~~12.8%, as compared to the same period in ~~2017.~~2018. The Adjusted EBITDA decrease was primarily attributable to ~~cost of products sold increasing at a faster rate than~~the decline in net sales, partially offset by a $3.0 million decrease in selling and administrative expenses, which was primarily driven by a ~~$2.5 million~~ decrease in personnel ~~costs.~~expenses, and cost of products sold decreasing at a faster rate than net sales.

The table below presents selected data for Corporate & Other:

Comparison of the Three Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

Net sales decreased ~~$1.1~~$4.1 million, or ~~2.9%~~11.3%, as compared to the same period in ~~2017. The net sales~~2018, driven by a decrease ~~was primarily attributable to the strategic decision to substantially exit the third-party logistics ("3PL") warehousing business.~~in volume of freight brokerage services.

~~The improvement in~~ Adjusted EBITDA ~~of $7.4~~decreased $9.1 million, or ~~15.8%~~23.0%, ~~was~~ primarily driven by (i) a ~~$5.6~~$6.1 million ~~decrease~~increase in selling and administrative expenses, which was primarily attributable to higher incentive compensation expense and (ii) cost of products sold decreasing at a $1.9 million decrease in distribution expense. The decrease in selling and administrative expenses was primarily due to lower incentive compensation expense. The decrease in distribution expenses was primarily driven by a decrease in freight and logistics expense.slower rate than net sales.

Comparison of the Nine Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

Net sales decreased ~~$1.6~~$6.9 million, or ~~1.5%~~6.5%, as compared to the same period in ~~2017. The net sales~~2018, driven by a decrease ~~was primarily attributable to the strategic decision to substantially exit the 3PL warehousing business.~~in volume of freight brokerage services.

Adjusted EBITDA decreased ~~$1.0~~$2.2 million, or ~~0.7%~~1.6%, ~~compared to the same period in 2017. The decrease in Adjusted EBITDA was~~ primarily driven by a $5.4 million increase in selling and administrative expenses, partially offset by a $4.7 million decrease in distribution expense. The increase in selling and administrative expenses was primarily driven by an increase in personnel expenses primarily due to higher incentive compensation and health and welfare expenses. The decrease in distribution expenses was primarily driven by decreases in (i) freight and logistics expense and (ii) facilities rent and other related expenses.casualty insurance losses.

Liquidity and Capital Resources

The cash requirements of the Company are provided by cash flows from operations and borrowings under the ABL Facility. See Note 5 of the Notes to Condensed Consolidated Financial Statements for additional information regarding the Company's debt position.

The following table sets forth a summary of cash flows:

Net cash provided by operating activities improved by ~~$25.2~~$263.0 million as compared to the prior year, primarily as a result of the combination of improvements in the changes in operating assets and liabilities. The improvements in changes in operating assets and liabilities were primarily ~~driven by~~due to a decrease in working capital, ~~primarily due to decreases~~driven by the decline in ~~accounts receivable~~net sales and ~~increases in accounts payable, driven by~~ management's focus on working capital improvement, ~~partially~~which resulted in decreases in accounts receivable and inventory, which more than offset ~~by increases~~decreases in ~~other current assets, primarily driven by an increase in supplier rebate receivables.~~accounts payable.

Net cash ~~provided by~~for financing activities ~~decreased~~was a higher use of cash by ~~$158.2~~$266.4 million as compared to the prior year, primarily due to lower net borrowings under the ~~increased borrowings for the acquisition of AAC in 2017 and~~Company's ABL Facility, partially offset by a favorable change ~~from 2017 to 2018~~ in book overdrafts, due to the timing of payments. ~~See~~ ~~Note 5, Debt and Other Obligations, to the Condensed Consolidated Financial Statements for additional information regarding the Company's debt position.~~

Funding and Liquidity Strategy

Veritiv's ability to fund its capital needs will depend on its ongoing ability to generate cash from operations, borrowings under the ABL Facility and funds received from capital market offerings. If Veritiv's cash flows from operating activities are lower than expected, the Company will need to borrow under the ABL Facility and may need to incur additional debt or issue additional equity. Although management believes that the arrangements currently in place will permit Veritiv to finance its operations on acceptable terms and conditions, the ~~Company’s~~Company's access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including the liquidity of the overall capital markets and the current state of the economy.

Veritiv's management expects that the Company's primary future cash needs will be for working capital, capital expenditures, contractual commitments and strategic investments. Additionally, management expects that cash provided by operating activities and available capacity under the ABL Facility will provide sufficient funds to operate the business and meet other liquidity needs.

Off-Balance Sheet Arrangements

Veritiv does not have any off-balance sheet arrangements as of September 30, ~~2018,~~2019, other than ~~operating lease obligations~~leases that have not yet commenced and the letters of credit under the ABL ~~Facility.~~Facility (see Note 3 and Note 5 of the Notes to Condensed Consolidated Financial Statements, respectively, for additional information on these items). The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

During the second quarter of 2019, the Company recorded charges related to the partial withdrawal from a multi-employer pension plan. A $6.5 million charge was recorded as distribution expense as it was unrelated to the Company's restructuring efforts. Final charges for the partial withdrawal will not be known until the plan issues its final determination. The Company expects payments will occur over an approximate 20-year period.

There have been no other material changes to the Company's contractual obligations from those disclosed in Veritiv's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~ 2018.

Critical Accounting Policies and Estimates

See Note ~~2, Revenue Recognition~~1, and Note 3 of the Notes to ~~the~~ Condensed Consolidated Financial Statements for a description of the impact that adoption of Accounting Standards Update ~~2014-09,~~ ~~Revenue from Contracts with Customers~~2016-02, Leases (Topic ~~606)~~ 842) had on the Company's financial results and related disclosures. There have been no material changes to the Company's critical accounting policies and estimates from those disclosed in Veritiv's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Recently Issued Accounting Standards

See Note 1 ~~Business and Summary~~ of ~~Significant Accounting Policies,~~the Notes to ~~the~~ Condensed Consolidated Financial Statements for information regarding recently issued accounting standards.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk from the information provided in Item 7A "Quantitative and Qualitative Disclosures about Market Risk" of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The ~~Company’s~~Company's management has carried out an evaluation, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the ~~Company’s~~Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended. Based upon such evaluation, management has concluded that the ~~Company’s~~Company's disclosure controls and procedures were effective as of September 30, ~~2018.~~2019.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company's internal control over financial reporting that occurred during the quarter ended September 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to Note 12 ~~Commitments and Contingencies,~~ of the Notes to ~~the~~ Condensed Consolidated Financial Statements.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		VERITIV CORPORATION
		(Registrant)

Date:	November ~~6, 2018~~5, 2019	By: /s/ Stephen J. Smith
		Name: Stephen J. Smith
		Title: Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

Date:	November ~~6, 2018~~5, 2019	By: /s/ Andrew E. Magley
		Name: Andrew E. Magley
		Title: Chief Accounting Officer
		(Principal Accounting Officer)

4443



Delaware		46-3234977
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1000 Abernathy Road NE
Building 400, Suite 1700
Atlanta,	Georgia	30328
(Address of principal executive offices)		(Zip Code)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	VRTV	New York Stock Exchange



		Page
Part I: FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018	1
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018	2
	Condensed Consolidated Balance Sheets as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018	4
	~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Shareholders' Equity for the three and nine months ended September 30, 2019 and 2018	5
	~~Item 2.~~Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4140
Item 4.	Controls and Procedures	4241

Part II: OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 6.	Exhibits	42
SIGNATURES		43
~~Item 1A.~~	~~Risk Factors~~	43
~~Item 6.~~	~~Exhibits~~	43
~~SIGNATURES~~		44



Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



	2019
	Common Stock Issued			Additional Paid-in Capital			Accumulated (Deficit) Earnings			AOCL ⁽¹⁾			Treasury Stock					Total
	Shares	Amount											Shares		Amount
Balance at December 31, 2018	16.2	$	0.2	$	605.7		$	(8.5	)	$	(40.7	)	(0.3	)	$	(13.6	)	$	543.1
Net income (loss)							(26.7		)									(26.7		)
Other comprehensive income (loss)										2.5								2.5
Stock-based compensation				4.7														4.7
Issuance of common stock, net of stock received for minimum tax withholdings	0.2	0.0		(2.7		)												(2.7		)
Adoption impact - Accounting Standards Update 2016-02							2.7											2.7
Balance at March 31, 2019	16.4	0.2		607.7			(32.5		)	(38.2		)	(0.3	)	(13.6		)	523.6
Net income (loss)							(11.3		)									(11.3		)
Other comprehensive income (loss)										1.6								1.6
Stock-based compensation				4.3														4.3
Issuance of common stock, net of stock received for minimum tax withholdings	0.0	0.0		0.5														0.5
Balance at June 30, 2019	16.4	0.2		612.5			(43.8		)	(36.6		)	(0.3	)	(13.6		)	518.7
Net income (loss)							5.1											5.1
Other comprehensive income (loss)										(2.5		)						(2.5		)
Stock-based compensation				3.4														3.4
Issuance of common stock, net of stock received for minimum tax withholdings	0.0	0.0		(0.1		)												(0.1		)
Balance at September 30, 2019	16.4	$	0.2	$	615.8		$	(38.7	)	$	(39.1	)	(0.3	)	$	(13.6	)	$	524.6



	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		)



(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



	(in millions)
Cash consideration	$	112.0
Loan pay-off	34.3
Contingent consideration	22.2
Other	1.3
Total purchase price	$	169.8



	(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



(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



(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



(in millions)	AAC Contingent Liability
Balance at December 31, 2018	$	9.4
Change in fair value adjustment recorded in other (income) expense, net	5.4
Balance at March 31, 2019	14.8
Change in fair value adjustment recorded in other (income) expense, net	7.7
Balance at June 30, 2019	22.5
Change in fair value adjustment recorded in other (income) expense, net	(2.5		)
Balance at September 30, 2019	$	20.0



	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share data)	2019		2018		2019			2018
Numerator:
Net income (loss)	$	5.1	$	1.4	$	(32.9	)	$	(25.0	)

Denominator:
Weighted-average number of shares outstanding – basic	16.10		15.85		16.04			15.82
Dilutive effect of stock-based awards	0.14		0.62		—			—
Weighted-average number of shares outstanding – diluted	16.24		16.47		16.04			15.82

Earnings (loss) per share:
Basic earnings (loss) per share	$	0.32	$	0.09	$	(2.05	)	$	(1.58	)
Diluted earnings (loss) per share	$	0.31	$	0.09	$	(2.05	)	$	(1.58	)

Antidilutive stock-based awards excluded from computation of diluted earnings per share ("EPS")	0.64		0.09		1.05			1.13
Performance stock-based awards excluded from computation of diluted EPS because performance conditions had not been met	0.61		0.49		0.61			0.49



(in millions)	Foreign currency translation adjustments			Retirement liabilities			Interest rate cap			AOCL
Balance at December 31, 2018	$	(30.3	)	$	(10.1	)	$	(0.3	)	$	(40.7	)
Unrealized net gains (losses) arising during the period	2.4			0.0			0.0			2.4
Amounts reclassified from AOCL	—			—			0.1			0.1
Net current period other comprehensive income (loss)	2.4			0.0			0.1			2.5
Balance at March 31, 2019	(27.9		)	(10.1		)	(0.2		)	(38.2		)
Unrealized net gains (losses) arising during the period	1.3			0.1			0.0			1.4
Amounts reclassified from AOCL	—			—			0.2			0.2
Net current period other comprehensive income (loss)	1.3			0.1			0.2			1.6
Balance at June 30, 2019	(26.6		)	(10.0		)	—			(36.6		)
Unrealized net gains (losses) arising during the period	(2.2		)	—			(0.3		)	(2.5		)
Net current period other comprehensive income (loss)	(2.2		)	—			(0.3		)	(2.5		)
Balance at September 30, 2019	$	(28.8	)	$	(10.0	)	$	(0.3	)	$	(39.1	)



Exhibit No.		Description

31.1*		Rule 13a-14(a) Certification of the Chief Executive Officer.

31.2*		Rule 13a-14(a) Certification of the Chief Financial Officer.

32.1*		Section 1350 Certification of the Chief Executive Officer.

32.2*		Section 1350 Certification of the Chief Financial Officer.

101.INS*		XBRL Instance ~~Document.~~Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith

~~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~~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.