☒ 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

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 Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant's common stock as of ~~October 31, 2019~~July 30, 2020 was ~~16,099,720.~~15,893,500.

~~TABLE OF CONTENTS~~

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

VERITIV CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data, unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Net sales (including sales to related party of $5.7, $6.6, $17.3 and $21.3, respectively) $ 1,924.5

$ 2,192.5

$ 5,824.2

$ 6,465.4
Cost of products sold (including purchases from related party of $20.0, $39.3, $66.2 and $117.2, respectively) (exclusive of depreciation and amortization shown separately below) 1,550.8

1,805.8

4,726.5

5,323.8
Distribution expenses 124.9

135.0

387.3

400.1
Selling and administrative expenses 204.3

209.8

631.6

656.1
Depreciation and amortization 13.3

13.1

39.5

41.5
Integration and acquisition expenses 4.5

7.9

13.3

24.6
Restructuring charges, net 7.6

5.4

16.9

28.7
Operating income (loss) 19.1
15.5
9.1
(9.4 )
Interest expense, net 8.9

11.0

30.5

30.5
Other (income) expense, net (2.5 )
(0.4 )
11.3

(13.8 )
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 )
Net income (loss) $ 5.1
$ 1.4
$ (32.9 ) $ (25.0 )

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 )

Weighted-average shares outstanding:
Basic 16.10

15.85

16.04

15.82
Diluted 16.24
16.47
16.04
15.82


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net sales (including sales to related party of $6.1, $5.2, $11.7 and $11.6, respectively)	$	1,404.8	$	1,958.2	$	3,112.1	$	3,899.7
Cost of products sold (including purchases from related party of $13.2, $21.4, $32.0 and $46.2, respectively) (exclusive of depreciation and amortization shown separately below)	1,106.8		1,584.3		2,466.4		3,175.7
Distribution expenses	99.9		132.0		223.3		262.4
Selling and administrative expenses	164.4		211.2		368.0		427.3
Depreciation and amortization	14.3		13.4		28.1		26.2
Integration expenses	—		4.5		—		8.8
Restructuring charges, net	32.5		6.9		32.5		9.3
Operating income (loss)	(13.1)		5.9		(6.2)		(10.0)
Interest expense, net	7.2		10.2		14.2		21.6
Other (income) expense, net	(1.3)		7.6		(1.4)		13.8
Income (loss) before income taxes	(19.0)		(11.9)		(19.0)		(45.4)
Income tax expense (benefit)	(0.5)		(0.6)		(0.1)		(7.4)


Net income (loss)	$	(18.5)	$	(11.3)	$	(18.9)	$	(38.0)

Earnings (loss) per share:





Basic and diluted earnings (loss) per share	$	(1.16)	$	(0.70)	$	(1.18)	$	(2.37)





Weighted-average shares outstanding:
Basic and diluted	15.91		16.09		16.03		16.01

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

VERITIV CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions, unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net income (loss)	$	(18.5)	$	(11.3)	$	(18.9)	$	(38.0)
Other comprehensive income (loss):
Foreign currency translation adjustments	4.2		1.3		(9.8)		3.7
Change in fair value of cash flow hedge, net of tax ⁽¹⁾	0.0		0.2		0.0		0.3
Pension liability adjustments, net of tax ⁽¹⁾	0.0		0.1		0.0		0.1
Other comprehensive income (loss)	4.2		1.6		(9.8)		4.1
Total comprehensive income (loss)	$	(14.3)	$	(9.7)	$	(28.7)	$	(33.9)
⁽¹⁾ Amounts shown are net of tax impacts, which were not significant for the periods presented.

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Net income (loss) $ 5.1
$ 1.4
$ (32.9 ) $ (25.0 )
Other comprehensive income (loss):
Foreign currency translation adjustments (2.2 ) 2.5
1.5
(1.6 )
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) (2.5 ) 2.7
1.6
(1.9 )
Total comprehensive income (loss) $ 2.6
$ 4.1
$ (31.3 ) $ (26.9 )

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

VERITIV CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in millions, except par value, unaudited)


	September 30, 2019			December 31, 2018				June 30, 2020		December 31, 2019
Assets							Assets
Current assets:							Current assets:
Cash	$	59.3		$	64.3
Accounts receivable, less allowances of $50.9 and $62.0, respectively	968.2			1,181.4
Cash and cash equivalents							Cash and cash equivalents	$	112.4	$	38.0
Accounts receivable, less allowances of $42.0 and $43.8, respectively							Accounts receivable, less allowances of $42.0 and $43.8, respectively	762.4		910.8
Related party receivable	2.8			3.2			Related party receivable	3.2		2.8
Inventories	602.6			688.2			Inventories	509.4		552.9

Other current assets	137.8			147.2			Other current assets	105.9		126.1

Total current assets	1,770.7			2,084.3			Total current assets	1,493.3		1,630.6
Property and equipment (net of accumulated depreciation and amortization of $337.3 and $320.7, respectively)	199.6			206.7
Property and equipment (net of accumulated depreciation and amortization of $358.4 and $342.6, respectively)							Property and equipment (net of accumulated depreciation and amortization of $358.4 and $342.6, respectively)	210.2		216.9
Goodwill	99.6			99.6			Goodwill	99.6		99.6
Other intangibles, net	53.4			57.2			Other intangibles, net	49.8		52.2
Deferred income tax assets	58.3			56.5			Deferred income tax assets	54.0		57.0
Other non-current assets	456.1			25.4			Other non-current assets	419.3		454.8
Total assets	$	2,637.7		$	2,529.7		Total assets	$	2,326.2	$	2,511.1
Liabilities and shareholders' equity							Liabilities and shareholders' equity
Current liabilities:							Current liabilities:
Accounts payable	$	592.7		$	641.9		Accounts payable	$	441.5	$	476.9
Related party payable	6.5			9.3			Related party payable	3.3		4.3
Accrued payroll and benefits	50.8			56.5			Accrued payroll and benefits	38.7		53.9

Other accrued liabilities	223.3			134.7			Other accrued liabilities	191.7		183.8
Current portion of debt	9.9			6.7			Current portion of debt	14.0		12.6
Financing obligations, current portion	—			0.6

Total current liabilities	883.2			849.7			Total current liabilities	689.2		731.5
Long-term debt, net of current portion	726.2			963.6			Long-term debt, net of current portion	652.3		742.4
Financing obligations, less current portion	—			23.6

Defined benefit pension obligations	20.8			21.1			Defined benefit pension obligations	14.4		15.7

Other non-current liabilities	482.9			128.6			Other non-current liabilities	457.3		485.3
Total liabilities	2,113.1			1,986.6			Total liabilities	1,813.2		1,974.9
Commitments and contingencies (Note 12)							Commitments and contingencies (Note 12)
Shareholders' equity:							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 - 16.4 million and 16.2 million, respectively; shares outstanding - 16.1 million and 15.9 million, respectively	0.2			0.2

Preferred stock, $0.01 par value, 10.0 million shares authorized, NaN issued							Preferred stock, $0.01 par value, 10.0 million shares authorized, NaN issued	—		—
Common stock, $0.01 par value, 100.0 million shares authorized; shares issued - 16.6 million and 16.4 million, respectively; shares outstanding - 15.9 million and 16.1 million, respectively							Common stock, $0.01 par value, 100.0 million shares authorized; shares issued - 16.6 million and 16.4 million, respectively; shares outstanding - 15.9 million and 16.1 million, respectively	0.2		0.2
Additional paid-in capital	615.8			605.7			Additional paid-in capital	627.3		618.0
Accumulated (deficit) earnings	(38.7		)	(8.5		)	Accumulated (deficit) earnings	(54.5)		(35.3)
Accumulated other comprehensive loss	(39.1		)	(40.7		)	Accumulated other comprehensive loss	(42.9)		(33.1)
Treasury stock at cost - 0.3 million shares at September 30, 2019 and December 31, 2018	(13.6		)	(13.6		)
Treasury stock at cost - 0.7 million shares in 2020 and 0.3 million shares in 2019							Treasury stock at cost - 0.7 million shares in 2020 and 0.3 million shares in 2019	(17.1)		(13.6)
Total shareholders' equity	524.6			543.1			Total shareholders' equity	513.0		536.2

Total liabilities and shareholders' equity	$	2,637.7		$	2,529.7		Total liabilities and shareholders' equity	$	2,326.2	$	2,511.1

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

VERITIV CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions, unaudited)


	Six Months Ended June 30,
	2020		2019
Operating activities
Net income (loss)	$	(18.9)	$	(38.0)


Depreciation and amortization	28.1		26.2
Amortization and write-off of deferred financing fees	1.5		1.3

Net losses (gains) on dispositions of property and equipment	0.3		(0.2)

Provision for expected credit losses and doubtful accounts, respectively	8.7		9.0
Deferred income tax provision (benefit)	2.4		(9.6)
Stock-based compensation	10.1		9.0
Other non-cash items, net	3.5		10.2
Changes in operating assets and liabilities
Accounts receivable and related party receivable	134.7		165.3
Inventories	37.9		53.6
Other current assets	15.9		23.7
Accounts payable and related party payable	0.2		(59.8)
Accrued payroll and benefits	(14.8)		(14.6)
Other accrued liabilities	10.1		(6.0)
Other	6.8		12.1


Net cash provided by (used for) operating activities	226.5		182.2
Investing activities

Property and equipment additions	(14.7)		(14.9)
Proceeds from asset sales	0.7		0.3




Net cash provided by (used for) investing activities	(14.0)		(14.6)
Financing activities

Change in book overdrafts	(31.5)		15.2


Borrowings of long-term debt	2,774.2		3,416.1
Repayments of long-term debt	(2,865.7)		(3,592.5)
Payments under right-of-use finance leases	(6.2)		(4.2)

Deferred financing fees	(3.4)		—
Purchase of treasury stock	(3.5)		—
Payments under Tax Receivable Agreement	(0.3)		(7.8)

Other	(1.1)		(2.8)


Net cash provided by (used for) financing activities	(137.5)		(176.0)
Effect of exchange rate changes on cash	(0.6)		0.2
Net change in cash and cash equivalents	74.4		(8.2)
Cash and cash equivalents at beginning of period	38.0		64.3
Cash and cash equivalents at end of period	$	112.4	$	56.1
Supplemental cash flow information
Cash paid for income taxes, net of refunds	$	1.2	$	2.1
Cash paid for interest	12.2		19.9
Non-cash investing and financing activities




Non-cash additions to property and equipment for right-of-use finance leases	$	12.6	$	3.4
Non-cash additions to other non-current assets for right-of-use operating leases	11.3		62.1

Nine Months Ended September 30,
Operating activities 2019
2018
Net loss $ (32.9 )
$ (25.0 )
Depreciation and amortization 39.5

41.5
Amortization of deferred financing fees 1.9

2.0
Net losses (gains) on dispositions of property and equipment (0.1 )
(2.2 )
Goodwill and long-lived asset impairment charges —

0.2
Provision for allowance for doubtful accounts 13.8

18.5
Deferred income tax (benefit) (2.9 )
(3.2 )
Stock-based compensation 12.4

15.2
Other non-cash items, net 9.9

(6.8 )
Changes in operating assets and liabilities

Accounts receivable and related party receivable 193.1

(60.6 )
Inventories 87.8

(17.2 )
Other current assets 29.7
(26.1 )
Accounts payable and related party payable (84.8 )
78.1
Accrued payroll and benefits (5.9 )
(17.5 )
Other accrued liabilities (0.4 ) 15.4
Other 9.4

(4.8 )
Net cash provided by (used for) operating activities 270.5

7.5
Investing activities
Property and equipment additions (22.2 )
(33.7 )
Proceeds from asset sales 0.3

4.1
Net cash provided by (used for) investing activities (21.9 )
(29.6 )
Financing activities
Change in book overdrafts 31.4

(30.3 )
Borrowings of long-term debt 5,038.3

4,058.1
Repayments of long-term debt (5,306.1 )
(3,988.4 )
Payments under right-of-use finance leases and capital leases, respectively (6.8 )
(5.3 )
Payments under financing obligations (including obligations to related party of $8.6 in the prior year period) —

(9.1 )
Payments under Tax Receivable Agreement (7.8 ) (9.9 )
Other (2.4 ) (2.1 )
Net cash provided by (used for) financing activities (253.4 )
13.0
Effect of exchange rate changes on cash (0.2 )
(0.3 )
Net change in cash (5.0 )
(9.4 )
Cash at beginning of period 64.3

80.3
Cash at end of period $ 59.3

$ 70.9
Supplemental cash flow information

Cash paid for income taxes, net of refunds $ 3.1

$ 1.3
Cash paid for interest 28.1

28.0
Non-cash investing and financing activities

Non-cash additions to property and equipment for right-of-use finance leases and capital leases, respectively $ 9.8

$ 29.8
Non-cash additions to other non-current assets for right-of-use operating leases 107.7
—

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

VERITIV CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in millions, unaudited)


	2020
	Common Stock Issued					Additional Paid-in Capital		Accumulated (Deficit) Earnings		AOCL ⁽¹⁾	Treasury Stock						Total
	Shares	Amount											Shares			Amount
Balance at December 31, 2019	16.4	$	0.2	$	618.0	$	(35.3)	$	(33.1)	(0.3)	$	(13.6)		$	536.2
Net income (loss)						(0.4)								(0.4)
Other comprehensive income (loss)								(14.0)						(14.0)
Stock-based compensation				9.4										9.4
Issuance of common stock, net of stock received for minimum tax withholdings	0.1	0.0		(0.6)										(0.6)
Adoption impact - Accounting Standards Update 2016-13						(0.3)								(0.3)
Treasury stock										(0.4)	(3.5)			(3.5)
Balance at March 31, 2020	16.5	$	0.2	$	626.8	$	(36.0)	$	(47.1)	(0.7)	$	(17.1)		$	526.8
Net income (loss)						(18.5)								(18.5)
Other comprehensive income (loss)								4.2						4.2
Stock-based compensation				0.7										0.7
Issuance of common stock, net of stock received for minimum tax withholdings	0.1	0.0		(0.2)										(0.2)


Balance at June 30, 2020	16.6	$	0.2	$	627.3	$	(54.5)	$	(42.9)	(0.7)	$	(17.1)		$	513.0

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

⁽¹⁾ Accumulated other comprehensive loss.

Table of Contents


	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

2018
Common Stock Issued Additional Paid-in Capital Accumulated (Deficit) Earnings
AOCL⁽¹⁾
Treasury Stock Total
Shares Amount Shares Amount
Balance at December 31, 2017 16.0
$ 0.2
$ 590.2
$ 6.4
$ (33.5 ) (0.3 ) $ (13.6 ) $ 549.7
Net income (loss)

(15.8 )

(15.8 )
Other comprehensive income (loss)

0.0

0.0
Stock-based compensation

5.6

5.6
Issuance of common stock, net of stock received for minimum tax withholdings 0.1
0.0
(1.8 )

(1.8 )
Adoption impact - Accounting Standards Update 2018-02

0.8
(0.8 )

0.0
Balance at March 31, 2018 16.1
0.2
594.0
(8.6 ) (34.3 ) (0.3 ) (13.6 ) 537.7
Net income (loss)

(10.6 )

(10.6 )
Other comprehensive income (loss)

(3.8 )

(3.8 )
Stock-based compensation

5.1

5.1
Issuance of common stock, net of stock received for minimum tax withholdings 0.1
0.0
(0.2 )

(0.2 )
Balance at June 30, 2018 16.2
0.2
598.9
(19.2 ) (38.1 ) (0.3 ) (13.6 ) 528.2
Net income (loss)

1.4

1.4
Other comprehensive income (loss)

2.7

2.7
Stock-based compensation

4.5

4.5
Issuance of common stock, net of stock received for minimum tax withholdings 0.0
0.0
(0.1 )

(0.1 )
Balance at September 30, 2018 16.2
$ 0.2
$ 603.3
$ (17.8 ) $ (35.4 ) (0.3 ) $ (13.6 ) $ 536.7

⁽¹⁾ Accumulated other comprehensive loss.

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

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 ~~150~~140 distribution centers primarily throughout the United States ("U.S."), Canada and Mexico.

Basis of Presentation and Principles of Consolidation

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, ~~2018.~~2019. 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. The operating results for the interim periods are not necessarily indicative of results for the full ~~year.~~year, particularly in light of the novel coronavirus ("COVID-19") pandemic and its effects on the domestic and global economies. These financial statements include all of the Company's subsidiaries. All significant intercompany transactions between Veritiv's businesses have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid, unrestricted investments with original maturities to the Company of three months or less to be cash equivalents, including investments in money market funds with no restrictions on withdrawals. As of June 30, 2020, the Company's cash and cash equivalents included a $75.0 million investment in a money market fund that is highly liquid and qualifies as a cash equivalent.

Use of Estimates

The preparation of unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and certain financial statement disclosures. Estimates and assumptions are used for, but not limited to, revenue recognition, right-of-use ("ROU") asset and liability valuations, accounts and notes receivable ~~valuation,~~valuations, inventory valuation, 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.

Primarily beginning in April 2020, unfavorable impacts from the COVID-19 pandemic have had a negative impact on the Company's financial results, including decreased sales activity across all segments. As a result of the COVID-19 pandemic, the Company could experience impacts including, but not limited to, charges from potential adjustments of the carrying amount of accounts and notes receivables and inventory, asset impairment charges, including goodwill, and deferred tax valuation allowances. The extent to which the COVID-19 pandemic impacts the Company's business, results of operations, access to sources of liquidity and financial condition will depend on future developments. These developments, which are highly uncertain and cannot be predicted, include, but are not limited to, the duration, spread and severity of the COVID-19 pandemic, the effects of the COVID-19 pandemic on the Company's employees, customers, suppliers and vendors and the remedial actions and stimulus measures adopted by local and federal governments, and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, the Company may experience an impact to its business as a result of any economic recession, downturn or volatility that has occurred or may occur in the future. Estimates are revised as additional information becomes available.

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Accounting Pronouncements

Recently Adopted Accounting Standards

Effective January 1, ~~2019,~~2020, the Company adopted Accounting Standards Update ~~("ASU"~~(“ASU”) ~~2016-02,~~2016-13, ~~Leases~~Financial Instruments-Credit Losses (Topic ~~842)~~ ~~("Topic 842") and its related interpretations~~326). The standard replaces the previously required incurred loss impairment methodology with guidance that reflects expected credit losses and requires ~~lessees~~consideration of a broader range of reasonable and supportable information to ~~recognize ROU assets and liabilities for leases with~~be considered in making credit loss estimates. The standard requires application on a ~~lease term greater than twelve months on their balance sheet. The pattern and classification of expense recognition in a lessee's statement of operations remains similar~~modified retrospective basis; accordingly, prior periods have not been adjusted to ~~prior accounting~~conform to the new 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 related ROU assets of approximately $428~~a $0.3 million ~~and (ii) an increase~~decrease to retained earnings as the cumulative effect adjustment from applying the standard.

The Company performs an assessment of ~~$2.7 million,~~its financial assets which consist primarily ~~driven~~of accounts receivable and identifies pools (i.e., groups of similar assets within the accounts receivable portfolio) based on the Company’s internal risk ratings, geographical locations and historical loss information. The Company’s pools are classified by reportable segment, risk level and the geographical location of the Company’s customers. The risk characteristics of each segment are determined by the ~~derecognition~~impact of economic and structural fluctuations that are specific to the industries served by the Company, competition from other suppliers, and the nature of the ~~unamortized deferred gain from~~products and services provided to the ~~2017 sale~~Company’s customers. The Print and Publishing segments are faced with industry-wide decreases in demand for products and services due to the increasing use of e-commerce and other on-line product substitutions. The Facility Solutions segment could experience revenue declines and increases in delinquency rates attributable to changes in the travel industry and back-to-school activities. The Packaging segment’s performance could be negatively impacted by changes in customer buying habits and product preferences. The Company considered the Packaging and Facility Solutions segments to be a single pool as they share similar risk characteristics.

The Company’s allowance for credit losses reflects the best estimate of expected losses to the Company's accounts receivable portfolio determined on the basis of historical experience, current conditions, reasonable and supportable forecasts and specific allowances for known troubled accounts. In developing the allowance for credit losses, the Company utilizes internal risk ratings that are determined based on a number of factors including a periodic evaluation of each customer’s financial condition where possible. In addition to leveraging the internally developed risk ratings and historical experience, the expected credit loss estimates are developed using quantitative analyses, where meaningful, and qualitative analyses to forecast the impact that external factors and economic indicators may have on the amount that the Company expects to collect.

The components of the ~~Austin, Texas property. The Company's debt covenants~~accounts receivable allowances were as follows:


(in millions)	June 30, 2020		December 31, 2019
Allowance for credit losses and doubtful accounts, respectively	$	31.1	$	30.4
Other allowances⁽¹⁾	10.9		13.4
Total accounts receivable allowances	$	42.0	$	43.8

⁽¹⁾ Includes amounts reserved for credit memos, customer discounts, customer short pays and ~~bank capital requirements were not impacted by the adoption~~other miscellaneous items.

Table of ~~this ASU.~~Contents

~~The guidance allows an entity to make an election to adopt the standard using either~~Below is a ~~modified retrospective approach, applying the standard to leases that existed at the beginning~~rollforward of the 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,Company’s allowance for credit losses for the ~~Company)~~six months ended June 30, 2020:


	Packaging and Facility Solutions						Print - High Risk						Print - Medium/Low Risk
(in millions)	U.S.		Canada		U.S.		Canada		U.S.		Canada		Publishing⁽¹⁾		Rest of world		Corporate & Other⁽¹⁾		Total
Balance at December 31, 2019	$	13.3	$	1.0	$	11.9	$	0.4	$	0.9	$	0.1	$	1.3	$	0.6	$	0.9	$	30.4
Add / (Deduct):
Adoption impact - ASU 2016-13	1.0		(0.3)		(0.2)		0.0		0.1		(0.1)		(0.1)		—		0.0		0.4
Provision for expected credit losses	1.8		0.0		0.5		0.0		0.5		0.0		1.2		0.3		0.1		4.4
Write-offs charged against the allowance	(1.1)		0.0		(2.0)		0.0		(0.1)		—		—		—		(0.1)		(3.3)
Recoveries of amounts previously written off	0.1		—		0.0		0.0		0.1		—		—		—		0.0		0.2
Other adjustments⁽²⁾	—		(0.1)		(1.3)		0.0		0.5		0.0		—		(0.1)		—		(1.0)
Balance at June 30, 2020	$	15.1	$	0.6	$	8.9	$	0.4	$	2.0	$	0.0	$	2.4	$	0.8	$	0.9	$	31.1

⁽¹⁾Publishing and ~~recognize a cumulative-effect adjustment~~Corporate & Other have only U.S. Operations.

⁽²⁾Other adjustments represent amounts reserved for foreign currency translation adjustments and reserves for certain customer accounts where revenue is not recognized because collectability is not probable, and may include accounts receivable allowances recorded in connection with acquisitions.

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 ~~opening balance~~fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted-average of ~~retained earnings in~~significant unobservable inputs used to develop Level 3 fair value measurements, and the ~~period~~narrative description of ~~adoption.~~

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~~Consequently, an entity's reporting~~measurement uncertainty should be applied prospectively for only the ~~comparative periods~~most recent interim or annual period presented in the ~~financial statements, in the period in which it adopts the new lease standard, will not~~initial fiscal year of adoption. All other amendments should be ~~restated and will continue~~applied retrospectively to ~~be in accordance with prior U.S. GAAP (Topic 840,~~ ~~Leases~~).all periods presented upon their effective date. The Company adopted this ASU ~~applying the additional transition approach.~~on January 1, 2020. The adoption did not materially impact its financial statement disclosures.

ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) - The standard ~~permits entities~~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 ~~elect a package~~develop or obtain internal-use software. The amendments in this update also require companies to expense capitalized implementation costs over the term of ~~practical expedients which must~~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 ~~consistently~~either retrospectively or prospectively 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 directimplementation costs ~~for any existing leases. The Company elected to apply the package of practical expedients to all leases that commenced prior to~~incurred after the date of adoption. 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 ROU assets for impairment; (ii)Company adopted this ASU on January 1, 2020 on a ~~policy to not record short-term leases~~prospective basis. Capitalized amounts are reported on the ~~balance sheet;~~Condensed Consolidated Balance Sheet as other current assets and ~~(iii) a policy to not separate lease~~other non-current assets based on the remaining useful life of the asset. The related periodic expense is reported as part of operating expenses on the Condensed Consolidated Statement of Operations and ~~non-lease components.~~the corresponding cash flow impact is reported as part of operating activities on the Condensed Consolidated Statement of Cash Flows. The Company ~~made~~does not expect the adoption of this standard to have a ~~policy election to exclude short-term leases from the balance sheet~~material impact on its future consolidated financial statements and to separate lease and non-lease components for most lease categories. The Company also made a policy election to not use hindsight to determine lease term and when assessing existing ROU assets for impairment. See ~~Note 3, Leases, for additional information regarding the Company's leases.~~related disclosures.



~~Recently Issued Accounting Standards Not Yet Adopted~~
~~Standard~~	~~Description~~	~~Effective Date~~	~~Effect on the Financial Statements or Other Significant Matters~~
~~ASU 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326)~~	The standard will replace the currently required incurred loss impairment methodology with guidance that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to be considered in making credit loss estimates. The guidance requires application on a modified retrospective basis. Other application requirements exist for specific assets impacted by a more-than-insignificant credit deterioration since origination.	~~January 1, 2020; early adoption is permitted for fiscal years beginning after December 15, 2018~~	~~The Company is currently evaluating the impact this ASU will have on its Consolidated Financial Statements and related disclosures. The Company currently plans to adopt this ASU on January 1, 2020.~~
~~ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820)~~	The standard modifies the disclosure requirements on fair value measurements by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date.	~~January 1, 2020; early adoption is permitted~~	~~The Company is currently evaluating the impact this ASU will have on its disclosures. The Company currently plans to adopt this ASU on January 1, 2020.~~

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Recently Issued Accounting Standards Not Yet Adopted




~~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. This standard requires new disclosures for the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and 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.

~~2. REVENUE RECOGNITION~~

~~The Company adopted~~ ASU ~~2014-09,~~2019-12, ~~Revenue from Contracts with Customers~~Income Taxes (Topic ~~606)~~ 740)~~("Topic 606")~~ - The standard removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The update also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for goodwill and allocating taxes to members of a consolidated group. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The amendments in this update related to separate financial statements of legal entities that are not subject to tax should be applied on ~~January 1, 2018 using the~~a retrospective basis for all periods presented. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective ~~approach for all contracts not completed~~basis through a cumulative-effect adjustment to retained earnings as of the ~~date~~beginning of the fiscal year of adoption. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. The ASU is effective January 1, 2021; early adoption ~~with no impact to the opening retained earnings.~~is permitted. The Company ~~elected to adopt certain practical expedients outlined in Topic 606. As such, Veritiv does not include sales tax in~~is currently evaluating the ~~transaction price~~impact this ASU will have on its consolidated financial statements 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 utilized certain exceptions allowed under Topic 606, 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.related disclosures.

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2. REVENUE RECOGNITION

Revenue Recognition

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

When the Company enters into a sales arrangement with a customer, it believes it is probable that it will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. 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~~expected credit losses 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 Sheets.

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 60 - 90 day period, but can be renewed by the customer.

As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company recognized estimated inventory returns of approximately ~~$2.2~~$1.8 million and ~~$2.5~~$2.0 million, respectively, which are included in inventories on the Condensed Consolidated Balance Sheets. Additionally, the Company recognized 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 Sheets.

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See the table below for a summary of the changes to the customer contract liabilities for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

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


	Customer Contract Liabilities
(in millions)	2020		2019
Balance at January 1,	$	11.7	$	17.7
Payments received	23.3		24.4
Revenue recognized from beginning balance	(10.8)		(17.2)
Revenue recognized from current year receipts	(11.5)		(12.8)
Balance at June 30,	$	12.7	$	12.1

Revenue Composition

Veritiv's revenues are primarily derived from purchase orders and rate agreements associated with (i) the delivery of standard listed products with observable standalone sale prices or (ii) transportation and warehousing services. Revenue generally consists of a single performance obligation to transfer a promised good or service and is short-term in nature. Revenues are recognized when control of the promised goods or services is transferred to Veritiv's customers and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services. Sales

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transactions with customers are designated free on board destination and revenue is recorded at the point in time when the product is delivered to the customer's designated location or when the customer has otherwise obtained the benefit of the goods, when title and risk of loss are transferred. Revenues from Veritiv's transportation services are recognized upon completion of the related delivery services and revenues from warehousing services are recognized over time as the storage services are provided. 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 inon the Condensed Consolidated Statements of Operations and have historically represented approximately ~~one-third~~35% 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.~~basis. 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~~10 largest customers have generated ~~less than~~approximately 10% of its consolidated annual net sales. Veritiv's principal markets are concentrated primarily across North America with net sales in the U.S., Canada and Mexico of approximately ~~90%~~89%, 8%9% and 1%, respectively.

The following is a brief description of the 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.

– 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.

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•Print – The Print segment sells and distributes commercial printing, writing, copying, digital, specialty products, graphics consumables and graphics equipment primarily in North America. 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 primarily in the U.S. This segment also provides print management, procurement and supply chain management solutions to simplify paper and print procurement processes for its customers.

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

See Note 13, Segment Information, for the disaggregation of revenue and other information related to the Company's reportable segments and Corporate & Other.

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 retained earnings in the period of adoption. Consequently, the reporting for the comparative periods presented in the financial statements in which the new lease standard is adopted will continue to be reported in accordance with Topic 840, ~~Leases~~. The Company elected the package of 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 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 have a material effect on future financial results as the adoption did not change the lease classifications of its historical operating leases. The Company's accounting for finance leases, previously reported as capital leases and financing obligations, remained unchanged except for the Company's 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 its building finance lease and reported together as one finance lease. Finance leases are reported as part of property and equipment, net and debt obligations on the 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 its 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~~June 30, ~~2019,~~2020, the Company operated from approximately ~~150~~140 distribution centers of which approximately ~~140~~130 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 years to ~~seven~~ten years. Delivery equipment leases generally carry lease terms of three years to eight years and other non-real estate leases generally carry lease terms of three years to five years.

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 does not include short-term leases on the balance sheets and does not separate lease and non-lease components for its delivery equipment leases. 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 June 30,						Six Months Ended June 30,
Lease Classification	Financial Statement Classification	2020		2019		2020		2019
Short-term lease expense⁽¹⁾	Operating expenses	$	0.3	$	2.2	$	1.2	$	4.1

Operating lease expense⁽²⁾	Operating expenses	$	27.6	$	27.4	$	54.7	$	54.7




Finance lease expense:
Amortization of right-of-use assets	Depreciation and amortization	$	3.7	$	2.6	$	7.2	$	4.9
Interest expense	Interest expense, net	0.7		0.5		1.5		1.0
Total finance lease expense		$	4.4	$	3.1	$	8.7	$	5.9


Total Lease Cost		$	32.3	$	32.7	$	64.6	$	64.7

(in millions) Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Lease Classification Financial Statement Classification
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~~is comprised of expenses related to leases with a term of ~~one month~~twelve months or ~~less.~~less, which includes expenses related to month-to

month leases.

⁽²⁾ Sublease income and variable lease expense are not included in the above table as the amounts were ~~immaterial~~not significant for the ~~three and nine months ended September 30, 2019.~~periods presented.

Supplemental balance ~~sheet~~sheets and other information were as follows:


(in millions, except weighted-average data)		June 30, 2020			December 31, 2019
Lease Classification	Financial Statement Classification
Operating Leases:
Operating lease right-of-use assets	Other non-current assets	$	392.5		$	429.2

Operating lease obligations - current	Other accrued liabilities	$	86.8		$	90.5
Operating lease obligations - non-current	Other non-current liabilities	342.1			376.6
Total operating lease obligations		$	428.9		$	467.1

Weighted-average remaining lease term in years		6.4			6.6
Weighted-average discount rate		4.7		%	4.6		%

Finance Leases:
Finance lease right-of-use assets	Property and equipment	$	80.2		$	76.6

Finance lease obligations - current	Current portion of debt	$	13.2		$	11.5
Finance lease obligations - non-current	Long-term debt, net of current portion	71.9			69.2
Total finance lease obligations		$	85.1		$	80.7

Weighted-average remaining lease term in years		7.3			7.8
Weighted-average discount rate		3.6		%	3.4		%

(in millions, except weighted-average data) September 30, 2019
Lease Classification Financial Statement Classification
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 Contents

Cash paid for amounts included in the measurement of lease liabilities was as follows:


(in millions)		Six Months Ended June 30,
Lease Classification	Financial Statement Classification	2020		2019
Operating Leases:
Operating cash flows from operating leases	Operating activities	$	55.9	$	53.6

Finance Leases:
Operating cash flows from finance leases	Operating activities	$	1.5	$	1.0
Financing cash flows from finance leases	Financing activities	6.2		4.2

(in millions) Nine Months Ended September 30, 2019
Lease Classification Financial Statement Classification
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~~June 30, ~~2019~~2020 were as follows:



(in millions)	Finance Leases		Operating Leases
2020 (excluding the six months ended June 30, 2020)	$	8.1	$	54.5
2021	15.5		97.0
2022	15.0		81.7
2023	12.7		60.8
2024	10.8		51.7
2025	10.0		42.0
Thereafter	25.8		112.8
Total future minimum lease payments	97.9		500.5
Amount representing interest	(12.8)		(71.6)
Total future minimum lease payments, net of interest	$	85.1	$	428.9

(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~~June 30, ~~2019~~2020 for finance and operating leases, including the amount representing interest, are comprised of ~~$553.4~~$509.5 million for real estate leases and ~~$78.8~~$88.9 million for non-real estate leases.

At ~~September~~June 30, ~~2019,~~2020, the Company had committed to additional future obligations of approximately ~~$21~~$7.7 million for operating leases of real estate that have not yet commenced and therefore are not included in the table above. These leases will commence ~~over~~during the ~~next six months~~third quarter of 2020 with an average lease term of six years.

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

Financing Obligation and Equipment Capital Leases Operating Leases
(in millions) 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

4. INTEGRATION AND RESTRUCTURING CHARGES

The Company initiated a restructuring plan (the “2020 Restructuring Plan”) in response to the impact of the COVID-19 pandemic on its business operations and the ongoing secular changes in its Print and Publishing segments. The 2020 Restructuring Plan will result in (i) the reduction of the Company's U.S. salaried workforce by approximately 15% across all business segments and corporate functions, (ii) the closure of certain warehouse facilities and retail stores, (iii) adjustments to various compensation plans and (iv) other actions.

The Company estimates it will incur total charges of between $75 million and $90 million in connection with the 2020 Restructuring Plan. These costs will consist of approximately (i) $43 million to $47 million in employee termination and other one-time compensation costs, (ii) $9 million to $11 million in real estate exit costs, (iii) $8 million to $14 million in inventory related costs and (iv) $15 million to $18 million in other exit costs. Based on the underlying nature of each item, these charges may be reported as restructuring charges, net, cost of products sold, distribution expenses or selling and administrative expenses on the Condensed Consolidated Statements of Operations. The Company expects to substantially complete the 2020 Restructuring Plan by the end of 2020.

In June 2020, the Company recorded $32.5 million in restructuring charges related to the 2020 Restructuring Plan. These charges included $31.6 million for severance and one-time benefits as well as $0.9 million for real estate exit costs. NaN payments were made against this liability as of June 30, 2020.

~~4. INTEGRATION, ACQUISITION AND RESTRUCTURING CHARGES~~

~~The Company currently expects net costs and charges associated with achieving anticipated cost savings and other synergies from~~Integration Expenses

As of December 31, 2019, the integration plan related to 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 $330 million to $340 million through December 31, 2019. Included in the estimate is approximately $120 million for capital expenditures, primarily consisting of information technology infrastructure, systems integration and planning. Through September 30, 2019, the Company has incurred approximately $317 million in costs and charges, including approximately $113 million for capital expenditures. The Company expects to substantially complete its Merger-related integration and restructuring efforts by December 31, 2019.

~~Integration and Acquisition Expenses~~

was complete. During the three and ~~nine~~six months ended ~~September~~June 30, 2019, ~~and 2018,~~ Veritiv incurred costs and charges for the integration of the xpedx and Unisource businesses, which primarily related ~~primarily~~ to: internally dedicated integration management resources, retention compensation, information technology conversion costs ~~professional services~~ and other costs to integrate its businesses.

The following table summarizes the components of these 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 June 30,		Six Months Ended June 30,
(in millions)	2019		2019
Integration management	$	2.7	$	5.4
Retention compensation	(0.1)		(0.1)
Information technology conversion costs	1.0		1.8


Other	0.6		1.2
All American Containers ("AAC") integration	0.3		0.5
Total integration expenses	$	4.5	$	8.8

Veritiv Restructuring Plan: Merger Related

As part of the Merger, the Company ~~is executing on~~executed 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~~included initiatives to (i) consolidate warehouse facilities in overlapping markets, (ii) improve efficiency of the delivery network, (iii) consolidate customer service centers, (iv) reorganize the field sales and operations functions and (v) restructure the corporate general and administrative functions. As part of its restructuring efforts, the Company ~~continues to evaluate~~evaluated its operations outside of North America to identify additional cost saving opportunities. ~~The Company may elect~~As of December 31, 2019, the restructuring plan related 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.Merger was complete. 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 $7.6 million and $4.8 million for the three months ended September 30, 2019 and 2018, respectively, and $16.9 million and $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 totaled $5.4 million for the three and nine 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

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. Costs related to properties that were exited as part of the restructuring plan were 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. Also, during the nine months ended September 30, 2018, the Company recognized a $2.1 million gain on the sale of a facility. As of September 30, 2019, the Company held for sale $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~~multi-employer pension plan ("MEPP") withdrawal charges and other incidental costs associated with the development, communication, administration and implementation of these initiatives.

The following table presents a summary of restructuring charges, net, related to active restructuring initiatives that were incurred during the current fiscal year, prior fiscal years and the cumulative recorded amounts since the 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~~six months ended ~~September~~June 30, 2020. The majority of the remaining liability balance is related to MEPP withdrawal liabilities with payments expected to be made over an approximate 20-year period.


(in millions)	Severance and Related Costs		Other Direct Costs		Total
Balance at December 31, 2019	$	6.2	$	30.6	$	36.8
Payments	(2.7)		(3.8)		(6.5)
Balance at March 31, 2020	3.5		26.8		30.3
Payments	(1.6)		(1.1)		(2.7)
Balance at June 30, 2020	$	1.9	$	25.7	$	27.6

The following is a summary of the Company's restructuring liability activity for the three and six months ended June 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

~~Table of Contents~~

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):

~~Veritiv Restructuring Plan: Print Segment~~5. DEBT

To ensure that Veritiv is appropriately positioned to respond to the secular decline in the paper industry, the Company restructured its Print segment in 2018. The restructuring plan included initiatives within the Company's Print segment to improve the sustainability of the print business, better serve its customers' needs and work more effectively with suppliers by incorporating a more customer focused, collaborative, team-selling approach as well as better aligning its support functions. 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, 2019, the Company paid $0.1 million and $1.8 million, respectively, of the Print segment restructuring 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:~~

~~5. DEBT AND OTHER OBLIGATIONS~~

The Company's debt obligations were as follows:


(in millions)	June 30, 2020		December 31, 2019
Asset-Based Lending Facility (the "ABL Facility")	$	580.4	$	673.2
Commercial card program	0.8		1.1
Finance leases	85.1		80.7
Total debt	666.3		755.0
Less: current portion of debt	(14.0)		(12.6)
Long-term debt, net of current portion	$	652.3	$	742.4

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:

On April 9, 2020, the Company amended its ABL Facility to extend the maturity date to April 9, 2025, reduced the aggregate commitments from $1.4 billion to $1.1 billion and adjusted the pricing grid for applicable interest rates. All other significant terms remained consistent.The Company recognized a charge of $0.6 million to interest expense, net, on the Condensed Consolidated Statement of Operations, for the write-off of a portion of the previously deferred financing costs associated with lenders in the ABL Facility that exited the amended ABL Facility.In addition, the Company incurred and deferred $3.5 million of new financing costs associated with this transaction, reflected in other non-current assets on the Condensed Consolidated Balance Sheet, which will be amortized to interest expense on a straight-line basis over the amended term of the ABL Facility.

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~~June 30, ~~2019,~~2020, the available additional borrowing capacity under the ABL Facility was approximately ~~$354.1~~$245.7 million. As of ~~September~~June 30, ~~2019,~~2020, the Company held $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~~June 30, ~~2019,~~2020, the above test was not applicable and based on information available as of the date of this report it is not expected to be applicable in the next 12 months.

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~~six months ended ~~September~~June 30, 2019 ~~and 2018~~ were ~~insignificant.~~not significant.

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. For the three and six months ended June 30, 2020, the amount reclassified from AOCL into earnings was not significant. As of ~~September~~June 30, 2020 and December 31, 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~~June 30, ~~2019~~2020 and ~~amounts~~December 31, 2019. The amount expected to be reclassified from AOCL into earnings within the following 12 months ~~are~~is 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.

The Company is exposed to counterparty credit risk for nonperformance and, in the event of nonperformance, to market risk for changes in the 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 risk of nonperformance by such party is minimal.

In May 2019, the Company 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~~June 30, 2020 and December 31, 2019, ~~$0.4~~$0.8 million and $1.1 million, respectively, was outstanding on the commercial ~~card and was~~card. The net change in the outstanding balance is classified as a financing activity ~~in our~~on the Condensed Consolidated Statements of Cash Flows.

The Company ~~has~~ calculated the ~~provision or~~ benefit for income taxes during the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2019,~~2020, by applying an estimate of the annual effective tax rate ~~("AETR"~~(“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.~~ periods.For the ~~2018 periods presented,~~three and six months ended June 30, 2019 the ~~Company determined that it could not reliably estimate income taxes utilizing an AETR for interim reporting periods. The 2018 AETR~~ estimate was highly sensitive to estimates of ordinary income ~~or loss~~(loss) and permanent differences such that minor fluctuations in these estimates could result in significant fluctuations of the Company’s ~~AETR. Accordingly, Veritiv used its~~AETR and thus, the actual year-to-date effective tax rate was used to calculate ~~income taxes for the three and nine months ended September 30, 2018.~~taxes.

The following table presents the expense (benefit) for income taxes and the effective tax rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

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 June 30,									Six Months Ended June 30,
(in millions)	2020			2019			2020			2019
Income (loss) before income taxes	$	(19.0)		$	(11.9)		$	(19.0)		$	(45.4)
Income tax expense (benefit)	(0.5)			(0.6)			(0.1)			(7.4)
Effective tax rate	2.6		%	5.0		%	0.5		%	16.3		%

The difference between the Company's effective tax rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019, and the U.S. statutory tax rate of 21.0% 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. ~~The Company's~~In addition, Veritiv recognized the tax effect of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in the quarter ended March 31, 2020, and recorded an estimated $2.1 million benefit, primarily related to the carryback of net operating loss ~~("NOL"~~(“NOL” or ~~"NOLs"~~“NOLs”) ~~carryforwards continue~~generated in 2019 to ~~be subject to Section 382 limitations. In accordance with Notice 2003-65,~~prior years in which the ~~Company~~U.S.

statutory tax rate was ~~in a net unrealized built-in gain position at the time of the Merger.~~35%. During the ~~nine~~three months ended ~~September~~June 30, ~~2019,~~2020, Veritiv refined the ~~Company's five year recognition period to recognize built-in gain ended. As such, the deferred tax asset~~estimated carryback and ~~valuation allowance representing the book basis in excess of tax basis of various assets was written-off. There was no impact~~recorded an estimated $1.2 million expense, for a year-to-date net benefit related to the ~~effective~~CARES Act of $0.9 million.

The CARES Act was signed into law on March 27, 2020 and makes significant economic stimulus changes and additional changes to the U.S. tax ~~rate.~~

code, including, but not limited to, allowing the carryback of NOLs occurring in 2018, 2019, and 2020 to the prior five years and eliminating the taxable income limitation, changes interest expense limitation, includes a technical correction for qualified improvement property depreciation and provides additional employee retention credits.

~~In January 2018, the 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 result of adopting this standard, the Company reclassified $0.8 million from Veritiv's accumulated other comprehensive loss to retained earnings.

7. RELATED PARTY TRANSACTIONS

In January ~~2019~~2020 and ~~2018,~~2019, in connection with the Tax Receivable Agreement ("TRA") executed at the time of the Merger, Veritiv paid ~~$8.1~~$0.3 million and ~~$10.1~~$8.1 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 NOLs in its ~~2017~~2018 and ~~2016~~2017 federal and state tax returns, respectively. See Note 9, Fair Value Measurements, for additional information regarding the TRA.

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 June 30,						Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Sales to Georgia-Pacific, reflected in net sales	$	6.1	$	5.2	$	11.7	$	11.6
Purchases of inventory from Georgia-Pacific, recognized in cost of products sold	13.2		21.4		32.0		46.2


(in millions)	June 30, 2020		December 31, 2019
Inventories purchased from Georgia-Pacific that remained on Veritiv's balance sheets	$	9.6	$	11.4
Related party payable to Georgia-Pacific	3.3		4.3
Related party receivable from Georgia-Pacific	3.2		2.8

8. DEFINED BENEFIT PLANS

Veritiv does not maintain any active defined benefit plans for its non-union employees. Veritiv maintains a defined benefit pension plan in the U.S. for employees covered by certain ~~collective bargaining~~collectively bargained agreements. Veritiv also assumed responsibility for Unisource's defined benefit plans, which include frozen cash balance accounts for certain former Unisource employees. ~~Total net periodic benefit cost (credit) 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 )

The components of net periodic benefit cost (credit) other than the service cost component are included in other (income) expense, net inon the Condensed Consolidated Statements of Operations. Amounts are generally amortized from AOCL over the expected future working lifetime of active plan participants.

Total net periodic benefit cost (credit) associated with these plans is summarized below:


	Three Months Ended June 30, 2020						Three Months Ended June 30, 2019
(in millions)	U.S.		Canada		U.S.		Canada
Components of net periodic benefit cost (credit):
Service cost	$	0.5	$	0.1	$	0.5	$	0.1

Interest cost	$	0.4	$	0.6	$	0.5	$	0.8
Expected return on plan assets	(1.0)		(1.0)		(0.8)		(1.0)


Amortization of net loss	0.0		0.1		0.0		0.0
Total other components	$	(0.6)	$	(0.3)	$	(0.3)	$	(0.2)
Net periodic benefit cost (credit)	$	(0.1)	$	(0.2)	$	0.2	$	(0.1)


	Six Months Ended June 30, 2020						Six Months Ended June 30, 2019
(in millions)	U.S.		Canada		U.S.		Canada
Components of net periodic benefit cost (credit):
Service cost	$	1.1	$	0.2	$	0.9	$	0.2

Interest cost	$	0.8	$	1.2	$	1.1	$	1.5
Expected return on plan assets	(2.0)		(1.9)		(1.7)		(1.9)


Amortization of net loss	0.0		0.1		0.1		0.0
Total other components	$	(1.2)	$	(0.6)	$	(0.5)	$	(0.4)
Net periodic benefit cost (credit)	$	(0.1)	$	(0.4)	$	0.4	$	(0.2)

9. FAIR VALUE MEASUREMENTS

At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the carrying amounts of cash and cash equivalents, receivables, payables, ~~and~~ other components of other current assets and other accrued liabilities, and the short-term debt associated with the commercial card program approximate their fair values due to the short maturity of these items. Cash and cash equivalents include highly-liquid investments with original maturities to the Company of three months or less that are readily convertible into known amounts of cash.

At June 30, 2020, the Company held for sale $10.1 million in assets from its Merger related restructuring plan. The Merger related restructuring plan was completed as of December 31, 2019, except for the sale of these assets. These assets are included in other current assets on the Condensed Consolidated Balance Sheets at the lower of their carrying value or fair value at June 30, 2020.

At June 30, 2020, the Company's Packaging reportable segment held a goodwill balance of $99.6 million. Goodwill is reviewed for impairment on a reporting unit basis annually as of October 1 or more frequently when indicators are present or changes in circumstances suggest that the carrying amount of the asset may not be recoverable. The Company considered the unfavorable economic impacts of the COVID-19 pandemic on its expected future operating cash flows as of June 30, 2020 and concluded that a triggering event had occurred. As a result, the Company performed a quantitative goodwill impairment test during the second quarter of 2020. The quantitative goodwill impairment test requires a determination of whether the fair value of a reporting unit is less than its carrying value. The determination of the reporting unit's fair value was based on an income approach that utilized discounted cash flows and required management to make significant assumptions and estimates related to the forecasts of future revenues, profit margins and discount rates. The principal assumptions utilized, all of which are considered Level 3 inputs under the fair value hierarchy, are subject to various risks and uncertainties. As a result of the quantitative goodwill impairment test, no goodwill impairment was indicated or recorded. The continuing impact of the COVID-19 pandemic

on estimated future cash flows is uncertain and will largely depend on the outcome of future events. The Company will continue to monitor macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other entity specific events. The Company will perform additional goodwill impairment testing when indicators are present or changes in circumstances suggest the carrying amount of the asset may not be recoverable and a triggering event has occurred.

Borrowings under the ABL Facility are at variable market interest rates, and accordingly, the carrying amount approximates fair value. The fair value of the debt-related interest rate cap was derived from a discounted cash flow analysis based on the terms of the agreement and Level 2 data for the forward interest rate curve adjusted for the Company's credit risk. See Note 5, Debt ~~and Other Obligations~~, for additional information regarding the Company's ABL Facility and ~~its related interest rate caps.~~other obligations.

The Company's liabilities disclosed at fair value at ~~September~~June 30, ~~2019~~2020 were as follows:


(in millions)	Total		Level 1	Level 2		Level 3
ABL Facility	$	580.4		$	580.4
TRA contingent liability	30.1					30.1

(in millions) Total
Level 1
Level 2
Level 3
ABL Facility $ 665.4

$ 665.4

TRA contingent liability 32.9

32.9
AAC contingent consideration 20.0
20.0

The Company's liabilities disclosed at fair value at December 31, ~~2018~~2019 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	$	673.2		$	673.2
TRA contingent liability	31.4					31.4
AAC contingent consideration	2.5					2.5

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 historical foreign exchange rates) and Level 3 data (internal data such as the Company's projected ~~revenues,~~income (loss) before income taxes, taxable income and assumptions about the utilization of Unisource's NOLs, attributable to taxable periods prior to the Merger, by the Company). The inputs to the fair value measurement of the contingent liability are reassessed on a quarterly basis. 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~~June 30, ~~2019,~~2020, the Company remeasured the contingent liability using a discount rate of ~~3.9%~~3.6% (Moody's daily long-term corporate BAA bond yield). ~~For the TRA contingent liability, there~~There have been no transfers between the fair value measurement levels for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. 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~~six months ended ~~September~~June 30, ~~2019:~~2020:


(in millions)	TRA Contingent Liability
Balance at December 31, 2019	$	31.4
Change in fair value adjustment recorded in other (income) expense, net	(0.7)
Principal payment	(0.3)
Balance at March 31, 2020	30.4
Change in fair value adjustment recorded in other (income) expense, net	(0.3)
Balance at June 30, 2020	$	30.1

The following table provides a reconciliation of the beginning and ending balance of the TRA contingent liability for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018:~~2019:


(in millions)	TRA Contingent Liability
Balance at December 31, 2018	$	38.9
Change in fair value adjustment recorded in other (income) expense, net	0.9
Principal payment	(7.8)
Balance at March 31, 2019	32.0
Change in fair value adjustment recorded in other (income) expense, net	0.6
Balance at June 30, 2019	$	32.6

On August 31, 2017 (the "Acquisition Date"), Veritiv completed its acquisition of 100% of the equity interests in various AAC entities. The purchase price allocation for the acquisition of AAC 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. The Company paid $2.5 million on December 26, 2018 and $20.0 million on December 11, 2019 for contingent consideration earned as of the first ~~anniversary of the Acquisition Date. The estimated amount payable as of the~~and second ~~anniversary~~anniversaries of the Acquisition Date, ~~was calculated to be approximately $20.0~~respectively. During the first quarter of 2020, the Company recognized an additional charge of $1.0 million and on March 19, 2020, the Company paid $3.5 million to the sellers of AAC in full satisfaction of the contingent liability.This matter is ~~expected~~now resolved and there will be no future adjustments to ~~be paid in~~ the ~~fourth quarter of 2019.~~AAC contingent liability.

The following table provides a reconciliation of the beginning and ending balance of the AAC contingent liability for the ~~three and nine months~~year ended ~~September 30,~~December 31, 2019:


(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
Change in fair value adjustment recorded in other (income) expense, net	2.5
Payment	(20.0)
Balance at December 31, 2019	$	2.5

~~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 number of shares of common stock outstanding during the ~~period.~~respective periods. 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 during those periods if the dilutive potential common shares had been issued, using the treasury stock method, 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 earnings (loss) per share calculations ~~for the reportable periods~~ is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions, except per share data)	2020		2019		2020		2019
Numerator:


Net income (loss)	$	(18.5)	$	(11.3)	$	(18.9)	$	(38.0)

Denominator:
Weighted-average number of shares outstanding – basic and diluted	15.91		16.09		16.03		16.01



Earnings (loss) per share:




Basic and diluted earnings (loss) per share	$	(1.16)	$	(0.70)	$	(1.18)	$	(2.37)


Antidilutive stock-based awards excluded from computation of diluted earnings per share ("EPS")	1.18		1.10		1.23		1.08
Performance stock-based awards excluded from computation of diluted EPS because performance conditions had not been met	0.31		0.59		0.31		0.59

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 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. ~~See the table below for information related to these transactions. Shares issued and withheld in the third quarters of 2019 and 2018 were not material:~~

The net share issuance is included on the Condensed Consolidated Statements of Shareholders' Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019. 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, ~~2018.~~2019.

~~Table of Contents~~

See the table below for information related to these transactions:



(in millions)	2020	2019
Three months ended March 31,
Shares issued	0.2	0.3
Shares recovered for minimum tax withholding	(0.1)	(0.1)
Net shares issued	0.1	0.2

Three months ended June 30,
Shares issued	0.1	0.0
Shares recovered for minimum tax withholding	0.0	0.0
Net shares issued	0.1	0.0

11. ACCUMULATED OTHER COMPREHENSIVE LOSS ("AOCL")

Comprehensive income (loss) is reported inon 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 AOCL at ~~September~~June 30, 2020 (amounts are shown net of their related income tax effect, if any):


(in millions)	Foreign currency translation adjustments		Retirement liabilities		Interest rate cap		AOCL
Balance at December 31, 2019	$	(26.6)	$	(6.2)	$	(0.3)	$	(33.1)

Unrealized net gains (losses) arising during the period	(14.0)		0.0		0.0		(14.0)

Net current period other comprehensive income (loss)	(14.0)		0.0		0.0		(14.0)
Balance at March 31, 2020	(40.6)		(6.2)		(0.3)		(47.1)

Unrealized net gains (losses) arising during the period	4.2		0.0		(0.1)		4.1
Amounts reclassified from AOCL	—		0.0		0.1		0.1
Net current period other comprehensive income (loss)	4.2		0.0		0.0		4.2
Balance at June 30, 2020	$	(36.4)	$	(6.2)	$	(0.3)	$	(42.9)

The following table provides the components of AOCL at June 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):~~


(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)

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

12. COMMITMENTS AND CONTINGENCIES

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.

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, 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 Voluntary Disclosure Agreement Program ("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, 2019 and December 31, 2018, the Company has recognized an estimated liability of approximately $16.0 million and $10.0 million, respectively, based upon the information available to date. The Company currently expects to complete the VDA and 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.

~~In April~~During the second quarter of 2019, in the course of negotiations for a collective bargaining agreement, ~~the Company~~Veritiv negotiated a partial withdrawal from the Western Pennsylvania Teamsters and Employers Pension Fund (the ~~"Fund"~~"Western Pennsylvania Fund"), a ~~multi-employer pension plan. During the second quarter of 2019, the Company recorded~~MEPP related to its Warrendale, Pennsylvania location, and recognized an estimated partial withdrawal liability of $6.5 million,

which was unchanged as of ~~September~~June 30, ~~2019.~~2020. The withdrawal charge was recorded in distribution expenses as it was not related to a restructuring activity. ~~To date,~~

During the first quarter of 2020, Veritiv negotiated the complete withdrawal from the Western Pennsylvania Fund related to the second bargaining unit at its Warrendale, Pennsylvania location and recognized an estimated complete withdrawal liability of $7.1 million in distribution expenses, which was unchanged as of June 30, 2020.

The Company records an estimated undiscounted charge when it becomes probable that it has incurred a withdrawal liability. Final charges for MEPP withdrawals are not known until the plans issue their respective determinations. As a result, these estimates may increase or decrease depending upon the final determinations. The Company has not yet received ~~a final~~ determination ~~letter~~letters from the Western Pennsylvania Fund for either the partial or complete withdrawal. The Company expects that payments will occur over an approximate 20-year ~~period.~~

period, which could run consecutively.

13. SEGMENT INFORMATION

Veritiv's business is organized under 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 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:


(in millions)	Packaging		Facility Solutions		Print		Publishing		Total Reportable Segments		Corporate & Other		Total
Three Months Ended June 30, 2020
Net sales	$	781.5	$	202.5	$	282.2	$	115.2	$	1,381.4	$	23.4	$	1,404.8
Adjusted EBITDA	69.9		11.4		1.3		(0.2)		82.4		(42.6)
Depreciation and amortization	5.6		1.9		1.9		0.1		9.5		4.8		14.3
Restructuring charges, net	8.2		3.2		16.0		0.0		27.4		5.1		32.5

Three Months Ended June 30, 2019
Net sales	$	881.5	$	311.7	$	528.6	$	203.5	$	1,925.3	$	32.9	$	1,958.2
Adjusted EBITDA	65.5		8.3		12.3		5.6		91.7		(48.4)
Depreciation and amortization	4.7		1.8		2.1		0.2		8.8		4.6		13.4
Restructuring charges, net	2.4		1.0		1.4		0.0		4.8		2.1		6.9

Six Months Ended June 30, 2020
Net sales	$	1,584.1	$	462.2	$	734.4	$	281.9	$	3,062.6	$	49.5	$	3,112.1
Adjusted EBITDA	129.5		20.4		12.5		3.4		165.8		(89.8)
Depreciation and amortization	10.9		3.8		4.0		0.1		18.8		9.3		28.1
Restructuring charges, net	8.2		3.2		16.0		0.0		27.4		5.1		32.5

Six Months Ended June 30, 2019
Net sales	$	1,726.9	$	610.2	$	1,082.5	$	413.6	$	3,833.2	$	66.5	$	3,899.7
Adjusted EBITDA	113.7		12.5		19.5		10.4		156.1		(92.4)
Depreciation and amortization	9.2		3.5		4.2		0.4		17.3		8.9		26.2
Restructuring charges, net	2.7		1.2		1.9		0.3		6.1		3.2		9.3

(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

Table of Contents

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


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Income (loss) before income taxes	$	(19.0)	$	(11.9)	$	(19.0)	$	(45.4)
Interest expense, net	7.2		10.2		14.2		21.6
Depreciation and amortization	14.3		13.4		28.1		26.2
Restructuring charges, net	32.5		6.9		32.5		9.3
Facility closure charges, including (gain) loss from asset disposition	0.6		—		2.0		—
Stock-based compensation	0.7		4.3		10.1		9.0
LIFO reserve (decrease) increase	1.7		(0.5)		(4.2)		2.9

Non-restructuring severance charges	0.7		1.4		2.4		2.7
Non-restructuring pension charges, net	0.1		6.6		7.2		6.6
Integration expenses	—		4.5		—		8.8
Fair value adjustment on TRA contingent liability	(0.3)		0.6		(1.0)		1.5
Fair value adjustment on contingent consideration liability	—		7.7		1.0		13.1
Escheat audit contingent liability	—		—		—		7.0

Other	1.3		0.1		2.7		0.4
Adjustment for Corporate & Other	42.6		48.4		89.8		92.4
Adjusted EBITDA for reportable segments	$	82.4	$	91.7	$	165.8	$	156.1

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

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

Certain statements contained in this report regarding the Company's future operating results, performance, business plans, including prospects, guidance, the 2020 Restructuring Plan and any other restructuring, statements related to the impact of COVID-19 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 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 actual operating results, performance, business plans, prospects or ~~prospects~~guidance 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 subsequent Quarterly Reports on Form 10-Q and elsewhere in the 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 business or financial results. Such risks and other factors, which in some instances are beyond the Company's control, include: the industry-wide decline in demand for paper and related products; adverse impacts of the COVID-19 pandemic; uncertainties as to the structure, timing, benefits and costs of the 2020 Restructuring Plan or any future restructuring plan that the Company may undertake; 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 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~~facility products and ~~facility products~~paper from our suppliers for resale to our customers; changes in prices for raw materials; increases in the cost of fuel and third-party freight and the availability of third-party freight providers; changes in trade policies and regulations; inclement weather, widespread outbreak of an illness or responses thereto, anti-terrorism measures and other disruptions to ~~the transportation network;~~our supply chain, distribution system and operations; our dependence on a variety of information technology and telecommunications systems and the Internet; our reliance on third-party vendors for various services; ~~cyber-security~~cybersecurity 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, 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 subsequent Quarterly Reports on Form 10-Q and in our 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 financial condition and results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto, included elsewhere in this report.

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Executive Overview

~~Business Overview~~COVID-19 Pandemic

The global outbreak of the novel coronavirus ("COVID-19"), which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the United States ("U.S.") and global economies and created significant uncertainty regarding potential impacts to Veritiv ~~Corporation~~Corporation's ("Veritiv" or the "Company") operations, supply chain and customer demand. Veritiv’s logistics and distribution operations fall within guidance provided by various government authorities on essential businesses, services and workplaces and therefore the Company has not experienced any closures of distribution centers. Primarily beginning in April 2020, unfavorable impacts from the COVID-19 pandemic have had a negative impact on the Company's financial results, including decreased sales activity across all segments. Economic and health conditions in the U.S. and across most of the world continue to change rapidly. The timing and pace of economic recovery are uncertain, and as certain markets have reopened, some have since experienced a resurgence of COVID-19 cases.

Veritiv's first priority remains the health and safety of its employees, customers and their families. The Company has taken steps to limit exposure and enhance the safety of its facilities for employees working to continue to supply vital products to its customers. In response to the pandemic, Veritiv established a central global response team and initiated enhanced health and safety measures across its facilities. The Company has modified practices at its distribution centers and offices to adhere to guidance from the U.S. Centers for Disease Control and Prevention and local health and governmental authorities with respect to social distancing, enhanced cleaning protocols and usage of personal protective equipment, where appropriate. In addition, the Company implemented global travel restrictions and work-from-home policies for employees who have the ability to work remotely.

The continued spread of COVID-19 is having a significant negative impact on many of Veritiv’s customers and their operations. Veritiv serves customers across a broad range of industries and geographies, with varying impacts. Some customers have been forced to close temporarily and in some cases even those that are still considered essential have seen their business activity substantially reduced. Towards the end of the first quarter of 2020, the Company began to experience decreased sales activity in each of its segments, which continued during the second quarter of 2020. As a result, in April 2020, Veritiv took several actions to help mitigate the effects of the revenue decline and improve liquidity. These actions included (i) temporarily reducing salaries for senior leaders ranging from 10% to 50% through July 2020, (ii) temporarily reducing annual cash retainers for independent directors by 50% through July 2020, (iii) placing approximately 15% of its salaried workforce on temporary furloughs through mid-July 2020, (iv) adjusting its supply chain operations staff depending on volume at specific locations, (v) suspending its share repurchase program and (vi) reducing discretionary spending including planned capital expenditures. As described below, in July 2020 Veritiv took additional actions in response to the ongoing impacts of the COVID-19 pandemic to enhance liquidity, including implementing cost-savings and cash preservation initiatives. These actions included the permanent reduction of the Company's U.S. salaried workforce by approximately 15% across all business segments and corporate functions. In addition, during the second quarter of 2020 the Company invested $75.0 million of its cash in highly-liquid investments instead of paying down its long-term debt.

Veritiv's management expects that cash provided by operating activities and available capacity under the Asset-Based Lending Facility (the "ABL Facility") will provide sufficient funds to operate the business and meet other liquidity needs. As of June 30, 2020 Veritiv had cash and cash equivalents of $112.4 million and also had $245.7 million in available additional borrowing capacity under the ABL Facility. In April 2020 Veritiv refinanced and extended the ABL Facility to April 2025 under substantially the same terms (see additional information below).

Veritiv expects that its third quarter and full-year 2020 results will be unfavorably impacted by the COVID-19 pandemic. The current circumstances are dynamic and the impacts of COVID-19 on the Company's business operations, including the duration and impact on overall customer demand, cannot be reasonably estimated at this time. The extent to which the COVID-19 pandemic impacts the Company's business, results of operations, access to sources of liquidity and financial condition will depend on future developments. These developments, which are highly uncertain and cannot be predicted, include, but are not limited to, the duration, spread and severity of the COVID-19 pandemic, the effects of the COVID-19 pandemic on the Company's employees, customers, suppliers and vendors and the remedial actions and stimulus measures adopted by local and federal governments, and to what extent normal economic and operating conditions can resume. Even after the COVID-19

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pandemic has subsided, the Company may experience an impact to its business as a result of any economic recession, downturn or volatility that has occurred or may occur in the future.

See Part II, Item 1A, Risk Factors, for additional information on risks related to COVID-19.

Other Recent Events

2020 Restructuring Plan -

In June 2020, the Company recorded $32.5 million in restructuring charges related to the 2020 Restructuring Plan. These charges included $31.6 million for severance and one-time benefits as well as $0.9 million for real estate exit costs. No payments were made against this liability as of June 30, 2020.

Supply Chain Restructuring -

On March 13, 2020, Veritiv announced that its Board of Directors authorized Company management to evaluate alternatives to restructure the Company’s integrated supply chain in an effort to facilitate better alignment with the supply chain needs of the Company’s customers by segment, with a view towards reducing complexity and lowering overall supply chain costs. Each of the Company’s reportable segments has different market dynamics and business and service needs. As a result, the Company is investigating whether an alternative supply chain structure would be more economically or operationally desirable. Moreover, to address the ongoing and rapid secular decline of the paper industry, management continues to explore opportunities to adapt the cost structure necessary to support the Print segment. In an effort to ensure all aspects of the Company can operate most effectively, the Company intends to review and evaluate restructuring options and what the optimal path forward will be. The Company plans to proceed with this review in a timely manner, but no decision has been made to pursue any specific course of action, and there can be no assurance as to what form the restructuring may take or whether this evaluation will result in any restructuring. Additionally, any restructuring may result in a significant charge to earnings in any given financial reporting period or periods.

Business Overview

Veritiv 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. On August 31, 2017, Veritiv completed its acquisition of 100% of the equity interest in various All American Containers entities (collectively, "AAC"). 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 ~~150~~140 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

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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 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.

•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.

•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 North America. 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.

•

•Print – The Print segment sells and distributes commercial printing, writing, copying, digital, specialty products, graphics consumables and graphics equipment primarily in North America. 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.~~

•

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~~exclusive private brand offerings, provides a foundation to service national, regional and ~~metal containers, caps, closures~~local customers across North America.

•Publishing – The Publishing segment sells and ~~plastic pouches.~~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 primarily in the U.S. This segment also provides print management, procurement and supply chain management solutions to simplify paper and print procurement processes for Veritiv's customers.

Seasonality

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

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been 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 peak~~have traditionally peaked in the third quarter due to increased summer demand in the away-from-home resort, cruise and hospitality markets and from back-to-school 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. We anticipate that the COVID-19 pandemic will disrupt the Company's seasonal patterns in net sales across all segments and on a consolidated basis in 2020 due to the significant impacts of the pandemic on many of Veritiv's customers.

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Results of Operations, Including Business Segments

The following discussion compares the consolidated operating results of Veritiv for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

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 June 30,						Increase (Decrease)						Six Months Ended June 30,				Increase (Decrease)
(in millions)	2020		2019		$		%		2020		2019		$		%
Net sales	$	1,404.8	$	1,958.2	$	(553.4)	(28.3)	%	$	3,112.1	$	3,899.7	$	(787.6)	(20.2)	%
Cost of products sold (exclusive of depreciation and amortization shown separately below)	1,106.8		1,584.3		(477.5)		(30.1)	%	2,466.4		3,175.7		(709.3)		(22.3)	%
Distribution expenses	99.9		132.0		(32.1)		(24.3)	%	223.3		262.4		(39.1)		(14.9)	%
Selling and administrative expenses	164.4		211.2		(46.8)		(22.2)	%	368.0		427.3		(59.3)		(13.9)	%
Depreciation and amortization	14.3		13.4		0.9		6.7	%	28.1		26.2		1.9		7.3	%
Integration expenses	—		4.5		(4.5)		(100.0)	%	—		8.8		(8.8)		(100.0)	%
Restructuring charges, net	32.5		6.9		25.6		*		32.5		9.3		23.2		*
Operating income (loss)	(13.1)		5.9		(19.0)		*		(6.2)		(10.0)		3.8		(38.0)	%
Interest expense, net	7.2		10.2		(3.0)		(29.4)	%	14.2		21.6		(7.4)		(34.3)	%
Other (income) expense, net	(1.3)		7.6		(8.9)		*		(1.4)		13.8		(15.2)		*
Income (loss) before income taxes	(19.0)		(11.9)		(7.1)		59.7	%	(19.0)		(45.4)		26.4		(58.1)	%
Income tax expense (benefit)	(0.5)		(0.6)		0.1		(16.7)	%	(0.1)		(7.4)		7.3		(98.6)	%


Net income (loss)	$	(18.5)	$	(11.3)	$	(7.2)	63.7	%	$	(18.9)	$	(38.0)	$	19.1	(50.3)	%

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, net sales decreased in all reportable segments. Primarily beginning in April 2020, the Company experienced decreased sales activity in each of its segments due to the negative impacts from the COVID-19 pandemic. Declines in the Print ~~segment's~~and Publishing segments' net sales were responsible for ~~over half~~about 60% of the total decline in ~~both~~each of the three and ~~nine~~six month periods. See the "Segment Results" section for additional discussion. Management expects net sales during the second half and full-year 2020 to be unfavorably impacted in each of the Company's reportable segments due to the negative effects of COVID-19, with Packaging and Facility Solutions experiencing less decline than Print and Publishing. Management also expects net sales during the second half of 2020 to be lower than the first half of 2020 primarily due to decreases in the Print and Publishing segments. The duration and extent of the COVID-19 pandemic is highly uncertain and the magnitude of net sales declines is difficult to predict.

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

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, cost of products sold decreased primarily due to lower net sales. Cost of products sold decreased at a faster rate than net sales primarily due to improvements in pricing, as well as changes in both segment and customer mix.

Distribution Expenses

For the three months ended ~~September~~June 30, ~~2019,~~2020, distribution expenses decreased by ~~$10.1~~$32.1 million, or ~~7.5%~~24.3%. The decrease was primarily due to (i) a ~~$7.4~~$13.0 million decrease in wages and temporary employee expenses, (ii) an $8.5 million decrease in

freight and logistics expense, (iii) a $6.5 million multi-employer pension plan ("MEPP") withdrawal charge in the second quarter of 2019 that did not repeat in 2020 and ~~(ii)~~(iv) a ~~$3.0~~$2.1 million decrease in ~~personnel~~equipment and facility rent expense. The decrease in wages and temporary employee expenses was primarily driven by actions taken in response to the COVID-19 pandemic including employee furloughs. The decrease in freight and logistics expense was primarily driven by a decrease in third-party freight and fuel ~~expenses.~~expenses mostly related to lower net sales volumes. The decrease in ~~personnel~~equipment and facility rent expense was primarily ~~due to lower~~driven by consolidation of the Company's facilities. The Company expects wages and ~~temporary employee expenses.~~

the recently announced reduction in the Company's U.S. salaried workforce.

For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, distribution expenses decreased by ~~$12.8~~$39.1 million, or ~~3.2%~~14.9%. The decrease was primarily due to (i) a ~~$17.2~~$19.1 million decrease in wages and temporary employee expenses, (ii) a $14.9 million decrease in freight and logistics expense, (iii) a $3.4 million decrease in equipment and facility rent expense and (iv) a $1.7 million decrease in maintenance costs. The decrease in wages and temporary employee expenses was primarily driven by actions taken in the second quarter of 2020 in response to the COVID-19 pandemic, including employee furloughs and lower headcount across the Company's distribution network. The decrease in freight and logistics expense was primarily driven by a decrease in third-party freight and fuel expenses ~~and (ii) a $2.9 million decrease~~mostly related to ~~replacing certain~~lower net sales volumes. The decrease in equipment ~~leases, previously treated as operating leases (expenses included in distribution expense), with capital leases (expenses included in depreciation~~ and ~~amortization and interest~~facility rent expense ~~net), partially offset~~was primarily driven by ~~a $7.5 million increase in storage expenses,primarilydue~~to replacing certain property leases, previously treated as financing arrangements (expenses included in depreciation and amortization and interest expense, net) with operating leases. Personnel expenses were flat as lower wages and temporary employee expenses were offset by a $6.5 million charge associated withconsolidation of the ~~partial withdrawal from a multi-employer pension plan in the three month period ended June 30, 2019.~~Company's facilities.

Selling and Administrative Expenses

For the three months ended ~~September~~June 30, ~~2019,~~2020, selling and administrative expenses decreased by ~~$5.5~~$46.8 million, or ~~2.6%~~22.2%. The decrease was primarily due to (i) a ~~$3.4~~$43.9 million decrease in personnel expenses, (ii) a $1.6 million decrease in professional fees expense and (iii) a $0.9 million decrease in bad debt ~~expense and (ii) a $1.8 million~~expense. The decrease in ~~compensation expense,mainly~~personnel expenses was primarily driven by (i) lower wages primarily as a result of furlough actions taken by the Company in response to COVID-19, (ii) a decrease in commission expenses ~~primarily~~driven by lower net sales, (iii) a decrease in travel and entertainment expenses in response to COVID-19 and (iv) lower incentive compensation expenses. The Company expects wages and related costs to decline in future periods versus the ~~Print and Publishing segments.~~comparable prior year periods as a result of the recently announced reduction in the Company's U.S. salaried workforce.

For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, selling and administrative expenses decreased by ~~$24.5~~$59.3 million, or ~~3.7%~~13.9%. The decrease was primarily due to (i) a ~~$21.3~~$45.2 million decrease in ~~compensation~~personnel expenses, (ii) a $7.0 million decrease related to the escheat audit expense~~mainly~~ in the first quarter of 2019 that did not repeat in 2020 and (iii) a $4.1 million decrease in professional fees expense. The decrease in personnel expenses was primarily driven by (i) lower wages primarily as a result of furlough actions taken by the Company in response to COVID-19, (ii) a decrease in commission expenses ~~primarily related to the Print segment, as well as~~driven by lower net sales and (iii) a decrease in ~~incentive compensation expense, (ii) a $5.2 million decrease in professional fees expense~~travel and ~~(iii) a $4.7 million decrease in bad debt expense,~~entertainment expenses, partially offset by ~~a $5.2 million increase related to the Escheat Audit liability and a $2.4 million increase in casualty insurance losses. See~~ ~~Note 12~~ ~~of the Notes to Condensed Consolidated Financial Statements for information regarding the Escheat Audit liability.~~higher incentive compensation expenses.

Depreciation and Amortization

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, depreciation and amortization increased by ~~$0.2~~$0.9 million, or 6.7%, and ~~decreased by $2.0~~$1.9 million, or 7.3%, respectively. The ~~decrease~~increases were primarily due to increases in ~~the nine month period was primarily attributable~~depreciation related to ~~replacing certain property leases, previously treated as financing arrangements, with operating leases.~~capitalized delivery equipment.

Integration ~~and Acquisition~~ Expenses

As of December 31, 2019, the integration plan related to the Merger was complete and no further costs or charges are expected. See Note 4 of the Notes to Condensed Consolidated Financial Statements for information related to the Company's past integration ~~efforts as well as its AAC acquisition-related expenses, which were incurred in 2018.~~efforts.

Restructuring Charges, Net

~~For~~The Company initiated the 2020 Restructuring Plan in response to the impact of the COVID-19 pandemic on its business operations and the ongoing secular changes in its Print and Publishing segments. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, restructuring charges, net, increased by ~~$2.2~~$25.6 million and ~~decreased by $11.8~~$23.2 million, respectively. The increases were primarily due to an increase in severance charges related to the Company's reduction of the U.S. salaried workforce as part of its 2020 Restructuring Plan. See Note 4 of the Notes to 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~~

Table of ~~assets.~~Contents

Interest Expense, Net

For the three and six months ended ~~September~~June 30, ~~2019,~~2020, interest expense, net, decreased by ~~$2.1 million.~~$3.0 million, or 29.4% and $7.4 million, or 34.3%, respectively. The ~~decrease was~~decreases were primarily due to (i) lower average interest rates and (ii) a lower average balance on the Company's ABL ~~Facility. For the nine months ended September 30, 2019, interest expense, net was flat as an increase in LIBOR was~~Facility, partially offset by a ~~lower average balance on~~$0.6 million write-off of deferred financing fees related to the ~~Company's~~amendment of the ABL ~~Facility.~~Facility completed in the second quarter of 2020. See Note 5 of the Notes to Condensed Consolidated Financial Statements for information related to the Company's ABL Facility.

Other (Income) Expense, Net

For the three months ended ~~September~~June 30, ~~2019,~~2020, other (income) expense, net, was income of ~~$2.5~~$1.3 million. This was a net ~~other income increase~~improvement of ~~$2.1~~$8.9 million as compared to the same period in ~~2018.~~ 2019. The improvement was primarily due to the AAC contingent consideration expense of $7.7 million in the second quarter of 2019 that did not repeat in 2020, as the contingent liability was settled in March 2020. The remaining impact was primarily driven by changes associated with the Tax Receivable Agreement ("TRA") entered into at the time of the Merger.

For the ~~three~~six months ended ~~September~~June 30, ~~2019,~~2020, other (income) expense, net, was income of $1.4 million. This was a net improvement of $15.2 million as compared to the same period in 2019. The improvement was primarily due to the reduction in the AAC contingent consideration expense. For the six months ended June 30, 2020, there was a ~~$2.5~~$1.0 million ~~decrease~~increase in the ~~estimated~~ fair value of the AAC contingent consideration as compared to an increase of ~~$0.3~~$13.1 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 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 2018.2019. The remaining ~~expense increase~~impact was primarily driven by changes associated with the ~~Tax Receivable Agreement.~~TRA.

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

Effective Tax Rate

Veritiv's effective tax rates were ~~59.8%~~2.6% and ~~71.4%~~5.0% for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Veritiv's effective tax rates were ~~(0.6)%~~0.5% and ~~4.2%~~16.3% for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, ~~and 2018,~~ respectively.The difference between the Company's effective tax rates and the U.S. statutory tax rate of 21.0% 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. In addition, for the three months ended March 31, 2020, Veritiv recorded an estimated $2.1 million tax rate benefit and for the three months ended June 30, 2020 an estimated $1.2 million expense, for a net estimated $0.9 million tax rate benefit related to the carryback of net operating losses which are now available due to the Coronavirus Aid, Relief, and Economic Security Act.

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, 2019, the Company's provision for income taxes was calculated by applying an estimate of the annual effective tax rate (AETR) to pre-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 estimates of ordinary income or loss resulting in the use of an actual year-to-date effective tax rate method. The Company expects continued volatility of the effective tax rate for the foreseeable future due to potential fluctuations in the amount and source, including both foreign and domestic, of pre-tax book income (loss) by jurisdiction, potential deferred tax valuation allowance increases in certain jurisdictions, changes in amounts of non-deductible expenses, and other items that could impact the effective tax rate. Additionally, continued unfavorable impacts from the pandemic have had a negative impact on the Company's financial results during the three months ended June 30, 2020.The negative impact on the Company's financial and operating results and other one-time costs further influence volatility.See further discussion of the COVID-19 impacts in the Executive Overview section above.

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.

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

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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 results as reported under U.S. GAAP. For example, Adjusted EBITDA:

•Does not reflect the 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 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.

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, which may be accelerated by COVID-19, 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			(in millions)	Packaging			Facility Solutions			Print			Publishing			Corporate & Other
Three Months Ended September 30, 2019
Three Months Ended June 30, 2020																Three Months Ended June 30, 2020
Net sales	$	871.4		$	307.9		$	523.0		$	190.1		$	32.1		Net sales	$	781.5		$	202.5		$	282.2		$	115.2		$	23.4
Adjusted EBITDA	67.4			11.0			10.6			4.6			(48.6		)	Adjusted EBITDA	69.9			11.4			1.3			(0.2)			(42.6)
Adjusted EBITDA as a % of net sales	7.7		%	3.6		%	2.0		%	2.4		%	*			Adjusted EBITDA as a % of net sales	8.9		%	5.6		%	0.5		%	(0.2)		%	*


Three Months Ended September 30, 2018
Three Months Ended June 30, 2019																Three Months Ended June 30, 2019
Net sales	$	899.3		$	330.3		$	668.2		$	258.5		$	36.2		Net sales	$	881.5		$	311.7		$	528.6		$	203.5		$	32.9
Adjusted EBITDA	64.0			8.1			14.5			5.6			(39.5		)	Adjusted EBITDA	65.5			8.3			12.3			5.6			(48.4)
Adjusted EBITDA as a % of net sales	7.1		%	2.5		%	2.2		%	2.2		%	*			Adjusted EBITDA as a % of net sales	7.4		%	2.7		%	2.3		%	2.8		%	*


Nine Months Ended September 30, 2019
Six Months Ended June 30, 2020																Six Months Ended June 30, 2020
Net sales	$	2,598.3		$	918.1		$	1,605.5		$	603.7		$	98.6		Net sales	$	1,584.1		$	462.2		$	734.4		$	281.9		$	49.5
Adjusted EBITDA	181.1			23.5			30.1			15.0			(141.0		)	Adjusted EBITDA	129.5			20.4			12.5			3.4			(89.8)
Adjusted EBITDA as a % of net sales	7.0		%	2.6		%	1.9		%	2.5		%	*			Adjusted EBITDA as a % of net sales	8.2		%	4.4		%	1.7		%	1.2		%	*


Nine Months Ended September 30, 2018
Six Months Ended June 30, 2019																Six Months Ended June 30, 2019
Net sales	$	2,631.6		$	985.3		$	2,008.1		$	734.9		$	105.5		Net sales	$	1,726.9		$	610.2		$	1,082.5		$	413.6		$	66.5
Adjusted EBITDA	182.0			19.8			47.6			17.2			(138.8		)	Adjusted EBITDA	113.7			12.5			19.5			10.4			(92.4)
Adjusted EBITDA as a % of net sales	6.9		%	2.0		%	2.4		%	2.3		%	*			Adjusted EBITDA as a % of net sales	6.6		%	2.0		%	1.8		%	2.5		%	*

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

The table below presents selected data for the Packaging segment:


	Three Months Ended June 30,										Increase (Decrease)							Six Months Ended June 30,					Increase (Decrease)
(in millions)	2020			2019			$		%			2020			2019				$		%
Net sales	$	781.5		$	881.5		$	(100.0)	(11.3)	%		$	1,584.1		$	1,726.9			$	(142.8)	(8.3)	%
Adjusted EBITDA	69.9			65.5			4.4		6.7	%		129.5			113.7				15.8		13.9	%
Adjusted EBITDA as a % of net sales	8.9		%	7.4		%						8.2		%	6.6		%

Three Months Ended September 30, Increase (Decrease) Nine Months Ended September 30, Increase (Decrease)
(in millions) 2019 2018 $ % 2019 2018 $ %
Net sales $ 871.4
$ 899.3
$ (27.9 ) (3.1 )% $ 2,598.3
$ 2,631.6
$ (33.3 ) (1.3 )%
Adjusted EBITDA 67.4
64.0
3.4
5.3 % 181.1
182.0
(0.9 ) (0.5 )%
Adjusted EBITDA as a % of net sales 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:

Net sales decreased ~~$27.9~~$100.0 million, or ~~3.1%~~11.3%, as compared to the same period in ~~2018.~~2019. The net sales decrease was primarily attributable to decreased sales of films, ~~equipment~~corrugated products and ~~parts~~tapes, primarily driven by the negative effects of COVID-19 including the decline in industry box shipments and ~~ancillary packaging.~~the partial or complete shutdown of certain industrial manufacturing customers.

Adjusted EBITDA increased ~~$3.4~~$4.4 million, or ~~5.3%~~6.7%, as compared to the same period in ~~2018.~~2019. The increase in Adjusted EBITDA was primarily attributable to (i) a $15.7 million decrease in selling and administrative expenses, (ii) cost of products sold decreasing at a faster rate than net sales and (iii) a $2.8 million decrease in distribution expenses, partially offset by ~~(i)~~ a decline in net ~~sales and (ii) a $5.1 million increase in selling and administrative expenses.~~sales. The ~~increase~~decrease in selling and administrative expenses was primarily driven by (i) a ~~$3.2~~$12.2 million ~~increase~~decrease in personnel expenses ~~associated with increased headcount to support the Company's Packaging growth strategy~~ and (ii) a ~~$1.0~~$2.4 million ~~increase~~decrease in bad debt expense. The decrease in distribution expenses was primarily driven by a decrease in freight and logistics expense, mostly related to third-party freight and fuel expenses.

Net sales decreased ~~$33.3~~$142.8 million, or ~~1.3%~~8.3%, as compared to the same period in ~~2018.~~2019. The net sales decrease was primarily attributable to decreased sales of films, ~~and~~ corrugated products, tapes and equipment and parts that was in part attributable to the negative effects of COVID-19 beginning in April 2020, partially offset by ~~increased sales of rigid packaging products.~~

higher prices and favorable mix.

Adjusted EBITDA ~~decreased $0.9~~increased $15.8 million, or ~~0.5%~~13.9%, as compared to the same period in ~~2018.~~2019. The ~~decrease~~increase 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, (ii) a $17.8 million decrease in selling and administrative expenses and (iii) a $4.6 million decrease in distribution expenses, partially offset by a decline in net sales. The ~~increase~~decrease in selling and administrative expenses was primarily driven by (i) a ~~$9.5~~$13.6 million ~~increase~~decrease in personnel expenses ~~associated with increased headcount to support the Company's Packaging growth strategy~~ and (ii) a ~~$1.9~~$2.4 million ~~increase~~decrease in bad debt expense. The ~~increase~~decrease in distribution expenses was primarily ~~dueto an~~driven by (i) a $3.8 million decrease in freight and logistics expense, primarily driven by third-party freight and fuel expenses and (ii) a $2.0 million decrease in personnel expenses, partially offset by a $1.7 million 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 instorage expenses primarily driven by increased utilization of the distribution ~~expense).~~network.

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


	Three Months Ended June 30,										Increase (Decrease)							Six Months Ended June 30,					Increase (Decrease)
(in millions)	2020			2019			$		%			2020			2019				$		%
Net sales	$	202.5		$	311.7		$	(109.2)	(35.0)	%		$	462.2		$	610.2			$	(148.0)	(24.3)	%
Adjusted EBITDA	11.4			8.3			3.1		37.3	%		20.4			12.5				7.9		63.2	%
Adjusted EBITDA as a % of net sales	5.6		%	2.7		%						4.4		%	2.0		%

Three Months Ended September 30, Increase (Decrease) Nine Months Ended September 30, Increase (Decrease)
(in millions) 2019 2018 $ % 2019 2018 $ %
Net sales $ 307.9
$ 330.3
$ (22.4 ) (6.8 )% $ 918.1
$ 985.3
$ (67.2 ) (6.8 )%
Adjusted EBITDA 11.0
8.1
2.9
35.8 % 23.5
19.8
3.7
18.7 %
Adjusted EBITDA as a % of net sales 3.6 % 2.5 % 2.6 % 2.0 %

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

Net sales decreased ~~$22.4~~$109.2 million, or ~~6.8%~~35.0%, as compared to the same period in ~~2018.~~2019. The net sales decrease was primarily attributable to ~~decreased~~(i) the negative impact on demand from COVID-19 and (ii) the Company exiting a branded re-distribution business. Beginning in April 2020 net sales were negatively impacted due to overall reduced customer demand resulting from the COVID-19 pandemic along with shortages of ~~food service~~high-demand products ~~towels and tissues, and retail, office~~from key suppliers. Negative impacts to customer demand have included business and school ~~supplies.~~temporary closures, travel restrictions, constraints on large venues hosting sporting, conventions and entertainment events as well as extended work-from-home measures. The ~~decrease~~Company began exiting a branded re-distribution business in the third quarter of 2019 and substantially completed the exit by year-end 2019. During the second quarter of 2020, net sales ~~was also~~associated with this business decreased $30.6 million as compared to the same period in 2019 and have historically been approximately 12% of the Facility Solutions segment. In addition to exiting the branded re-distribution business, net sales were lower due to strategic decisions to exit certain customer relationships that were not aligned with the Company's product and service capabilities.

Adjusted EBITDA increased $3.1 million, or 37.3%, as compared to the ~~three months ended September~~same period in 2019. The increase in Adjusted EBITDA was primarily attributable to (i) an $11.2 million decrease in selling and administrative expenses, (ii) a $10.8 million decrease in distribution expenses and (iii) cost of products sold decreasing at a faster rate than net sales, partially offset by a decline in net sales. The decrease in selling and administrative expenses was primarily driven by (i) a $9.9 million decrease in personnel expenses and (ii) a $1.0 million decrease in bad debt expense. The decrease in distribution expenses was primarily driven by (i) a $6.1 million decrease in personnel expenses, (ii) a $3.3 million decrease in freight and logistics expense, primarily driven by third-party freight and fuel expenses and (iii) a $1.0 million decrease in equipment and facility rent expense, primarily driven by consolidation of the Company's facilities.

Net sales decreased $148.0 million, or 24.3%, as compared to the same period in 2019. The net sales decrease was primarily attributable to (i) the Company exiting a branded re-distribution business and (ii) the negative impact on demand from COVID-19. The Company began exiting a branded re-distribution ~~business. Net~~business in the third quarter of 2019 and substantially completed the exit by year-end 2019. During the first half of 2020, net sales associated with this business decreased $63.9 million as compared to the same period in 2019 and have historically been approximately 12% of the Facility Solutions segment. In addition to exiting the branded re-distribution business, net sales were lower due to strategic decisions to exit certain customer relationships that were not aligned with the Company's product and service capabilities.

For the month of March 2020, the Facility Solutions segment experienced significant sales growth driven by increased demand for sanitizers and soap products, gloves and other personal protection products, paper towels and tissues, and cleaning supplies due to the COVID-19 pandemic. However, as noted above, net sales were negatively impacted beginning in April 2020 due to overall reduced customer demand along with shortages of high-demand products from key suppliers.

Adjusted EBITDA increased ~~$2.9~~$7.9 million, or ~~35.8%~~63.2%, as compared to the same period in ~~2018.~~2019. The increase in Adjusted EBITDA was primarily attributable to (i) a ~~$4.1~~$16.3 million decrease in distribution expenses, (ii) a ~~$1.7~~$15.4 million decrease in selling and administrative expenses and (iii) cost of products sold decreasing at a faster rate than net sales, partially offset by a decline in net sales. The decrease in distribution expenses was primarily driven by (i) an $8.6 million decrease in personnel expenses, (ii) a ~~$2.2~~$5.4 million decrease in freight and logistics expense, primarily driven by ~~a decrease in~~ third-party freight and fuel expenses and ~~(ii)~~(iii) a ~~$1.0~~$1.8 million decrease in ~~personnel expenses.~~equipment and facility rent expense, primarily driven by consolidation of the Company's facilities. The decrease in selling and administrative ~~expenses~~expense was primarily driven by a ~~$2.0~~$14.2 million decrease in personnel expenses.

The table below presents selected data for the Print segment:


	Three Months Ended June 30,										Increase (Decrease)							Six Months Ended June 30,					Increase (Decrease)
(in millions)	2020			2019			$		%			2020			2019				$		%
Net sales	$	282.2		$	528.6		$	(246.4)	(46.6)	%		$	734.4		$	1,082.5			$	(348.1)	(32.2)	%
Adjusted EBITDA	1.3			12.3			(11.0)		(89.4)	%		12.5			19.5				(7.0)		(35.9)	%
Adjusted EBITDA as a % of net sales	0.5		%	2.3		%						1.7		%	1.8		%

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


	Increase (Decrease)
	Three Months Ended June 30,		Six Months Ended June 30,
(in millions)	2020 vs. 2019		2020 vs. 2019
Volume	$	(229.6)	$	(316.9)
Foreign currency	(1.0)		(1.4)
Price/Mix	(15.8)		(29.8)


Total change	$	(246.4)	$	(348.1)

Net sales decreased ~~$67.2~~$246.4 million, or ~~6.8%~~46.6%, as compared to the same period in ~~2018.~~2019. The net sales decrease was primarily attributable to ~~decreased sales of food service products, retail, office~~(i) the negative impact on demand from COVID-19 and ~~school supplies and chemicals. The decrease~~(ii) the continued secular decline in ~~net sales was also due~~the paper industry in addition to managing risk in the segment through strategic ~~decisions~~adjustments to ~~exit certain customer relationships that were not aligned with~~ the Company's ~~product and service capabilities.~~customer base.

Adjusted EBITDA ~~increased $3.7~~decreased $11.0 million, or ~~18.7%~~89.4%, as compared to the same period in ~~2018.~~2019. The ~~increase in~~ Adjusted EBITDA decrease was primarily attributable to a decline in net sales, partially offset by (i) a ~~$10.6~~$12.1 million decrease in distribution expenses, (ii) a ~~$5.0~~$10.0 million decrease in selling and administrative expenses and (iii) cost of products sold decreasing at a faster rate than net ~~sales, partially offset by a decline in net~~ sales. The decrease in distribution expenses was primarily driven by (i) a ~~$5.0 million decrease in freight and logistics expense, primarily driven by a decrease in third-party freight and fuel expenses, (ii) a $3.1~~$6.2 million decrease in personnel 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 a $4.1 million decrease in personnel 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, 2019 and September 30, 2018~~

Net sales decreased $145.2 million, or 21.7%, as compared to the same period in 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 decreased $3.9 million, or 26.9%, as compared to the same period in 2018. The Adjusted EBITDA 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) an $11.4 million decrease in selling and administrative expenses and (ii) a $7.6 million decrease in distribution expenses. The decrease in selling and administration expenses was primarily due to (i) a $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 related to the Print segment restructuring plan and (ii) a $4.5 million decrease in bad debt expense. The decrease in distribution expenses was driven by (i) a $3.7$3.0 million decrease in freight and logistics expense, primarily driven by a decrease in third-party freight and fuel expenses and ~~(ii)~~(iii) a ~~$2.9~~$2.0 million decrease in equipment and facility rent expense, primarily driven by consolidation of the Company's facilities. The decrease in selling and administration expenses was primarily driven by a $9.5 million decrease in personnel expenses.

Net sales decreased ~~$402.6~~$348.1 million, or ~~20.0%~~32.2%, as compared to the same period in ~~2018.~~2019. The net sales decrease was primarily attributable to (i) the continued secular decline in the paper industry ~~as well as~~in addition to managing risk in the ~~Print~~ segment through strategic adjustments to the Company's customer base and ~~product offerings, partially offset by higher market prices.~~(ii) the negative impact on demand from COVID-19 beginning in April 2020.

Adjusted EBITDA decreased ~~$17.5~~$7.0 million, or ~~36.8%~~35.9%, as compared to the same period in ~~2018.~~2019. The Adjusted EBITDA decrease was primarily ~~driven by the~~attributable to a decline in ~~net sales and cost of products sold decreasing at a slower rate than~~ net sales, partially offset by (i) a ~~$29.0~~$19.8 million decrease in distribution expenses, (ii) a $16.4 million decrease in selling and administrative expenses and ~~(ii)~~(iii) cost of products sold decreasing at a $16.3 million decrease in distribution expenses. The decrease in selling and administration expenses was primarily due to (i) a $20.4 million decrease in personnel expenses due to a decrease in commission expense driven by lowerfaster rate than net ~~sales and a decrease in headcount and commission expense related to the Print segment restructuring plan and (ii) a $7.4 million decrease in bad debt expense.~~sales. The decrease in distribution expenses was primarily driven by (i) ~~an $8.9~~a $9.3 million decrease in personnel expenses, (ii) a $5.4 million decrease in freight and logistics expense, primarily driven by a decrease in third-party freight and fuel expenses, (iii) a $3.8 million decrease in equipment and ~~(ii)~~facility rent expense, primarily driven by consolidation of the Company's facilities and (iv) a ~~$6.7~~$1.2 million decrease in maintenance expenses. The decrease in selling and administrative expenses was primarily driven by (i) a $14.1 million decrease in personnel ~~expenses.~~

expenses and (ii) a $1.1 million decrease in bad debt expense.

~~See~~ ~~Note 4~~ ~~of the Notes to Condensed Consolidated Financial Statements for information regarding the 2018 Print segment restructuring plan.~~

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Publishing

The table below presents selected data for the Publishing segment:


	Three Months Ended June 30,										Increase (Decrease)							Six Months Ended June 30,					Increase (Decrease)
(in millions)	2020			2019			$		%			2020			2019				$		%
Net sales	$	115.2		$	203.5		$	(88.3)	(43.4)	%		$	281.9		$	413.6			$	(131.7)	(31.8)	%
Adjusted EBITDA	(0.2)			5.6			(5.8)		(103.6)	%		3.4			10.4				(7.0)		(67.3)	%
Adjusted EBITDA as a % of net sales	(0.2)		%	2.8		%						1.2		%	2.5		%

Three Months Ended September 30, Increase (Decrease) Nine Months Ended September 30, Increase (Decrease)
(in millions) 2019 2018 $ % 2019 2018 $ %
Net sales $ 190.1
$ 258.5
$ (68.4 ) (26.5 )% $ 603.7
$ 734.9
$ (131.2 ) (17.9 )%
Adjusted EBITDA 4.6
5.6
(1.0 ) (17.9 )% 15.0
17.2
(2.2 ) (12.8 )%
Adjusted EBITDA as a % of net sales 2.4 % 2.2 % 2.5 % 2.3 %

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

Increase (Decrease)
Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions) 2019 vs. 2018 2019 vs. 2018
Volume $ (76.5 ) $ (178.9 )
Foreign currency —
—
Price/Mix 8.1
47.7
Total change $ (68.4 ) $ (131.2 )


	Increase (Decrease)
	Three Months Ended June 30,		Six Months Ended June 30,
(in millions)	2020 vs. 2019		2020 vs. 2019
Volume	$	(80.6)	$	(114.2)
Foreign currency	—		—
Price/Mix	(7.7)		(17.5)


Total change	$	(88.3)	$	(131.7)

Comparison of the Three Months Ended ~~September~~June 30, ~~2019~~2020 and ~~September~~June 30, ~~2018~~2019

Net sales decreased ~~$68.4~~$88.3 million, or ~~26.5%~~43.4%, as compared to the same period in ~~2018.~~2019. The net sales decrease was primarily attributable to (i) the negative impact on demand from COVID-19 as well as (ii) the continued secular decline in the paper industry, ~~as well as~~ managing ~~risk~~risks in the ~~Publishing~~ segment through strategic adjustments to the Company's customer base, ~~partially offset by higher market prices.~~and changes in order patterns due to customer consolidation, digital advertising and other factors.

Adjusted EBITDA decreased ~~$1.0~~$5.8 million, or ~~17.9%~~103.6%, as compared to the same period in ~~2018.~~2019. The Adjusted EBITDA decrease was primarily attributable to the decline in net sales. Selling and administrative expenses remained flat as compared to the same period in 2019 as a $2.2 million increase in bad debt expense was offset by a $2.0 million decrease in personnel expenses.

Comparison of the Six Months Ended June 30, 2020 and June 30, 2019

Net sales decreased $131.7 million, or 31.8%, as compared to the same period in 2019. The net sales decrease was primarily attributable to (i) the continued secular decline in the paper industry, managing risks in the segment through strategic adjustments to the Company's customer base, and changes in order patterns due to customer consolidation, digital advertising and other factors as well as (ii) the negative impact on demand from COVID-19 beginning in April 2020.

Adjusted EBITDA decreased $7.0 million, or 67.3%, as compared to the same period in 2019. The Adjusted EBITDA decrease was primarily attributable to (i) a decline in net sales and (ii) a $1.1 million increase in selling and administrative expenses, partially offset by cost of products sold decreasing at a faster rate than net ~~sales and a $1.2 million decrease~~sales. The increase in selling and administrative expenses ~~which~~ was primarily driven by a $3.6 million increase in bad debt expense, partially offset by a $2.3 million decrease in personnel expenses.

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

Net sales decreased $131.2 million, or 17.9%, as compared to the same period in 2018. The net sales decrease was primarily attributable to the continued secular decline in 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 $2.2 million, or 12.8%, as compared to the same period in 2018. The Adjusted EBITDA decrease was primarily attributable to the decline in net sales, partially offset by a $3.0 million decrease in selling and administrative expenses, which was primarily driven by a decrease in personnel expenses, and cost of products sold decreasing at a faster rate than net sales.

Corporate & Other

The table below presents selected data for Corporate & Other:

Three Months Ended September 30, Increase (Decrease) Nine Months Ended September 30, Increase (Decrease)
(in millions) 2019 2018 $ % 2019 2018 $ %
Net sales $ 32.1
$ 36.2
$ (4.1 ) (11.3 )% $ 98.6
$ 105.5
$ (6.9 ) (6.5 )%
Adjusted EBITDA (48.6 ) (39.5 ) (9.1 ) (23.0 )% (141.0 ) (138.8 ) (2.2 ) (1.6 )%

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	Three Months Ended June 30,								Increase (Decrease)					Six Months Ended June 30,					Increase (Decrease)
(in millions)	2020		2019		$		%			2020		2019			$		%
Net sales	$	23.4	$	32.9	$	(9.5)	(28.9)	%		$	49.5	$	66.5		$	(17.0)	(25.6)	%
Adjusted EBITDA	(42.6)		(48.4)		5.8		12.0	%		(89.8)		(92.4)			2.6		2.8	%

Comparison of the Three Months Ended ~~September~~June 30, ~~2019~~2020 and ~~September~~June 30, ~~2018~~2019

Net sales decreased ~~$4.1~~$9.5 million, or ~~11.3%~~28.9%, as compared to the same period in ~~2018, driven by~~2019. The net sales decrease was primarily attributable to a decrease in volume of freight brokerage ~~services.~~services including the negative impact on demand from COVID-19.

Adjusted EBITDA ~~decreased $9.1~~increased $5.8 million, or ~~23.0%~~12.0%, primarily driven by a $7.2 million decrease in selling and administrative expenses, partially offset by a decline in net sales. The decrease in selling and administrative expenses was primarily driven by (i) a ~~$6.1~~$5.9 million ~~increase~~decrease in personnel expenses and (ii) a $1.8 million decrease in professional fees expense.

Comparison of the Six Months Ended June 30, 2020 and June 30, 2019

Net sales decreased $17.0 million, or 25.6%, as compared to the same period in 2019. The net sales decrease was primarily attributable to a decrease in volume of freight brokerage services including the negative impact on demand from COVID-19 beginning in April 2020.

Adjusted EBITDA increased $2.6 million, or 2.8%, primarily driven by a $6.6 million decrease in selling and administrative expenses, ~~which was primarily attributable to higher incentive compensation expense~~partially offset by a decline in net sales and ~~(ii)~~ cost of products sold decreasing at a slower rate than net sales.

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

~~Net sales decreased $6.9 million, or 6.5%, as compared to the same period in 2018, driven by a~~ The decrease in ~~volume of freight brokerage services.~~

~~Adjusted EBITDA decreased $2.2 million, or 1.6%,~~selling and administrative expenses was primarily driven by ~~casualty insurance losses.~~(i) a $4.2 million decrease in professional fees expense and (ii) a $1.5 million decrease in personnel expenses.

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:


	Six Months Ended June 30,
(in millions)	2020		2019
Net cash provided by (used for):
Operating activities	$	226.5	$	182.2
Investing activities	(14.0)		(14.6)
Financing activities	(137.5)		(176.0)

Nine Months Ended September 30,
(in millions) 2019 2018
Net cash provided by (used for):
Operating activities $ 270.5
$ 7.5
Investing activities (21.9 ) (29.6 )
Financing activities (253.4 ) 13.0

Operating Activities

Net cash provided by operating activities ~~improved~~increased by ~~$263.0~~$44.3 million as compared to the prior year, primarily as a result of ~~the combination of~~ improvements in ~~the~~operating results and changes in ~~operating assets and liabilities. The improvements in changes in~~the deferred income tax provision (benefit). Cash flows from operating assets and liabilities improved as compared to the prior year as increases in accounts payable, restructuring accruals and deferred payroll taxes were ~~primarily due to a decrease in working capital, driven~~partially offset by ~~the decline in net sales and management's focus on working capital improvement, which resulted in~~ decreases in accounts receivable and ~~inventory, which more than offset decreases in accounts payable.~~inventory.

Investing Activities

Net cash used for investing activities ~~improved~~decreased by ~~$7.7~~$0.6 million as compared to the prior ~~year, primarily due to lower capital expenditures in the current period.~~year.

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Financing Activities

Net cash used for financing activities was a ~~higher~~lower use of cash by ~~$266.4~~$38.5 million as compared to the prior year, primarily due to lower net ~~borrowings~~repayments under the Company's ABL Facility ~~partially~~ offset by ~~a favorable~~an unfavorable change in book overdrafts, due to the timing of payments. During the first quarter of 2020, the Company repurchased 383,972 shares of its common stock at a cost of $3.5 million under its share repurchase program, which has been suspended since March 27, 2020. See Part II, Item 2 of this report for additional information on the Company's share repurchase program. The Company expects to finance any future repurchases from a combination of cash on hand and cash provided by operating activities. In conjunction with the amendment of the ABL Facility described below, the Company incurred $3.5 million in new financing fees of which $3.4 million was paid during the second quarter of 2020.

Funding and Liquidity Strategy

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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 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. To preserve liquidity, particularly during the COVID-19 pandemic, the Company may invest a portion of its cash in highly-liquid investments with original maturity dates of three months or less that are readily convertible into known amounts of cash. As of June 30, 2020, the Company held $75.0 million in these cash equivalents.

Veritiv's management expects that the Company's primary future cash needs will be for working capital, capital expenditures, contractual commitments and strategic investments. The Company estimates it will incur total charges of between $75 million and $90 million in connection with the 2020 Restructuring Plan. 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~~June 30, ~~2019,~~2020, other than leases that have not yet commenced and the letters of credit under the ABL 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, in the ~~Company~~course of negotiations for a collective bargaining agreement, Veritiv negotiated a partial withdrawal from the Western Pennsylvania Teamsters and Employers Pension Fund (the "Western Pennsylvania Fund"), a MEPP related to its Warrendale, Pennsylvania location, and recognized an estimated partial withdrawal liability of $6.5 million,

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which was unchanged as of June 30, 2020. The withdrawal charge was recorded ~~charges~~in distribution expenses as it was not related to a restructuring activity.

During the first quarter of 2020, Veritiv negotiated the complete withdrawal from the Western Pennsylvania Fund related to the ~~partial~~second bargaining unit at its Warrendale, Pennsylvania location and recognized an estimated complete withdrawal ~~from~~liability of $7.1 million in distribution expenses, which was unchanged as of June 30, 2020.

The Company records an estimated undiscounted charge when it becomes probable that it has incurred 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.~~withdrawal liability. Final charges for ~~the partial withdrawal will~~MEPP withdrawals are not be known until the ~~plan issues its~~plans issue their respective determinations. As a result, these estimates may increase or decrease depending upon the final ~~determination.~~determinations. The Company has not yet received determination letters from the Western Pennsylvania Fund for either the partial or complete withdrawal. The Company expects that payments will occur over an approximate 20-year ~~period.~~period, which could run consecutively.

~~There~~Except for the incremental MEPP charges noted above and extending the ABL Facility's maturity date, 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, ~~2018.~~2019.

Critical Accounting Policies and Estimates

See Note 1 ~~and~~ ~~Note 3~~ of the Notes to Condensed Consolidated Financial Statements for a description of the impact that adoption of Accounting Standards Update ~~2016-02~~2016-13, ~~Leases~~Financial Instruments-Credit Losses (Topic ~~842)~~326) 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~~estimate methodologies from those disclosed in Veritiv's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. 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, particularly in light of the COVID-19 pandemic and its effects on the domestic and global economies. Estimates are revised as additional information becomes available. See the "Use of Estimates" section of Note 1 of the Notes to Condensed Consolidated Financial Statements for additional information regarding the Company's estimates.

Recently Issued Accounting Standards

See Note 1 of the Notes to 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, ~~2018.~~2019.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The 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 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 disclosure controls and procedures were effective as of ~~September~~June 30, ~~2019.~~2020.

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~~June 30, ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to Note 12 of the Notes to 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, ~~2018.~~2019, except as set forth below:

The recent outbreak of the COVID-19 pandemic has adversely affected, and in the future may materially and adversely affect, our business, financial condition, results of operations, liquidity and cash flows.

The rapid spread of COVID-19, and the measures taken to stop or slow its spread, have adversely affected our business and financial results and will likely continue to do so for an uncertain period of time in the future. The recent COVID-19 pandemic has had and may continue to have negative impacts on our business, including volatility in demand for our products; delays or inability to source products; disruptions in supply chain and transportation; and volatility in the global capital and credit markets, which impacts interest rates and currency exchange rates. The pandemic could also cause a material reduction in the values of our assets including, but not limited to, deferred tax assets, goodwill and intangibles. Our customers, suppliers and vendors may suffer disruptions in their business due to the COVID-19 pandemic causing them financial distress which could include delaying payments to us, filing for bankruptcy protection or going out of business. In addition, there are currently a large number of our employees working remotely with only operationally critical employees working at our facilities for business continuity purposes as lawfully permitted. Extended periods of remote work arrangements could strain our business continuity plans and introduce further operational risk, such as additional cybersecurity risks. Despite our efforts to manage these impacts, due to the rapidly evolving situation with COVID-19, the effect on our operational and financial performance will depend on future developments, all of which are uncertain and difficult to predict and in the future may have material adverse effects on our business, financial condition, results of operations, liquidity and cash flows. Such developments may include, but are not limited to, the spread of the virus, the severity and duration of the outbreak and the severity and duration of the resulting impact on the economy. Even after the COVID-19 pandemic has subsided, we may experience impacts on our business as a result of any economic recession, downturn or volatility that has occurred or may occur in the future. The COVID-19 pandemic may also have the effect of heightening many of the other risks described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, including those related to dependence on information technology and telecommunications systems, cybersecurity risks, compliance with financial covenants, ability to service indebtedness and stock price fluctuation.

We may not fully realize the expected benefits of our current and future restructuring plans or other operating or cost-saving initiatives, which may adversely affect our business.

We recently announced a restructuring plan in response to the impact of the COVID-19 pandemic on our business operations and the ongoing secular changes in our Print and Publishing segments (the “2020 Restructuring Plan”). The 2020 Restructuring Plan is designed to better align our cost structure with ongoing business needs as we execute on our stated corporate strategy. We may undertake additional restructuring plans in the future, including in connection with our ongoing evaluation of alternatives to restructure our integrated supply chain. Implementation of the 2020 Restructuring Plan or any subsequent restructuring plan may be disruptive to our business or more costly than anticipated, and we may not be able to obtain the estimated cost savings and other benefits that were initially anticipated in a timely manner, or at all. Additionally, as a result of any restructuring plan, we may experience a loss of continuity, loss of accumulated knowledge and/or inefficiency during transitional periods. Reorganization and restructuring can require a significant amount of management and other employees’ time and focus, which may divert attention from operating and growing our business. In addition, any restructuring plan may have other consequences, such as attrition beyond our planned reduction in workforce, a negative effect on employee morale and productivity or our ability to attract highly skilled employees. Moreover, our competitors may also use our restructuring plans to seek to gain a competitive advantage over us. Failure to achieve some or all of the expected benefits of our restructuring plans, could have a material adverse effect on our business, competitive position, financial condition, results of operations and cash flows. Furthermore, as the impact of the COVID-19 pandemic on our business continues to evolve, we may need to adjust or expand our restructuring plans, which could increase the risks described above.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 16, 2020, Veritiv announced that its Board of Directors authorized a $25 million share repurchase program (the "2020 Share Repurchase Program"). Under this program the Company may purchase shares of its common stock through open market transactions, privately negotiated transactions, forward, derivative, or accelerated repurchase transactions, tender offers or otherwise, in accordance with all applicable securities laws and regulations. Repurchases under the 2020 Share Repurchase Program have been suspended as of March 27, 2020.

The following table presents information with respect to purchases made by the Company of its common stock during the three months ended June 30, 2020 (shares are in whole units):


Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share	Total Number of Shares Purchased as Part of the Publicly Announced Program ⁽²⁾	Approximate Dollar Value of Shares that May Yet be Purchased Under the Publicly Announced Program
April 1-30	2,299	$8.06	0	$	21,478,003
May 1-31	0	$0.00	0	$	21,478,003
June 1-30	4,826	$10.41	0	$	21,478,003

⁽¹⁾The total number of shares purchased includes: (i) shares purchased pursuant to the 2020 Share Repurchase Program (if any) and (ii) shares surrendered to the

Company to satisfy tax withholding obligations in connection with the vesting of stock units issued as part of the Company's equity-based incentive plans.

⁽²⁾This column discloses the number of shares purchased pursuant to the 2020 Share Repurchase Program during the indicated periods.

ITEM 6. EXHIBITS

Exhibit No.

Description

~~Exhibit~~10.1*

Amendment No.

~~Description~~ 1 to Tax Receivable Agreement, dated as of April 28, 2020, by and among Veritiv Corporation and UWW Holdings, LLC.

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 - 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

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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:		August 5, 2020	~~VERITIV CORPORATION~~
		~~(Registrant)~~

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

Date:		~~November~~August 5, ~~2019~~2020	By: /s/ Andrew E. Magley
			Name: Andrew E. Magley
			Title: Chief Accounting Officer
			(Principal Accounting Officer)



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~~six months ended ~~September~~June 30 , 2020 and 2019 ~~and 2018~~	1
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~ six months ended ~~September~~June 30 , 2020 and 2019 ~~and 2018~~	2
	Condensed Consolidated Balance Sheets as of ~~September~~June 30 ~~2019~~, 2020 and December 31, ~~2018~~2019	3
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30 , 2020 and 2019 ~~and 2018~~	4
	Condensed Consolidated Statements of Shareholders' Equity for the three and ~~nine~~ six months ended ~~September~~June 30 , 2020 and 2019 ~~and 2018~~	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2927
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4042
Item 4.	Controls and Procedures	4142

Part II: OTHER INFORMATION
Item 1.	Legal Proceedings	4243
Item 1A.	Risk Factors	4243
Item 6.2.	~~Exhibits~~Unregistered Sales of Equity Securities and Use of Proceeds	4243
~~SIGNATURES~~Item 6.	43Exhibits	45
SIGNATURES			46



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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net sales (including sales to related party of $5.7, $6.6, $17.3 and $21.3, respectively)	$	1,924.5		$	2,192.5		$	5,824.2		$	6,465.4
Cost of products sold (including purchases from related party of $20.0, $39.3, $66.2 and $117.2, respectively) (exclusive of depreciation and amortization shown separately below)	1,550.8			1,805.8			4,726.5			5,323.8
Distribution expenses	124.9			135.0			387.3			400.1
Selling and administrative expenses	204.3			209.8			631.6			656.1
Depreciation and amortization	13.3			13.1			39.5			41.5
Integration and acquisition expenses	4.5			7.9			13.3			24.6
Restructuring charges, net	7.6			5.4			16.9			28.7
Operating income (loss)	19.1			15.5			9.1			(9.4		)
Interest expense, net	8.9			11.0			30.5			30.5
Other (income) expense, net	(2.5		)	(0.4		)	11.3			(13.8		)
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		)
Net income (loss)	$	5.1		$	1.4		$	(32.9	)	$	(25.0	)

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	)

Weighted-average shares outstanding:
Basic	16.10			15.85			16.04			15.82
Diluted	16.24			16.47			16.04			15.82



	Nine Months Ended September 30,
Operating activities	2019			2018
Net loss	$	(32.9	)	$	(25.0	)
Depreciation and amortization	39.5			41.5
Amortization of deferred financing fees	1.9			2.0
Net losses (gains) on dispositions of property and equipment	(0.1		)	(2.2		)
Goodwill and long-lived asset impairment charges	—			0.2
Provision for allowance for doubtful accounts	13.8			18.5
Deferred income tax (benefit)	(2.9		)	(3.2		)
Stock-based compensation	12.4			15.2
Other non-cash items, net	9.9			(6.8		)
Changes in operating assets and liabilities
Accounts receivable and related party receivable	193.1			(60.6		)
Inventories	87.8			(17.2		)
Other current assets	29.7			(26.1		)
Accounts payable and related party payable	(84.8		)	78.1
Accrued payroll and benefits	(5.9		)	(17.5		)
Other accrued liabilities	(0.4		)	15.4
Other	9.4			(4.8		)
Net cash provided by (used for) operating activities	270.5			7.5
Investing activities
Property and equipment additions	(22.2		)	(33.7		)
Proceeds from asset sales	0.3			4.1
Net cash provided by (used for) investing activities	(21.9		)	(29.6		)
Financing activities
Change in book overdrafts	31.4			(30.3		)
Borrowings of long-term debt	5,038.3			4,058.1
Repayments of long-term debt	(5,306.1		)	(3,988.4		)
Payments under right-of-use finance leases and capital leases, respectively	(6.8		)	(5.3		)
Payments under financing obligations (including obligations to related party of $8.6 in the prior year period)	—			(9.1		)
Payments under Tax Receivable Agreement	(7.8		)	(9.9		)
Other	(2.4		)	(2.1		)
Net cash provided by (used for) financing activities	(253.4		)	13.0
Effect of exchange rate changes on cash	(0.2		)	(0.3		)
Net change in cash	(5.0		)	(9.4		)
Cash at beginning of period	64.3			80.3
Cash at end of period	$	59.3		$	70.9
Supplemental cash flow information
Cash paid for income taxes, net of refunds	$	3.1		$	1.3
Cash paid for interest	28.1			28.0
Non-cash investing and financing activities
Non-cash additions to property and equipment for right-of-use finance leases and capital leases, respectively	$	9.8		$	29.8
Non-cash additions to other non-current assets for right-of-use operating leases	107.7			—



(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



(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



	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		%



(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