B U I L D I N G
O U R
F U T U R E
1000 Abernathy Rd. NE
Building 400, Suite 1700
Atlanta, GA 30328
veritivcorp.com
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2 0 1 6 A N N U A L R E P O R T
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SHAREHOLDER INFORMATION
TRANSFER AGENT
& REGISTRAR
INVESTOR
CONTACT
Computershare
P.O. Box 30170
College Station, TX 77842
computershare.com/investor
866.276.9370
Thomas C. Morabito
Director, Investor Relations
investor@veritivcorp.com
844.845.2136
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
FOR 2016
Deloitte & Touche LLP
Atlanta, GA
ANNUAL REPORT &
FORM 10-K COPIES
Copies of the Annual Report
and Form 10-K are available
and may be obtained by
contacting:
ANNUAL MEETING
The Veritiv Corporation
Annual Meeting will be held
on Thursday, May 25, 2017
in Atlanta, GA.
Veritiv Corporation
c/o Investor Relations
1000 Abernathy Rd. NE
Building 400, Suite 1700
Atlanta, GA 30328
844.845.2136
ir.veritivcorp.com
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report regarding
the Company’s future operating results, performance,
business plans, prospects, guidance and any other
statements not constituting historical fact are “forward-
looking statements” subject to the safe harbor created
by the Private Securities Litigation Reform Act of 1995. 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 or business plans
or prospects to differ materially from those expressed in,
or implied by, these statements. For a detailed discussion
of specific risks and uncertainties that could cause actual
results to differ from those contained in the forward-
looking statements, see the information under the heading
“Risk Factors” in our Annual Report on Form 10-K for the
year ended December 31, 2016, which is included in this
report, and in other filings we make with the SEC. 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.
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BUILDI NG OUR FUTUR E
Veritiv Corporation (NYSE: VRTV),
headquartered in Atlanta and a
Fortune 500® company, is a leading
North American business-to-business
distributor of packaging, facility solutions,
print, and publishing; and also a provider
of logistics and supply chain management
services. Serving customers in a wide
range of industries, the Company has
approximately 170 operating distribution
centers throughout the U.S., Canada
and Mexico, and employs approximately
8,700 team members that help shape the
success of its customers.
OUR VISION
One team shaping success through
exceptional service, innovative people,
and consistent values.
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1
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VERITIV
BY THE
NUMBERS
$8.3B
NET SALES
$192M
ADJUSTED EBITDA
Approximately
8,700
Employees
BUILDING OUR FUTURE
FINANCIAL HIGHLIGHTS1
In millions, except per share
amounts, at December 31
Net Sales
Cost of Products Sold
Net Sales Less Cost of Products Sold
Net Income
Basic Earnings Per Share
Diluted Earnings Per Share
2016
2015
$
8,326.6
$
8,717.7
6,826.4
7,160.3
1,500.2
1,557.4
21.0
1.31
1.30
26.7
1.67
1.67
Weighted-Average – Shares Outstanding – Basic
15.97
16.00
Weighted-Average – Shares Outstanding – Diluted
16.15
16.00
Adjusted EBITDA
192.2
182.0
Approximately 170
Distribution Centers
1 For our Non-GAAP reconciliations see our
2016 Annual Report on Form 10-K, starting
on page 92.
Approximately 20 Million Square
Feet of Distribution Center Space
2
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BUILDI NG OUR FUTUR E
TO OUR
SHAREHOLDERS
The Veritiv team made measurable progress on many of
our initiatives in 2016, which helped us deliver solid financial
performance for the year. We worked hard to continue to
integrate our businesses and deliver solutions that drive
results for our customers and our shareholders, despite
challenging market conditions. As a result of these efforts, we
were able to fulfill our 2016 financial commitments, achieving
$8.3 billion in revenue and $192 million in Adjusted EBITDA.
Much of Veritiv’s solid performance in 2016 stems from
our steadfast commitment to our customers. We achieved
positive growth in our Packaging segment, made significant
progress with our Facility Solutions business, and maintained
our leadership position in Print. Continued improvement in
our cost structure and segment and product mix allowed us
to remain on track for our full year synergy target. This work
served as a baseline for our strong operating cash flow of
$140 million for the year.
In 2016, we also began to lay the foundation for Veritiv’s next
growth phase. We reached key milestones in our integration,
including establishing the infrastructure and processes for a
common operating system. We also outlined our long-term
strategy for the company. This strategy will focus investments
within our Packaging business and our planned Services
segment, which will build on our existing logistics business and
value-added services. As we begin to execute this strategy
and invest in Veritiv’s future, our goal is to continue to be an
industry leader in our Facility Solutions, Print, and Publishing
businesses.
We expect 2017 to be a challenging year; however, I am
confident that Veritiv is well positioned to execute on our plans
and grow our company. We will be working through the final
– and most complex – stages of our integration, which include
implementation of our common operating system, optimizing
our distribution center network, and improving overall
operational efficiency to meet and exceed our customers’
needs. We will also continue to reduce operational costs in
order to fulfill our multi-year commitment of achieving
$150 million to $225 million in net synergies.
With strong execution, this work will set Veritiv up for success
to implement our long-term strategy. We made important
strategic decisions in 2016 that will help create a more
sustainable company, with the scale and capabilities necessary
for Veritiv to remain competitive in a changing global economy
and shape success for our customers, our investors, and our
people. We look forward to executing on that strategy in the
coming months and years.
148980BDY_r6_ar2016_narative_pages.indd 3
I would like to thank our talented team of Veritiv employees
for their hard work, solid execution of our priorities, customer
focus, and persistence in continuing to integrate our
company. There is no doubt that their dedication to the
Veritiv Values drives our actions and our decisions every day.
This commitment to the Veritiv Values was evident in 2016.
We were honored to join some of the world’s most well-known
and respected companies on the Fortune 500® list for the
first time. We also launched Veritiv Connects, our community
and philanthropy program, focused on giving back to local
communities and supporting initiatives that promote learning
and healthy living.
I remain excited for the company’s future, and I am personally
inspired by the opportunities in front of Veritiv. Over the next
year, we will focus on continuing to integrate our businesses,
executing our long-term strategy, collaborating with customers
and suppliers – and most importantly – staying true to our core
values and creating the culture that we need to succeed. We
look forward to building Veritiv’s future and shaping success
as we transform our company into the leading distribution
solutions and services provider we aspire to be.
Thank you for your continued support.
Mary Laschinger
Chairman and Chief Executive Officer
3
3/20/17 9:40 AM
BUILDING OUR FUTURE
OUR VALUES
We do the right things, act with honesty
INTEGRITY
and consistency, and truthfully represent our
capabilities.
We collaborate as one team based on what
ONE TEAM
is best for Veritiv as a whole, and treat each
other with mutual respect.
PEOPLE
COMMITMENT
We engage our employees in the
organization’s success and are committed
to performance management and talent
development.
CUSTOMER
FOCUS
We are committed to understanding our
customers’ needs and providing solutions that
add value.
OPERATIONAL
EXCELLENCE
We consistently execute, measure, and
improve the safety, efficiency, and quality of
the work we do every single day.
PASSION FOR
RESULTS
We are passionate about winning and our
desire to meet financial, operational, and
people commitments in the right way.
4
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BUILDI NG OUR FUTUR E
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BUILDING OUR FUTUREPACKAGING$2.9B • 34%REVENUE$221.2M • 60%ADJ. EBITDA11 Corporate and Other expenses are excluded from the calculation for percentage of Adjusted EBITDA by Segment.Veritiv works directly with customers to identify and implement packaging solutions that deliver in both form and function. Our packaging specialists are experts at discovering untapped efficiencies in designing, sourcing, and delivering standard and custom packaging processes for customers across a range of industries − including consumer packaged goods, fulfillment, food processing, retail, and manufacturing. Veritiv packaging solutions are not restricted to one particular substrate − we evaluate every project with a material-neutral approach. We have long-standing relationships with box plants, sheet plants, and other international material sources, providing us with access to a wide range of material inputs. Our packaging solutions span across food-grade packaging, industrial packaging, point-of-sale displays, and shipping supplies. Our exclusive TUFflexTM line of packaging essentials delivers enduring performance, maximum efficiency, and unmatched value. We also sell and distribute single-function and fully automated packaging equipment. In addition, we offer assembly and fulfillment services, such as kitting − which help customers manage seasonal spikes, new market testing, and promotions. Packaging optimization extends through our Veritiv Packaging Design Network, where an experienced team of designers, engineers, and marketers provide in-house expertise for custom improvements in cost and waste reduction, logistics, structural and graphical integrity, and testing processes. 6148980BDY_r9_ar2016_narative_pages.indd 63/21/17 6:29 PM BUILDING OUR FUTUREVeritiv utilizes our comprehensive portfolio of high-performance commercial cleaning and food service products, management programs, and advanced analysis tools to tailor solutions that enhance value across our customers’ entire facilities.Veritiv understands that clean, healthy, safe, and well-maintained environments significantly impact both internal operations and external perceptions. Our Veritiv Certified Advisors are experts on the products, services, and training necessary to reach and maintain the high levels of facility excellence that propel businesses forward. We have the hands-on expertise and sourcing capabilities needed to service customers across a wide range of industries, including building service contractors, cruise lines, food service providers, government agencies, healthcare facilities, higher education institutions, hospitality and lodging providers, manufacturers, property managers, retail outlets, and other high-traffic venues. We service customers in smaller, local markets through FORDIS® and Saalfeld®, our facility solutions redistribution businesses.Veritiv’s exclusive portfolio of private brands products includes Reliable Brand® commercial cleaning solutions and Spring GroveTM food service products. These quality brands offer a simplified approach to help customers meet and exceed facility expectations, increase value, and redirect surplus dollars.$1.3B • 15%REVENUE$47.0M • 13%ADJ. EBITDA1FACILITYSOLUTIONS1 Corporate and Other expenses are excluded from the calculation for percentage of Adjusted EBITDA by Segment.7148980BDY_r9_ar2016_narative_pages.indd 73/21/17 6:36 PM BUILDING OUR FUTUREWe leverage our global sourcing network of the world’s largest and most diversified paper mills to deliver tailored solutions to customers and their local markets − solutions that reduce resource spending, assure reliability, and improve efficiencies.Backed by our extensive supply chain and inventory management processes, our distribution centers are stocked with the most comprehensive print solutions inventory to service the commercial, digital, wide format, and graphic communications markets.The print products we sell and distribute are used by commercial printers, data centers, in-plant print facilities, package and flexographic printers, print design agencies, specialty graphic imaging printers, and others to produce a range of communications including advertising supplements, annual reports, billboards, brochures, business forms, catalogs, retail circulars, retail visuals, and vinyl offerings. We also service our smaller customers in the U.S. through our Veritiv Express branches, which supply business imaging paper, printing paper, and packaging products with inventory that is available for immediate pickup or same-day or next-day delivery.Veritiv’s line of exclusive paper brands spans various categories including coated, uncoated, digital and office papers, board and envelope portfolios, and specialty product lines, such as pressure-sensitive labels and pressroom supplies. PRINTVeritiv’s paper and printprivate brands include:• Comet™ Multipurpose • nordic+®• Econosource® • Seville™• Endurance® • Showcase™• Galaxy™ • Starbrite® Opaque Select$3.0B • 37%REVENUE$76.8M • 21%ADJ. EBITDA11 Corporate and Other expenses are excluded from the calculation for percentage of Adjusted EBITDA by Segment.8148980BDY_r9_ar2016_narative_pages.indd 83/21/17 6:32 PM BUILDING OUR FUTUREThrough Veritiv’s two complementary publishing and print management companies, Bulkley Dunton and Graphic Communications, our paper specialists provide customized solutions that offer retailers, publishers, catalogers, direct mail companies, grocers, corporate enterprise businesses, and printers the greatest return on their print programs. By differentiating paper purchasing from printing, Veritiv is able to leverage our sophisticated and expansive supply chain to ensure consistent and predictable costs, quality, and paper availability for customers of all sizes. With a client base ranging from Fortune 500® companies to small, local businesses, our industry consultants are experts at scaling solutions to shield clients from market volatility, while maintaining their brand requirements and appropriate certifications. Our paper and print consultants match customers’ unique needs with leading paper mills and printers that best meet their standards for price, paper quality, production, and environmental sustainability, including Chain of Custody certification and recycled papers.PUBLISHING ANDPRINTMANAGEMENT$1.0B • 13%REVENUE$23.6M • 6%ADJ. EBITDA11 Corporate and Other expenses are excluded from the calculation for percentage of Adjusted EBITDA by Segment.9148980BDY_r9_ar2016_narative_pages.indd 93/21/17 6:32 PM BUILDI NG OUR FUTUR E
10
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BUILDING OUR FUTURE
CORPORATE
RESPONSIBILITY
Veritiv teams are guided by core values, and as a
North American leader in distribution solutions,
with hundreds of locations around the world, our
efforts are focused on having a positive impact on
all of our stakeholders − customers, employees,
investors, suppliers, the communities where we
live and work − and the environment.
COMMUNITY
Veritiv is dedicated to supporting local
communities through philanthropic giving,
product donations, and employee volunteering.
In October 2016, we launched Veritiv Connects,
our corporate community engagement and
philanthropy program. Veritiv Connects takes a
strategic approach toward how we engage with
our communities and help shape their success.
PRIMARY FOCUS AREAS
Learning: Supports workforce readiness and
talent and skills development.
Healthy Living: Supports prosperous, healthy,
sustainable, and inclusive communities.
SUPPORT FOCUS AREAS
• Disaster Preparedness, Response, and Resiliency
• Veterans
• Clean Communities
• Local Education Programs
In support of the launch of Veritiv Connects,
Veritiv announced partnerships with the American
Red Cross and Junior Achievement, providing
in-kind donations, monetary support, and Veritiv
volunteer teams.
VERITIV CUSTOMER SERVICE
TEAMS SUPPORT LOCAL
COMMUNITIES
• Calgary, Alberta: Veritiv employees raised
funds to support the Canadian Red Cross
relief efforts after fires devastated the Fort
McMurray area.
• Commerce, California: Veritiv teams
collected school supplies donations for
children in need to help prepare them for
the upcoming school year.
• Mississauga, Ontario: Veritiv Customer
Service team members donated personal
hygiene supplies to support the homeless
served at the local Salvation Army shelter.
Employees also participated in a litter clean
up around campus to celebrate Earth Day.
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BUILDI NG OUR FUTUR E
COMMUNITY continued
HELPING THOSE IN NEED
DURING THE HOLIDAY
SEASON
Veritiv employees across the U.S.
supported local nonprofits in bringing
holiday spirit to underprivileged
communities, including:
• Atlanta Community Food Bank: The
Veritiv Logistics Solutions team in
Norcross, Georgia, donated more than
800 pounds of food to the Atlanta
Community Food Bank.
• Salvation Army: Veritiv employees
helped fulfill Christmas wishes of
children in their local communities
through the Salvation Army Angel Tree
program.
• Toys for Tots: Veritiv employees
throughout the U.S. supported children
in need by donating hundreds of toys to
their local Toys for Tots campaigns.
VERITIV CONTRIBUTES TO THE
AMERICAN RED CROSS DISASTER
RELIEF EFFORTS
Veritiv and our employees made significant
monetary contributions to support relief efforts
in the aftermath of Hurricane Matthew and the
flooding in Louisiana. In addition, Veritiv donated
much needed cleaning supplies, such as gloves
and totes, to further aid in clean-up efforts.
In December 2016, Veritiv launched its own employee
emergency relief fund, the One Veritiv Fund. This
program provides short-term, immediate financial
relief to eligible Veritiv employees impacted by
unanticipated hardships and emergencies.
12
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BUILDI NG OUR FUTUR E
BUILDI NG OUR FUTUR E
SAFETY
At Veritiv, we are committed to providing all team
members with a safe and productive workplace and
creating a culture of safety within the company. Our
Target Zero initiative outlines our vision of zero safety
hazards and how we strive to achieve that goal each
and every day. Through Target Zero, we empower and
engage Veritiv employees in proactive identification
of workplace hazards and develop practical solutions,
integrated with business operations.
In 2016, our Total Incident Rate (TIR) for our operations
in the U.S., Canada, and Mexico was 1.121.
VERITIV DRIVERS STAND AGAINST
DISTRACTED DRIVING
In 2016, more than 1,000 Veritiv drivers
participated in the National Safety Council’s Take
Back My Drive pledge against distracted driving.
1 Total Incident Rate (TIR) is calculated using the OSHA definition for recordability and
OSHA calculation methodologies. Total Incident Rate = Total Recordable Accidents and
Injuries x 200,000/Total Hours Worked. The 200,000 hours in the formula represents the
equivalent of 100 employees working 40 hours per week, 50 weeks per year and provides
the standard base for the incidence rates.
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BUILDING OUR FUTURE
ENVIRONMENT
As a leading North American distribution company, we recognize
that our businesses have an impact on the environment. We
focus our environmental sustainability efforts in three areas:
our fleet, our facilities, and our products.
FLEET
As a distribution company, the majority of our business involves
moving products by road. There are significant opportunities
to reduce our environmental impact by improving resource
efficiency across our fleet and delivery network.
Veritiv is a member of the U.S. Environmental Protection
Agency’s SmartWay Transport Partnership, which helps
businesses reduce transportation-related emissions through
advanced fuel-efficient technologies and operational practices.
Route and delivery optimization software helps Veritiv drivers
make deliveries using the most efficient routes, minimizing fuel
use and emissions.
FACILITIES
Veritiv takes a strategic approach to reducing our buildings’
impact on the environment. We aim to improve energy
efficiency across our operations through retrofit projects
and use of efficient equipment and technologies.
14
LIGHTING UPGRADES
IMPROVE ENERGY
EFFICIENCY IN VERITIV
DISTRIBUTION CENTERS
In 2016, Veritiv completed several
large-scale lighting retrofitting projects
in select distribution centers. These
upgrades resulted in combined annual
energy use savings of more than 30%
over the previous year.
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BUILDI NG OUR FUTUR E
ENVIRONMENT continued
PRODUCTS
Veritiv is committed to advancing and improving our
offerings of environmentally sustainable products,
both in our private brands and name-brand product
lines, across our packaging, print, and facility solutions
segments. We offer a range of products that meet
widely acknowledged environmental standards.
• Veritiv Private Label Brands
Our proprietary brands adhere to the highest
standards. Several of Veritiv’s private label paper
brands hold Chain of Custody certification,
including Endurance® Printing Paper and
Starbrite® Opaque Select. Our Reliable Brand®
towel and tissue line is made from recycled content
and meets Environmental Protection Agency
and LEED® standards.
• Packaging
Through our network of Packaging Design Centers,
Veritiv employees research, design, and develop
cost-effective packaging solutions that minimize
environmental impact.
• Facility Solutions
Veritiv’s Green Gauge™ analysis tool enables
customers to quickly quantify product usage and
sustainable cleaning purchases against LEED®
standards for their entire facility network, and
seamlessly report on it for certifications and
communications.
• Print
We maintain three Chain of Custody certifications
for our print and publishing businesses: Forest
Stewardship Council®, Sustainable Forestry Initiative,
and Programme for the Endorsement of Forest
Certification. In total, Veritiv sold more than
2 million tons of certified commercial printing
and imaging papers in 2016.
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BUILDI NG OUR FUTUR E
BOARD OF DIRECTORS
MARY A.
LASCHINGER
Chairman of the
Board and Chief
Executive Officer
WILLIAM E.
MITCHELL
Presiding Director,
Founding Partner
of Sequel Venture
Partners, LLC
DANIEL T.
HENRY 1*, 2
Retired Chief
Financial Officer
and Executive
Vice President of
American Express
Company
LIZA K.
LANDSMAN 3
President and
Chief Customer
Officer of
Jet.com
TRACY A.
LEINBACH 1, 3*
Retired
Executive Vice
President and
Chief Financial
Officer of Ryder
System, Inc.
MICHAEL P.
MULDOWNEY 1, 2
Chief Financial
Officer of Gordon
Brothers Group
CHARLES G.
WARD, III 1, 3
Retired Partner of
Perella Weinberg
Partners
JOHN J.
ZILLMER 2*, 3
Retired Executive
Chairman of
Univar Inc.
Board Committees: 1- Audit and Finance 2- Compensation and Leadership Development 3- Nominating and Governance *- Denotes Committee Chair
MANAGEMENT TEAM
From left to right: Elizabeth A. Patrick, Adam W. Taylor, Mark W. Hianik, Charles B. Henry, Thomas S. Lazzaro, Mary A. Laschinger, Barry R. Nelson,
Tracy L. Pearson, Stephen J. Smith, John G. Biscanti, and Daniel J. Watkoske.
MARY A. LASCHINGER
Chairman of the Board and
Chief Executive Officer
CHARLES B. HENRY
Senior Vice President,
Corporate Services
BARRY R. NELSON
Senior Vice President,
Facility Solutions
ADAM W. TAYLOR
Senior Vice President and
Chief Strategy Officer
STEPHEN J. SMITH
Senior Vice President and
Chief Financial Officer
MARK W. HIANIK
Senior Vice President, General
Counsel and Corporate Secretary
ELIZABETH A. PATRICK
Senior Vice President and
Chief Human Resources Officer
DANIEL J. WATKOSKE
Senior Vice President, Print and
Veritiv Services
JOHN G. BISCANTI
Group Vice President, Publishing and
Print Management
THOMAS S. LAZZARO
Senior Vice President, Field Sales
and Operations
TRACY L. PEARSON
Senior Vice President, Packaging
16
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 001-36479
VERITIV CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
1000 Abernathy Road NE
Building 400, Suite 1700
Atlanta, Georgia
(Address of principal executive offices)
46-3234977
(I.R.S Employer Identification Number)
30328
(Zip Code)
(770) 391-8200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $0.01 par value
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
No
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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post such files). Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
No
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2
of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of June 30, 2016, the aggregate market value of the voting common stock of the registrant held by non-affiliates of the registrant,
based on the closing sale price of those shares on the New York Stock Exchange reported on June 30, 2016, was $305,955,954. For
the purposes of this disclosure only, the registrant has assumed that its directors and executive officers (as defined in Rule 3b-7 under
the Exchange Act) and the UWW Holdings, LLC stockholder are the affiliates of the registrant.
No
The number of shares outstanding of the registrant's common stock as of March 9, 2017 was 15,687,532.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the 2017 Annual Meeting of Shareholders are incorporated by reference into
Part III of this Form 10-K.
TABLE OF CONTENTS
EXPLANATORY NOTE
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Part I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
SIGNATURES
EXHIBIT INDEX
Page
1
1
2
9
21
22
22
22
22
25
27
42
44
94
94
96
97
97
97
97
97
98
98
99
100
EXPLANATORY NOTE
On July 1, 2014, International Paper Company completed the spin-off of its xpedx distribution solutions business
("xpedx") to the International Paper Company shareholders. Immediately following the spin-off, UWW Holdings, Inc., the
parent company of Unisource Worldwide, Inc. ("Unisource"), was merged with and into xpedx to form a new publicly traded
company known as Veritiv Corporation (the "Company").
All financial statements and notes thereto presented in this report as of and for the years ended December 31, 2016
and 2015 reflect the results of the consolidated legacy xpedx and Unisource businesses. Because the spin-off and merger
transactions were consummated on July 1, 2014, all financial statements and notes thereto presented in this report for the year
ended December 31, 2014 include the legacy xpedx business for the full twelve months presented and the legacy Unisource
business from July 1, 2014.
Additionally, the financial information presented in Part II, Item 7—Management’s Discussion and Analysis of
Financial Condition and Results of Operations—of this report, and elsewhere, is consistent with the above financial statement
presentation.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements contained in this report regarding the Company’s future operating results, performance, business
plans, prospects, guidance and any other statements not constituting historical fact are "forward-looking statements" subject
to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, the words "believe,"
"expect," "anticipate," "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 or prospects to differ materially from those expressed in, or implied by, these statements.
Factors that could cause actual results to differ materially from current expectations include risks and other factors
described under "Risk Factors" in this report 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; 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; foreign currency fluctuations; our ability to collect trade receivables from customers to whom we
extend credit; our ability to attract, train and retain highly qualified employees; the effects of work stoppages, union
negotiations and union disputes; loss of significant customers; changes in business conditions in our international
operations; procurement and other risks in obtaining packaging, paper and facility products from our suppliers for resale to
our customers; changes in prices for raw materials; fuel cost increases; inclement weather, anti-terrorism measures and
other disruptions to the transportation network; our dependence on a variety of IT and telecommunications systems and the
Internet; our reliance on third-party vendors for various services; cyber-security risks; costs to comply with laws, rules and
regulations, including environmental, health and safety laws, and to satisfy any liability or obligation imposed under such
laws; regulatory changes and judicial rulings impacting our business; adverse results from litigation, governmental
investigations or audits, or tax-related proceedings or audits; our inability to renew existing leases on acceptable terms,
negotiate rent decreases or concessions and identify affordable real estate; our ability to adequately protect our material
intellectual property and other proprietary rights, or to defend successfully against intellectual property infringement claims
by third parties; our pension and health care costs and participation in multi-employer 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 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.
1
For a more detailed discussion of these factors, see the information under the heading "Risk Factors" in this report
and in other filings we make with the SEC. Forward-looking statements are made only as of the date hereof, and the
Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law. In addition, historical information should not be
considered as an indicator of future performance.
PART I
ITEM 1. BUSINESS
Our Company
Veritiv Corporation ("Veritiv" or the "Company" and sometimes referred to in this Annual Report on Form 10-K as
"we", "our" or "us") is a leading North American business-to-business distributor of print, publishing, packaging, and facility
solutions. Additionally, Veritiv provides logistics and supply chain management solutions to its customers. Veritiv was
established in 2014, following the merger of International Paper Company’s ("International Paper" or "Parent") xpedx
distribution solutions business ("xpedx") and UWW Holdings, Inc. ("UWWH"), the parent company of Unisource.
Independently, the two companies achieved past success by continuously upholding high standards of efficiency and
customer focus. Through leveraging this combined history of operational excellence, Veritiv evolved into one team shaping
its success through exceptional service, innovative people and consistent values. Today, Veritiv's focus on segment-tailored
market leadership in distribution and a commitment to operational excellence allows it to partner with world class suppliers,
add value through multiple capabilities and deliver solutions to a wide range of customer segments.
We operate from approximately 170 distribution centers primarily throughout the U.S., Canada and Mexico, serving
customers across a broad range of industries. These customers include printers, publishers, data centers, manufacturers,
higher education institutions, healthcare facilities, sporting and performance arenas, retail stores, government agencies,
property managers and building service contractors.
Veritiv's business is organized under four reportable segments: Print, Publishing & Print Management
("Publishing"), Packaging and Facility Solutions. 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 our 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:
• Print – The Print segment sells and distributes commercial printing, writing, copying, digital, wide format and
specialty paper products, graphics consumables and graphics equipment primarily in the U.S., Canada and Mexico.
This segment also includes customized paper conversion services of commercial printing paper for distribution to
document centers and form printers. Our broad geographic platform of operations coupled with the breadth of paper
and graphics products, including our 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 our customers.
• Packaging – The Packaging segment provides standard as well as custom and comprehensive packaging solutions
for customers based in North America and in key global markets. The business is strategically focused on higher
growth industries including light industrial/general manufacturing, food production, fulfillment and internet retail, as
well as niche verticals based on geographical and functional expertise. Veritiv’s packaging professionals create
customer value through supply chain solutions, structural and graphic packaging design and engineering,
automation, workflow and equipment services, contract packaging, 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
2
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 we
manage a world class network of leading suppliers in most facilities solutions categories. Additionally, we offer
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.
The table below summarizes net sales for each of the above segments, as well as the Corporate & Other category, as
a percentage of consolidated net sales:
Print
Publishing
Packaging
Facility Solutions
Corporate & Other
Total
2016
37%
13%
34%
15%
1%
100%
Year Ended December 31,
2015
38%
14%
32%
15%
1%
100%
2014
40%
15%
30%
14%
1%
100%
Additional financial information regarding our reportable business segments and certain geographic information is
included in Item 7 of this report and in Note 17 of the Notes to Consolidated and Combined Financial Statements in Item 8 of
this report.
Our History
On July 1, 2014 (the "Distribution Date"), International Paper completed the spin-off of xpedx to its shareholders
(the "Spin-off"), forming a new public company known as Veritiv. Immediately following the Spin-off, UWWH merged with
and into Veritiv (the "Merger"). The Spin-off and the Merger are collectively referred to as the "Transactions".
On the Distribution Date, 8.16 million shares of Veritiv common stock were distributed on a pro rata basis to the
International Paper shareholders of record as of the close of business on June 20, 2014. Immediately following the Spin-off,
but prior to the Merger, International Paper’s shareholders owned all of the outstanding shares of Veritiv common stock.
Immediately following the Spin-off on the Distribution Date, UWW Holdings, LLC, the sole stockholder of UWWH
(the "UWWH Stockholder"), which is jointly owned by Bain Capital and Georgia-Pacific, received 7.84 million shares of
Veritiv common stock for all of the outstanding shares of UWWH common stock that it held on the Distribution Date, in a
private placement transaction.
Immediately following the completion of the Transactions, International Paper shareholders owned approximately
51%, and the UWWH Stockholder owned approximately 49%, of the shares of Veritiv common stock on a fully-diluted basis.
Immediately following the completion of the Spin-off, International Paper did not own any shares of Veritiv common stock.
Veritiv’s common stock began regular-way trading on the New York Stock Exchange on July 2, 2014 under the ticker symbol
VRTV.
International Paper's distribution business was consolidated into a division operating under the xpedx name in 1998
to serve the U.S. and Mexico markets. International Paper grew its distribution business both organically and through the
acquisition of over 30 distribution businesses located across the U.S. and Mexico. Unisource was a wholly-owned subsidiary
of Alco Standard Corporation until its spin-off of Unisource in December 1996 whereby Unisource became a separate public
company. Unisource was acquired by Georgia-Pacific, now owned by Koch Industries, in July 1999. In November 2002,
Bain Capital acquired approximately a 60% ownership interest in Unisource, while Georgia-Pacific retained approximately a
40% ownership interest.
3
Products and Services
Veritiv distributes well-known national and regional brand products as well as products marketed under its own
private label brands. Products under the Company’s private label brands are manufactured by third-party suppliers in
accordance with specifications established by the Company. Our portfolio of private label products includes:
• Coated and uncoated papers, coated board and cut size under the Endurance, nordic+, Econosource, Comet, Starbrite
•
•
Opaque Select and other brands;
Packaging products under the TUFflex brand, which include stretch film, mailers, shrink film, carton sealing tape,
and other specialty tapes; and
Foodservice disposable products, cleaning chemicals, towels and tissues, can liners, sanitary maintenance supplies
and a wide range of facility supplies products under the Reliable and Spring Grove brands.
The table below summarizes sales of products sold under private label brands as a percentage of the respective total
Company or applicable segment's net sales for the periods shown:
Print
Packaging
Facility Solutions
Total Company
Customers
Year Ended December 31,
2015
19%
6%
8%
10%
2014
21%
8%
9%
12%
2016
22%
6%
8%
11%
We serve customers across a broad range of industries, through a variety of means ranging from multi-year supply
agreements to transactional sales. The Company has valuable, multi-year, long-term supply agreements with many of its
largest customers that set forth the terms and conditions of sale, including product pricing and warranties. Generally, the
Company’s customers are not required to purchase any minimum amount of products under these agreements and can place
orders on an individual purchase order basis. However, the Company enters into negotiated supply agreements with a
minority of its customers.
For the years ended December 31, 2016, 2015 and 2014, no single customer accounted for more than 5% of the
Company’s consolidated net sales.
Suppliers
We purchase our products from thousands of suppliers, both domestic and international, across different business
segments. Although varying by segment, the Company’s suppliers consist generally of large corporations selling brand name
and private label products and, to a more limited extent, independent regional and private label suppliers. Suppliers are
selected based on customer demand for the product and a supplier’s total service, cost and product quality offering.
Our sourcing organization supports the purchasing of well-known national and regional brand products as well as
products marketed under our own private label brands from key national suppliers in the Print, Packaging and Facility
Solutions segments. The Publishing segment primarily operates as a direct ship brokerage business aligned with the
Company’s core supplier strategy. In addition, under the guidance and oversight of the sourcing team, our merchandising
personnel located within individual distribution centers source products not available within our core offering in order to
meet specialized customer needs.
The product sourcing program is designed to ensure that the Company is able to offer consistent product selections
and market competitive pricing across the enterprise while maintaining the ability to service localized market requirements.
Our procurement program is also focused on replenishment which includes purchase order placement and controlling the
total cost of inventory by proactively managing the number of day’s inventory on hand, negotiating favorable payment terms
and maintaining vendor-owned and vendor-managed programs. As one of the largest purchasers of paper, graphics,
packaging and facility supplies, we can qualify for volume allowances with some suppliers and can realize significant
4
economies of scale. We enter into incentive agreements with certain of our largest customers, which are generally based on
sales to these customers.
During the year ended December 31, 2016, approximately 47% of our purchases were made from ten suppliers.
Competition
The paper, publishing, packaging and facility solutions distribution industry is highly competitive, with numerous
regional and local competitors, and is a mature industry characterized by slowing growth or, in the case of paper, declining
net sales. The Company’s principal competitors include national, regional and local distributors, national and regional
manufacturers, independent brokers and both catalog-based and online business-to-business suppliers. Most of these
competitors generally offer a wide range of products at prices comparable to those Veritiv offers, though at varying service
levels. Additionally, new competition could arise from non-traditional sources, group purchasing organizations, e-commerce,
discount wholesalers or consolidation among competitors. Veritiv believes it offers the full range of services required to
effectively compete, but if new competitive sources appear it may result in margin erosion or make it more difficult to attract
and retain customers.
The following summary briefly describes the key competitive landscape for each of Veritiv’s business segments:
• Print – Industry sources estimate that there are hundreds of regional and local companies engaged in the marketing
and distribution of paper and graphics products. While the Company believes there are few national distributors of
paper and graphics products similar to Veritiv, several regional and local distributors have cooperated together to
serve customers nationally. The Company’s customers also have the opportunity to purchase products directly from
paper and graphics manufacturers. In addition, competitors also include regional and local specialty distributors,
office supply and big box stores, online business-to-business suppliers, independent brokers and large commercial
printers that broker the sale of paper in connection with the sale of their printing services.
• Publishing – The publishing market is serviced by printers, paper brokers and distributors. The Company’s
customers also have the opportunity to purchase paper directly from paper manufacturers. The market consists
primarily of magazine and book publishers, cataloguers, direct mailers and retail customers using catalog, insert and
direct mail as a method of advertising. Veritiv’s brokerage businesses, Bulkley Dunton and Graphic
Communications, act in a consulting capacity in the selection of products as well as providing print management
services and solutions.
• Packaging – The packaging market is fragmented and consists of competition from national and regional packaging
distributors, national and regional manufacturers of packaging materials, independent brokers and both catalog-
based and online business-to-business suppliers. Veritiv believes there are few national packaging distributors with
substrate neutral design capabilities similar to the Company’s capabilities.
• Facility Solutions – There are few national, but numerous regional and local distributors of facility supply solutions.
Several groups of distributors have created strategic alliances among multiple distributors to provide broader
geographic coverage for larger customers. Other key competitors include the business-to-business divisions of big
box stores, purchasing group affiliates and both catalog-based and online business-to-business suppliers.
We believe that our competitive advantages include over 1,800 sales and marketing professionals and the breadth of
our selection of quality products, including high-quality private brands. The breadth of products distributed and services
offered, the diversity of the types of customers served, and our broad geographic footprint in the U.S., Canada and Mexico
buffer the impact of regional economic declines while also providing a network to readily serve national accounts.
Distribution and Logistics
Timely and accurate delivery of a customer’s order, on a consistent basis, are important criteria in a customer’s
decision to purchase products and services from Veritiv. Delivery of products is provided through two primary channels,
either from the Company’s warehouses or directly from the manufacturer. Our distribution centers offer a range of delivery
options depending on the customer’s needs and preferences, and the strategic placement of the distribution centers also
allows for delivery of special or "rush" orders to many customers.
5
Working Capital
Veritiv's working capital needs generally reflect the need to carry significant amounts of inventory in our distribution
centers to meet delivery requirements of our customers, as well as significant accounts receivable balances. As is typical in
our industry, our customers often do not pay upon receipt, but are offered terms which are heavily dependent on the specific
circumstances of the sale.
Employees
As of December 31, 2016, Veritiv had approximately 8,700 employees worldwide, of which approximately 10%
were covered by collective bargaining agreements. Labor contract negotiations are handled on an individual basis by a team
of Veritiv Human Resources and Legal personnel. Approximately 20% of the Company’s unionized employees have
collective bargaining agreements that expire during 2017. We currently expect that we will be able to renegotiate such
agreements on satisfactory terms. We consider labor relations to be good.
Government Relations
As a distributor, our transportation operations are subject to the U.S. Department of Transportation Federal Motor
Carrier Safety Regulations. We are also subject to federal, state and local regulations regarding licensing and inspection of
facilities, including compliance with the U.S. Occupational Safety and Health Act. These regulations require us to comply
with health and safety standards to protect our employees from accidents and establish communication programs to transmit
information on the hazards of certain chemicals present in specific products that we distribute.
We are also subject to regulation by numerous U.S., Canadian and Mexican federal, state and local regulatory
agencies, including, but not limited to, the U.S. Department of Labor, which sets employment practice standards for workers.
Although we are subject to other U.S., Canadian and Mexican federal, state and local provisions relating to the protection of
the environment and the discharge or destruction of materials, these provisions do not materially impact the use or operation
of the Company’s facilities. Compliance with these laws has not had, and is not anticipated to have, a material effect on
Veritiv’s capital expenditures, earnings or competitive position.
Intellectual Property
We have numerous well-recognized trademarks, represented primarily by our private label brands. Most of our
trademark registrations are effective for an initial period of 10 years, and we generally renew our trademark registrations
before their expiration dates for trademarks that are in use or have reasonable potential for future use. Although our Print,
Packaging and Facility Solutions segments rely on a number of trademarks that, in the aggregate, provide important
protections to the Company, no single trademark is material to any one of these segments. See the Products and Services
section above for additional information regarding our private label brand sales.
Veritiv does not have any material patents or licenses.
Seasonality
The Company’s operating results are subject to seasonal influences. Historically, our higher consolidated net sales
occur during the third and fourth quarters while our lowest consolidated net sales occur during the first quarter. 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. The Packaging segment net sales tend to increase each quarter throughout the year and net sales for
the first quarter are typically 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 be highest during the third quarter due to increased summer demand in the away-from-
home resort, cruise and hospitality markets and activities related to back-to-school.
6
Executive Officers of the Company
The following table sets forth certain information concerning the individuals who serve as executive officers of the
Company as of March 1, 2017.
Name
Mary A. Laschinger
Stephen J. Smith
Charles B. Henry
Mark W. Hianik
Thomas S. Lazzaro
Barry R. Nelson
Elizabeth A. Patrick
Tracy L. Pearson
Adam W. Taylor
Daniel J. Watkoske
Age Position
56
53
52
56
53
52
49
46
38
48
Chairman and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Senior Vice President Corporate Services
Senior Vice President, General Counsel and Corporate Secretary
Senior Vice President Field Sales and Operations
Senior Vice President Facility Solutions
Senior Vice President and Chief Human Resources Officer
Senior Vice President Packaging
Senior Vice President and Chief Strategy Officer
Senior Vice President Print and Veritiv Services
The following descriptions of the business experience of our executive officers include the principal positions held by
them since March 2012.
Mary A. Laschinger has served as Chairman and Chief Executive Officer of the Company since July 2014. Ms.
Laschinger also served as Senior Vice President of International Paper Company, a global packaging and paper
manufacturing company, from 2007 to July 2014 and as President of its xpedx distribution business from January 2010 to
July 2014. Ms. Laschinger previously served as President of International Paper’s Europe, Middle East, Africa and Russia
business, Vice President and General Manager of International Paper’s Wood Products and Pulp businesses and in other
senior management roles at International Paper in sales, marketing, manufacturing and supply chain. Ms. Laschinger joined
International Paper in 1992. Prior to joining International Paper, Ms. Laschinger held various positions in product
management and distribution at James River Corporation and Kimberly-Clark Corporation. Ms. Laschinger has significant
knowledge and executive management experience running domestic and international manufacturing and distribution
businesses as well as a deep understanding of Veritiv and the industry in which it operates. Ms. Laschinger also serves as a
director of Kellogg Company and the Federal Reserve Bank of Atlanta.
Stephen J. Smith has served as Senior Vice President and Chief Financial Officer of the Company since March 2014.
Previously, Mr. Smith served as Senior Vice President and Chief Financial Officer of American Greetings Corporation, a
global greeting card company, from November 2006 to March 2014. Previously, Mr. Smith served as Vice President of
Investor Relations and Treasurer of American Greetings from April 2003 to November 2006. Prior to American Greetings,
Mr. Smith served as Vice President and Treasurer of General Cable Corporation, a global wire and cable manufacturer and
distributer, and Vice President, Treasurer and Assistant Secretary of Insilco Holding Company, a telecommunications and
electrical component products manufacturer. During Mr. Smith’s tenure as a public company chief financial officer, he helped
lead several strategic acquisitions and was responsible for the design and execution of the capital structure for a management
buyout.
Charles B. Henry has served as Senior Vice President Corporate Services since March 2016. Previously, Mr. Henry
served as Senior Vice President Commercial Excellence and Enterprise Initiatives of the Company from January 2016 to
March 2016. Previously, Mr. Henry served as Senior Vice President Integration and Change Management of the Company
from July 2014 to December 2015. Prior to that, Mr. Henry served as Vice President, Strategy Management and Integration
of xpedx from March 2013 to July 2014 and was a member of the xpedx Senior Lead Team. Prior to that, he served as
Director of the xpedx Strategy Management Office from February 2011 to March 2013. Prior to that, he served as a Director
in International Paper’s Supply Chain Project Management Office. Mr. Henry joined International Paper in 1986 and served
in a variety of supply chain, sales and general management roles within International Paper’s Program Management Office,
Printing and Communications Papers business and Global Supply Chain operations. Mr. Henry has significant strategy and
project management experience in the manufacturing and distribution industries.
Mark W. Hianik has served as Senior Vice President, General Counsel and Corporate Secretary of the Company since
January 2014. Previously, Mr. Hianik served as Senior Vice President, General Counsel and Chief Administrative Officer for
7
Dex One Corporation, an advertising and marketing services company, from March 2012 to May 2013. Prior to that Mr.
Hianik served as Senior Vice President, General Counsel and Corporate Secretary for Dex One (and its predecessor, R.H.
Donnelley Corporation) from April 2008 to March 2012. R.H. Donnelley filed for voluntary reorganization under Chapter 11
of the U.S. Bankruptcy Code in May 2009 emerging with a confirmed plan as Dex One in January 2010 and Dex One filed a
pre-packaged bankruptcy petition under Chapter 11 in March 2013 to effect a merger consummated in April 2013. Mr.
Hianik previously served as Vice President and Assistant General Counsel for Tribune Company, a diversified media
company, and as a corporate and securities partner in private practice. Mr. Hianik has significant experience as a public
company general counsel and leader of corporate administrative functions as well as significant mergers and acquisitions,
securities, corporate finance and corporate governance experience.
Thomas S. Lazzaro has served as Senior Vice President Field Sales and Operations of the Company since July 2014.
In this role, Mr. Lazzaro leads the Supply Chain and the Field Sales organizations. Previously, Mr. Lazzaro served as
Executive Vice President, Supply Chain of xpedx from March 2013 to July 2014 and was a member of the xpedx Senior Lead
Team. Mr. Lazzaro joined xpedx in January 2011 as Executive Vice President and Chief Procurement Officer, responsible for
all aspects of the purchasing organization. Prior to xpedx, Mr. Lazzaro was a senior executive with HD Supply, The Home
Depot and General Electric. Mr. Lazzaro has significant experience in general management, supply chain, operations and
finance in the manufacturing and distribution industries.
Barry R. Nelson has served as Senior Vice President Facility Solutions of the Company since December 2015.
Previously, Mr. Nelson served as Senior Vice President Publishing and Print Management of the Company from July 2014 to
December 2015. Prior to that, Mr. Nelson served as Group Vice President, Sales-Publishing for xpedx from December 2012
to July 2014. From August 2002 to December 2012, Mr. Nelson served as Senior Vice President of Sales and Marketing for
NewPage Corporation, a paper manufacturing company. NewPage filed for voluntary reorganization under Chapter 11 of the
U.S. Bankruptcy Code in September 2011 and emerged with a confirmed plan in December 2012. Previously, Mr. Nelson
served as Executive Vice President of Sales, Marketing and Client Delivery at ForestExpress, a technology joint venture of
leading forest product companies. Mr. Nelson has significant sales and sales leadership experience in the paper
manufacturing and distribution industries.
Elizabeth A. Patrick has served as Senior Vice President and Chief Human Resources Officer of the Company since
July 2014. Prior to that, Ms. Patrick served as Vice President, Human Resources, of xpedx from March 2013 to July 2014
and was a member of International Paper Company’s Human Resources & Communications Lead Team and the xpedx Senior
Lead Team. Prior to that, she served as Director, Human Resources-Field Operations of xpedx from October 2012 to March
2013. Previously, Ms. Patrick served as Vice President of Human Resources of TE Connectivity, a global electronics
manufacturing and distribution company, from April 2008 to October 2012. Previously, Ms. Patrick served as Vice President
Human Resources of Guilford Mills, Inc., an automotive and specialty markets fabrics manufacturer, and in a variety of roles
of increased responsibility with General Motors Company and GM spin-off, Delphi Corporation, a global automotive parts
manufacturer. Ms. Patrick has significant human resources management and leadership experience.
Tracy L. Pearson has served as Senior Vice President Packaging of the Company since October 2016. Prior to that,
Ms. Pearson served as Vice President and General Manager, South Area, for the Container the Americas business of
International Paper Company, a global paper and packaging manufacturing company, from May 2016 to October 2016. Prior
to that, Ms. Pearson served as Vice President and General Manager for the Foodservice packaging business of International
Paper from August 2011 to May 2016. Ms. Pearson joined International Paper in 1994 and served in a variety of sales,
supply chain, marketing, process engineering, product development, and sales and general management roles within
International Paper’s packaging and print businesses. Ms. Pearson has significant experience in general management, sales
and sales management, and supply chain in the packaging and paper manufacturing and distribution industries.
Adam W. Taylor has served as Senior Vice President and Chief Strategy Officer of the Company since September
2015. Previously, Mr. Taylor served as Vice President Strategy, Innovation and Corporate Development for Office Depot, a
global office supply company, from July 2014 to September 2015. From June 2008 to July 2014, Mr. Taylor held several
strategy and business development roles with AT&T, a multinational telecommunications company, including Director -
Strategy and Corporate Development M&A, Director - Innovation Portfolio and Associate Director - Leadership
Development Program. Previously, Mr. Taylor co-founded and operated two separate medical communications software
companies and served in strategy and M&A advisory roles with operating companies and private equity firms. Mr. Taylor has
significant strategy, innovation, corporate development and mergers and acquisitions experience with global businesses.
8
Daniel J. Watkoske has served as Senior Vice President Print of the Company since July 2014 and, since October
2016, has also served as Senior Vice President of Veritiv Services. Prior to that, Mr. Watkoske served as Executive Vice
President Sales for xpedx from January 2011 to July 2014 and was a member of the xpedx Senior Lead Team. Prior to that,
Mr. Watkoske served as Group Vice President for the xpedx Metro New York Group from January 2008 to January 2011.
Previously, Mr. Watkoske served as Vice President National Accounts for xpedx. Mr. Watkoske joined International Paper in
1989 as a sales trainee for Nationwide Papers, which later became part of xpedx. Mr. Watkoske has significant sales, sales
management and operations experience in the paper and packaging distribution industries.
We have been advised that there are no family relationships among any of our executive officers or directors and that
there is no arrangement or understanding between any of our executive officers and any other persons pursuant to which they
were appointed, respectively, as an executive officer.
Company Information
Veritiv was incorporated in Delaware on July 10, 2013. Our principal executive offices are located at 1000
Abernathy Road NE, Building 400, Suite 1700, Atlanta, Georgia 30328.
Our corporate website is http://www.veritivcorp.com. Information contained on our website is not part of this
Annual Report on Form 10-K. Through the "Investor Relations" portion of this website, we make available, free of charge,
our proxy statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
other relevant filings with the SEC and any amendments to those reports as soon as reasonably practicable after such material
has been filed with, or furnished to, the SEC. These filings are also accessible on the SEC's website at http://www.sec.gov.
ITEM 1A. RISK FACTORS
You should carefully consider the following risk factors, together with the other information contained in this report, in
evaluating us and an investment in our common stock. The risks described below are the material risks, although not the
only risks, relating to us and our common stock. If any of the following risks and uncertainties develop into actual events,
these events could have a material adverse effect on our business, financial condition, results of operations or cash flows.
Risks Relating to Our Business
The industry-wide decline in demand for paper and related products could have a material adverse effect on our
financial condition and results of operations.
Our Print and Publishing businesses rely heavily on the sale of paper and related products. The industry-wide decrease
in demand for paper and related products in key markets we serve places continued pressure on our revenues and profit
margins and makes it more difficult to maintain or grow earnings. This trend is expected to continue. The failure to
effectively differentiate us from our competitors and the failure to grow the Packaging and Facility Solutions businesses in
the face of increased use of email, increased and permanent product substitution, including less print advertising, more
electronic billing, more e-commerce, fewer catalogs and a reduced volume of mail, could have a material adverse effect on
market share, sales and profitability through increased expenditures or decreased prices.
Competition in our industry may adversely impact our margins and our ability to retain customers and make it
difficult to maintain our market share and profitability.
The business-to-business distribution industry is highly competitive, with numerous regional and local competitors, and
is a mature industry characterized by slowing revenue growth. Our principal competitors include regional and local
distributors in the Print segment; regional, national and international paper manufacturers and other merchants and brokers in
the Publishing segment; national distributors, national and regional manufacturers and independent brokers in the Packaging
segment; and national, regional and local distributors in the Facility Solutions segment. Most of these competitors generally
offer a wide range of products at prices comparable to those we offer. Additionally, new competition could arise from non-
traditional sources, group purchasing organizations, e-commerce, discount wholesalers or consolidation among competitors.
New competitive sources may result in increased focus on pricing and on limiting price increases, or may require increased
discounting. Such competition may result in margin erosion or make it difficult to attract and retain customers.
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Increased competition within the industry, reduced demand for paper, increased and permanent product substitution
through less print advertising, more electronic billing, more e-commerce, fewer catalogs, a reduced volume of mail and
general economic conditions has served to further increase pressure on the industry’s profit margins, and continued margin
pressure within the industry may have a material adverse impact on our operating results and profitability.
Adverse developments in general business and economic conditions as well as conditions in the global capital and
credit markets could have a material adverse effect on the demand for our products and our financial condition and
results of operations.
The persistently slow rate of increase in the U.S. gross domestic product ("GDP") in recent years has adversely affected
our results of operations. If GDP continues to increase at a slow rate or if economic growth declines, demand for the
products we sell will be adversely affected. In addition, volatility in the global capital and credit markets, which impacts
interest rates, currency exchange rates and the availability of credit, could have a material adverse effect on the business,
financial condition and results of operations of our company and our customers. We have exposure to counterparties with
which we routinely execute transactions. Such counterparties include customers and financial institutions. A bankruptcy or
liquidity event by one or more of our counterparties could have a material adverse effect on our business, financial condition
and results of operations.
In order to compete, we must attract, train and retain highly qualified employees, and the failure to do so could have
a material adverse effect on our results of operations.
To successfully compete, we must attract, train and retain a large number of highly qualified employees while
controlling related labor costs. Specifically, we must recruit and retain qualified sales professionals. If we were to lose a
significant amount of our sales professionals, we could lose a material amount of sales, which would have a material adverse
effect on our financial condition and results of operations. Many of our sales professionals are subject to confidentiality and
non-competition agreements. If our sales professionals were to violate these agreements, we could seek to legally enforce
these agreements, but we may incur substantial costs in connection with such enforcement and may not be successful in such
enforcement. We compete with other businesses for employees and invest significant resources in training and motivating
them. There is no assurance that we will be able to attract or retain highly qualified employees. The inability to retain or hire
qualified personnel at economically reasonable compensation levels would restrict our ability to improve our business and
result in lower operating results and profitability.
Our business may be adversely affected by work stoppages, union negotiations and labor disputes.
Approximately 10% of our employees are currently covered by collective bargaining or other similar labor agreements.
Historically, the effects of collective bargaining and other similar labor agreements have not been significant. However, if a
larger number of our employees were to unionize, including in the wake of any future legislation or administrative regulation
that makes it easier for employees to unionize, the effect may be negative. Any inability to negotiate acceptable new
contracts under these collective bargaining arrangements could cause strikes or other work stoppages, and new contracts
could result in increased operating costs. If any such strikes or other work stoppages occur, or if additional employees
become represented by a union, a disruption of our operations and higher labor costs could result. Labor relations matters
affecting our suppliers of products and services could also adversely affect our business from time to time.
The loss of any of our significant customers could adversely affect our financial condition.
Our ten largest customers generated approximately 9% of our consolidated net sales for the year ended December 31,
2016, and our largest customer accounted for approximately 3% of our consolidated net sales in that same period. We cannot
guarantee that we will maintain or improve our relationships with these customers or that we will continue to supply these
customers at historic levels.
Generally, our customers are not contractually required to purchase any minimum amount of products. Should such
customers purchase products sold by us in significantly lower quantities than they have in the past, such decreased purchases
could have a material adverse effect on our financial condition, operating results and cash flows.
In addition, consolidation among customers could also result in changes to the purchasing habits and volumes among
some of our present customers. The loss of one or more of these significant customers, a significant customer’s decision to
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purchase our products in substantially lower quantities than they have in the past, or a deterioration in the relationship with
any of these customers could adversely affect our financial condition, operating results and cash flows.
Changes in business conditions in our international operations could adversely affect our business and results of
operations.
Our operating results and business prospects could be substantially affected by risks related to Canada, Mexico and
other non-U.S. countries where we sell and distribute our products. Some of our operations are in or near locations that have
suffered from political, social and economic issues; civil unrest; and a high level of criminal activity. In those locations
where we have employees or operations, we may incur substantial costs to maintain the safety of our personnel and the
security of our operations. Downturns in economic activity, adverse tax consequences or any change in social, political or
labor conditions in any of the countries in which we operate could negatively affect our financial results. In addition, our
international operations are subject to regulation under U.S. law and other laws related to operations in foreign jurisdictions.
For example, the Foreign Corrupt Practices Act of 1977 (the "FCPA") prohibits U.S. companies and their representatives
from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining
business abroad. Failure to comply with domestic or foreign laws could result in various adverse consequences, including the
imposition of civil or criminal sanctions and the prosecution of executives overseeing our international operations.
We purchase all of the products we sell to our customers from other parties, and conditions beyond our control can
interrupt our supplies and increase our product costs.
As a distributor, we obtain our packaging, paper and facility products from third-party suppliers. Our business and
financial results are dependent on our ability to purchase products from suppliers not controlled by us that we, in turn, sell to
our customers. We may not be able to obtain the products we need on open credit, with market or other favorable terms, or at
all. During the year ended December 31, 2016, approximately 47% of our purchases were made from ten suppliers. A
sustained disruption in our ability to source products from one or more of the largest of these vendors might have a material
impact on our ability to fulfill customer orders resulting in lost sales and, in rare cases, damages for late or non-delivery.
For the most part, we do not have a significant number of long-term contracts with our suppliers committing them to
provide products to us. Suppliers may not provide the products and supplies needed in the quantities and at the prices and
times requested. We are also subject to delays caused by interruption in production and increases in product costs based on
conditions outside of our control. These conditions include raw material shortages, environmental restrictions on operations,
work slowdowns, work interruptions, strikes or other job actions by employees of suppliers, product recalls, transportation
interruptions, unavailability of fuel or increases in fuel costs, competitive demands and natural disasters or other catastrophic
events. Our inability to obtain adequate supplies of paper, packaging and facility products as a result of any of the foregoing
factors or otherwise could mean that we could not fulfill our obligations to customers, and customers may turn to other
distributors.
In addition, increases in product costs may reduce our margins if we are unable to pass all or a portion of these costs
along to our customers, which we have historically had difficulty doing. Any such inability may have a negative impact on
our business and our profitability.
Changes in prices for raw materials, including pulp, paper and resin, could negatively impact our results of
operations and cash flows.
Changes in prices for raw materials, such as pulp, paper and resin, could significantly impact our results of operations
in the print market. Although we do not produce paper products and are not directly exposed to risk associated with
production, declines in pulp and paper prices, driven by falling secular demand, periods of industry overcapacity and
overproduction by paper suppliers, may adversely affect our revenues and net income to the extent such factors produce
lower paper prices. Declining pulp and paper prices generally produce lower revenues and profits, even when volume and
trading margin percentages remain constant. During periods of declining pulp and paper prices, customers may alter
purchasing patterns and defer paper purchases or deplete inventory levels until long-term price stability occurs. Alternatively,
if prices for raw materials rise and we are unable to pass these increases on to our customers, our results of operations and
profits may also be negatively impacted.
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We may not be able to fully compensate for increases in fuel costs.
Volatile fuel prices have a direct impact on our industry. The cost of fuel affects the price paid by us for products as
well as the costs incurred to deliver products to our customers. Although we have been able to pass along a portion of
increased fuel costs to our customers in the past, there is no guarantee that we can continue to do so. As such, we may
experience difficulties in passing all or a portion of these costs along to our customers, which may have a negative impact on
our business and our profitability.
Inclement weather, anti-terrorism measures and other disruptions to the transportation network could impact our
distribution system and operations.
Our ability to provide efficient distribution of products to our customers is an integral component of our overall
business strategy. Disruptions at distribution centers or shipping ports or the closure of roads or imposition of other driving
bans due to natural events such as flooding, tornadoes and blizzards may affect our ability to both maintain key products in
inventory and deliver products to our customers on a timely basis, which may in turn adversely affect our results of
operations.
Furthermore, in the aftermath of terrorist attacks in the United States, federal, state and local authorities have
implemented and continue to implement various security measures that affect many parts of the transportation network in the
U.S. and abroad. Our customers typically require delivery of products in short time frames and rely on our on-time delivery
capabilities. If security measures disrupt or impede the timing of our deliveries, we may fail to meet the needs of our
customers, or may incur increased expenses to do so. Any of these disruptions to our operations may reduce our sales and
have an adverse effect on our business, financial condition and results of operations.
We are dependent on a variety of IT and telecommunications systems and the Internet, and any failure of these
systems could adversely impact our business and operating results.
We depend on information technology ("IT") and telecommunications systems and the Internet for our operations.
These systems support a variety of functions including inventory management, order placement and processing with vendors
and from customers, shipping, shipment tracking and billing. Our information systems are vulnerable to natural disasters,
wide-area telecommunications or power utility outages, terrorist or cyber-attacks and other major disruptions and our
redundant information systems may not operate effectively.
Failures or significant downtime of our IT or telecommunications systems for any reason, including as a result of
disruptions from integrating the xpedx and Unisource businesses, could prevent us from taking customer orders, printing
product pick-lists, shipping products, billing customers and handling call volume. Sales also may be adversely impacted if
our reseller and retail customers are unable to access pricing and product availability information. We also rely on the
Internet, electronic data interchange and other electronic integrations for a large portion of our orders and information
exchanges with our suppliers and customers. The Internet and individual websites have experienced a number of disruptions
and slowdowns, some of which were caused by organized attacks. In addition, some websites have experienced security
breakdowns. If we were to experience a security breakdown, disruption or breach that compromised sensitive information, it
could harm our relationships with our suppliers and customers. Disruption of our website or the Internet in general could
impair our order processing or more generally prevent our suppliers and resellers from accessing information. Failures of our
systems could also lead to delivery delays and may expose us to litigation and penalties under some of our contracts. Any
significant increase in our IT and telecommunications costs or temporary or permanent loss of our IT or telecommunications
systems, including as a result of disruptions from integrating the xpedx and Unisource businesses, could harm our
relationships with our customers and suppliers and result in lost sales, business delays and bad publicity. The occurrence of
any of these events could have a material adverse effect on our business, financial condition and results of operations.
We are subject to cyber-security risks related to breaches of security pertaining to sensitive company, customer,
employee and vendor information as well as breaches in the technology that manages operations and other business
processes.
Our operations rely upon secure IT systems for data capture, processing, storage and reporting. Our IT systems, and
those of our third-party providers, could become subject to cyber-attacks. Network, system, application and data breaches
could result in operational disruptions or information misappropriation including, but not limited to, interruption of systems
availability, or denial of access to and misuse of applications required by our customers to conduct business with us. Access
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to internal applications required to plan our operations, source materials, ship finished goods and account for orders could be
denied or misused. Theft of intellectual property or trade secrets, and inappropriate disclosure of confidential information,
could stem from such incidents. Any operational disruptions or misappropriation of information could harm our relationship
with our customers and suppliers, result in lost sales, business delays and negative publicity and could have a material
adverse effect on our business, financial condition and results of operations.
Costs to comply with environmental, health and safety laws, and to satisfy any liability or obligation imposed under
such laws, could negatively impact our business, financial condition and results of operations.
Our operations are subject to U.S. and international environmental, health and safety laws, including laws regulating the
emission or discharge of materials into the environment, the use, storage, treatment, disposal and management of hazardous
substances and waste, the investigation and remediation of contamination and the health and safety of our employees and the
public. We could incur substantial fines or sanctions, enforcement actions (including orders limiting our operations or
requiring corrective measures), investigation, remediation and closure costs and third-party claims for property damage and
personal injury as a result of violations of, or liabilities or obligations under, environmental, health and safety laws. We could
be held liable for the costs to address contamination at any real property we have ever owned, operated or used as a disposal
site.
In addition, changes in, or new interpretations of, existing laws, the discovery of previously unknown contamination, or
the imposition of other environmental liabilities or obligations in the future, may lead to additional compliance or other costs
that could impact our business and results of operations. Moreover, as environmental issues, such as climate change, have
become more prevalent, U.S. and foreign governments have responded, and are expected to continue to respond, with
increased legislation and regulation, which could negatively impact our business, financial condition and results of
operations.
Expenditures related to the cost of compliance with laws, rules and regulations could adversely impact our business
and results of operations.
Our operations are subject to U.S. and international laws and regulations, including regulations of the U.S. Department
of Transportation Federal Motor Carrier Safety Administration, the import and export of goods, customs regulations, Office
of Foreign Asset Control and the FCPA. Expenditures related to the cost of compliance with laws, rules and regulations
could adversely impact our business and results of operations. In addition, we could incur substantial fines or sanctions,
enforcement actions (including orders limiting our operations or requiring corrective measures), and third-party claims for
property damage and personal injury as a result of violations of, or liabilities under, laws, regulations, codes and common
law. Proposed comprehensive tax reform as described in the June 2016 U.S. House Republican Blueprint, with lower
statutory rates, various base broadening measures and a border tax adjustment, may be enacted in the near future. Veritiv's
effective tax rate and deferred tax assets are likely to be impacted if this tax reform proposal is enacted.
Tax assessments and unclaimed property audits by governmental authorities could adversely impact our operating
results.
We remit a variety of taxes and fees to various governmental authorities, including federal and state income taxes,
excise taxes, property taxes, sales and use taxes and payroll taxes. The taxes and fees remitted by us are subject to review
and audit by the applicable governmental authorities which could result in liability for additional assessments. In addition,
we are subject to unclaimed property (escheat) laws which require us to turn over to certain government authorities the
property of others held by us that has been unclaimed for a specified period of time. We are subject to audit by individual
U.S. states with regard to our escheatment practices. The legislation and regulations related to tax and unclaimed property
matters tend to be complex and subject to varying interpretations by both government authorities and taxpayers. Although
management believes that the positions we have taken are reasonable, various taxing authorities may challenge certain of the
positions we have taken, which may also potentially result in additional liabilities for taxes, unclaimed property, interest and
penalties in excess of accrued liabilities. Our positions are reviewed as events occur such as the availability of new
information, the lapsing of applicable statutes of limitations, the conclusion of tax audits, the measurement of additional
estimated liabilities based on current calculations, the identification of new tax contingencies or the rendering of relevant
court decisions. An unfavorable resolution of assessments by a governmental authority could have a material adverse effect
on our financial condition, results of operations and cash flows in future periods.
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Our inability to renew existing leases on acceptable terms, negotiate rent decreases or concessions and identify
affordable real estate could adversely affect our operating results.
We may be unable to successfully negotiate or renew existing leases at attractive rents, negotiate rent decreases or
concessions or identify affordable real estate. A key factor in our operating performance is the location and associated real
estate costs of our distribution centers. In particular, approximately 34 of our lease and sublease agreements expire in June
2018 which accounted for approximately 19% of our total operating leased square footage as of December 31, 2016. Our
inability to negotiate or renew these or any other leases on favorable terms, or at all, could have a material adverse effect on
our business and results of operations due to, among other things, any resultant increased lease payments.
Results of legal proceedings could have a material adverse effect on our consolidated financial statements.
We rely on manufacturers and other suppliers to provide us with the products and equipment we sell, distribute and
service. As we do not have direct control over the quality of the products manufactured or supplied by such third-party
suppliers, we are exposed to risks relating to the quality of the products and equipment we sell, distribute and service. It is
possible that inventory from a manufacturer or supplier could be sold to our customers and later be alleged to have quality
problems or to have caused personal injury, subjecting us to potential claims from customers or third parties. Our ability to
hold such manufacturer or supplier liable will depend on a variety of factors, including its financial viability. Moreover, as
we increase the number of private label products we distribute, our exposure to potential liability for product liability claims
may increase. Finally, even if we are successful in defending any claim relating to the products or equipment we distribute,
claims of this nature could negatively impact our reputation and customer confidence in our products, equipment and
company. We have been subject to such claims in the past, which have been resolved without material financial impact. We
also operate a significant number of facilities and a large fleet of trucks and other vehicles and therefore face the risk of
premises-related liabilities and vehicle-related liabilities including traffic accidents.
From time to time, we may also be involved in government inquiries and investigations, as well as class action,
employment and other litigation. We cannot predict with certainty the outcomes of these legal proceedings and other
contingencies, including environmental remediation and other proceedings commenced by government authorities. The costs
and other effects of pending litigation against us cannot be determined with certainty. There can be no assurance that the
outcome of any lawsuit or claim or its effect on our business or financial condition will be as expected. The defense of these
lawsuits and claims may divert our management’s attention, and significant expenses may be incurred as a result. In addition,
we may be required to pay damage awards or settlements, or become subject to injunctions or other equitable remedies, that
could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Although we currently maintain insurance coverage to address some of these types of liabilities, we cannot make
assurances that we will be able to obtain such insurance on acceptable terms in the future, if at all, or that any such insurance
will provide adequate coverage against potential claims. In addition, we may choose not to seek to obtain such insurance in
the future. Moreover, indemnification rights that we have may be insufficient or unavailable to protect us against potential
loss exposures.
We may not be able to adequately protect our material intellectual property and other proprietary rights, or to defend
successfully against intellectual property infringement claims by third parties.
Our ability to compete effectively depends in part upon our intellectual property rights, including but not limited to
trademarks, copyrights and proprietary technology. The use of contractual provisions, confidentiality procedures and
agreements, and trademark, copyright, unfair competition, trade secret and other laws to protect intellectual property rights
and proprietary technology may not be adequate. Litigation may be necessary to enforce our intellectual property rights and
protect proprietary technology, or to defend against claims by third parties that our conduct or our use of intellectual property
infringes upon such third-party’s intellectual property rights. Any intellectual property litigation or claims brought against us,
whether or not meritorious, could result in substantial costs and diversion of our resources, and there can be no assurances
that favorable final outcomes will be obtained. The terms of any settlement or judgment may require us to pay substantial
amounts to the other party or cease exercising our rights in such intellectual property, including ceasing the use of certain
trademarks used by us to distinguish our services from those of others or ceasing the exercise of our rights in copyrightable
works. In addition, we may be required to seek a license to continue practices found to be in violation of a third-party’s
rights, which may not be available on reasonable terms, or at all. Our business, financial condition or results of operations
could be adversely affected as a result.
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Our pension and health care costs are subject to numerous factors which could cause these costs to change.
Our pension costs are dependent upon numerous factors resulting from actual plan experience and assumptions of
future experience, including actuarial assumptions regarding life expectancies. Pension plan assets are primarily made up of
equity and fixed income investments. Fluctuations in actual equity market returns, changes in general interest rates and
changes in the number of retirees may result in increased pension costs in future periods. Significant changes in any of these
factors may adversely impact our cash flows, financial condition and results of operations.
We participate in multi-employer pension plans and multi-employer health and welfare plans, which could create
additional obligations and payment liabilities.
We contribute to multi-employer defined benefit pension plans as well as multi-employer health and welfare plans
under the terms of collective bargaining agreements that cover certain unionized employee groups in the United States. The
risks of participating in multi-employer pension plans differ from single employer-sponsored plans and such plans are subject
to regulation under the Pension Protection Act (the "PPA"). Multi-employer pension plans are cost-sharing plans subject to
collective-bargaining agreements. Contributions to a multi-employer plan by one employer are not specifically earmarked
for its employees and may be used to provide benefits to employees of other participating employers. If a participating
employer stops contributing to the plan, the unfunded obligations of the plan are borne by the remaining participating
employers. In addition, if a multi-employer plan is determined to be underfunded based on the criteria established by the
PPA, the plan may be required to implement a financial improvement plan or rehabilitation plan that may require additional
contributions or surcharges by participating employers.
In addition to the contributions discussed above, we could be obligated to pay additional amounts, known as withdrawal
liabilities, upon decrease or cessation of participation in a multi-employer pension plan. Although an employer may obtain
an estimate of such liability, the final calculation of the withdrawal liability may not be able to be determined for an extended
period of time. Generally, the cash obligation of such withdrawal liability is payable over a 20 year period.
Our substantial indebtedness could adversely affect our financial condition and impair our ability to operate our
business.
As of December 31, 2016, we had approximately $774.7 million in total indebtedness, reflecting borrowings of $726.9
million under the asset-based lending facility (the "ABL Facility"), $22.6 million of financing obligations to a related party
(exclusive of the non-monetary portion) and $25.2 million of equipment capital lease and other obligations. This level of
indebtedness could have important consequences to our financial condition, operating results and business, including the
following:
•
•
•
limiting our ability to obtain additional debt or equity financing for working capital, capital expenditures, debt
service requirements, acquisitions and general corporate or other purposes;
increasing our cost of borrowing;
requiring that a substantial portion of our cash flows from operations be dedicated to payments on our indebtedness
instead of other purposes, including operations, capital expenditures and future business opportunities;
• making it more difficult for us to make payments on our indebtedness or satisfy other obligations;
•
exposing us to risk of (i) increased interest rates on our borrowings in excess of our interest rate cap and (ii)
increased interest rates of up to 3% on our borrowings covered by our interest rate cap because all of our borrowings
under the ABL Facility are at variable rates of interest;
limiting our ability to make the expenditures necessary to complete the integration of xpedx’s business with
Unisource’s business;
limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared
to our competitors that have less debt; and
increasing our vulnerability to a downturn in general economic conditions or in our business, and making us unable
to carry out capital spending that is important to our growth.
•
•
•
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Despite our substantial indebtedness, we may still be able to incur substantially more indebtedness in the future.
This could further exacerbate the risks to our financial condition described above.
We may be able to incur significant additional indebtedness in the future, including secured indebtedness. Although the
agreements governing the ABL Facility contain restrictions on the incurrence of additional indebtedness, these restrictions are
subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these
restrictions could be substantial. If new indebtedness is added to our current indebtedness levels, the related risks we will
face could intensify.
The agreements governing our indebtedness contain restrictive covenants, which could restrict our operational
flexibility.
The agreements governing the ABL Facility contain restrictions and limitations on our ability to engage in activities that
may be in our long-term best interests, including financial and other restrictive covenants that could limit our ability to:
incur additional indebtedness or guaranties, or issue certain preferred shares;
pay dividends, redeem stock or make other distributions;
repurchase, prepay or redeem subordinated indebtedness;
create liens;
•
•
•
• make investments or acquisitions;
•
• make negative pledges;
•
•
•
•
consolidate or merge with another company;
sell or otherwise dispose of all or substantially all of our assets;
enter into certain transactions with affiliates; and
change the nature of our business.
The agreements governing the ABL Facility also contain other restrictions customary for asset-based facilities of this
nature.
Our ability to borrow additional amounts under the ABL Facility will depend upon satisfaction of these covenants.
Events beyond our control could affect our ability to meet these covenants. Our failure to comply with obligations under the
agreements governing the ABL Facility may result in an event of default under those agreements. A default, if not cured or
waived, may permit acceleration of our indebtedness. If our indebtedness is accelerated, we cannot be certain that we will
have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated
indebtedness on terms favorable to us or at all. This could have serious consequences to our business, financial condition and
operating results and could cause us to become bankrupt or insolvent.
Risks Relating to the Spin-off and Merger
We may not realize the anticipated synergies, cost savings and growth opportunities from the Merger.
The benefits that we expect to achieve as a result of the Merger will depend, in part, on our ability to realize anticipated
growth opportunities, cost savings and other synergies. Our success in realizing these growth opportunities, cost savings and
synergies, and the timing of this realization, depends on the successful integration of the xpedx and Unisource businesses.
Even if we are able to integrate the xpedx and Unisource businesses successfully, this integration may not result in the
realization of the full benefits of the growth opportunities and cost savings and other synergies that we currently expect from
this integration within the anticipated time frame or at all. For example, we may be unable to eliminate duplicative costs.
Moreover, we have incurred and will continue to incur substantial expenses in connection with the integration of xpedx’s and
Unisource’s businesses. Such expenses are difficult to estimate accurately and may exceed current estimates. Accordingly,
the benefits from the Merger may be offset by costs or delays incurred in integrating the businesses.
The integration of the xpedx business with the Unisource business following the Transactions may present
significant challenges.
There is a significant degree of difficulty and management distraction inherent in the process of integrating the xpedx
and Unisource businesses. These include:
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•
•
•
•
the challenge of integrating the xpedx and Unisource businesses and carrying on the ongoing operations of each
business;
the challenge of integrating the business cultures of each company;
the challenge and cost of integrating the IT systems of each company; and
the potential difficulty in retaining key employees and sales personnel of xpedx and Unisource.
The integration process could cause an interruption of, or loss of momentum in, the activities of our business and may
require us to incur substantial out-of-pocket costs. Members of our senior management have devoted and will continue to
devote considerable amounts of time and attention to the integration process, which, in turn, decreases the time they will have
to manage our company, service existing customers, attract new customers and develop new services or strategies.
We cannot assure you that we will successfully or cost-effectively integrate the xpedx and Unisource businesses. The
failure to do so could have a material adverse effect on our business, financial condition and results of operations.
We have incurred and continue to incur significant costs and charges associated with the Transactions that could
affect our period-to-period operating results.
Through December 31, 2016, we have incurred approximately $193.9 million in costs and charges associated with
the Transactions, including approximately $65.9 million for capital expenditures and $7.5 million related to the complete or
partial withdrawal from various multi-employer pension plans. We anticipate that we will incur additional costs and charges
associated with the Transactions. We are not able to quantify the total amount of these costs and charges or the period in
which they will be incurred as the operating plans affecting these costs are evolving and charges relating to withdrawal from
multi-employer pension plans are uncertain. Excluding the multi-employer pension plan withdrawal charges, we currently
anticipate that total costs associated with the Transactions will be approximately $225 to $250 million over the five years
following the Transactions. The amount and timing of these costs and charges could adversely affect our period-to-period
operating results, which could result in a reduction in the market price of shares of our common stock. Moreover, delays in
completing the integration may reduce or delay the synergies and other benefits expected from the Transactions and such
reduction may be material.
If costs to integrate our IT infrastructure and network systems are more than amounts that have been budgeted, our
business, financial condition and results of operations could be adversely affected.
We expect to incur additional costs associated with achieving anticipated cost savings and other synergies from the
Transactions. Some of these costs will consist of information technology infrastructure, systems integration and planning.
The primary areas of spending will be integrating our financial, operational and human resources systems. We expect that a
portion of these expenditures will be capitalized. Such expenditures and other costs could adversely affect our business,
financial condition and results of operations.
If the Spin-off does not qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code (the "Code"),
including as a result of subsequent acquisitions of stock of International Paper or our company, then International Paper
and/or the International Paper shareholders may be required to pay substantial U.S. federal income taxes.
In connection with the Transactions, International Paper received a private letter ruling from the Internal Revenue
Service ("IRS") to the effect that the Spin-off and certain related transactions will qualify as tax-free to International Paper
and the International Paper shareholders for U.S. federal income tax purposes. Although a private letter ruling from the IRS
generally is binding on the IRS, the IRS ruling does not rule that the Spin-off satisfies every requirement for a tax-free spin-
off under Section 355 of the Code, and we and International Paper relied solely on the opinion of counsel for comfort that
such additional requirements are satisfied. We also received an opinion of counsel to the effect that the Spin-off will qualify
as tax-free to International Paper and the International Paper shareholders. This opinion relied on the IRS ruling as to matters
covered by the IRS ruling.
The IRS ruling and such opinion were based on, among other things, certain representations and assumptions as to
factual matters made by us, International Paper and UWWH, including assumptions concerning Section 355(e) of the Code
as discussed below. The failure of any factual representation or assumption to be true, correct and complete in all material
respects could adversely affect the validity of the IRS ruling or such opinion. An opinion of counsel represents counsel’s best
legal judgment, is not binding on the IRS or the courts, and the IRS or the courts may not agree with the opinion. In addition,
17
the IRS ruling and such opinion were based on then current law, and cannot be relied upon if current law changes with
retroactive effect.
If the Spin-off does not qualify as a tax-free spin-off under Section 355 of the Code, then the receipt of our common
stock would be taxable to the International Paper shareholders, International Paper might recognize a substantial gain on the
Spin-off, and we may be required to indemnify International Paper for the tax on such gain pursuant to the Tax Matters
Agreement we entered into with International Paper in connection with the Spin-off.
In addition, the Spin-off will be taxable to International Paper pursuant to Section 355(e) of the Code if there is a 50%
or more change in ownership of either International Paper or our company, directly or indirectly, as part of a plan or series of
related transactions that include the Spin-off. Because the International Paper shareholders collectively owned more than
50% of our common stock upon the Merger, the Merger alone will not cause the Spin-off to be taxable to International Paper
under Section 355(e) of the Code. However, Section 355(e) of the Code might apply if other acquisitions of stock of
International Paper before or after the Merger, or of our company after the Merger, are considered to be part of a plan or
series of related transactions that include the Spin-off. If Section 355(e) of the Code applied, then International Paper might
recognize a substantial amount of taxable gain, and we may be required to indemnify International Paper for the tax on such
gain pursuant to the Tax Matters Agreement.
If the Merger does not qualify as a tax-free reorganization under Section 368(a) of the Code, or if the Subsidiary
Merger does not qualify as a transfer of property to Unisource under Section 351(a) of the Code, then we may be required
to pay substantial U.S. federal income taxes.
In connection with the Transactions, we received an opinion of counsel to the effect that the Merger will qualify as a
tax-free reorganization under Section 368(a) of the Code and UWWH received an opinion of counsel to the effect that the
merger of xpedx Intermediate with and into Unisource (the "Subsidiary Merger" and, collectively with the Merger the
"Mergers") will qualify as a transfer of property to Unisource under Section 351(a) of the Code. In addition, International
Paper received private letter rulings from the IRS to the effect that the Merger will qualify as a tax-free reorganization under
Section 368(a) of the Code and that the Subsidiary Merger will qualify as a transfer of property to Unisource under Section
351(a) of the Code. Although a private letter ruling from the IRS generally is binding on the IRS, the IRS rulings do not rule
that the Merger satisfies every requirement for a tax-free reorganization under Section 368(a) of the Code, or that the
Subsidiary Merger satisfies every requirement for a transfer of property to Unisource under Section 351(a) of the Code. The
parties involved have each relied on an opinion of counsel for comfort that such additional requirements are satisfied.
The IRS rulings and such opinions were based on, among other things, certain representations and assumptions as to
factual matters made by us, International Paper and UWWH. The failure of any factual representation or assumption to be
true, correct and complete in all material respects could adversely affect the validity of the respective IRS rulings and such
opinions. An opinion of counsel represents counsel’s best legal judgment, is not binding on the IRS or the courts, and the
IRS or the courts may not agree with the opinion. In addition, the IRS rulings and such opinions were based on then current
law, and cannot be relied upon if current law changes with retroactive effect.
If the Merger does not qualify as a tax-free reorganization under Section 368(a) of the Code, then UWWH would be
considered to have made a taxable sale of its assets to us and we would be required to pay the U.S. federal income tax on the
gain, if any, arising from such taxable sale as a result of being the surviving corporation in the Merger.
If the Subsidiary Merger does not qualify as a transfer of property to Unisource under Section 351(a) of the Code, then
we would be considered to have made a taxable sale of the assets of xpedx Intermediate to Unisource, and we may either be
required to pay the U.S. federal income tax on such sale or to indemnify International Paper for the U.S. federal income tax
on such sale pursuant to the Tax Matters Agreement.
We are generally obligated to pay the UWWH Stockholder an amount equal to 85% of the tax savings arising from
pre-Merger net operating loss ("NOL") carryforwards, and our ability to use such NOL carryforwards to offset future
taxable income may be subject to limitations, including as a result of an ownership change under Section 382 of the Code.
Unisource had, and we acquired, substantial NOLs for U.S. federal, state and Canadian income tax purposes. Pursuant
to the Tax Receivable Agreement, between the Company and the UWWH Stockholder, which is more fully described in Note
9 of the Notes to Consolidated and Combined Financial Statements, we are generally obligated to pay the UWWH
Stockholder an amount equal to 85% of the U.S. federal, state and Canadian income tax savings, if any, that we actually
18
realize with respect to taxable periods (or portions thereof) beginning after the date of the Merger as a result of the utilization
of Unisource’s net operating losses attributable to taxable periods prior to the date of the Merger. The utilization of
Unisource’s NOLs, tax credits and other tax attributes depends on the timing and amount of taxable income earned by our
company in the future and a lack of future taxable income would adversely affect our ability to utilize these tax attributes.
Tax attributes are generally subject to expiration at various times in the future to the extent that they have not previously been
applied to offset the taxable income of our company, and there is a risk that our existing NOL carryforwards could expire
unused and be unavailable to offset future income tax liabilities.
The Merger resulted in an ownership change for Unisource under Section 382 of the Code, limiting the use of
Unisource’s NOLs to offset future taxable income for both U.S. federal and state income tax purposes. Moreover, future
trading of our stock by our significant shareholders may result in additional ownership changes as defined under Section 382
of the Code, further limiting the use of Unisource's NOLs. These limitations may affect the timing of when these NOLs may
be used which, in turn, may impact the timing and amount of cash taxes payable by our company which could impair our
deferred tax assets and reduce the amount payable under the Tax Receivable Agreement.
Significant judgment is required in evaluating the need for and magnitude of appropriate valuation allowances against
deferred tax assets. The realization of these assets is dependent on generating future taxable income, as well as successful
implementation of various tax planning strategies. Although we believe that the judgments and estimates with respect to the
valuation allowances are appropriate and reasonable under the circumstances, actual results could differ from projected
results, which could give rise to additions to valuation allowances or reductions in valuation allowances. It is possible that
such changes could have a material adverse effect on the amount of income tax expense (benefit) recorded in our
consolidated statement of operations.
Risks Relating to Our Common Stock
Our stock price may fluctuate significantly.
The market price of our common stock may fluctuate widely, depending on many factors, some of which may be
beyond our control, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated fluctuations in the operating results of our company due to factors related to our business;
success or failure of the strategy of our company;
the quarterly or annual earnings of our company, or those of other companies in our industry;
continued industry-wide decrease in demand for paper and related products;
our ability to obtain third-party financing as needed;
announcements by us or our competitors of significant acquisitions or dispositions;
restrictions on our ability to pay dividends under our ABL Facility;
changes in accounting standards, policies, guidance, interpretations or principles;
the operating and stock price performance of other comparable companies;
investor perception of our company;
natural or environmental disasters that investors believe may affect our company;
overall market fluctuations;
results from any material litigation or government investigation;
changes in laws and regulations affecting our company or any of the principal products sold by our company; and
general economic and political conditions and other external factors.
Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a
particular company. These broad market fluctuations could adversely affect the trading price of our common stock.
If securities or industry analysts do not continue to publish research or publish unfavorable research about our
company, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts
publish about us and our business. If the current coverage of our company by securities or industry analysts ceases, the
trading price for our stock would be negatively impacted. In addition, if one or more of these analysts downgrades our stock
or publishes misleading or unfavorable research about our business, our stock price would likely decline. If one or more of
19
these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could
decrease, which could cause our stock price or trading volume to decline.
A few shareholders may exert significant control over the direction of our company. Ownership of our common
stock is highly concentrated as a result of the Transactions and could prevent shareholders from influencing significant
corporate decisions.
As a result of the Transactions and subsequent secondary offering by the UWWH Stockholder, controlled by Bain
Capital, the UWWH Stockholder beneficially owns 38.8% of our outstanding common stock as of December 31, 2016. As a
result, the UWWH Stockholder exercises, and will continue to exercise, significant influence over all matters requiring
shareholder approval for the foreseeable future, including approval of significant corporate transactions, which may reduce
the market price of our common stock. The interests of the UWWH Stockholder may conflict with the interests of our other
shareholders. Our board of directors has adopted corporate governance guidelines that, among other things, address potential
conflicts between a director’s interests and our interests. In addition, we have adopted a code of business conduct that,
among other things, requires our employees to avoid actions or relationships that might conflict or appear to conflict with
their job responsibilities or our interests and to disclose their outside activities, financial interests or relationships that may
present a possible conflict of interest or the appearance of a conflict to management or corporate counsel. These corporate
governance guidelines and code of business ethics do not, by themselves, prohibit transactions with our principal
shareholders.
Under our amended and restated certificate of incorporation (our "charter"), the UWWH Stockholder, Bain Capital
Fund VII, L.P. and their respective affiliates and, in some circumstances, any of our directors and officers who is also a
director, officer, employee, member or partner of the UWWH Stockholder, Bain Capital Fund VII, L.P. and their
respective affiliates, have no obligation to offer us corporate opportunities.
The policies relating to corporate opportunities and transactions with the UWWH Stockholder, Bain Capital Fund VII,
L.P. and their respective affiliates set forth in our charter address potential conflicts of interest between us, on the one hand,
and the UWWH Stockholder, Bain Capital Fund VII, L.P., their respective affiliates and their respective officers and directors
who are directors or officers of our company, on the other hand. Although these provisions are designed to resolve conflicts
between us and the UWWH Stockholder, Bain Capital Fund VII, L.P. and their respective affiliates fairly, conflicts may not
be so resolved.
Anti-takeover provisions in our charter and amended and restated by-laws (our "by-laws") could discourage, delay
or prevent a change of control of our company and may affect the trading price of our common stock.
Our charter and by-laws include a number of provisions that may discourage, delay or prevent a change in our
management or control over us that shareholders may consider favorable. For example, our charter and by-laws collectively:
•
•
•
•
•
•
•
authorize the issuance of "blank check" preferred stock that could be issued by our board of directors to thwart a
takeover attempt;
limit the ability of shareholders to remove directors;
provide that vacancies on our board of directors, including vacancies resulting from an enlargement of our board of
directors, may be filled only by a majority vote of directors then in office;
prohibit shareholders from calling special meetings of shareholders unless called by the holders of not less than 20%
of our outstanding shares of common stock;
prohibit shareholder action by written consent, unless initiated by the holders of not less than 20% of the outstanding
shares of common stock;
establish advance notice requirements for nominations of candidates for election as directors or to bring other
business before an annual meeting of our shareholders; and
require the approval of holders of at least a majority of the outstanding shares of our common stock to amend our
by-laws and certain provisions of our charter.
These provisions may prevent our shareholders from receiving the benefit from any premium to the market price of our
common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these
provisions may adversely affect the prevailing market price of our common stock if the provisions are viewed as
discouraging takeover attempts in the future.
20
Our charter and by-laws may also make it difficult for shareholders to replace or remove our management. These
provisions may facilitate management entrenchment that may delay, deter, render more difficult or prevent a change in our
control, which may not be in the best interests of our shareholders.
We have not historically paid dividends on our common stock and, consequently, your ability to achieve a return on
your investment will depend on appreciation in the price of our common stock.
We have not historically declared or paid dividends on our common stock. We currently intend to invest our future
earnings, if any, to fund our growth, to develop our business, for working capital needs, to reduce debt and for general
corporate purposes. Therefore, the success of an investment in shares of our common stock will depend upon any future
appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain
their current value.
Any decision to pay dividends in the future will be at the discretion of Veritiv's board of directors and will depend
upon various factors then existing, including earnings, financial condition, results of operations, capital requirements, level of
indebtedness, restrictions imposed by applicable law, general business conditions and other factors that Veritiv's board of
directors may deem relevant. In addition, our operations are conducted almost entirely through our subsidiaries. As such, to
the extent that we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to
make funds available to us for the payment of dividends. Further, the agreements governing our ABL Facility can, and
agreements governing future indebtedness may, in certain circumstances, restrict the ability of our subsidiaries to pay
dividends or otherwise transfer assets to us.
A significant percentage of our outstanding common stock is held by a single shareholder, which could impact your
liquidity, and future sales of our common stock by this shareholder may lower our stock price.
As noted above, the UWWH Stockholder, which is jointly owned by Bain Capital and Georgia-Pacific, owns 38.8%
of our outstanding common stock as of December 31, 2016. Continuation of this concentrated ownership could result in a
limited amount of shares being available to be traded in the market, resulting in reduced liquidity.
The shares held by the UWWH Stockholder are restricted securities within the meaning of Rule 144 under the
Securities Act of 1933 (the “Securities Act”) and are eligible for resale in the public market without registration subject to
volume, manner of sale and holding period limitations under Rule 144 under the Securities Act. Further, pursuant to the
Registration Rights Agreement, dated as of July 1, 2014, between the UWWH Stockholder and the Company, we registered
for resale under the Securities Act all of the shares of our common stock owned by the UWWH Stockholder and, subject to
certain limitations, such shares may be offered and sold to the public in the future. If and when some or all of these shares are
sold, or if it is perceived that they will be sold, the market price of our common stock could decline.
Our charter designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation
that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum
for disputes with us.
Our charter provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any
derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to
us or our shareholders by any of our directors, officers, employees or agents, (iii) any action asserting a claim against us
arising under the Delaware General Corporation Law or (iv) any action asserting a claim against us that is governed by the
internal affairs doctrine. The choice of forum provision in our charter may limit our shareholders’ ability to obtain a
favorable judicial forum for disputes with us.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
21
ITEM 2. PROPERTIES
As of December 31, 2016, we had a distribution network operating from approximately 170 distribution centers, of
which approximately 150 were leased and 20 were owned. Our leased locations comprise approximately 18.0 million square
feet while our owned locations comprise approximately 2.2 million square feet.
These facilities are strategically located throughout the U.S., Canada and Mexico in order to efficiently serve our
customer base in the surrounding areas while also facilitating expedited delivery services for special orders. We continually
evaluate location, size and attributes to maximize efficiency, deliver top quality customer service and achieve economies of
scale.
The Company also leases various office spaces for corporate and sales functions.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various lawsuits, claims, and regulatory and administrative
proceedings arising out of its business relating to general commercial and contractual matters, governmental regulations,
intellectual property rights, labor and employment matters, tax and other actions.
Although the ultimate outcome of any legal proceeding or investigation cannot be predicted with certainty, based on
present information, including the Company's assessment of the merits of the particular claim, the Company does not expect
that any asserted or unasserted legal claims or proceedings, individually or in the aggregate, will have a material adverse
effect on its cash flow, results of operations or financial condition.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Veritiv's common stock is publicly traded on the New York Stock Exchange ("NYSE") under the symbol VRTV. As
of March 9, 2017, there were 6,416 shareholders of record. The number of record holders does not include shareholders who
are beneficial owners, but whose shares are held in street name by brokers and other nominees.
The following table sets forth, for the quarterly reporting periods indicated, the high and low market prices per share
for the Company's common stock, as reported on the NYSE.
2016
2015
High
Low
High
Low
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
$
$
$
39.23
42.25
52.49
56.70
$
$
$
$
27.44
34.10
37.05
43.00
$
$
$
$
54.50
45.68
39.04
44.80
$
$
$
$
43.82
35.05
32.77
35.72
Veritiv has not historically paid dividends on its common stock. The Company currently intends to invest its future
earnings, if any, to fund its growth, to develop its business, for working capital needs, to reduce debt and for general
corporate purposes. Any payment of dividends will be at the discretion of Veritiv's board of directors and will depend upon
various factors then existing, including earnings, financial condition, results of operations, capital requirements, level of
indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by applicable law, general
business conditions and other factors that Veritiv's board of directors may deem relevant.
22
On November 23, 2016, the UWWH Stockholder, one of Veritiv's existing stockholders and the former parent
company of Unisource Worldwide, Inc., sold 1.76 million shares of Veritiv common stock in an underwritten public offering.
Concurrently with the closing of the offering, Veritiv repurchased 0.31 million of these offered shares from the underwriters
at a price of $42.8625 per share, which is the price at which the underwriters purchased such shares from the selling
stockholder, for an aggregate purchase price of approximately $13.4 million. The Company may repurchase additional shares
in the future, however, there is currently no share repurchase authorization plan approved by the Company's Board of
Directors.
Performance Graph
The following graph provides a comparison of the cumulative shareholder return on the Company's common stock
to the returns of the Russell 2000 Index and the average performance of a group consisting of the Company's peer companies
(the "Peer Group") based on total shareholder return from June 18, 2014 (the first day Veritiv's common stock began "when-
issued" trading on the NYSE) through December 31, 2016. Companies included in the Peer Group are as follows:
• Anixter International Inc.
• Genuine Parts Company
• Applied Industrial Technologies, Inc.
• Graphic Packaging Holding Company
• Resolute Forest Products Inc.
• ScanSource, Inc.
• Arrow Electronics, Inc.
• InnerWorkings Inc.
• Sealed Air Corporation
• Avery Dennison Corporation
• International Paper Company
• Sonoco Products Company
• Avnet, Inc.
• Kaman Corporation
• Staples, Inc.
• Bemis Company, Inc.
• KapStone Paper and Packaging
• W.W. Grainger, Inc.
• Brady Corporation
• Deluxe Corporation
• Domtar Corporation
• Ennis Inc.
• Essendant Inc.
• Fastenal Company
Corporation
• MSC Industrial Direct Co. Inc.
• WESCO International Inc.
• WestRock Company
• Neenah Paper, Inc.
• Office Depot, Inc.
• Packaging Corporation of America
• PH Glatfelter Company
• R.R. Donnelley & Sons Company
Wausau Paper Corporation was removed from the Peer Group due to its acquisition by SCA in January 2016.
The graph is not, and is not intended to be, indicative of future performance of our common stock. The graph
assumes $100 invested on June 18, 2014 in the Company, the Russell 2000 Index and the Peer Group. Total return indices
reflect reinvestment of dividends and are weighted on the basis of market capitalization at the time of each reported data
point.
23
Comparison of 31 Month Cumulative Total Return
Among Veritiv Corporation, the Russell 2000 Index and Peer Group
Veritiv Corporation
Russell 2000 Index
Peer Group
$160
$150
$140
$130
$120
$110
$100
$90
$80
24
ITEM 6. SELECTED FINANCIAL DATA
The following table presents the selected historical consolidated and combined financial data for Veritiv and should
be read in conjunction with Item 7 of this report and the audited Consolidated and Combined Financial Statements and notes
thereto contained in Item 8 of this report. The Consolidated and Combined Statements of Operations data for the years ended
December 31, 2016, 2015 and 2014 and the Consolidated Balance Sheets data as of December 31, 2016 and 2015 set forth
below are derived from the audited Consolidated and Combined Financial Statements included in Item 8 of this report.
The Consolidated Balance Sheets data as of December 31, 2014 are derived from Veritiv's audited Consolidated and
Combined Financial Statements for 2014 which are not included in this report. The Combined Statements of Operations data
for the years ended December 31, 2013 and 2012 and the Combined Balance Sheets data as of December 31, 2013 and 2012
are derived from xpedx's audited combined financial statements which are not included in this report.
During 2011, xpedx ceased its Canadian operations, which had provided distribution of printing supplies to
Canadian-based customers. Additionally, xpedx ceased its printing press distribution business, which was located in the U.S.
Both of these businesses were historically included in xpedx's Print segment. The impact of these restructuring efforts carried
over into 2012 and are reported here as discontinued operations.
The financial information may not be indicative of Veritiv's future performance and the financial information
presented for the years prior to 2015 does not necessarily reflect what the financial condition and results of operations would
have been had Veritiv operated as a separate, stand-alone entity during those periods.
25
(in millions, except per share data)
Statements of Operations Data
Net sales
Cost of products sold
Distribution expenses
Selling and administrative expenses
Depreciation and amortization
Merger and integration expenses
Restructuring charges
Operating income (loss)
Income tax expense (benefit)
Income (loss) from continuing operations
Income (loss) from discontinued operations,
net of income taxes
Net income (loss)
Earnings (loss) per share(2):
Basic
Continuing operations
Discontinued operations
Basic earnings (loss) per share
Diluted
Continuing operations
Discontinued operations
Diluted earnings (loss) per share
Balance Sheets Data (at period end)
$
$
$
$
As of and for the Year Ended December 31,
2016
2015
2014(1)
2013
2012
$
8,326.6
$
8,717.7
$
7,406.5
$
5,652.4
$ 6,012.0
6,826.4
505.1
826.2
7,160.3
521.8
853.9
54.7
25.9
12.4
75.9
19.8
21.0
—
21.0
1.31
—
1.31
1.30
—
1.30
$
$
$
$
56.9
34.9
11.3
78.6
18.2
26.7
—
26.7
1.67
—
1.67
1.67
—
1.67
$
$
$
$
6,180.9
426.2
689.1
37.6
75.1
4.0
(6.4)
(2.1)
(19.5)
(0.1)
(19.6)
(1.61) $
(0.01)
(1.62) $
(1.61) $
(0.01)
(1.62) $
4,736.8
5,036.7
314.2
548.2
17.1
—
37.9
(1.8)
0.4
0.0
0.2
0.2
0.00
0.02
0.02
0.00
0.02
0.02
$
$
$
$
324.0
580.6
14.0
—
35.1
21.6
9.1
14.4
(10.0)
4.4
1.76
(1.23)
0.53
1.76
(1.23)
0.53
Accounts receivable, net
$
1,048.3
$
1,037.5
$
1,115.1
$
669.7
$ 680.6
360.9
373.4
1,256.9
1,307.9
—
—
—
—
—
—
16.9
Inventories
Total assets
Long-term debt, net of current maturities
Financing obligations to related party, less
current portion
Defined benefit pension obligations
707.9
2,483.7
749.2
176.1
27.6
720.6
2,476.9
800.5
197.8
28.7
673.2
2,574.5
855.0
212.4
36.3
Other non-current liabilities
(1) Includes the operating results of Unisource for the six months ended December 31, 2014.
(2) See Note 13 of the Notes to Consolidated and Combined Financial Statements for discussion about the shares of common stock utilized in the
computation of basic and diluted earnings per share for the years ended December 31, 2016, 2015 and 2014.
107.2
105.6
121.2
12.5
26
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company’s results of operations and financial condition should be read in
conjunction with the Consolidated and Combined Financial Statements and Notes thereto, included elsewhere in this report.
The financial information discussed below and included in this report for the year ended December 31, 2014 may not
necessarily reflect what Veritiv's financial condition, results of operations or cash flows would have been had Veritiv been a
stand-alone company during this period or what Veritiv's financial condition, results of operations and cash flows may be in
the future.
References in the Consolidated and Combined Financial Statements to "International Paper" or "Parent" refer to
International Paper Company.
Executive Overview
Business Overview
Veritiv is a leading North American business-to-business distributor of print, publishing, packaging, and facility
solutions. Additionally, Veritiv provides logistics and supply chain management solutions to its customers. Established in
2014, following the merger of xpedx and UWWH, the Company operates from approximately 170 distribution centers
primarily throughout the U.S., Canada and Mexico.
Veritiv's business is organized under four reportable segments: Print, Publishing, Packaging and Facility Solutions.
This segment structure is consistent with the way the Chief Operating Decision Maker makes operating decisions and manages
the growth and profitability of the Company’s business. The following summary describes the products and services offered
in each of the segments:
• Print – The Print segment sells and distributes commercial printing, writing, copying, digital, wide format and
specialty paper products, graphics consumables and graphics equipment primarily in the U.S., Canada and Mexico.
This segment also includes customized paper conversion services of commercial printing paper for distribution to
document centers and form printers. The Company's broad geographic platform of operations coupled with the
breadth of paper and graphics products, including its exclusive private brand offerings, provides a foundation to
service national, regional and local customers across North America.
• Publishing – The Publishing segment sells and distributes coated and uncoated commercial printing papers to
publishers, retailers, converters, printers and specialty businesses for use in magazines, catalogs, books, directories,
gaming, couponing, retail inserts and direct mail. This segment also provides print management, procurement and
supply chain management solutions to simplify paper and print procurement processes for its customers.
• Packaging – The Packaging segment provides standard as well as custom and comprehensive packaging solutions for
customers based in North America and in key global markets. The business is strategically focused on higher growth
industries including light industrial/general manufacturing, food production, fulfillment and internet retail, as well as
niche verticals based on geographical and functional expertise. Veritiv’s packaging professionals create customer
value through supply chain solutions, structural and graphic packaging design and engineering, automation, workflow
and equipment services, contract packaging, 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 we
manage a world class network of leading suppliers in most facilities solutions categories. Additionally, we offer 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.
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 its Veritiv logistics solutions business which provides transportation
and warehousing solutions.
27
The Spin-off and Merger
On July 1, 2014 (the "Distribution Date"), International Paper completed the spin-off of xpedx to the International
Paper shareholders (the "Spin-off"), forming a new public company called Veritiv. Immediately following the Spin-off,
UWWH merged with and into Veritiv (the "Merger"). Prior to the Distribution Date, Veritiv’s financial position, results of
operations and cash flows consisted of only the xpedx business of International Paper and were derived from International
Paper’s historical accounting records. The financial results of xpedx have been presented on a carve-out basis through the
Distribution Date, while the financial results for Veritiv, post Spin-off, are prepared on a stand-alone basis.
As such, the audited Consolidated and Combined Financial Statements as of and for the year ended December 31,
2014 consist of the consolidated results of Veritiv on a stand-alone basis for the six months ended December 31, 2014 and the
combined results of operations of xpedx for the six months ended June 30, 2014 on a carve-out basis.
For periods prior to the Spin-off, the combined financial statements include expense allocations for certain functions
previously provided by International Paper. See Note 1 of the Notes to Consolidated and Combined Financial Statements for
further information.
Results of Operations, Including Business Segments
The following discussion compares the consolidated and combined operating results of Veritiv for the years ended
December 31, 2016, 2015 and 2014.
Comparison of the Years Ended December 31, 2016, 2015 and 2014
Year Ended December 31,
2016 vs. 2015
2015 vs. 2014
(in millions)
Net sales
2016
2015
$ 8,326.6
$ 8,717.7
2014
$ 7,406.5
Cost of products sold (exclusive of depreciation and
amortization shown separately below)
6,826.4
7,160.3
6,180.9
Distribution expenses
Selling and administrative expenses
Depreciation and amortization
Merger and integration expenses
Restructuring charges
Operating income (loss)
Interest expense, net
Other expense, net
Income (loss) from continuing operations before
income taxes
Income tax expense (benefit)
Income (loss) from continuing operations
(Loss) from discontinued operations, net of income
taxes
Net income (loss)
* - not meaningful
Net Sales
505.1
826.2
521.8
853.9
54.7
25.9
12.4
75.9
27.5
7.6
40.8
19.8
21.0
—
56.9
34.9
11.3
78.6
27.0
6.7
44.9
18.2
26.7
—
$
21.0
$
26.7
$
426.2
689.1
37.6
75.1
4.0
(6.4)
14.0
1.2
(21.6)
(2.1)
(19.5)
(0.1)
(19.6)
Increase
(Decrease) %
Increase
(Decrease) %
(4.5)%
(4.7)%
(3.2)%
(3.2)%
(3.9)%
(25.8)%
9.7 %
(3.4)%
1.9 %
13.4 %
(9.1)%
8.8 %
(21.3)%
*
(21.3)%
17.7 %
15.8 %
22.4 %
23.9 %
51.3 %
(53.5)%
182.5 %
*
92.9 %
*
*
*
*
*
*
•
•
2016 compared to 2015: Net sales declined by $391.1 million, or 4.5%, primarily due to declines in the Print and
Publishing reportable segments. See the “Segment Results” section for additional discussion.
2015 compared to 2014: Net sales increased due primarily to the net sales contribution of $1,798.8 million, or 24.3%,
from the Merger. Excluding the impact of the Merger, net sales declined by $487.6 million, or 6.6%, due to declines in
28
the Print, Publishing and Facility Solutions reportable segments. Effective January 1, 2016, the Company harmonized
its shipping terms to be f.o.b. destination. Previously, certain revenue transactions for the legacy xpedx business were
designated as f.o.b. shipping point. Management determined that any shipments in transit at December 31, 2015
would honor the f.o.b. destination terms resulting in a reduction of $27.0 million in net sales for the year ended
December 31, 2015. This change in shipping terms primarily impacts the Print and Publishing segments as they have
a larger percentage of revenue derived from direct shipment from the supplier to the customer.
Cost of Products Sold
•
•
2016 compared to 2015: Cost of products sold decreased by $333.9 million, or 4.7%, primarily due to the decline in
sales as previously discussed. See the “Segment Results” section for additional discussion.
2015 compared to 2014: Cost of products sold increased due primarily to incremental costs of $1,456.3 million, or
23.6%, attributable to the Merger. This increase was partially offset by a $476.9 million, or 7.7%, decrease in cost of
products sold primarily driven by a decline in sales as previously discussed. The above-noted change in shipping
terms resulted in a reduction to cost of products sold of $24.4 million for the year ended December 31, 2015.
Distribution Expenses
•
•
2016 compared to 2015: Distribution expenses decreased by $16.7 million or 3.2%. The decline was mainly driven by
(i) a $6.3 million decrease in facilities expenses due primarily to warehouse consolidations, (ii) a $5.9 million decrease
in personnel costs due primarily to reductions in temporary employee expense, and (iii) a $5.3 million decrease in
vehicle operating expenses primarily driven by reductions in third party freight expense and fuel.
2015 compared to 2014: Distribution expenses increased due primarily to incremental expenses of $121.8 million, or
28.6%, attributable to the Merger. Excluding the impact of the Merger, distribution expenses decreased by $26.2
million, or 6.1%. The decline was driven by (i) a $16.8 million decrease in vehicle operation expenses due primarily
to reductions in fuel and third-party freight expenses, (ii) a $4.7 million decrease in facilities expenses primarily driven
by warehouse consolidations, (iii) a $1.8 million decrease in personnel costs due to lower sales volumes, (iv) a $1.1
million decrease in temporary labor and (v) a $1.8 million decrease in various other expenses.
Selling and Administrative Expenses
•
•
2016 compared to 2015: Selling and administrative expenses decreased by $27.7 million or 3.2%. The decrease was
primarily attributed to (i) a $11.2 million decrease in commission expense due in part to lower sales volume and (ii) a
$13.6 million decrease in incentive compensation. In 2013, xpedx advanced funds to commissioned sales
representatives to compensate them for a change in the timing of commission payments. During 2016, the Company
recovered $6.0 million of those advances which further reduced commission expense. These decreases were partially
offset by $5.8 million of impairment charges attributable to the Publishing and Print segment's customer relationship
intangible assets.
2015 compared to 2014: Selling and administrative expenses increased due primarily to incremental expenses of
$194.7 million, or 28.3%, from the Merger. Excluding the impact of the Merger, selling and administrative expenses
decreased by $29.9 million, or 4.3%. The decrease was primarily attributed to (i) a $16.4 million decrease in
personnel costs driven primarily by a restructuring of the corporate general and administrative functions, (ii) a $5.4
million decline in bad debt expense primarily driven by the Print segment, (iii) a $4.6 million benefit related to the
removal of International Paper overhead allocations, (iv) a $1.6 million decrease in facility expense primarily
attributed to a decrease in rent expense, (v) a $1.4 million decrease in travel and entertainment expense and (vi) a $0.4
million decrease in various other expenses. The above noted change in shipping terms resulted in a reduction to
selling and administrative expenses of $0.8 million for the year ended December 31, 2015.
Depreciation and Amortization Expenses
•
2016 compared to 2015: Depreciation and amortization expense decreased $2.2 million primarily due to $2.4 million
of amortization for intangible assets acquired in the Merger that were fully amortized as of June 30, 2015.
•
2015 compared to 2014: Depreciation and amortization expense increased primarily due to the Merger.
29
Merger and Integration Expenses
During the years ended December 31, 2016 and 2015, Veritiv incurred costs to integrate the combined businesses of
xpedx and Unisource. Integration expenses include professional services and project management fees, internally dedicated
integration management resources, retention compensation, information technology conversion costs, rebranding costs and
other costs to integrate the combined businesses of xpedx and Unisource.
During the year ended December 31, 2014, Veritiv incurred merger and integration expenses related primarily to:
advisory, legal and other professional fees directly associated with the Merger, integration-related professional services and
project management fees, retention compensation, certain termination benefits (including change-in-control bonuses),
rebranding and other costs to integrate the combined businesses of xpedx and Unisource.
See Note 3 of the Notes to Consolidated and Combined Financial Statements for a breakdown of the major
components of these costs.
Restructuring Charges
Restructuring charges relate primarily to Veritiv's restructuring of its North American operations intended to integrate
the legacy xpedx and Unisource operations, generate cost savings and capture synergies across the combined company. During
the fourth quarter of 2014, the Company initiated the process of consolidating warehouse and customer service locations of the
legacy organizations as well as realigning its field and sales management function. As a result, the Company incurred
restructuring charges for employee termination benefits, asset impairments and other direct costs. See Note 3 of the Notes to
Consolidated and Combined Financial Statements for additional details. The Company may continue to record restructuring
charges in the future as these activities progress.
Interest Expense, Net
Interest expense, net in 2016 consisted of (i) $18.6 million of interest expense on the ABL Facility, (ii) $5.6 million for
amortization of deferred financing costs related to the ABL Facility and (iii) $3.3 million in miscellaneous interest expense.
The increase in 2016 is due primarily to an additional $1.9 million of deferred financing cost amortization resulting from an
amendment to the ABL Facility. See Note 5 of the Notes to Consolidated and Combined Financial Statements for additional
information related to the ABL Facility. This increase was offset by lower miscellaneous interest expense.
Interest expense, net in 2015 consisted of (i) $18.7 million of interest expense on the ABL Facility, (ii) $4.4 million for
amortization of deferred financing costs related to the ABL Facility and (iii) $3.9 million in miscellaneous interest expense.
The increase in 2015 is due primarily to 2015 having a full year of expense while 2014 only had six months of expense. Prior
to the Merger, xpedx did not incur any interest expense.
Interest expense, net in 2014 consisted of (i) $9.2 million of interest expense on the ABL Facility, (ii) $2.2 million for
amortization of deferred financing costs related to the ABL Facility, (iii) $1.1 million attributable to financing obligations to
related party and (iv) $1.5 million in miscellaneous other interest expense.
Effective Tax Rate
Veritiv's effective tax rate was 48.5%, 40.5% and 9.7% for the years ended December 31, 2016, 2015 and 2014
respectively. The difference between the Company’s effective tax rate and the U.S. statutory tax rate of 35% primarily relates
to non-deductible expenses, state income taxes, the Company's income (loss) by jurisdiction and changes in the valuation
allowance against deferred tax assets. Additionally, the effective tax rate for the year ended 2015 includes the recognition of a
$1.2 million U.S. tax benefit with respect to a foreign exchange loss on the capitalization of an intercompany loan with the
Company's Canadian subsidiary. The historic volatility of the Company's effective tax rate has been primarily due to both the
level of pre-tax income as well as variations in the Company's income (loss) by jurisdiction. Over time and with increasing pre-
tax income, the Company estimates its effective tax rate will trend toward approximately 40%. However, the effective tax rate
may vary significantly due to potential fluctuations in the amount and source, including both foreign and domestic, of pre-tax
income and changes in amounts of non-deductible expenses and other items that could impact the effective tax rate. See Note 8
of the Notes to Consolidated and Combined Financial Statements for additional details.
Segment Results
Adjusted EBITDA 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. This common
metric is intended to align shareholders, debt holders and management. Adjusted EBITDA is a non-GAAP financial measure
30
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").
Veritiv uses Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, restructuring
charges, stock-based compensation expense, LIFO (income) expense, non-restructuring asset impairment charges, non-
restructuring severance charges, non-restructuring pension charges, merger and integration expenses, fair value adjustments on
the contingent liability associated with the Tax Receivable Agreement ("TRA") and certain other adjustments) because Veritiv
believes investors commonly use Adjusted EBITDA as a key financial metric for valuing companies. In addition, the credit
agreement governing the ABL Facility (as defined in the Notes to Consolidated and Combined Financial Statements) permits
the Company to exclude these and other charges in calculating Consolidated EBITDA, as defined in the ABL Facility.
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 metrics do 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 both 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.
The Company sells thousands of products. In the Print, 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 translating current year results at prior year average exchange
rates. We believe 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 paper and related products is due to the widespread use of electronic media
and permanent product substitution, more e-commerce, less print advertising, fewer catalogs and a reduced volume of direct
mail, among other factors. This trend is expected to continue and will place continued pressure on the Company’s revenues and
profit margins and make it more difficult to maintain or grow Adjusted EBITDA within the Print and Publishing segments.
31
Included in the following table are net sales and Adjusted EBITDA for each of the reportable segments:
(in millions)
Print
Publishing Packaging
Facility
Solutions
Corporate
& Other
Year Ended December 31, 2016
Net sales
Adjusted EBITDA
$ 3,047.4
$ 1,033.6
$ 2,854.2
$ 1,271.6
$
76.8
$
23.6
$
221.2
$
47.0
Adjusted EBITDA as a % of net sales
2.5%
2.3%
7.7%
3.7%
Year Ended December 31, 2015
Net sales
Adjusted EBITDA
$ 3,271.8
$ 1,215.5
$ 2,829.9
$ 1,289.3
$
79.0
$
34.7
$
212.6
$
41.7
Adjusted EBITDA as a % of net sales
2.4%
2.9%
7.5%
3.2%
Year Ended December 31, 2014
Net sales
Adjusted EBITDA
$ 2,956.1
55.4
$
$ 1,075.5
27.1
$
$ 2,259.4
157.0
$
$ 1,070.3
33.6
$
Adjusted EBITDA as a % of net sales
1.9%
2.5%
6.9%
3.1%
$
$
$
$
$
$
119.8
(176.4)
*
111.2
(186.0)
*
45.2
(151.1)
*
* - not meaningful
Print
The table below presents selected data with respect to the Print segment:
Year Ended December 31,
2016 vs. 2015
2015 vs. 2014
(in millions)
Net sales
Adjusted EBITDA
Adjusted EBITDA as a % of net sales
$
$
2016
3,047.4
76.8
2.5%
$
$
2015
3,271.8
79.0
2.4%
$
$
2014
2,956.1
55.4
1.9%
Increase
(Decrease) %
Increase
(Decrease) %
(6.9)%
(2.8)%
10.7%
42.6%
The table below presents the components of the net sales change compared to the prior year:
(in millions)
Volume
Foreign currency
Price/Mix
Merger
Other
Increase (Decrease)
2016 vs. 2015
2015 vs. 2014
$
$
(225.2) $
(9.2)
10.0
—
—
(224.4) $
(339.8)
(20.0)
27.5
656.9
(8.9)
315.7
Comparison of the Years Ended December 31, 2016 and December 31, 2015
The net sales decrease was primarily attributable to the continued erosion in sales volume from the secular decline in
the paper industry as well as strategic decisions to exit certain unprofitable customer relationships.
The decline in Adjusted EBITDA was primarily due to lower sales volume and was partially offset by a $5.4 million
reduction in selling and general administrative expenses resulting from a decrease in personnel costs,.
32
Comparison of the Years Ended December 31, 2015 and December 31, 2014
The net sales increase is due primarily to the net sales contribution of $656.9 million from the Merger. This increase
was partially offset by an 11.5% decrease in the net sales of legacy xpedx operations due to a 4.3% decline from strategic
decisions to exit certain unprofitable customers made earlier in the year and the continued erosion in sales volume due to the
secular decline in the paper industry. The change in shipping terms discussed previously resulted in an $8.9 million reduction
in 2015 revenue.
The Merger contributed $2.5 million to Adjusted EBITDA. Excluding the Merger, Adjusted EBITDA increased by
$21.1 million. The improvement was driven primarily by (i) a $21.7 million impact attributable to cost of goods sold
decreasing at a faster rate than sales, (ii) a $20.4 million decrease in personnel costs which included a $6.5 million decrease in
commissions expense due to a change in sales commission allocations to the segments, (iii) a $19.0 million decrease in
distribution expenses due to lower sales volume, (iv) a $3.0 million decrease in sales training programs and related project
spend, (v) a $1.6 million decrease in facility expenses primarily attributable to rent and leases, (vi) a $1.5 million decrease in
bad debt and (vii) a $1.5 million decrease in various other expenses. The improvement was partially offset by a $47.6 million
reduction from the decline in sales volume. The change in the sales commission allocations also impacted the Packaging and
Facility Solutions segments as described below.
Publishing
The table below presents selected data with respect to the Publishing segment:
Year Ended December 31,
2016 vs. 2015
2015 vs. 2014
(in millions)
Net sales
Adjusted EBITDA
Adjusted EBITDA as a % of net sales
$
$
2016
1,033.6
23.6
2.3%
$
$
2015
1,215.5
34.7
2.9%
$
$
2014
1,075.5
27.1
2.5%
Increase
(Decrease) %
Increase
(Decrease) %
(15.0)%
(32.0)%
13.0%
28.0%
The table below presents the components of the net sales change compared to the prior year:
(in millions)
Volume
Foreign currency
Price/Mix
Merger
Other
Increase (Decrease)
2016 vs. 2015
2015 vs. 2014
$
$
(192.5) $
(0.2)
10.8
—
—
(181.9) $
(69.3)
(1.7)
(9.8)
232.7
(11.9)
140.0
Comparison of the Years Ended December 31, 2016 and December 31, 2015
The net sales decrease was primarily attributable to the continued erosion in sales volume from the secular decline in
the paper industry.
The decline in Adjusted EBITDA was primarily due to lower sales volume and a $2.9 million decrease attributed to
cost of products sold decreasing at a slower rate than net sales. These declines were partially offset by a $3.6 million decrease in
commission expense due to lower sales volume.
Comparison of the Years Ended December 31, 2015 and December 31, 2014
The net sales increase is due primarily to the net sales contribution of $232.7 million from the Merger. Excluding the
Merger, net sales decreased 8.6% due to continued erosion in sales volume due to the secular decline in the paper industry. The
change in shipping terms discussed previously resulted in an $11.9 million reduction in 2015 revenue.
33
The Merger contributed $6.4 million to Adjusted EBITDA. Excluding the Merger, Adjusted EBITDA increased by
$1.2 million. Improvements were driven by (i) a $3.6 million increase from improved product mix, (ii) a $1.7 million decrease
in personnel costs driven by a decline in commissions due to the decline in revenue and (iii) a $0.2 million decrease in
distribution expenses. These improvements were partially offset by a $4.2 million reduction from the decline in sales volume.
Packaging
The table below presents selected data with respect to the Packaging segment:
(in millions)
Net sales
Adjusted EBITDA
Year Ended December 31,
2016 vs. 2015
2015 vs. 2014
2016
2,854.2
221.2
$
$
2015
2,829.9
212.6
$
$
2014
2,259.4
157.0
$
$
Increase
(Decrease) %
Increase
(Decrease) %
0.9%
4.0%
25.3%
35.4%
Adjusted EBITDA as a % of net sales
7.7%
7.5%
6.9%
The table below presents the components of the net sales change compared to the prior year:
(in millions)
Volume
Foreign currency
Price/Mix
Merger
Other
Increase (Decrease)
2016 vs. 2015
2015 vs. 2014
$
$
$
50.3
(21.8)
(4.2)
—
—
24.3
$
13.0
(33.4)
25.1
570.7
(4.9)
570.5
Comparison of the Years Ended December 31, 2016 and December 31, 2015
The net sales increase was primarily attributable to an increase in sales of corrugated products.
The Adjusted EBITDA increase was primarily due to increased sales volume, and $3.4 million attributed to cost of
products sold increasing at a slower rate than net sales. These improvements were partially offset by a $1.1 million increase in
selling, general, and administrative personnel costs primarily attributable to the addition of new sales representatives.
Comparison of the Years Ended December 31, 2015 and December 31, 2014
The net sales increase is due primarily to the net sales contribution of $570.7 million from the Merger. Excluding the
impact of changes in foreign currency exchange rates and the Merger, net sales increased 1.5% due to increases in corrugated
and cushioning product sales. The change in shipping terms discussed previously resulted in a $4.9 million reduction in 2015
revenue.
Adjusted EBITDA increased by $43.1 million as a result of the Merger. Excluding the Merger, Adjusted EBITDA
increased by $12.5 million due to (i) a $24.5 million impact attributable to cost of goods sold decreasing at a faster rate than
sales that was partially driven by procurement synergies, (ii) a $2.1 million decrease in distribution expenses primarily
attributable to decreases in third-party freight and fuel expenses and (iii) a $2.9 million increase from the improvement in sales
volume. These improvements were partially offset by (i) a $11.2 million increase in selling and administrative personnel costs
which was partially attributable to a $3.6 million increase in commission expense due to the change in the sales commission
allocations to the segments, (ii) a $3.0 million decline due to the strengthening of the U.S. dollar and (iii) a $2.8 million
increase in various other expenses.
34
Facility Solutions
The table below presents selected data with respect to the Facility Solutions segment.
Year Ended December 31,
2016 vs. 2015
2015 vs. 2014
(in millions)
Net sales
Adjusted EBITDA
Adjusted EBITDA as a % of net sales
$
$
2016
1,271.6
47.0
3.7%
$
$
2015
1,289.3
41.7
3.2%
$
$
2014
1,070.3
33.6
3.1%
Increase
(Decrease) %
Increase
(Decrease) %
(1.4)%
12.7 %
20.5%
24.1%
The table below presents the components of the net sales change compared to the prior year:
(in millions)
Volume
Foreign currency
Price/Mix
Merger
Other
Increase (Decrease)
2016 vs. 2015
2015 vs. 2014
$
$
(5.6) $
(9.2)
(2.9)
—
—
(17.7) $
(50.3)
(23.3)
5.9
288.0
(1.3)
219.0
Comparison of the Years Ended December 31, 2016 and December 31, 2015
The net sales decrease was primarily attributable to (i) foreign currency effects, (ii) strategic decisions to exit certain
unprofitable customer relationships in 2015 and (iii) pricing pressure.
The Adjusted EBITDA improvement was primarily due to (i) a $2.3 million decrease in commissions due to lower
sales volume, (ii) a $2.1 million improvement attributable to cost of products sold decreasing at a faster rate than net sales due
to improved sourcing, (iii) a $0.7 million decrease in bad debt expense due to favorable collections experience and (iv) a $0.5
million reduction in selling and administrative personnel costs.
Comparison of the Years Ended December 31, 2015 and December 31, 2014
The net sales increase is due primarily to the net sales contribution of $288.0 million from the Merger. Excluding the
impact of changes in foreign currency exchange rates and the Merger, net sales decreased 4.2%, primarily due to the loss of
four large customers. The change in shipping terms discussed previously resulted in a $1.3 million reduction in 2015 revenue.
Adjusted EBITDA increased by $12.3 million as a result of the Merger. Excluding the Merger, Adjusted EBITDA
decreased by $4.2 million due to (i) a $11.3 million decrease due to the reduction in sales volume, (ii) a $4.7 million increase in
personnel costs, which was partially attributable to a $2.9 million increase in commission expense due to the change in the sales
commission allocations to the segments and (iii) a $1.7 million increase in various other expenses. These drivers were partially
offset by (i) an $8.7 million decrease in distribution expenses due to lower sales volumes and (ii) a $4.8 million impact
attributable to cost of goods sold decreasing at a faster rate than sales.
Corporate & Other
Comparison of the Years Ended December 31, 2016 and December 31, 2015
Net sales increased $8.6 million, or 7.7%, due to continued growth in freight brokerage services.
The Adjusted EBITDA improvement was primarily due to (i) the $6.0 million recovery of commission advances and
(ii) a $2.5 million decrease in corporate personnel costs mainly attributable to a reduction in incentive compensation.
35
Comparison of the Years Ended December 31, 2015 and December 31, 2014
The net sales increase is due to the net sales contribution of $50.5 million from the Merger and continued growth in
logistics services.
Adjusted EBITDA decreased by $49.8 million as a result of the Merger. Excluding the Merger, Adjusted EBITDA
improved by $14.9 million. This improvement was attributable to (i) a $12.9 million decrease in personnel costs driven by
restructuring initiatives, (ii) a $4.6 million reduction in allocated expenses from International Paper and (iii) a $1.8 million
increase due to higher logistics services sales. The improvement was partially offset by (i) a $1.4 million increase in outsourced
services driven by the outsourcing of payroll services, (ii) a $0.8 million increase in distribution expenses and (iii) a $2.2
million increase in various other expenses.
Liquidity and Capital Resources
The cash requirements of the Company are provided by cash flows from operations and borrowings under the ABL
Facility. The following table sets forth a summary of cash flows:
(in millions)
Net cash provided by (used for):
Operating activities
Investing activities
Financing activities
Analysis of Cash Flows
Year Ended December 31,
2016
2015
2014
$
140.2
$
113.0
$
(34.4)
(89.9)
(44.1)
(70.4)
5.0
19.9
23.0
The Company ended 2016 with $69.6 million in cash, an increase of $15.2 million during the year. The increase in cash
was primarily due to improved cash flow from operating activities of $140.2 million in 2016, compared with $113.0 million in
2015. The factors driving the increase in cash flow from operating activities were: (i) a $69.9 million increase in accounts payable
and related party payable, (ii) a $14.3 million increase in other operating activities and (iii) a $13.1 million reduction in inventories.
The increase in cash from operating activities was partially offset by: (i) lower net income, (ii) a $40.9 million decrease in accrued
payroll and benefits, (iii) a $14.7 million increase in accounts receivable and related party receivable, (iv) an $11.4 million increase
in other current assets and (v) a $3.6 million decrease in other accrued liabilities. The Company also generated $18.9 million in
positive cash flow from an increase in book overdrafts and $6.6 million related to proceeds from asset sales. The primary uses
of cash during 2016 were: (i) $70.1 million of net repayments of revolving loan borrowings under the ABL Facility, (ii) $41.0
million of property and equipment additions, of which $25.5 million were integration-related capital expenditures and $15.5 million
were ordinary capital expenditures, (iii) $19.9 million of payments under financing obligations to related parties, (iv) $13.6 million
used to repurchase 0.31 million shares of Veritiv outstanding common stock, (v) $3.2 million for payments under capital lease
obligations and (vi) $2.0 million for financing fees incurred in connection with an amendment to the ABL Facility.
The primary sources of cash during 2015 were: (i) higher net income compared to 2014, (ii) a $53.4 million reduction in
accounts receivable and related party receivable, (iii) $10.5 million from an increase in accrued payroll and benefits and (iv) $3.1
million from other operating activities. The primary uses of cash during 2015 were: (i) a $62.0 million increase in inventories,
(ii) $47.0 million of net repayments of revolving loan borrowings under the ABL Facility, (iii) $44.4 million of property and
equipment additions, of which $29.4 million were integration-related capital expenditures and $15.0 million were ordinary capital
expenditures, (iv) $13.8 million of payments under financing obligations to related parties, (v) an $8.4 million decrease in accounts
payable and related party payable, (vi) a $7.1 million decrease in other accrued liabilities and (vii) $3.8 million in payments under
capital lease obligations. Cash was also used for a $5.8 million decrease in book overdrafts.
The primary sources of cash during 2014 were: (i) $847.8 million in net borrowings on our ABL Facility, (ii) $31.8 million
of net cash acquired in the Merger, (iii) a $28.2 million reduction in inventories, (iv) $19.9 million from an increase in accrued
payroll and benefits, (v) $15.4 million from an increase in other accrued liabilities and (vi) $4.8 million in cash proceeds from
asset sales. The primary uses of cash during 2014 were for: (i) $493.1 million of cash transfers to our former parent, (ii) a $303.9
million repayment of the Unisource Senior Credit Facility, (iii) a $44.5 million decrease in accounts payable and related party
payable, (iv) $22.4 million of deferred financing fees, (v) a $21.8 million increase in other current assets, (vi) a $17.7 million
increase in accounts receivable and related party receivable and (vii) $17.2 million of property and equipment additions.
36
Funding and Liquidity Strategy
The Spin-off and Merger transactions resulted in a new capital structure and additional sources of liquidity for Veritiv
when compared to the historical capital structures of both xpedx and Unisource. In conjunction with the Spin-off and Merger,
and to refinance the existing debt of Unisource, Veritiv entered into a $1.4 billion asset-based lending facility (the "ABL
Facility"). The ABL Facility is comprised of U.S. and Canadian sub-facilities of $1,250.0 million and $150.0 million,
respectively. The ABL Facility is available to be drawn in U.S. dollars, in the case of the U.S. sub-facilities, and in U.S. dollars
or Canadian dollars, in the case of the Canadian sub-facilities, or in other currencies that are mutually agreeable. The
Company's accounts receivable and inventories in the U.S. and Canada are collateral under the ABL Facility.
On August 11, 2016, the Company amended the ABL Facility to, among other things, extend the maturity date to
August 11, 2021. All other significant terms remained consistent. The ABL Facility provides for the right of the individual
lenders to extend the maturity date of their respective commitments and loans upon the request of Veritiv and without the
consent of any other lenders. The ABL Facility may be prepaid at Veritiv's option at any time without premium or penalty and
is subject to mandatory prepayment if the amount outstanding under the ABL Facility exceeds either the aggregate
commitments with respect thereto or the current borrowing base, in an amount equal to such excess. The Company incurred
and deferred $2.0 million of new financing fees associated with the amendment, which are reflected in other non-current assets
in the Consolidated Balance Sheets, and will be amortized to interest expense on a straight-line basis over the amended term of
the ABL Facility.
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 limits outlined under the ABL Facility. At
December 31, 2016 the above test was not applicable and is not expected to be applicable in the next 12 months.
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
December 31, 2016, the available additional borrowing capacity under the ABL Facility was approximately $429.9 million.
Under the terms of the ABL Facility, interest rates are based upon LIBOR or the prime rate plus a margin rate, or in the
case of Canada, a banker’s acceptance rate or base rate plus a margin rate. At both December 31, 2016 and December 31, 2015,
the weighted-average borrowing interest rate was 2.5%.
On November 23, 2016, the UWWH Stockholder, one of Veritiv's existing stockholders and the former parent
company of Unisource, sold 1.76 million shares of Veritiv common stock in an underwritten public offering. Veritiv did not
receive any of the proceeds. Concurrently with the closing of the offering, Veritiv repurchased 0.31 million of these offered
shares from the underwriters at a price of $42.8625 per share, which is the price at which the underwriters purchased such
shares from the selling stockholder, for an aggregate purchase price of approximately $13.4 million. In conjunction with these
transactions, Veritiv incurred approximately $0.8 million in transaction-related fees, of which approximately $0.2 million was
recorded as part of the cost to acquire the treasury stock and the remainder was included in selling and administrative expenses
on the Consolidated and Combined Statements of Operations.
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 markets 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.
Veritiv's management expects that the Company's primary future cash needs will be for working capital, capital
expenditures, contractual commitments and strategic investments. Additionally, management expects that cash provided by
operating activities and available capacity under the ABL Facility will provide sufficient funds to operate the business and meet
other liquidity needs.
Through December 31, 2016, the Company incurred approximately $193.9 million in costs and charges associated
with achieving anticipated cost savings and other synergies from the Spin-off and Merger, including approximately $65.9
million for capital expenditures and $7.5 million related to the complete or partial withdrawal from various multi-employer
37
pension plans. The Company anticipates that it will incur additional costs and charges associated with the Spin-off and Merger.
The Company is not able to quantify the total amount of these costs and charges or the period in which they will be incurred as
the operating plans affecting these costs are evolving and charges relating to withdrawal from multi-employer pension plans are
uncertain. Excluding the multi-employer pension plan withdrawal charges, we currently anticipate that total costs associated
with the Spin-off and Merger will be approximately $225 to $250 million over the five years following the Spin-off and Merger,
including approximately $90 million for capital expenditures, primarily consisting of information technology infrastructure,
systems integration and planning. Ordinary capital expenditures for 2017 are expected to be in the range of $20.0 million to
$30.0 million, with another $10.0 million to $20.0 million of integration-related capital expenditures during 2017.
All of the cash held by our non-U.S. subsidiaries is available for general corporate purposes. Veritiv considers the
earnings of certain non-U.S. subsidiaries to be permanently invested outside the United States on the basis of estimates that
future domestic cash generation will be sufficient to meet future domestic cash needs and management's specific plans for
reinvestment of those subsidiary earnings. The table below summarizes the Company's cash positions as of December 31, 2016
and 2015:
(in millions)
Cash held in the U.S.
Cash held in foreign subsidiaries
Total Cash
As of December 31,
2016
2015
$
$
57.6
12.0
69.6
$
$
43.3
11.1
54.4
Off-Balance Sheet Arrangements
Veritiv does not have any off-balance sheet arrangements as of December 31, 2016, other than the operating lease
obligations addressed below under "Contractual Obligations" and the letters of credit under the ABL Facility. 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
The table below summarizes the Company's contractual obligations as of December 31, 2016:
Payment Due by Period
$
$
$
$
—
3.5
6.7
7.9
2.3
0.9
15.6
90.7
2017
151.6
Total
— $
After 2021
2018 – 2019
2020 – 2021
(in millions)
Equipment capital lease obligations (1)
Financing obligations to related party (1,2)
Other lease type obligations (3)
ABL Facility (4)
Deferred compensation (5)
TRA contingent liability (6)
Total
878.3
(1) Equipment capital lease obligations and financing obligations to related party include amounts classified as interest.
(2) Financing obligations to related party will not result in cash payments in excess of amounts reported above. At the end of the lease term, the net remaining
financing obligation of $168.4 million will be settled by the return of the assets to the Purchaser/Landlord.
(3) Amounts shown are presented net of contractual sublease rental income. Amounts shown include the current estimated payments related to the Greater
Toronto Area facility which is currently under construction. See description below.
(4) The ABL Facility will mature and the commitments thereunder will terminate after August 11, 2021. Interest payments included here were estimated using a
simple interest method based on the year-end December 31, 2016 ABL Facility outstanding balance of $726.9 million and its corresponding year-end weighted
average interest rate of 2.5%. The 2021 payment amount shown above includes an estimated $726.9 million of principal balance.
(5) The deferred compensation obligation relates to Unisource's legacy deferred compensation plans and reflects gross cash payment amounts due.
(6) The TRA contingent liability reflects gross contingent obligation amounts excluding interest due to related party.
755.7
4.4
12.5
809.3
23.1
83.6
35.7
5.0
17.8
17.9
2.7
8.5
—
11.0
44.8
1,439.3
220.3
493.1
201.8
146.0
104.8
138.9
23.5
—
$
$
$
$
$
See Note 5, Note 7, Note 10 and Note 11 of the Notes to Consolidated and Combined Financial Statements for
additional information related to these obligations.
During September 2015, Veritiv entered into a build-to-suit arrangement for a new facility in the Greater Toronto Area,
thus allowing the Company to consolidate three operating locations into one facility. The Company expects to have access to
the facility during the first quarter of 2017. Contractual payments will begin once the construction is complete. Expected
38
contractual payments of approximately $40.8 million are included in the table above. The arrangement expires in April 2032.
As of December 31, 2016 the Company recorded a non-current asset (reflected in property and equipment, net) and a
corresponding non-current obligation (long-term debt, net of current maturities) in the Consolidated Balance Sheets for $19.1
million representing costs incurred to-date.
During the third and fourth quarters of 2016, the Company recorded undiscounted charges of $7.3 million and $2.5
million, respectively, related to the complete or partial withdrawal from various multi-employer pension plans. Of these
charges, $7.5 million were recorded as part of the Company's restructuring efforts and $2.3 million were recorded as
distribution expense as it was unrelated to restructuring efforts. See Note 3 of the Notes to Consolidated and Combined
Financial Statements for additional information regarding these transactions. Final charges for these withdrawals will not be
known until the plans issue their respective determinations. As a result, these estimates may increase or decrease depending
upon the final determinations. Currently, the Company expects payments will occur over approximately a 20 year period. The
Company expects to incur similar types of charges in future periods in connection with its ongoing restructuring activities.
The table above does not include future expected Company contributions to its pension plans nor does it include future
expected payments related to the complete or partial withdrawals from various multi-employer pension plans. Information
related to the amounts of these future payments is described in Note 10 of the Notes to Consolidated and Combined Financial
Statements. The table above also excludes the liability for uncertain tax positions and for the Veritiv Deferred Compensation
Savings Plan as the Company cannot predict with reasonable certainty the timing of future cash outflows associated with these
liabilities.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company to establish
accounting policies and utilize estimates that affect both the amounts and timing of the recording of assets, liabilities, net
sales and expenses. Some of these estimates require judgment about matters that are inherently uncertain. Different amounts
would be reported under different operating conditions or under alternative assumptions.
The Company has evaluated the accounting policies used in the preparation of the accompanying Consolidated and
Combined Financial Statements and related Notes and believes those policies to be reasonable and appropriate. Management
believes that the accounting estimates discussed below are the most critical accounting policies whose application may have a
significant effect on the reported results of operations and financial position of the Company and can require judgments by
management that affect their application.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable,
collectability is reasonably assured and delivery has occurred. Revenue is recognized when the customer takes title and
assumes the risks and rewards of ownership. When management cannot conclude collectability is reasonably assured 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 reasonably assured.
Sales transactions with customers are designated free on board ("f.o.b.") destination and revenue is recorded when
the product is delivered to the customer’s delivery site, when title and risk of loss are transferred. Effective January 1, 2016,
the Company harmonized its shipping terms to be f.o.b. destination. Prior to that date, revenue was recorded at the time of
shipment for certain xpedx customers whose terms were designated f.o.b shipping point. Management determined that any
shipments in transit at December 31, 2015 would honor the f.o.b. destination terms resulting in a reduction of $27.0 million
and $1.8 million to net sales and operating income, respectively, for the year ended December 31, 2015.
Certain revenues are derived from shipments arranged by the Company made directly from a manufacturer to a
customer. The Company is considered to be a principal to these transactions because, among other factors, it controls pricing
to the customer and bears the credit risk of the customer defaulting on payment and is the primary obligor. Revenues from
these sales are reported on a gross basis in the Consolidated and Combined Statements of Operations and amounted to $3.0
billion, $3.3 billion and $2.9 billion for the years ended December 31, 2016, 2015 and 2014, respectively.
39
Merger and Integration Expenses
The Company's Consolidated and Combined Statements of Operations includes a line item titled, "Merger and
Integration Expenses". Merger and Integration Expenses is not a defined term in U.S. GAAP, thus management must use
judgment in determining whether a particular expense should be classified as a merger and integration expense. Management
believes its accounting policy for merger and integration expenses is critical because these costs have been significant and
will continue to be significant over the next few years, will generally involve cash expenditures, are not defined in U.S.
GAAP, are excluded in determining compliance with the ABL Facility, and are excluded in determining management
compensation.
Under Veritiv's accounting policy for merger and integration expenses, merger expenses include advisory, legal and
other professional fees directly associated with the Merger. Integration expenses include professional services and project
management fees, internally dedicated integration management resources, retention compensation, information technology
conversion costs, certain termination benefits (including change-in-control bonuses), rebranding and other costs to integrate
the combined businesses of xpedx and Unisource. See Note 3 of the Notes to Consolidated and Combined Financial
Statements for a breakdown of the major components of these expenses.
Merger and integration expenses are differentiated from restructuring charges as restructuring charges primarily
relate to contract termination costs, involuntary termination benefits and other direct costs associated with consolidating
facilities and reorganizing functions.
Allowance for Doubtful Accounts
The allowance for doubtful accounts reflects the best estimate of losses inherent in the Company's accounts
receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and
other available evidence. The allowances contain uncertainties because the calculation requires management to make
assumptions and apply judgment regarding the customer’s credit worthiness. Veritiv performs ongoing evaluations of its
customers’ financial condition and adjusts credit limits based upon payment history and the customer’s current credit
worthiness, as determined by its review of their current financial information. The Company continuously monitors
collections from its customers and maintains a provision for estimated credit losses based upon the customers’ financial
condition, collection experience and any other relevant customer specific information. Veritiv's assessment of this and other
information forms the basis of its allowances.
If the financial condition of Veritiv's customers deteriorates, resulting in an inability to make required payments to
the Company, or if economic conditions deteriorate, additional allowances may be deemed appropriate or required. If the
allowance for doubtful accounts changed by 0.1% of gross billed receivables, reflecting either an increase or decrease in
expected future write-offs, the impact to consolidated pretax income would have been approximately $1.1 million.
Employee Benefit Plans
In conjunction with the Merger, Veritiv assumed responsibility for Unisource’s defined benefit plans and
Supplemental Executive Retirement Plans ("SERP") in the U.S. and Canada. These plans were frozen prior to the Merger.
See Note 10 of the Notes to Consolidated and Combined Financial Statements for more information about these plans.
Management is required to make certain critical estimates related to actuarial assumptions used to determine the
Company's pension expense and related obligation. The Company believes the most critical assumptions are related to (i) the
discount rate used to determine the present value of the liabilities and (ii) the expected long-term rate of return on plan assets.
All of the actuarial assumptions are reviewed annually. Changes in these assumptions could have a material impact on the
measurement of pension expense and the related obligation.
At each measurement date, management determines the discount rate by reference to rates of high-quality, long-term
corporate bonds that mature in a pattern similar to the future payments anticipated to be made under the plans. As of
December 31, 2016, the weighted-average discount rates used to compute the benefit obligations were 3.76% and 3.85% for
the U.S. and Canadian plans, respectively.
The expected long-term rate of return on plan assets is based upon the long-term outlook of the investment strategy
as well as historical returns and volatilities for each asset class. Veritiv also reviews current levels of interest rates and
40
inflation to assess the reasonableness of the long-term rates. The Company's pension plan investment objective is to ensure
all of its plans have sufficient funds to meet their benefit obligations when they become due. As a result, the Company
periodically revises asset allocations, where appropriate, to improve returns and manage risk. The weighted-average
expected long-term rate of return used to calculate the pension expense for the year ended 2016 was 7.15% and 5.50% for the
U.S. and Canadian plans, respectively.
The following illustrates the effects of a 1% change in the discount rate or return on plan assets on the 2016 net
periodic pension cost and projected benefit obligation (in millions):
Assumption
Discount rate
Change
1% increase
1% decrease
Return on plan assets
1% increase
1% decrease
Net Periodic
Benefit Cost
Projected Benefit
Obligation
$(0.2)
0.9
(1.4)
1.3
$(2.6)
3.9
N/A
N/A
See Note 10 of the Notes to Consolidated and Combined Financial Statements for a comprehensive discussion of
Veritiv's pension and post-retirement benefit expense, including a discussion of the actuarial assumptions, the policy for
recognizing the associated gains and losses and the method used to estimate service and interest cost components.
Recently Issued Accounting Standards
See Note 1 of the Notes to Consolidated and Combined Financial Statements for information regarding recently
issued accounting standards.
41
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Veritiv is exposed to the impact of interest rate changes, foreign currency fluctuations, primarily related to the
Canadian dollar, and fuel price changes. The Company's objective is to identify and understand these risks and implement
strategies to manage them. When evaluating potential strategies, Veritiv evaluates the fundamentals of each market and the
underlying accounting and business implications. To implement these strategies, the Company may enter into various
hedging or similar transactions. The sensitivity analyses presented below do not consider the effect of possible adverse
changes in the general economy, nor do they consider additional actions the Company may take from time to time in the
future to mitigate the exposure to these or other market risks. There can be no assurance that Veritiv will manage or continue
to manage any risks in the future or that any of its efforts will be successful.
Derivative Instrument
Borrowings under the ABL Facility bear interest at a variable rate, based on LIBOR or the prime rate, in either case
plus an applicable margin. From time to time, Veritiv may use interest rate swap agreements to manage the variable interest
rate characteristics on a portion of the outstanding debt. The Company evaluates its outstanding indebtedness, market
conditions, and the covenants contained in the ABL Facility in order to determine its tolerance for potential increases in
interest expense that could result from changes in variable interest rates. In July 2015, the Company entered into an interest
rate cap agreement. The interest rate cap effectively limits the floating LIBOR-based portion of the interest rate. The interest
rate cap expires on July 1, 2019. The initial notional amount of this agreement covered $392.9 million of the Company’s
floating-rate debt at 3.0% plus the applicable credit spread. The Company paid $2.0 million for the interest rate cap
agreement. Approximately $0.6 million of the amount paid represented transaction costs and was expensed immediately to
earnings.
The Company designated the 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 3.0% on an equivalent amount of debt. The notional amount
of the cap is reduced throughout the term of the agreement to align with the expected repayment of the Company’s
outstanding floating-rate debt.
At December 31, 2016, the fair value of the interest rate cap was $0.2 million. The amount expected to be
reclassified from accumulated other comprehensive loss into earnings during the next 12 months is approximately $0.3
million. During 2016 the amount reclassified into earnings as an adjustment to interest expense was not significant.
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 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. For additional information regarding Veritiv's interest rate swap, see Note 6 of the Notes to Consolidated and
Combined Financial Statements.
Interest Rate Risk
Veritiv’s exposure to fluctuations in interest rates results primarily from its borrowings under the ABL Facility.
Under the terms of the ABL Facility, interest rates are based upon LIBOR or the prime rate plus a margin rate, or in the case
of Canada, a banker’s acceptance rate or base rate plus a margin rate. LIBOR based loans can be set for durations of one
week, or for periods of one to nine months. The margin rate amount can be adjusted upward or downward based upon usage
under the line in two increments of 25 basis points. Veritiv’s interest rate exposure under the ABL Facility results from
changes in LIBOR, bankers’ acceptance rates, the prime/base interest rates and actual borrowings. The weighted-average
borrowing interest rate at December 31, 2016 was 2.5%. Based on the average borrowings under the ABL Facility during the
year ended December 31, 2016, a hypothetical 100 basis point increase in the interest rate would result in approximately $7.4
million of additional interest expense.
42
Foreign Currency Exchange Rate Risk
Veritiv conducts business in various foreign currencies and is exposed to earnings and cash flow volatility associated
with changes in foreign currency exchange rates. This exposure is primarily related to international assets and liabilities,
whose value could change materially in reference to the U.S. dollar reporting currency.
Veritiv’s most significant foreign currency exposure primarily relates to fluctuations in the foreign exchange rate
between the U.S. dollar and the Canadian dollar. Net sales from Veritiv’s Canadian operations for the year ended
December 31, 2016 represented approximately 8% of Veritiv’s total net sales. Veritiv has not used foreign exchange currency
options or futures agreements to hedge its exposure to changes in foreign exchange rates.
Fuel Price Risk
Due to the nature of Veritiv's distribution business, the Company is exposed to potential volatility in fuel prices. The
cost of fuel affects the price paid for products as well as the costs incurred to deliver products to the Company's customers.
The price and availability of diesel fuel fluctuates due to changes in production, seasonality and other market factors
generally outside of the Company's control. Increased fuel costs may have a negative impact on the Company's results of
operations and financial condition. In times of higher fuel prices, Veritiv may have the ability to pass a portion of the
increased costs on to customers; however, there can be no assurance that the Company will be able to do so. Based on
Veritiv's 2016 fuel consumption, a 10% increase in the average annual price per gallon of diesel fuel would result in a
potential increase of approximately $2.6 million in annual transportation fuel costs (excluding any amounts recovered from
customers). Veritiv does not use derivatives to manage its exposure to fuel prices.
43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
Consolidated and Combined Statements of Operations
Consolidated and Combined Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated and Combined Statements of Cash Flows
Consolidated and Combined Statements of Shareholders' Equity
Notes to Consolidated and Combined Financial Statements
Page
45
46
47
48
49
50
51
44
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Veritiv Corporation
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Veritiv Corporation and subsidiaries (the "Company") as
of December 31, 2016 and 2015, and the related consolidated and combined statements of operations, comprehensive income
(loss), shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2016. These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated and combined financial statements present fairly, in all material respects, the financial
position of Veritiv Corporation and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1 to the consolidated and combined financial statements, on July 1, 2014, UWW Holdings, Inc. was
merged with and into the Company. Prior to July 1, 2014, the Company was comprised of the assets and liabilities used in
managing the xpedx business of International Paper Company. For periods prior to July 1, 2014, the combined financial
statements include expense allocations for certain corporate functions historically provided by International Paper Company.
These allocations may not be reflective of the actual expenses which would have been incurred had the Company operated as
a separate entity apart from International Paper Company.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company’s internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 14, 2017 expressed an unqualified opinion on the Company’s internal control over financial
reporting.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 14, 2017
45
VERITIV CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Net sales (including sales to related parties of $35.6, $33.6 and $42.7,
respectively)
Cost of products sold (including purchases from related parties of
$224.9, $264.7 and $412.6, respectively) (exclusive of depreciation
and amortization shown separately below)
Year Ended December 31,
2016
2015
2014
$
8,326.6
$
8,717.7
$
7,406.5
6,826.4
7,160.3
6,180.9
Distribution expenses
Selling and administrative expenses
Depreciation and amortization
Merger and integration expenses
Restructuring charges
Operating income (loss)
Interest expense, net
Other expense, net
Income (loss) from continuing operations before income taxes
Income tax expense (benefit)
Income (loss) from continuing operations
(Loss) from discontinued operations, net of income taxes
Net income (loss)
Earnings (loss) per share:
Basic
Continuing operations
Discontinued operations
Basic earnings (loss) per share
Diluted
Continuing operations
Discontinued operations
Diluted earnings (loss) per share
Weighted average shares outstanding:
Basic
Diluted
505.1
826.2
54.7
25.9
12.4
75.9
27.5
7.6
40.8
19.8
21.0
—
521.8
853.9
56.9
34.9
11.3
78.6
27.0
6.7
44.9
18.2
26.7
—
$
$
$
$
$
21.0
$
26.7
$
1.31
—
1.31
1.30
—
1.30
$
$
$
$
1.67
—
1.67
1.67
—
1.67
$
$
$
$
15.97
16.15
16.00
16.00
426.2
689.1
37.6
75.1
4.0
(6.4)
14.0
1.2
(21.6)
(2.1)
(19.5)
(0.1)
(19.6)
(1.61)
(0.01)
(1.62)
(1.61)
(0.01)
(1.62)
12.08
12.08
See accompanying Notes to Consolidated and Combined Financial Statements.
46
VERITIV CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of $2.0 tax for 2015
Change in fair value of cash flow hedge, net of $0.1 and $0.3 tax, respectively
Pension liability adjustments, net of ($0.3), $0.3 and $3.4 tax, respectively
Other comprehensive income (loss)
Total comprehensive income (loss)
Year Ended December 31,
2016
2015
2014
$
21.0
$
26.7
$
(19.6)
(2.1)
(0.2)
(1.7)
(4.0)
17.0
$
(12.4)
(0.5)
0.0
(12.9)
13.8
$
(10.0)
—
(7.4)
(17.4)
(37.0)
$
See accompanying Notes to Consolidated and Combined Financial Statements.
47
VERITIV CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except par value)
December 31,
2016
December 31,
2015
Assets
Current assets:
Cash
Accounts receivable, less allowances of $34.5 and $33.3, respectively
Related party receivable
Inventories
Other current assets
Total current assets
Property and equipment (net of depreciation and amortization of $292.8 and $263.0,
respectively)
Goodwill
Other intangibles, net
Deferred income tax assets
Other non-current assets
Total assets
Liabilities and shareholders' equity
Current liabilities:
Accounts payable
Related party payable
Accrued payroll and benefits
Other accrued liabilities
Current maturities of long-term debt
Financing obligations to related party, current portion
Total current liabilities
Long-term debt, net of current maturities
Financing obligations to related party, less current portion
Defined benefit pension obligations
Other non-current liabilities
Total liabilities
Commitments and contingencies (Note 16)
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, 16.0
million shares issued; shares outstanding - 15.7 million and 16.0 million at
December 31, 2016 and 2015, respectively
Additional paid-in capital
Accumulated earnings (deficit)
Accumulated other comprehensive loss
Treasury stock at cost - 0.3 million shares in 2016
Total shareholders' equity
Total liabilities and shareholders' equity
$
$
$
$
$
$
$
69.6
1,048.3
3.9
707.9
118.9
1,948.6
371.8
50.2
21.0
61.8
30.3
2,483.7
654.1
9.0
84.4
102.5
2.9
14.9
867.8
749.2
176.1
27.6
121.2
1,941.9
54.4
1,037.5
3.9
720.6
108.8
1,925.2
363.7
50.2
30.2
73.3
34.3
2,476.9
565.1
10.7
120.5
100.4
2.8
14.7
814.2
800.5
197.8
28.7
105.6
1,946.8
—
—
0.2
574.5
19.7
(39.0)
(13.6)
541.8
2,483.7
$
0.2
566.2
(1.3)
(35.0)
—
530.1
2,476.9
See accompanying Notes to Consolidated and Combined Financial Statements.
48
VERITIV CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(in millions)
Operating activities
Net income (loss)
(Loss) from discontinued operations, net of income taxes
Income (loss) from continuing operations
Depreciation and amortization
Amortization and write-off of deferred financing fees
Net losses (gains) on dispositions of property and equipment
Goodwill and long-lived asset impairment charges
Provision for allowance for doubtful accounts
Deferred income tax provision (benefit)
Stock-based compensation
Other non-cash items, net
Changes in operating assets and liabilities
Accounts receivable and related party receivable
Inventories
Other current assets
Accounts payable and related party payable
Accrued payroll and benefits
Other accrued liabilities
Other
Net cash provided by operating activities – continuing operations
Net cash used for operating activities – discontinued operations
Net cash provided by operating activities
Investing activities
Net cash acquired in Merger
Property and equipment additions
Proceeds from asset sales
Other
Net cash (used for) provided by investing activities
Financing activities
Net cash transfers to Parent
Change in book overdrafts
Transfer to Parent in connection with Spin-off
Repayment of Unisource Senior Credit Facility
Borrowings of long-term debt
Repayments of long-term debt
Payments under equipment capital lease obligations
Payments under financing obligations to related party
Deferred financing fees
Purchase of treasury stock
Net cash (used for) provided by financing activities – continuing operations
Net cash provided by financing activities – discontinued operations
Net cash (used for) provided by financing activities
Effect of exchange rate changes on cash
Net change in cash
Cash at beginning of period
Cash at end of period
Supplemental cash flow information
Cash paid for income taxes, net of refunds
Cash paid for interest
Non-cash investing and financing activities
Common stock issued in connection with Spin-off
Common stock issued in connection with Merger
Contingent liability associated with the Tax Receivable Agreement
Non-cash transfers to Parent
Non-cash additions to property and equipment
Year Ended December 31,
2015
2014
2016
$
$
$
$
21.0
—
21.0
54.7
5.6
(0.8)
7.7
2.2
11.1
8.3
3.7
(14.7)
13.1
(11.4)
69.9
(40.9)
(3.6)
14.3
140.2
—
140.2
—
(41.0)
6.6
—
(34.4)
—
18.9
—
—
4,555.8
(4,625.9)
(3.2)
(19.9)
(2.0)
(13.6)
(89.9)
—
(89.9)
(0.7)
15.2
54.4
69.6
11.6
20.6
$
$
$
26.7
—
26.7
56.9
4.4
0.5
5.9
7.4
14.9
3.8
2.0
53.4
(62.0)
1.0
(8.4)
10.5
(7.1)
3.1
113.0
—
113.0
—
(44.4)
0.3
—
(44.1)
—
(5.8)
—
—
4,661.9
(4,708.9)
(3.8)
(13.8)
—
—
(70.4)
—
(70.4)
(1.7)
(3.2)
57.6
54.4
1.9
21.7
$
$
$
— $
—
—
—
20.8
— $
—
—
—
4.0
(19.6)
(0.1)
(19.5)
37.6
2.2
(2.3)
—
12.8
(9.7)
4.3
1.6
(17.7)
28.2
(21.8)
(44.5)
19.9
15.4
(0.4)
6.1
(1.1)
5.0
31.8
(17.2)
4.8
0.5
19.9
(60.3)
1.6
(432.8)
(303.9)
3,142.2
(2,294.4)
(1.3)
(6.8)
(22.4)
—
21.9
1.1
23.0
4.0
51.9
5.7
57.6
2.0
11.5
277.9
284.7
58.8
(26.0)
—
See accompanying Notes to Consolidated and Combined Financial Statements.
49
VERITIV CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions)
Balance at
December 31,
2013
Net income from
January 1, 2014
to June 30, 2014
Net loss from July
1, 2014 to
December 31,
2014
Other
comprehensive
loss
Net transfers to
Parent
Conversion of
Parent Company
Investment in
connection with
Spin-off
Transfer to Parent
in connection
with Spin-off
Issuance of
common stock
for Merger
Balance at
December 31,
2014
Net income
Other
comprehensive
loss
Stock-based
compensation
Balance at
December 31,
2015
Net income
Other
comprehensive
loss
Stock-based
compensation
Treasury stock
Balance at
December 31,
2016
Common Stock
Issued
Shares Amount
Additional
Paid-in
Capital
Parent
Company
Investment
Accumulated
Earnings
(Deficit)
Accumulated
Other
Comprehens
ive Income
(Loss)
Treasury Stock
Shares Amount
Total
— $
— $
— $
784.3
$
— $
(4.7)
— $
— $
779.6
—
—
—
—
—
—
—
—
—
—
—
—
8.4
—
—
(82.0)
8.2
0.1
710.6
(710.7)
—
—
(432.8)
7.8
0.1
284.6
—
—
—
—
—
—
8.4
(28.0)
—
—
—
—
—
—
(17.4)
—
—
—
—
—
—
—
—
—
—
—
—
—
(28.0)
(17.4)
(82.0)
—
—
—
(432.8)
—
284.7
16.0 $
—
—
—
0.2
—
—
—
$
562.4
$
— $
(28.0) $
(22.1)
— $
— $
512.5
—
—
3.8
—
—
—
26.7
—
—
—
(12.9)
—
—
—
—
—
—
—
26.7
(12.9)
3.8
16.0 $
0.2
$
566.2
$
— $
(1.3) $
(35.0)
— $
— $
530.1
—
—
—
—
—
—
—
—
—
—
8.3
—
—
—
—
—
21.0
—
—
—
—
(4.0)
—
—
—
—
—
—
—
—
21.0
(4.0)
8.3
(0.3)
(13.6)
(13.6)
16.0 $
0.2
$
574.5
$
— $
19.7
$
(39.0)
(0.3) $ (13.6) $
541.8
See accompanying Notes to Consolidated and Combined Financial Statements.
50
VERITIV CORPORATION
NOTES TO CONSOLIDATED AND COMBINED 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 print,
publishing, packaging and facility solutions. Additionally, Veritiv provides logistics and supply chain management solutions
to its customers. Veritiv was established in 2014, following the merger of International Paper Company’s ("International
Paper" or "Parent") xpedx distribution solutions business ("xpedx") and UWW Holdings, Inc. ("UWWH"), the parent
company of Unisource Worldwide, Inc. ("Unisource"). The Company operates from approximately 170 distribution centers
primarily throughout the U.S., Canada and Mexico.
The Spin-off and Merger
On July 1, 2014 (the "Distribution Date"), International Paper completed the spin-off of xpedx to its shareholders
(the "Spin-off"), forming a new public company called Veritiv. Immediately following the Spin-off, UWWH merged with
and into Veritiv (the "Merger"). The primary reason for the business combination was to create a North American business-
to-business distribution company with a broad geographic reach, an extensive product offering and a differentiated and
leading service platform. The Merger has been reflected in Veritiv’s financial statements using the acquisition method of
accounting, with Veritiv as the accounting acquirer of UWWH.
On the Distribution Date:
•
8.16 million shares of Veritiv common stock were distributed on a pro rata basis to the International Paper
shareholders of record as of the close of business on June 20, 2014. Immediately following the Spin-off, but prior to
the Merger, International Paper’s shareholders owned all of the shares of Veritiv common stock outstanding, and
• A cash payment of $404.2 million was distributed to International Paper, which was comprised of: (i) a special
payment of $400.0 million, (ii) reduced by a $15.3 million preliminary working capital adjustment and (iii)
increased by $19.5 million of transaction expense-related adjustments. During the fourth quarter of 2014, the
working capital and transaction expense-related adjustments were finalized, resulting in an additional cash payment
of $30.7 million to International Paper. Of the total payment, $432.8 million was reflected as a reduction to equity
while the remaining $2.1 million was recorded in the Consolidated Statement of Operations for 2014.
In addition to the above payment, International Paper also has a potential earnout payment of up to $100.0 million
that would become due in 2020 if Veritiv's aggregate EBITDA for fiscal years 2017, 2018 and 2019 exceeds an agreed-upon
target of $759.0 million, subject to certain adjustments. The $100.0 million potential earnout payment would be reflected by
Veritiv as a reduction to equity at the time of payment.
Immediately following the Spin-off on the Distribution Date:
• UWW Holdings, LLC, the sole shareholder of UWWH, (the "UWWH Stockholder") received 7.84 million shares of
Veritiv common stock for all outstanding shares of UWWH common stock that it held on the Distribution Date, in a
private placement transaction,
• Veritiv and the UWWH Stockholder entered into a registration rights agreement (the "Registration Rights
Agreement") that provides the UWWH Stockholder with certain demand registration rights and piggyback
registration rights which is more fully described in Note 9, Related Party Transactions,
• Veritiv and the UWWH Stockholder entered into a tax receivable agreement (the "Tax Receivable Agreement")
which is more fully described in Note 9, Related Party Transactions, and
• The UWWH Stockholder received approximately $33.9 million of cash proceeds associated with preliminary
working capital and net indebtedness adjustments, as well as cash proceeds of $4.7 million associated with
transaction expense-related adjustments. During the fourth quarter of 2014, the Company finalized the working
capital and net indebtedness adjustments, resulting in an additional cash payment of $5.7 million to the UWWH
Stockholder. Of the total payment, $39.1 million was recorded as part of the purchase price consideration for
Unisource while the remaining $5.2 million was recorded in the Consolidated Statement of Operations for 2014.
51
Immediately following the completion of the Spin-off and Merger, International Paper shareholders owned
approximately 51%, and the UWWH Stockholder owned approximately 49%, of the shares of Veritiv common stock on a
fully-diluted basis. Immediately following the completion of the Spin-off, International Paper did not own any shares of
Veritiv common stock. See Note 2, Merger with Unisource, for further details on the Merger.
Veritiv’s common stock began regular-way trading on the New York Stock Exchange on July 2, 2014 under the
ticker symbol VRTV.
Basis of Presentation
Prior to the Distribution Date, Veritiv’s financial position, results of operations and cash flows consisted of only the
xpedx business of International Paper and were derived from International Paper’s historical accounting records. The
financial results of xpedx have been presented on a carve-out basis through the Distribution Date, while the financial results
for Veritiv, post Spin-off, are prepared on a stand-alone basis. As such, the audited Consolidated and Combined Financial
Statements for the year ended December 31, 2014 consist of the consolidated results of Veritiv on a stand-alone basis for the
six months ended December 31, 2014, and the combined results of operations of xpedx for the six months ended June 30,
2014 on a carve-out basis.
During 2011, xpedx ceased its Canadian operations, which had provided distribution of printing supplies to
Canadian-based customers. Additionally, xpedx ceased its printing press distribution business, which was located in the U.S.
Both of these businesses were historically included in xpedx's Print segment. These impacts are reported here as
Discontinued Operations.
All significant intercompany transactions between Veritiv's businesses have been eliminated. All significant
intercompany transactions between xpedx and International Paper have been included for the periods prior to the Spin-off and
were considered to be effectively settled for cash at the time the transaction was recorded. The total net effect of the
settlement of these intercompany transactions is reflected in the Consolidated and Combined Statement of Cash Flows for the
year ended December 31, 2014 as a financing activity.
For periods prior to the Spin-off, the combined financial statements include expense allocations for certain functions
previously provided by International Paper, including, but not limited to, general corporate expenses related to finance, legal,
information technology, human resources, communications, insurance and stock-based compensation. These expenses have
been allocated on the basis of direct usage when identifiable, with the remainder principally allocated on the basis of percent
of capital employed, headcount, sales or other measures. Management considers the basis on which the expenses have been
allocated to reasonably reflect the utilization of services provided to or for the benefit received by xpedx during those
periods. The allocations may not, however, reflect the expenses xpedx would have incurred as an independent company for
the periods presented. Actual costs that may have been incurred if xpedx had been a stand-alone company would depend on a
number of factors, including the organizational structure, whether functions were outsourced or performed by employees and
strategic decisions made in areas such as information technology and infrastructure. Veritiv is unable to determine what such
costs would have been had xpedx been independent. See Note 9, Related Party Transactions, for further information.
Following the Spin-off, certain corporate and other related functions described above continued to be provided by
International Paper under a transition services agreement. During the six months ended December 31, 2014, the Company
recognized $15.5 million in selling and administrative expenses related to this agreement. For the year ended December 31,
2015, the Company recognized $10.0 million in selling and administrative expenses related to this agreement. As of
December 31, 2015, all of the functions originally provided by International Paper under this agreement have been fully
transitioned to the Company.
52
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("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, accounts receivable valuation, inventory valuation, employee benefit plans, income tax contingency
accruals and valuation allowances, multi-employer plan withdrawal liabilities and goodwill and other intangible asset
valuations. Although these estimates are based on management's knowledge of current events and actions it may undertake
in the future, actual results may ultimately differ from these estimates and assumptions. Estimates are revised as additional
information becomes available.
Summary of Significant Accounting Policies
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable,
collectability is reasonably assured and delivery has occurred. Revenue is recognized when the customer takes title and
assumes the risks and rewards of ownership. When management cannot conclude collectability is reasonably assured 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 reasonably assured. Multiple contracts with a single
counterparty are accounted for as separate arrangements.
Sales transactions with customers are designated free on board ("f.o.b.") destination and revenue is recorded when
the product is delivered to the customer’s delivery site, when title and risk of loss are transferred. Effective January 1, 2016,
the Company harmonized its shipping terms to be f.o.b. destination. Prior to that date, revenue was recorded at the time of
shipment for certain xpedx customers whose terms were designated f.o.b shipping point. Management determined that any
shipments in transit at December 31, 2015 would honor the f.o.b. destination terms resulting in a reduction of $27.0 million
and $1.8 million to net sales and operating income, respectively, for the year ended December 31, 2015.
Certain revenues are derived from shipments arranged by the Company made directly from a manufacturer to a
customer. The Company is considered to be a principal to these transactions because, among other factors, it controls pricing
to the customer, bears the credit risk of the customer defaulting on payment and is the primary obligor. Revenues from these
sales are reported on a gross basis in the Consolidated and Combined Statements of Operations and amounted to $3.0 billion,
$3.3 billion and $2.9 billion for the years ended December 31, 2016, 2015 and 2014, respectively.
Taxes collected from customers relating to product sales and remitted to governmental authorities are accounted for
on a net basis. Accordingly, such taxes are excluded from both net sales and expenses.
Purchase Incentives and Customer Rebates
Veritiv enters into agreements with suppliers that entitle Veritiv to receive rebates, allowances and other discounts
based on the attainment of specified purchasing levels or sales to certain customers. Purchase incentives are recorded as a
reduction to inventory and recognized in cost of products sold when the sale occurs. During the year ended December 31,
2016, approximately 47% of the Company's purchases were made from ten suppliers.
Veritiv also enters into incentive agreements with its customers, which are generally based on sales to those same
customers. Veritiv records estimated rebates to customers as a reduction to gross sales as customer revenue is recognized.
Distribution Expenses
Distribution expenses consist of storage, handling and delivery costs including freight to the Company's customers’
destination. Handling and delivery costs were $371.7 million, $380.5 million and $322.3 million for the years ended
December 31, 2016, 2015 and 2014, respectively.
53
Merger and Integration Expenses
Merger and integration expenses are expensed as incurred. Merger expenses include advisory, legal and other
professional fees directly associated with the Merger. Integration expenses include professional services and project
management fees, internally dedicated integration management resources, retention compensation, information technology
conversion costs, certain termination benefits (including change-in-control bonuses), rebranding and other costs to integrate
the combined businesses of xpedx and Unisource.
Accounts Receivable and Allowances
Accounts receivable are recognized net of allowances that primarily consist of allowance for doubtful accounts of
$23.7 million and $24.2 million as of December 31, 2016 and 2015, respectively, with the remaining balance of $10.8 million
and $9.1 million being comprised of other allowances as of December 31, 2016 and 2015, respectively. The allowance for
doubtful accounts reflects the best estimate of losses inherent in the Company’s accounts receivable portfolio determined on
the basis of historical experience, specific allowances for known troubled accounts and other available evidence. The other
allowances balance is inclusive of returns, discounts and any other items affecting the realization of these assets. Accounts
receivable are written off when management determines they are uncollectible.
Below is a rollforward of the Company's accounts receivable allowances for the years ended December 31, 2016,
2015 and 2014:
(in millions)
Beginning balance, January 1
Add / (Deduct):
Provision for bad debt expense
Net write-offs and recoveries
Other adjustments(1)
Purchase accounting adjustment
Year Ended December 31,
2016
2015
2014
$
33.3
$
39.0
$
22.7
2.2
(6.7)
5.7
—
7.4
(13.1)
—
—
12.8
(9.8)
—
13.3
Ending balance, December 31
(1) Other adjustments represent amounts reserved for returns and discounts, foreign currency translation adjustments and reserves for customer accounts
where revenue is not recognized because collectability is not reasonably assured. Prior year amounts were not material.
34.5
33.3
$
$
$
39.0
Inventories
The Company's inventories are primarily comprised of finished goods and predominantly valued at cost as
determined by the last-in first-out ("LIFO") method. Such valuations are not in excess of market. Elements of cost in
inventories include the purchase price invoiced by a supplier, plus inbound freight and related costs and reduced by estimated
volume-based discounts and early pay discounts available from certain suppliers. Approximately 87% and 88% of
inventories were valued using the LIFO method as of December 31, 2016 and 2015, respectively. If the first-in, first-out
method had been used, total inventory balances would be increased by approximately $71.3 million and $71.8 million at
December 31, 2016 and 2015, respectively.
The Company reduces the value of obsolete inventory based on the difference between the LIFO cost of the
inventory and the estimated market value using assumptions of future demand and market conditions. To estimate the net
realizable value, the Company considers factors such as age of the inventory, the nature of the products, the quantity of items
on-hand relative to sales trends, current market prices and trends in pricing, its ability to use excess supply in another
channel, historical write-offs and expected residual values or other recoveries.
Veritiv maintains some of its inventory on a consignment basis in which the inventory is physically located at the
customer's premises or a third-party warehouse. Veritiv had $47.3 million and $51.4 million of consigned inventory as of
December 31, 2016 and 2015, respectively, valued on a LIFO basis, net of reserves.
54
Property and Equipment, Net
Property and equipment are stated at cost, less accumulated depreciation and software amortization. Expenditures
for replacements and major improvements are capitalized, whereas repair and maintenance costs that do not improve service
potential or extend economic life are expensed as incurred. The Company capitalizes certain computer software and
development costs incurred in connection with developing or obtaining software for internal use. Costs related to the
development of internal use software, other than those incurred during the application development stage, are expensed as
incurred.
The components of property and equipment, net were as follows:
(in millions)
Land, buildings and improvements
Machinery and equipment
Equipment capital leases and assets related to financing obligations with related
party
Internal use software
Construction-in-progress
Less: Accumulated depreciation and software amortization
Property and equipment, net
December 31,
December 31,
2016
2015
$
$
$
132.0
131.1
215.5
151.0
35.0
(292.8)
371.8
$
129.6
123.6
224.5
135.0
14.0
(263.0)
363.7
Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Land is not
depreciated, and construction-in-progress ("CIP") is not depreciated until ready for service. Leased property and leasehold
improvements are amortized on a straight-line basis over the lease term or useful life of the asset, whichever is less.
Depreciation and amortization for property and equipment, other than land and CIP, is based upon the following
estimated useful lives:
Buildings
Leasehold improvements
Machinery and equipment
Equipment capital leases and assets related to financing
obligations with related party
Internal use software
40 years
1 to 20 years
3 to 15 years
3 to 15 years
3 to 5 years
Depreciation and amortization expense, including the depreciation expense for equipment capital leases, assets
related to financing obligations with related party and amortization expense of internal use software, totaled $51.3 million,
$51.0 million and $32.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Accumulated depreciation on equipment capital leases and assets related to financing obligations with related party
was $29.7 million and $20.1 million for the years ended December 31, 2016 and 2015, respectively.
Amortization expense of the internal use software was $17.5 million, $18.4 million and $11.0 million for the years
ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016 and 2015, unamortized internal use
software costs, including amounts recorded in CIP, were $43.9 million and $45.0 million, respectively.
Upon retirement or other disposal of property and equipment, the cost and related amount of accumulated
depreciation or accumulated amortization are eliminated from the asset and accumulated depreciation or accumulated
amortization accounts, respectively. The difference, if any, between the net asset value and the proceeds is included in net
income.
55
Leases
The Company leases certain property and equipment used for operations. Such lease arrangements are reviewed for
capital or operating classification at their inception.
Capital lease obligations consist of delivery equipment, material handling equipment, computer hardware and office
equipment which are leased through third parties under non-cancelable leases with terms generally ranging from three to
eight years. Many of the delivery equipment leases include annual rate increases based on the Consumer Price Index which
are included in the calculation of the initial lease obligation. The carrying value of the related equipment associated with
these capital leases is included within property and equipment, net in the Consolidated Balance Sheets and depreciated over
the term of the lease. The Company does not record rent expense for capital leases. Rather, rental payments under the lease
are recognized as a reduction of the capital lease obligation and interest expense. Depreciation expense for assets under
capital leases is included in the total depreciation expense disclosed in the Consolidated and Combined Statements of
Operations.
All other leases are operating leases. Certain lease agreements include renewal options and rent escalation clauses.
Assets subject to an operating lease and the related lease payments are not recorded on the Company’s balance sheet. Rent
expense is recognized on a straight-line basis over the expected lease term.
The term for all types of leases begins on the date the Company becomes legally obligated for the rent payments or
takes possession of the asset, whichever is earlier.
Goodwill and Other Intangible Assets, Net
Goodwill relating to a single business reporting unit is included as an asset of the applicable segment. Goodwill
arising from major acquisitions that involve multiple reportable segments is allocated to the reporting units based on the
relative fair value of the reporting unit.
Goodwill is reviewed by Veritiv for impairment on a reporting unit basis annually on October 1st or more frequently
if indicators are present or changes in circumstances suggest that impairment may exist. The testing of goodwill for possible
impairment is a two-step process. In the first step, the fair value of a reporting unit is compared with its carrying value,
including goodwill. If fair value exceeds the carrying value, goodwill is not considered to be impaired. If the fair value of a
reporting unit is below the carrying value, then step two is performed to measure the amount of the goodwill impairment loss
for the reporting unit. This analysis requires the determination of the fair value of all of the individual assets and liabilities of
the reporting unit, including any currently unrecognized intangible assets, as if the reporting unit had been purchased on the
analysis date. Once these fair values have been determined, the implied fair value of the unit’s goodwill is calculated as the
excess, if any, of the fair value of the reporting unit determined in step one over the fair value of the net assets determined in
step two. The carrying value of goodwill is then reduced to this implied value, or to zero if the fair value of the assets
exceeds the fair value of the reporting unit, through a goodwill impairment charge. During the fourth quarter of 2015, the
Company's annual goodwill impairment testing indicated that the implied value of the Facility Solutions goodwill was less
than its carrying value. Accordingly, Veritiv recorded a $1.9 million impairment charge in selling and administrative expense
relating to the Facility Solutions goodwill. See Note 4, Goodwill and Other Intangible Assets. No goodwill impairment
charges were recorded during the years ended December 31, 2016 and 2014.
Intangible assets acquired in a business combination are recorded at fair value. The Company's intangible assets
include customer relationships, trademarks and trade names and non-compete agreements. Intangible assets with finite useful
lives are subsequently amortized using the straight-line method over the estimated useful lives of the assets. See the
Impairment of Long-Lived Assets section below for the accounting policy related to the periodic review of long-lived
intangible assets for impairment. During the third and fourth quarters of 2016, the Company recognized a total of $5.8
million in asset impairment charges related to its Print and Publishing & Print Management ("Publishing") segments'
customer relationship intangible assets which was recorded in selling and administrative expenses. See Note 4, Goodwill and
Other Intangible Assets. No intangible asset impairment charges were recorded during the years ended December 31, 2015
and 2014.
56
Impairment of Long-Lived Assets
Long-lived assets, including finite lived intangible assets, are tested for impairment whenever events or changes in
circumstances indicate their carrying value may not be recoverable. The Company assesses the recoverability of long-lived
assets based on the undiscounted future cash flow the assets are expected to generate and recognizes an impairment loss when
estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from
disposition of the asset, if any, are less than the carrying value of the asset. When an impairment is identified, the Company
reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when
available and appropriate, to comparable market values.
For the year ended December 31, 2016, impairment charges of $1.9 million were recorded for certain long-lived
assets that supported multiple segments. These charges were recorded as selling and administrative expense as they were not
related to the Company's restructuring efforts. For the year ended December 31, 2015, impairment charges of $4.0 million
were recorded for certain long-lived assets that supported multiple segments, with $0.7 million recorded as selling and
administrative expense and $3.3 million recorded as restructuring expense. See Note 3, Merger, Integration and
Restructuring Charges. No long-lived asset impairment charges were recorded during the year ended December 31, 2014.
Employee Benefit Plans
The Company sponsors and/or contributes to defined contribution plans, defined benefit pension plans and multi-
employer pension plans in the United States. In addition, the Company and its subsidiaries have various pension plans and
other forms of retirement arrangements outside the United States. See Note 10, Employee Benefit Plans, for additional
information.
Prior to the Spin-off, certain of xpedx’s employees participated in defined benefit pension and other post-retirement
benefit plans sponsored and accounted for by International Paper. In conjunction with the Spin-off, the above plans were
frozen for the xpedx employees, and International Paper retained the associated liabilities. Certain xpedx union employees
were added as participants to the Unisource defined benefit pension plan. In conjunction with the Merger, Veritiv assumed
responsibility for Unisource’s defined benefit plans and Supplemental Executive Retirement Plan ("SERP") in the U.S. and
Canada. Except as discussed below, these plans were frozen prior to the Merger. Union employees continue to accrue
benefits under the U.S. defined benefit pension plan in accordance with their collective bargaining agreements.
The determination of defined benefit pension and postretirement plan obligations and their associated costs requires
the use of actuarial computations to estimate participant plan benefits to which the employees will be entitled. The
Company’s significant assumptions in this regard include discount rates, rate of future compensation increases, expected
long-term rates of return on plan assets, mortality rates, and other factors. Each assumption is developed using relevant
company experience in conjunction with market-related data in the U.S. and Canada. All actuarial assumptions are reviewed
annually with third-party consultants and adjusted, as necessary.
For the recognition of net periodic postretirement cost, the calculation of the expected long-term rate of return on
plan assets is derived using the fair value of plan assets at the measurement date. Actual results that differ from the
Company's assumptions are accumulated and amortized on a straight-line basis only to the extent they exceed 10% of the
higher of the fair value of plan assets or the projected benefit obligation, over the estimated remaining service period of active
participants. The fair value of plan assets is determined based on market prices or estimated fair value at the measurement
date.
The Company also makes contributions to multi-employer pension plans for its union employees covered by such
plans. For these plans, the Company recognizes a liability only for any required contributions to the plans or surcharges
imposed by the plans that are accrued and unpaid at the balance sheet date. The Company does not record an asset or liability
to recognize the funded status of the plans. The Company records an estimated undiscounted charge when it becomes
probable that it has incurred a withdrawal liability as the final amount and timing is not assured.
57
Stock-Based Compensation
The Company measures and records compensation expense for all stock-based awards based on the grant date fair
values over the vesting period of the awards. See Note 15, Equity-Based Incentive Plans, for additional information.
Income Taxes
Veritiv's income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect
management’s best assessment of estimated current and future taxes to be paid. Veritiv records its global tax provision based
on the respective tax rules and regulations for the jurisdictions in which it operates. Where treatment of a position is
uncertain, liabilities are recorded based upon an evaluation of the more likely than not outcome considering technical merits
of the position. Changes to recorded liabilities are made only when an identifiable event occurs that alters the likely
outcome, such as settlement with the relevant tax authority or the expiration of statutes of limitation for the subject tax year.
Significant judgments and estimates are required in determining the consolidated income tax expense.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will
not be realized. Significant judgment is required in evaluating the need for and amount of valuation allowances against
deferred tax assets. The realization of these assets is dependent on generating sufficient future taxable income.
While Veritiv believes that these judgments and estimates are appropriate and reasonable under the circumstances,
actual resolution of these matters may differ from recorded estimated amounts.
Fair Value Measurements
Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting
inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.
Level 1 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 – Observable market-based inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.
Level 3 – Unobservable inputs for the asset or liability reflecting the reporting entity’s own assumptions or
external inputs from inactive markets.
See Note 11, Fair Value Measurements, for further detail.
Foreign Currency
The assets and liabilities of the foreign subsidiaries are translated from their respective local currencies to the U.S.
dollars at the appropriate spot rates as of the balance sheet date. Changes in the carrying value of these assets and liabilities
attributable to fluctuations in spot rates are recognized in foreign currency translation adjustment, a component of
accumulated other comprehensive loss ("AOCL"). See Note 14, Shareholders' Equity, for further detail.
The revenues and expenses of the foreign subsidiaries are translated using the monthly average exchange rates
during the year. The gains or losses from foreign currency transactions are included in other expense, net in the Consolidated
and Combined Statements of Operations.
Treasury Stock
Common stock purchased for treasury is recorded at cost. Costs incurred by the Company that are associated with
the acquisition of treasury stock are treated in a manner similar to stock issue costs and are added to the cost of the treasury
stock.
58
Recently Issued Accounting Standards
Recently Issued Accounting Standards Not Yet Adopted
Standard
Accounting Standards
Update ("ASU")
2014-09, Revenue from
Contracts with
Customers (Topic 606)
Description
The standard will replace existing revenue
recognition standards and significantly expand the
disclosure requirements for revenue arrangements.
It may be adopted either retrospectively or on a
modified retrospective basis to new contracts and
existing contracts with remaining performance
obligations as of the effective date.
Effective
Date
January 1,
2018; early
adoption date
is no earlier
than the
annual period
beginning
after
December
15, 2016
ASU 2016-02, Leases
(Topic 842)
The standard requires lessees to put most leases
on their balance sheet, but recognize expenses in
their statement of operations in a manner similar
to current accounting guidance. The new standard
also eliminates the current guidance related to real
estate specific provisions. The guidance requires
application on a modified retrospective basis.
January 1,
2019; early
adoption is
permitted
Effect on the Financial
Statements or Other
Significant Matters
The initial analysis
identifying areas that will be
impacted by the new
guidance included a review
of a representative sample
of existing revenue
contracts with customers.
Based on this initial
analysis, areas requiring
further analysis were
identified and that analysis
is ongoing. Those areas
include accounting for
customer rebates, principal/
agent considerations, and
bill and hold transactions.
The Company has not made
a decision on the method of
adoption. We have not
determined the effect of the
new standard on our internal
control over financial
reporting or other changes
in business practices and
processes, but will do so
during 2017. The Company
plans to adopt this ASU on
January 1, 2018.
The Company anticipates
that the adoption of the
standard will have a
material impact to its
Consolidated Financial
Statements and related
disclosures as it will result
in recording virtually all
operating leases on the
balance sheet as a lease
obligation and right to use
asset. The Company plans
to adopt this ASU on
January 1, 2019.
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 for
fiscal years
beginning
after
December
15, 2018
The Company is currently
evaluating the impact the
ASU will have on its
Consolidated Financial
Statements and related
disclosures. The Company
plans to adopt this ASU on
January 1, 2020.
59
Recently Issued Accounting Standards Not Yet Adopted (continued)
Standard
ASU 2016-15,
Statement of Cash
Flows (Topic 230)
Description
The standard addresses eight specific cash flow
issues and is intended to reduce diversity in
practice in how certain cash receipts and cash
payments are presented and classified in the
statement of cash flows. The guidance requires
application on a retrospective basis.
ASU 2017-01,
Business Combinations
(Topic 805)
The standard clarifies the definition of a business
with the objective of adding guidance to assist
entities with evaluating whether transactions
should be accounted for as acquisitions (or
disposals) of assets or businesses. The guidance
requires application on a prospective basis.
ASU 2017-07,
Compensation-
Retirement Benefits
(Topic 715)
The standard requires employers to disaggregate
the service cost component from the other
components of net benefit cost and disclose the
amount of net benefit cost that is included in the
income statement or capitalized in assets, by line
item. The standard requires employers to report
the service cost component in the same line item
(s) as other compensation costs and to report other
pension-related costs (which include interest
costs, amortization of pension-related costs from
prior periods, and the gains or losses on plan
assets) separately and exclude them from the
subtotal of operating income. The standard also
allows only the service cost component to be
eligible for capitalization when applicable. The
guidance requires application on a retrospective
basis for the presentation of the service cost
component and the other components of net
periodic pension cost and net periodic
postretirement benefit cost in the income
statement and on a prospective basis for the
capitalization of the service cost component of net
periodic pension cost and net periodic
postretirement benefit in assets.
Effect on the Financial
Statements or Other
Significant Matters
The Company is currently
evaluating the impact the
ASU will have on its
Consolidated Financial
Statements and related
disclosures. The Company
plans to adopt this ASU on
January 1, 2018.
The Company plans to
adopt this ASU on January
1, 2018.
The Company is currently
evaluating the impact the
ASU will have on its
Consolidated Financial
Statements and related
disclosures. The Company
plans to adopt this ASU on
January 1, 2018.
Effective
Date
January 1,
2018; early
adoption is
permitted
(early
adoption
requires the
adoption of
all
amendments
in the same
period)
January 1,
2018; early
adoption is
permitted
January 1,
2018; early
adoption is
permitted as
of the first
interim
period of an
annual period
for which
interim or
annual
financial
statements
have not
been issued
60
Recently Adopted Accounting Standards
Standard
ASU 2016-09,
Compensation-
Stock Compensation
(Topic 718)
ASU 2015-05,
Intangibles - Goodwill
and Other - Internal-
Use Software (Subtopic
350-40)
ASU 2015-07, Fair
Value Measurement
(Topic 820) Disclosures
for Investments in
Certain Entities that
Calculate Net Asset
Value per Share (or Its
Equivalent)
ASU 2015-11,
Simplifying the
Measurement of
Inventory
Description
The standard was issued as part of the Financial
Accounting Standards Board's simplification
initiative. The areas for simplification involve
several aspects of the accounting for share-based
payment transactions, including income tax
consequences, award classification as either
equity or liabilities, and classification on the
statement of cash flows. The guidance required
application on a prospective basis.
The amendments in this update provide guidance
to customers about whether a cloud computing
arrangement includes a software license. If a
cloud computing arrangement includes a software
license, then the customer should account for the
software license element of the arrangement
consistent with the acquisition of other software
licenses. If a cloud computing arrangement does
not include a software license, the customer
should account for the arrangement as a service
contract. This update can be adopted either
prospectively or retrospectively.
The amendments in this update remove the
requirement to categorize within the fair value
hierarchy all investments for which fair value is
measured using the net asset value per share
practical expedient. Although the investment is
not categorized within the fair value hierarchy, a
reporting entity shall provide the amount
measured using the net asset value per share (or
its equivalent) practical expedient to permit
reconciliation of the fair value of investments
included in the fair value hierarchy to the total
plan asset fair value amounts. The amendments
required application on a retrospective basis.
The standard requires companies to measure
inventory at the lower of cost and net realizable
value, thereby simplifying the current guidance
under which an entity must measure inventory at
the lower of cost or market. This ASU will not
apply to inventories measured by either the last-in
first-out method or retail inventory method. The
guidance requires application on a prospective
basis.
Effective
Date
January 1,
2017; early
adoption is
permitted
January 1,
2016
January 1,
2016
January 1,
2017
ASU 2017-04,
Intangibles - Goodwill
and Other (Topic 350)
The standard simplifies how an entity is required
to test goodwill for impairment by eliminating
Step 2 from the goodwill impairment test. Step 2
measures a goodwill impairment loss by
comparing the implied fair value of a reporting
unit’s goodwill with the carrying amount of that
goodwill. The guidance requires application on a
prospective basis.
January 1,
2020; early
adoption is
permitted
Effect on the Financial
Statements or Other
Significant Matters
The Company adopted this
ASU on January 1, 2016.
The adoption did not
materially impact its
Consolidated Financial
Statements or related
disclosures.
The Company adopted this
ASU prospectively for all
new transactions entered
into or materially modified
after January 1, 2016. The
adoption did not materially
impact its Consolidated
Financial Statements or
related disclosures.
The Company adopted this
ASU on January 1, 2016.
Certain of the Company's
Canadian pension plan
assets, reported in prior
years as Level 2 in the fair
value hierarchy, have been
removed from the fair value
hierarchy and are now
reported as reconciling
items to total fair value of
plan assets.
The Company adopted this
ASU on January 1, 2017.
The adoption did not
materially impact its
Consolidated Financial
Statements or related
disclosures. For the year
ended December 31, 2016,
approximately 87% of the
inventory balance was
measured using LIFO.
The Company adopted this
ASU on January 1, 2017.
61
2. MERGER WITH UNISOURCE
As more fully described in Note 1, Business and Summary of Significant Accounting Policies, on July 1, 2014,
UWWH merged with and into Veritiv. The Merger was accounted for in the Company’s financial statements using the
acquisition method of accounting, with Veritiv as the accounting acquirer of Unisource. The purchase price of $383.2 million
was determined in accordance with the Agreement and Plan of Merger and is allocated to tangible and identifiable intangible
assets and liabilities based upon their respective fair values.
During the second quarter of 2015, the Company finalized the purchase price allocation, which resulted in a net $0.3
million increase in deferred tax assets and a corresponding decrease to goodwill. These adjustments did not have a material
impact on the Company's previously reported Consolidated Financial Statements and, therefore, the Company has not
retrospectively adjusted those financial statements.
The following table summarizes the components of the purchase price for Unisource. The fair value of Veritiv shares
issued represents the aggregate value of 7.84 million shares issued at the closing "when-issued" market price of the
Company’s stock on June 30, 2014, the day prior to the Merger, less a discount for lack of marketability. See Note 11, Fair
Value Measurements, regarding the valuation of the contingent liability.
Purchase price:
Fair value of Veritiv shares issued in the Merger
Cash payments associated with customary working capital and net indebtedness adjustments
Fair value of contingent liability associated with the Tax Receivable Agreement
Total purchase price
(in millions)
284.7
39.1
59.4
383.2
$
$
The following table summarizes the final allocation of the purchase price to assets acquired and liabilities assumed
as of the date of the Merger:
Final Allocation:
Cash
Accounts receivable
Inventories
Deferred income tax assets
Property and equipment
Goodwill
Other intangible assets
Other current and non-current assets (including below market leasehold agreements)
Accounts payable
Long-term debt (including equipment capital leases)
Financing obligations to related party
Defined benefit pension obligations
Other current and non-current liabilities (including above market leasehold agreements)
Total purchase price
$
$
The purchase price allocated to the identifiable intangible assets acquired is as follows:
(in millions)
70.9
448.4
353.8
72.0
299.0
25.7
31.5
61.8
(284.2)
(313.2)
(233.1)
(30.3)
(119.1)
383.2
Value
(in millions)
Estimated Weighted-
Average Useful Life
(in years)
24.3
4.1
3.1
31.5
14.8
3.6
1
Customer relationships
Trademarks/Trade names
Non-compete agreements
Total identifiable intangible assets acquired
$
$
62
Goodwill of $25.7 million arising from the Merger consists largely of the synergies and other benefits expected from
combining the operations. The goodwill is not expected to be deductible for income tax purposes. See Note 4, Goodwill and
Other Intangible Assets, for the allocation of goodwill to the Company's reportable segments.
Actual and Pro Forma Impact
The operating results for Unisource are included in the Company’s financial statements from July 1, 2014 through
December 31, 2014. Net sales and pre-tax income attributable to Unisource during this period were $2,040.5 million and
$31.2 million, respectively.
The following unaudited pro forma financial information presents results as if the Merger and the related financing,
further described in Note 5, Debt, occurred on January 1, 2013. The historical consolidated financial information of the
Company and Unisource has been adjusted in the pro forma information to give effect to pro forma events that are directly
attributable to the transactions and factually supportable. The unaudited pro forma results do not reflect events that have
occurred or may occur after the transactions, including the impact of any synergies expected to result from the Merger.
Accordingly, the unaudited pro forma financial information is not necessarily indicative of the results of operations as they
would have been had the transactions been effected on the assumed date, nor is it necessarily an indication of future operating
results.
(Unaudited)
(in millions, except per share data)
Net sales
Net income
Earnings per share – basic and diluted
Weighted average shares outstanding – basic and diluted
Year Ended
December 31,
2014
$
$
$
9,314.1
22.7
1.42
16.00
The unaudited pro forma information reflects primarily the following pre-tax adjustments for the respective periods:
• Merger and integration expenses: Merger and integration expenses of $75.1 million incurred during the year ended
•
December 31, 2014 have been eliminated.
Incremental depreciation and amortization expense: Pro forma net income for the year ended December 31, 2014
includes $2.5 million of incremental depreciation and amortization expense related to the fair value adjustments to
property and equipment and identifiable intangible assets.
A combined effective U.S. federal statutory and state rate of 39.0% was used to determine the after-tax impact on net
income of the pro forma adjustments.
3. MERGER, INTEGRATION AND RESTRUCTURING CHARGES
The Company currently expects costs and charges associated with achieving anticipated cost savings and other
synergies from the Spin-off and Merger (excluding charges relating to the complete or partial withdrawal from multi-
employer pension plans, which are uncertain at this time), to be approximately $225 million to $250 million over a five-year
period from the Distribution Date, including approximately $90 million for capital expenditures, primarily consisting of
information technology infrastructure, systems integration and planning.
Merger and Integration Charges
During the year ended December 31, 2014, Veritiv incurred merger and integration expenses related primarily to:
advisory, legal and other professional fees directly associated with the Merger, retention compensation, certain termination
benefits (including change-in-control bonuses), information technology conversion costs, rebranding and other costs to
integrate the combined businesses of xpedx and Unisource. During the years ended December 31, 2016 and 2015, Veritiv
incurred costs and charges related primarily to: professional services and project management fees, internally dedicated
integration management resources, retention compensation, information technology conversion costs, rebranding costs and
63
other costs to integrate the combined businesses of xpedx and Unisource. The following table summarizes the components of
merger and integration expenses:
(in millions)
Integration management
Retention compensation
Information technology conversion costs
Rebranding
Legal, consulting and other professional fees
Other
Total merger and integration expenses
Veritiv Restructuring Plan
$
$
Year Ended December 31,
2016
2015
2014
8.3
2.5
6.3
2.4
2.3
4.1
$
— $
10.8
7.4
6.1
7.8
2.8
25.9
$
34.9
$
—
37.9
2.9
0.4
29.7
4.2
75.1
As part of the Spin-off and Merger, the Company is executing on a multi-year restructuring program of its North
American operations intended to integrate the legacy xpedx and Unisource operations, generate cost savings and capture
synergies across the combined company. The restructuring plan includes initiatives to: (i) consolidate warehouse facilities in
overlapping markets, (ii) improve efficiency of the delivery network, (iii) consolidate customer service centers, (iv)
reorganize the field sales and operations functions and (v) restructure the corporate general and administrative functions.
During the fourth quarter of 2014, the Company initiated the process of consolidating warehouse and customer service
locations of the legacy organizations as well as realigning its field and sales management function. As part of its
restructuring efforts, the Company continues to evaluate its operations outside of North America to identify additional cost
saving opportunities. The Company may elect to restructure its operations in specific countries, which may include staff
reductions, lease terminations, and facility closures, or a complete exit of a market.
The Company recorded estimated restructuring charges of $12.4 million, $11.3 million and $5.1 million during the
years ended December 31, 2016, 2015 and 2014, respectively, related to these initiatives. See Note 17, Segment Information,
for the impact these charges had on the Company's reportable segments. During the third and fourth quarters of 2016, the
Company recorded charges of $7.3 million and $2.5 million, respectively, related to the complete or partial withdrawal from
various multi-employer pension plans. Of these charges, $7.5 million was recorded as part of the Company's restructuring
efforts and $2.3 million was recorded as distribution expense as it was unrelated to restructuring efforts. Final charges for
these withdrawals will not be known until the plans issue their respective determinations. As a result, these estimates may
increase or decrease depending upon the final determinations. Currently, the Company expects payments will occur over
approximately a 20 year period. The Company expects to incur similar types of charges in future periods in connection with
its ongoing restructuring activities. Other direct costs reported in the table below include facility closing costs, estimated
multi-employer pension plan withdrawal charges and other incidental costs associated with the development, communication,
administration and implementation of these initiatives. The following is a summary of the Company's restructuring activity
for the periods presented:
(in millions)
Balance at December 31, 2014
Costs incurred
Payments
Balance at December 31, 2015
Costs incurred
Payments
Balance at December 31, 2016
Severance and
Related Costs
3.7
$
4.3
(6.3)
1.7
3.5
(3.4)
1.8
$
Other Direct
Costs
Total
$
$
0.2
2.9
(2.7)
0.4
11.0
(3.4)
8.0
$
$
3.9
7.2
(9.0)
2.1
14.5
(6.8)
9.8
In addition, for the years ended December 31, 2016 and 2015, the Company recognized a $2.1 million net non-cash
gain from property sales and a $4.1 million net non-cash loss from asset impairments, respectively.
64
xpedx Restructuring Plan
During 2010, xpedx completed a strategic assessment of its operating model, resulting in the decision to begin a
multi-year restructuring plan. The restructuring plan involved the establishment of a lower cost operating model in
connection with the repositioning of the Print segment in response to changing market considerations. The restructuring plan
included initiatives to: (i) optimize the warehouse network, (ii) improve the efficiency of the sales team and (iii) reorganize
the procurement function. The plan was launched in 2011 and was substantially completed by June 30, 2014.
The restructuring plan identified locations to be affected and a time range for specific actions. There were no
locations closed in 2014 under this plan. xpedx recorded restructuring income of $1.1 million for the year ended December
31, 2014 related to these closures. Direct costs reported in the table below primarily include other minor costs related to
these initiatives which were offset by the gain on the sale of fixed assets. The income and charges were as follows:
(in millions)
Facility costs
Severance
Gain on sale of fixed assets
Total
Year Ended December 31,
2014
$
$
0.3
0.2
(1.6)
(1.1)
The corresponding liability and activity during the periods presented are detailed in the table below. In connection
with the Spin-off on July 1, 2014, the remaining liability at June 30, 2014 was transferred to International Paper. See Note 9,
Related Party Transactions, for more details.
(in millions)
Liability at December 31, 2013
Costs incurred
Payments
Adjustment of prior year's estimate
Liability transferred to Parent in connection with Spin-off
Liability at December 31, 2014
$
$
Total
7.7
0.1
(3.9)
(0.3)
(3.6)
—
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
At December 31, 2016, the net goodwill balance was $50.2 million. The following table sets forth the changes in
the carrying amount of goodwill during 2015 and 2016:
65
(in millions)
Balance at December 31, 2014:
Goodwill
Accumulated impairment losses
Net goodwill 2014
2015 Activity:
Purchase accounting adjustment
Impairment of goodwill
Balance at December 31, 2015:
Goodwill
Accumulated impairment losses
Net goodwill 2015
2016 Activity:
Goodwill acquired
Impairment of goodwill
Balance at December 31, 2016:
Goodwill
Accumulated impairment losses
Print
Publishing Packaging
Facility
Solutions
Corporate
& Other
Total
$
$
265.4
(265.4)
—
$
50.5
(50.5)
—
—
—
265.4
(265.4)
—
—
—
—
—
50.5
(50.5)
—
—
—
265.4
(265.4)
50.5
(50.5)
44.3
—
44.3
(0.2)
—
44.1
—
44.1
—
—
44.1
—
$
$
59.0
(57.1)
1.9
$
6.2
—
6.2
425.4
(373.0)
52.4
—
(1.9)
59.0
(59.0)
—
—
—
59.0
(59.0)
(0.1)
—
6.1
—
6.1
—
—
6.1
—
6.1
(0.3)
(1.9)
425.1
(374.9)
50.2
—
—
425.1
(374.9)
50.2
$
Net goodwill 2016
$
— $
— $
44.1
$
— $
There were no goodwill impairment charges for the year ended December 31, 2016, as the estimated fair values of
Veritiv's segments that have goodwill substantially exceeded their carrying values. As part of the Company's annual goodwill
impairment testing during the fourth quarter of 2015, a $1.9 million goodwill impairment was identified and recorded as
selling and administrative expense for the Facility Solutions segment.
Other Intangible Assets
The components of the Company's other intangible assets were as follows:
December 31, 2016
December 31, 2015
(in millions)
Customer relationships
Trademarks/Trade names
Non-compete agreements
Total
$
$
Gross
Carrying
Amount
23.6
2.7
—
Accumulated
Amortization
4.0
$
1.3
—
5.3
$
Net
19.6
1.4
—
$
Gross
Carrying
Amount
55.0
4.1
3.1
Accumulated
Amortization
26.7
$
2.2
3.1
$
Net
28.3
1.9
—
$
21.0
$
62.2
$
32.0
$
30.2
26.3
$
During the year ended December 31, 2016, the Company recognized $2.8 million and $3.0 million in asset
impairment charges related to its Print and Publishing segments' customer relationship intangible assets, respectively, which
was recorded in selling and administrative expenses.
Upon retirement or full impairment of the intangible asset, the cost and related amount of accumulated amortization
are eliminated from the asset and accumulated amortization accounts, respectively.
The Company recorded amortization expense of $3.4 million, $5.9 million and $4.7 million for the years ended
December 31, 2016, 2015, and 2014, respectively.
66
The estimated aggregate amortization expense for each of the five succeeding years is as follows (in millions):
Year
2017
2018
2019
2020
2021
Total
$
2.1
2.1
1.9
1.6
1.6
5. DEBT
The Company's long-term debt obligations were as follows:
(in millions)
ABL Facility
Equipment capital lease and other obligations (1)
Total debt
Less: current portion of long-term debt
Long-term debt, net of current maturities
December 31,
2016
December 31,
2015
$
$
726.9
$
25.2
752.1
(2.9)
749.2
$
795.5
7.8
803.3
(2.8)
800.5
(1) As of December 31, 2016 and 2015, includes $19.1 million and $0.7 million, respectively, related to the Toronto build-to-suit arrangement
described more fully in Note 7, Leases.
ABL Facility
In conjunction with the Spin-off and Merger, and to refinance existing debt of Unisource, Veritiv entered into a $1.4
billion asset-based lending facility (the "ABL Facility"). The ABL Facility is comprised of U.S. and Canadian sub-facilities
of $1,250.0 million and $150.0 million, respectively. The ABL Facility is available to be drawn in U.S. dollars, in the case of
the U.S. sub-facilities, and in U.S. dollars or Canadian dollars, in the case of the Canadian sub-facilities, or in other
currencies that are mutually agreeable. The Company's accounts receivable and inventories in the U.S. and Canada are
collateral under the ABL Facility.
On August 11, 2016, the Company amended the ABL Facility to, among other things, extend the maturity date to
August 11, 2021. All other significant terms remained consistent. The ABL Facility provides for the right of the individual
lenders to extend the maturity date of their respective commitments and loans upon the request of Veritiv and without the
consent of any other lenders. The ABL Facility may be prepaid at Veritiv's option at any time without premium or penalty
and is subject to mandatory prepayment if the amount outstanding under the ABL Facility exceeds either the aggregate
commitments with respect thereto or the current borrowing base, in an amount equal to such excess.
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 limits outlined under the ABL Facility. At
December 31, 2016 the above test was not applicable.
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 December 31, 2016, the available additional borrowing capacity under the ABL Facility was approximately $429.9
million.
Under the terms of the ABL Facility, interest rates are based upon LIBOR or the prime rate plus a margin rate, or in
the case of Canada, a banker’s acceptance rate or base rate plus a margin rate. At December 31, 2016 and December 31,
2015, the weighted-average borrowing interest rate was 2.5%.
Financing and other related costs incurred in connection with the ABL Facility are reflected in other non-current
assets in the Consolidated Balance Sheets and are amortized over the ABL Facility term. In conjunction with the ABL
67
Facility amendment noted above, the Company recognized a charge of $1.9 million to interest expense, net, in the
Consolidated and Combined Statements of Operations, for the write-off of a portion of the previously deferred financing
costs associated with lenders in the original ABL Facility that exited the amended ABL Facility. In addition, the Company
incurred and deferred $2.0 million of new financing costs associated with this transaction, reflected in other non-current
assets in the Consolidated Balance Sheets, which will be amortized to interest expense on a straight-line basis over the
amended term of the ABL Facility. For the years ended December 31, 2016, 2015 and 2014, interest expense, net in the
Consolidated and Combined Statements of Operations included $5.6 million, $4.4 million and $2.2 million, respectively, of
amortization and write-off of deferred financing fees.
Senior Credit Facility
Unisource had an asset-based senior credit facility agreement (the "Senior Credit Facility") of which $303.9 million
was drawn and outstanding as of July 1, 2014. On July 1, 2014, Veritiv assumed the Senior Credit Facility debt in connection
with the Merger and used a portion of the proceeds borrowed against the ABL Facility to repay all of the outstanding balance
under the Senior Credit Facility. Accordingly, the Senior Credit Facility expired on July 1, 2014 as a result of the
prepayment.
Equipment Capital Lease Obligations
See Note 7, Leases, for additional information regarding the Company's equipment capital lease obligations.
6. DERIVATIVE INSTRUMENT, HEDGING ACTIVITIES AND RISK MANAGEMENT
Financial Risk Management Policy
The Company’s indebtedness under its financing arrangement creates interest rate risk. The Company’s objective is
to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in the
interest rate. The Company does not hold or issue derivative financial instruments for trading or speculative purposes.
This interest rate exposure is actively monitored by management, and in July 2015, the Company entered into an
interest rate cap agreement. The interest rate cap effectively limits the floating LIBOR-based portion of the interest rate. The
effective date of the interest rate cap agreement was July 31, 2015 with an expiration date of July 1, 2019. The initial
notional amount of this agreement covered $392.9 million of the Company’s floating-rate debt at 3.0% plus the applicable
credit spread. The Company paid $2.0 million for the interest rate cap agreement. Approximately $0.6 million of the amount
paid represented transaction costs and was expensed immediately to earnings. As of December 31, 2016 and December 31,
2015, the interest rate cap agreement had a fair value of $0.2 million and $0.6 million, respectively, classified within other
non-current assets on the Consolidated Balance Sheets. The fair value is estimated using observable market-based inputs
including interest rate curves and implied volatilities (Level 2).
The Company designated the 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 3.0% on an equivalent amount of debt. The notional amount
of the cap is reduced throughout the term of the agreement to align with the expected repayment of the Company’s
outstanding floating-rate debt.
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.
68
Accounting for Derivative Instruments
The interest rate cap agreement is subject to Accounting Standards Codification 815, Accounting for Derivative and
Hedging Transactions. For those instruments that are designated and qualify as hedging instruments, a company must
designate the instrument, based upon the exposure being hedged, as a cash flow hedge, a fair value hedge or a hedge of a net
investment in a foreign operation.
A cash flow hedge refers to hedging the exposure to variability in expected future cash flows attributable to a
particular risk. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the
gain or loss on the derivative instrument is reported as a component of AOCL until reclassified into earnings in the same
period the hedged transaction affects earnings. The gain or loss on the ineffective portion, if any, is immediately recognized
in earnings. The ineffective portion was not significant for the years ended December 31, 2016 and 2015 respectively.
For the years ended December 31, 2016 and 2015, the Company recognized an after-tax loss of $0.2 million and
$0.5 million, respectively, in other comprehensive income associated with the interest rate cap. There were no
reclassifications from AOCL into earnings for the years ended December 31, 2016 and 2015. The amount the Company
expects to reclassify from AOCL into earnings within the following twelve months is approximately $0.3 million.
7. LEASES
Lease Commitments
Future minimum lease payments at December 31, 2016 were as follows:
(in millions)
2017
2018
2019
2020
2021
Thereafter
Financing Obligations
to Related Party and
Equipment Capital
Leases
Operating Leases and Other Lease Type Obligations (1)
Lease
Obligations
Sublease
Income
Total
$
$
$
19.1
9.2
1.0
0.7
0.2
—
30.2
(1.5)
91.1
82.3
69.8
58.2
46.6
146.0
494.0
—
(0.4) $
(0.3)
(0.2)
—
—
—
(0.9)
—
90.7
82.0
69.6
58.2
46.6
146.0
493.1
—
Amount representing interest
Total future minimum lease
493.1
payments
(1) Amounts shown include the current estimated payments related to the Greater Toronto Area facility which is currently under construction. See description
below.
(0.9) $
494.0
28.7
$
$
$
During September 2015, Veritiv entered into a build-to-suit arrangement for a new facility in the Greater Toronto
Area, thus allowing the Company to consolidate three operating locations into one facility. The Company expects to have
access to the facility during the first quarter of 2017. As of December 31, 2016 and December 31, 2015, the Company
recorded a non-current asset (reflected in property and equipment, net) and a corresponding non-current obligation (long-term
debt, net of current maturities) in the Consolidated Balance Sheet for $19.1 million and $0.7 million, respectively,
representing costs incurred to-date. Contractual payments will begin once the construction is complete. Expected contractual
payments of approximately $40.8 million are included in the table above. The arrangement expires in April 2032.
Financing Obligations to Related Party
In connection with Bain Capital Fund VII, L.P.’s acquisition of its 60% interest in UWWH on November 27, 2002,
Unisource transferred 40 of its U.S. warehouse and distribution facilities (the "Properties") to Georgia-Pacific who then sold
38 of the Properties to an unrelated third-party (the "Purchaser/Landlord"). Contemporaneously with the sale, Georgia-
Pacific entered into lease agreements with the Purchaser/Landlord with respect to the individual 38 Properties and
concurrently entered into sublease agreements with Unisource, which are set to expire in June 2018. As a result of certain
forms of continuing involvement, these transactions did not qualify for sale-leaseback accounting. Accordingly, the leases
69
were classified as financing transactions. As of December 31, 2016, the Company has formally exited three of these
Properties. At the end of the lease term, the net remaining financing obligation of $168.4 million will be settled by the return
of the assets to the Purchaser/Landlord.
The lease and sublease agreements also include rent schedules and escalation clauses throughout the lease and
sublease terms. Subject to certain conditions, the Company has the right to sublease any of the Properties. Under the terms
of the lease and sublease agreements, Georgia-Pacific and the Company are responsible for all costs and expenses associated
with the Properties, including the operation, maintenance and repair, taxes and insurances. Currently, the Company leases
from Georgia-Pacific two remaining Properties that are directly owned by Georgia-Pacific and has classified them as capital
or operating leases in accordance with the accounting guidance.
In April 2016, Veritiv assumed ownership of a warehouse and distribution facility located in Austin, Texas that was
subleased from Georgia-Pacific. The Company exercised its right of first refusal and matched a $5.4 million offer from an
unrelated third party to purchase the facility directly from the owner. This transaction was accounted for as a settlement of
the financing obligation related to the facility. Accordingly, Veritiv recognized a $1.3 million loss on the transaction, which is
reflected in other expense, net, on the Consolidated and Combined Statements of Operations.
Operating Leases
Certain properties and equipment are leased under cancelable and non-cancelable agreements. The Company
recorded rent expense of $108.1 million, $106.2 million and $92.4 million for the years ended December 31, 2016, 2015 and
2014, respectively.
8. INCOME TAXES
As described in Note 1, Business and Summary of Significant Accounting Policies, Veritiv was formed through a
merger of International Paper Company's xpedx division and UWWH, the parent company of Unisource, on July 1, 2014.
Accordingly, the tax provision included for the periods prior to July 1, 2014 include only the financial results of xpedx
presented on a carve-out basis from International Paper’s historical accounting records. For periods subsequent to July 1,
2014, the tax provision presents the consolidated results of Veritiv on a stand-alone basis.
The Company is subject to federal, state and local income taxes in the United States, as well as income taxes in
Canada, Mexico and other foreign jurisdictions. The domestic (United States) and foreign components of the Company's
income (loss) from continuing operations before income taxes were as follows:
(in millions)
Domestic (United States)
Foreign
Income (loss) from continuing operations before income taxes
Year Ended December 31,
2015
2014
2016
$
$
27.6
13.2
40.8
$
$
46.6
(1.7)
44.9
$
$
(19.0)
(2.6)
(21.6)
70
Income tax expense (benefit) in the Consolidated and Combined Statements of Operations consisted of the
following:
(in millions)
Current Provision:
U.S. Federal
U.S. State
Foreign
Total current income tax expense
Deferred, net:
U.S. Federal
U.S. State
Foreign
Total deferred, net
Provision for income tax expense (benefit)
Year Ended December 31,
2015
2014
2016
$
$
$
$
$
3.6
1.5
3.6
8.7
9.6
1.9
(0.4)
11.1
19.8
$
$
$
$
$
— $
1.7
1.6
3.3
$
14.8
0.5
(0.4)
14.9
18.2
$
$
$
5.0
0.9
1.7
7.6
(8.3)
(1.2)
(0.2)
(9.7)
(2.1)
Reconciliation between the federal statutory rate and the effective tax rate is as follows:
Year Ended December 31,
2015
$
$
$
$
$
2016
2014
(in millions)
Income (loss) from continuing operations before income taxes
Statutory U.S. income tax rate
Tax expense using statutory U.S. income tax rate
Foreign income tax rate differential
State tax (net of federal benefit)
Non-deductible expenses
Tax Receivable Agreement change in fair value
Foreign exchange loss (a)
Transaction costs
Change in valuation allowance - U.S. Federal and State (b)
Change in valuation allowance - Foreign
Other
Income tax provision (benefit)
Effective income tax rate
(a) Recognition of a U.S. tax benefit with respect to a foreign exchange loss on the capitalization of an intercompany loan with the Company's Canadian
subsidiary.
(b) Increase in Section 382 limitation resulting from recognition of built-in gains.
44.9
35.0%
15.7
0.2
1.6
1.5
0.7
(1.2)
—
(0.8)
1.7
(1.2)
18.2
40.5%
40.8
35.0%
14.3
(1.1)
2.8
2.3
1.6
—
—
—
(0.5)
0.4
19.8
48.5%
(21.6)
35.0%
(7.6)
0.3
(0.3)
1.6
0.6
—
1.6
—
2.0
(0.3)
(2.1)
9.7%
$
$
$
$
71
Deferred income tax assets and liabilities as of December 31, 2016 and 2015 were as follows:
(in millions)
Deferred income tax assets:
Accrued compensation
Capital lease obligations to related party
Goodwill and other intangibles, net
Long-term compensation
Net operating losses and credit carryforwards
Allowance for doubtful accounts
Other
Gross deferred income tax assets
Less valuation allowance
Total deferred tax asset
Deferred income tax liabilities:
Property and equipment, net
Inventory reserve
Other
Total deferred tax liability
Net deferred income tax asset
December 31, 2016
December 31, 2015
U.S.
Non-U.S.
U.S.
Non-U.S.
$
$
$
17.7
77.5
4.6
21.2
74.1
11.9
3.5
210.5
(6.5)
204.0
(86.7)
(48.2)
(8.3)
(143.2)
60.8
$
$
0.1
0.8
—
3.8
13.6
—
0.8
19.1
(18.1)
1.0
—
—
—
—
1.0
$
$
20.4
83.8
4.3
18.4
85.9
11.5
1.7
226.0
(6.3)
219.7
(92.0)
(49.5)
(5.8)
(147.3)
72.4
$
—
0.6
—
4.2
10.8
0.1
0.7
16.4
(15.5)
0.9
—
—
—
—
0.9
Deferred income tax asset valuation allowance is as follows:
(in millions)
U.S.
Non-U.S.
Total
Balance at December 31, 2014
$
26.1
$
15.7
$
Additions
Subtractions
Currency translation adjustments
Balance at December 31, 2015
Additions
Subtractions
Currency translation adjustments
—
(19.8)
—
6.3
0.2
—
—
2.5
—
(2.7)
15.5
3.4
(0.9)
0.1
Balance at December 31, 2016
$
6.5
$
18.1
$
41.8
2.5
(19.8)
(2.7)
21.8
3.6
(0.9)
0.1
24.6
The Merger resulted in a significant change in the ownership of the Company, which, pursuant to the Internal
Revenue Code Section 382, imposes annual limits on the Company’s ability to utilize its U.S. federal and state net operating
loss carryforwards ("NOLs"). The Company’s NOLs will continue to be available to offset taxable income (until such NOLs
are either utilized or expire) subject to the Section 382 annual limitation. This limitation is increased for built-in gains
recognized within a 60-month period following the ownership change to the extent of total unrealized built-in gains. If the
annual limitation amount is not fully utilized in a particular tax year, then the unused portion from that particular tax year will
be added to the annual limitation in subsequent years.
In general, it is the practice and intention of Veritiv to reinvest the earnings of its non-U.S. subsidiaries in those
operations. As of December 31, 2016, Veritiv’s tax basis exceeded its financial reporting basis in certain investments in non-
U.S. subsidiaries. The Company does not believe these temporary differences will reverse in the foreseeable future and,
therefore, no deferred tax asset has been recognized with respect to these basis differences. Additionally, U.S. income tax has
not been recognized on the excess of the amount of financial reporting basis over the tax basis of investments in non-U.S.
subsidiaries that is indefinitely reinvested outside the United States. This amount becomes taxable upon a repatriation of
assets from the subsidiary or under certain other circumstances. The amount of such temporary differences totaled $30.7
million as of December 31, 2016. If recorded, the estimated income and withholding tax liability associated with these
72
temporary differences is approximately $10.2 million. The estimated tax liability may be reduced by foreign tax credits upon
repatriation.
Veritiv applies a "more likely than not" threshold to the recognition and de-recognition of uncertain tax positions. A
change in judgment related to prior years' uncertain tax positions is recognized in the period of such change.
The Company accrues interest on unrecognized tax benefits as a component of interest expense. Penalties, if
incurred, are recognized as a component of income tax expense. Total gross unrecognized tax benefits as of December 31,
2016, 2015 and 2014, as well as activity within each of the years, was not material.
In the U.S., Veritiv is generally subject to examination by the Internal Revenue Service ("IRS") for fiscal years 2013
and later and certain states for fiscal years 2012 and later; however, it may be subject to IRS and state tax authority
adjustments for years prior to 2012 to the extent of losses or other tax attributes carrying forward from the earlier years.
Unisource Canada remains subject to examination by the Canadian Revenue Agency and certain provinces for fiscal years
2012 and later.
As of December 31, 2016, Veritiv has federal, state and foreign income tax NOLs available to offset future taxable
income, of $187.3 million, $180.4 million and $52.4 million, respectively, which will expire at various dates from 2017
through 2035, with the exception of certain foreign NOLs that do not expire but have a full valuation allowance.
9. RELATED PARTY TRANSACTIONS
Agreements with the UWWH Stockholder
As described in Note 1, Business and Summary of Significant Accounting Policies, on the Distribution Date the
UWWH Stockholder, the sole shareholder of UWWH, received 7.84 million shares of Veritiv common stock for all
outstanding shares of UWWH common stock that it held in a private placement transaction. Additionally, Veritiv and the
UWWH Stockholder executed the following agreements:
• Registration Rights Agreement: The Registration Rights Agreement provides the UWWH Stockholder with certain
demand and piggyback registration rights. Under this Agreement, the UWWH Stockholder is also entitled to transfer its
Veritiv common stock to one or more of its affiliates or equity-holders and may exercise registration rights on behalf of
such transferees if such transferees become a party to the Registration Rights Agreement. The UWWH Stockholder, on
behalf of the holders of shares of Veritiv’s common stock that are party to the Registration Rights Agreement, under
certain circumstances and provided certain thresholds described in the Registration Rights Agreement are met, may make
a written request to the Company for the registration of the offer and sale of all or part of the shares subject to such
registration rights. If the Company registers the offer and sale of its common stock (other than pursuant to a demand
registration or in connection with registration on Form S-4 and Form S-8 or any successor or similar forms, or relating
solely to the sale of debt or convertible debt instruments) either on its behalf or on the behalf of other security holders,
the holders of the registration rights under the Registration Rights Agreement are entitled to include their shares in such
registration. The demand rights described commenced 180 days after the Distribution Date. Veritiv is not required to
effect more than one demand registration in any 150-day period or more than two demand registrations in any 365-day
period. If Veritiv believes that a registration or an offering would materially affect a significant transaction or would
require it to disclose confidential information which it in good faith believes would be adverse to its interest, then Veritiv
may delay a registration or filing for no more than 120 days in a 360-day period.
• Tax Receivable Agreement: The Tax Receivable Agreement sets forth the terms by which Veritiv generally will be
obligated to pay the UWWH Stockholder an amount equal to 85% of the U.S. federal, state and Canadian income tax
savings that Veritiv actually realizes as a result of the utilization of Unisource's net operating losses attributable to
taxable periods prior to the date of the Merger. For purposes of the Tax Receivable Agreement, Veritiv’s income tax
savings will generally be computed by comparing Veritiv’s actual aggregate U.S. federal, state and Canadian income tax
liability for taxable periods (or portions thereof) beginning after the date of the Merger to the amount of Veritiv’s
aggregate U.S. federal, state and Canadian income tax liability for the same periods had Veritiv not been able to utilize
Unisource's net operating losses attributable to taxable periods prior to the date of the Merger. Veritiv will pay to the
UWWH Stockholder an amount equal to 85% of such tax savings, plus interest at a rate of LIBOR plus 1.00%, computed
73
from the earlier of the date that Veritiv files its U.S. federal income tax return for the applicable taxable year and the date
that such tax return is due (without extensions) until payments are made. Under the Tax Receivable Agreement, the
UWWH Stockholder will not be required to reimburse Veritiv for any payments previously made if such tax benefits are
subsequently disallowed or adjusted (although future payments under the Tax Receivable Agreement would be adjusted
to the extent possible to reflect the result of such disallowance or adjustment). The Tax Receivable Agreement will be
binding on and adapt to the benefit of any permitted assignees of the UWWH Stockholder and to any successors to any
of the parties of the Tax Receivable Agreement to the same extent as if such permitted assignee or successor had been an
original party to the Tax Receivable Agreement. In January 2017, Veritiv paid $8.7 million to the UWWH Stockholder
for the utilization of pre-merger NOLs in its 2015 federal and state tax returns.
On November 23, 2016, the UWWH Stockholder sold 1.76 million shares of Veritiv common stock in an
underwritten public offering. Concurrently with the closing of the offering, Veritiv repurchased 0.31 million of these offered
shares from the underwriters at a price of $42.8625 per share, which is the price at which the underwriters purchased such
shares from the selling stockholder, for an aggregate purchase price of approximately $13.4 million. In conjunction with
these transactions, Veritiv incurred approximately $0.8 million in transaction-related fees, of which approximately $0.2
million was capitalized as part of the cost to acquire the treasury stock with the remainder included in selling and
administrative expense, on the Consolidated and Combined Statements of Operations.
Transactions with Georgia-Pacific
Veritiv purchases certain inventory items from, and sells certain inventory items to, Georgia-Pacific in the normal
course of business. As a result of the Merger and related private placement, Georgia-Pacific, as joint owner of the sole
stockholder of UWWH, is a related party from July 1, 2014 through the date of this report. The following table summarizes
the financial impact of these related party transactions with Georgia Pacific:
(in millions)
Sales to Georgia-Pacific, reflected in net sales
Purchases of inventory from Georgia-Pacific, recognized in cost
of products sold
Inventories purchased from Georgia-Pacific that remained on
Veritiv's balance sheet
Related party payable to Georgia-Pacific
Related party receivable from Georgia-Pacific
Year Ended December 31,
2016
2015
2014
$
$
$
$
$
35.6
224.9
24.8
9.0
3.9
$
$
$
$
$
33.6
264.7
$
$
18.4
136.1
25.2
10.7
3.9
See Note 7, Leases, for information on the Company's financing obligations to Georgia-Pacific.
Relationship between Veritiv and International Paper
Transactions with International Paper
Prior to the Spin-off, xpedx purchased certain inventory items from, and sold certain inventory items to,
International Paper in the normal course of business. After the Spin-off and the Merger, Veritiv continues to purchase from
and sell certain inventory items to International Paper that are considered transactions in the normal course of the Company’s
operations. Although the Company and International Paper entered into a transition services agreement, International Paper
is not considered a related party subsequent to the Spin-off. The following table summarizes the financial impact of those
related party transactions with International Paper:
74
(in millions)
Sales to International Paper, reflected in net sales
Purchases of inventory from International Paper, recognized in cost of products sold
Year Ended
December 31,
2014
$
$
24.3
276.5
Parent Company Investment
The components of net transfers to Parent for the year ended December 31, 2014 were as follows:
(in millions)
Intercompany sales and purchases, net
Cash pooling and general financing activities
Corporate allocations including income taxes
Net adjustments in conjunction with the Spin-off
Total net transfers to International Paper
Year Ended
December 31,
2014
$
$
255.4
(322.5)
34.7
(49.6)
(82.0)
In conjunction with the Spin-off, certain xpedx assets and liabilities were retained by International Paper. Such
assets and liabilities were identified and quantified in accordance with the terms agreed to in the Contribution and
Distribution Agreement ("C&DA") dated January 28, 2014, entered into by International Paper, xpedx Holding Company,
UWWH and the UWWH Stockholder. Additionally, in accordance with the C&DA, the parties agreed to settle, within 30
days of the Distribution Date, all intercompany balances outstanding between International Paper and xpedx as of the
Distribution Date, determined based on an agreed-upon formula. The net effect of assets and liabilities retained and
adjustments to intercompany balances as of the Distribution Date are reflected in the table above in the net adjustments in
conjunction with the Spin-off. These primarily include $24.3 million of net assets transferred to International Paper and
settlement of intercompany balances of $24.6 million as of the Distribution Date.
Allocation of General Corporate Expenses
Prior to the Spin-off, the xpedx financial statements included expense allocations for certain functions previously
provided by International Paper, including, but not limited to, general corporate expenses related to finance, legal,
information technology, human resources, communications, insurance and stock-based compensation. These expenses were
allocated on the basis of direct usage when identifiable, with the remainder principally allocated on the basis of percent of
capital employed, headcount, sales or other measures. Prior to the Spin-off, $25.5 million of expenses were allocated to
xpedx and were included within selling and administrative expenses in the Consolidated and Combined Statements of
Operations for the year ended December 31, 2014.
Separation Agreements with Former Unisource CEO
Effective as of the Distribution Date, Allan R. Dragone, Jr. ceased to be the Chief Executive Officer of Unisource
and became a member of Veritiv’s Board of Directors. Under his then existing employment agreement with Unisource, Mr.
Dragone was entitled to receive severance benefits, subject to his execution and non-revocation of a general release of claims
against Unisource, the Company and International Paper. Under a Separation and Non-Competition Agreement entered into
between the Company and Mr. Dragone as of June 30, 2014 (the "Separation Agreement"), Mr. Dragone received an
additional $3.0 million in severance pay and agreed to be bound by the restrictive covenants set forth in the Separation
Agreement. For the year ended December 31, 2014, the Company recognized $5.4 million in expense related to Mr.
Dragone's employment agreement and the Separation Agreement, which is reflected in merger and integration expenses in the
Consolidated and Combined Statements of Operations. As part of his employment agreement, Mr. Dragone exercised his
right to sell his personal residence to the Company. The Company completed the purchase of the residence for $4.6 million
and subsequently sold the residence for $4.6 million during 2015.
75
10. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
Veritiv sponsors qualified defined contribution plans covering its employees in the U.S. and Canada. The defined
contribution plans allow eligible employees to contribute a portion of their salary to the plans and Veritiv makes matching
contributions to participant accounts on a specified percentage of employee deferrals as determined by the provisions of each
plan. During the years ended December 31, 2016 and 2015, Veritiv's contributions to these plans totaled $19.6 million and
$19.0 million, respectively.
In conjunction with the Merger, Veritiv assumed responsibility for Unisource's defined contribution retirement plans
in the U.S. and Canada. Veritiv’s total contribution to these plans was $2.4 million for the year ended December 31, 2014.
Prior to the Spin-off, certain employees of xpedx participated in defined contribution plans sponsored by
International Paper. International Paper's matching contributions to the plans totaled approximately $8.9 million for the year
ended December 31, 2014. After the Spin-off, xpedx employees in the U.S. commenced participating in the Veritiv
Retirement Savings Plan ("401(k) Plan") (formerly known as the Unisource plan). The assets of the xpedx employees under
International Paper plans were transferred to the 401(k) Plan. For the year ended December 31, 2014, Veritiv's matching
contributions to this plan totaled $5.6 million.
Deferred Compensation Savings Plans
In conjunction with the Merger, Veritiv assumed responsibility for Unisource's legacy deferred compensation plans.
Unisource maintained deferred compensation obligations for certain employees from its past acquisitions. Unisource agreed
to pay these employees deferred compensation in return for services rendered prior to their retirement. In general, the payout
terms varied for each employee agreement and were paid in monthly or annual installments ranging up to 15 years from the
date of eligibility.
Effective January 1, 2015, the Company adopted the Veritiv Deferred Compensation Savings Plan which provides
for the deferral of salaries, commissions or bonuses of eligible non-union employees. Under this plan, eligible participants
may elect to defer up to 85% of their base salary, commissions and annual incentive bonus. The amounts deferred are
credited to notional investment accounts selected by participants. At the time a deferral election is made, participants elect to
receive payout of the deferred amounts upon termination of employment in the form of a lump sum or equal annual
installments ranging from two to ten years. Currently, Veritiv does not make matching contributions to this plan.
The liabilities associated with these plans are summarized in the table below.
Deferred Compensation Liability
(in millions)
Other accrued liabilities
Other non-current liabilities
Total liabilities
Defined Benefit Plans
December 31, 2016
December 31, 2015
$
$
2.7
21.6
24.3
$
$
2.8
19.6
22.4
At December 31, 2016 and 2015, Veritiv did not maintain any active defined benefit plans for its non-union
employees.
Certain of xpedx’s employees participated in defined benefit pension and other post-retirement benefit plans
sponsored and accounted for by International Paper. In conjunction with the Spin-off, the above plans were frozen for the
xpedx employees, and International Paper retained the associated liabilities. Certain xpedx union employees were added as
participants to the Unisource's defined benefit pension plan. The amount of net pension and other post-employment benefit
expense attributable to xpedx related to the International Paper sponsored plans was $8.0 million for the year ended
December 31, 2014.
76
Unisource sponsored a defined benefit pension plan for its non-union and union employees and a Supplemental
Executive Retirement Plan ("SERP") for certain highly compensated employees. On September 26, 2013, the U.S. defined
benefit pension plan received actuarial certification that eligible U.S. non-union participants were permitted to receive lump
sum payments for their full cash balance accounts. Expected benefit payments in the U.S. plan assume that vested terminated
participants will take lump sum payments at retirement age. Union employees continue to accrue benefits under the U.S.
defined benefit pension plan in accordance with their collective bargaining agreements.
In Canada, Unisource sponsored one non-union and two union defined benefit plans also known as Registered
Pension Plans. Additionally, Unisource maintained a nonregistered SERP for certain highly compensated employees in
Canada that provided pension benefits in excess of the registered plan compensation limits. The non-union defined benefit
plan and the SERP plan were frozen for service credit, but participants were still eligible for early retirement benefits, and
final average earnings continued to be used for calculating retirement benefits. The Canada union defined benefit plans were
frozen for new participants under the two collective bargaining agreements.
In conjunction with the Merger, Veritiv assumed responsibility for Unisource’s defined benefit plans and SERP in
the U.S. and Canada. Except as discussed above, these plans were frozen prior to the Merger.
Benefit Obligations and Funded Status
The following table provides information about Veritiv's U.S. and Canadian defined benefit pension and SERP
plans:
(in millions)
Accumulated benefit obligation, end of year
Change in projected benefit obligation:
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Settlements
Foreign exchange adjustments
Projected benefit obligation, end of year
Change in plan assets:
Plan assets, beginning of year
Employer contributions
Investment returns
Benefits paid
Administrative expenses paid
Settlements
Foreign exchange adjustments
Plan assets, end of year
Underfunded status, end of year
Year Ended December 31,
2016
2015
U.S.
Canada
U.S.
Canada
89.7
$
71.9
$
89.0
$
68.2
89.0
$
76.0
$
93.7
$
0.7
3.4
—
(3.4)
—
—
0.3
3.1
2.2
(4.8)
—
2.2
0.8
3.2
(3.4)
(5.2)
(0.1)
—
89.7
$
79.0
$
89.0
$
74.4
$
61.6
$
80.2
$
—
5.9
(3.4)
(1.0)
—
—
3.1
3.1
(4.8)
—
—
1.9
0.1
0.3
(5.2)
(0.9)
(0.1)
—
$
75.9
(13.8) $
$
64.9
(14.1) $
$
74.4
(14.6) $
89.4
0.2
3.2
1.6
(4.0)
—
(14.4)
76.0
66.4
3.5
6.3
(4.0)
—
—
(10.6)
61.6
(14.4)
$
$
$
$
$
$
77
Balance Sheet Positions
(in millions)
U.S.
Canada
U.S.
Canada
Amounts recognized in the Consolidated Balance Sheets
Year Ended December 31,
2016
2015
consist of:
Other current liabilities
Defined benefit pension obligations
Net liability recognized
$
$
0.1
13.7
13.8
$
$
0.2
13.9
14.1
$
$
0.1
14.5
14.6
$
$
0.2
14.2
14.4
Year Ended December 31,
2016
2015
(in millions)
U.S.
Canada
U.S.
Canada
Amounts not yet reflected in net periodic benefit cost and
included in AOCL consist of:
Net loss, net of tax
$
5.7
$
3.4
$
6.2
$
1.2
Net Periodic Cost
Total net periodic benefit cost associated with the defined benefit pension and SERP plans is summarized below:
(in millions)
Components of net periodic benefit cost
(credit):
Year Ended December 31,
2016
2015
2014
U.S.
Canada
U.S.
Canada
U.S.
Canada
Service cost
Interest cost
Expected return on plan assets
Amortization of net loss
Net periodic benefit cost (credit)
$
$
1.7
3.4
(5.0)
0.1
0.2
$
$
0.3
3.1
(3.5)
0.2
0.1
$
1.6
$
0.2
$
0.8
$
3.2
(5.2)
—
(0.4) $
3.2
(3.3)
—
0.1
$
1.7
(3.1)
—
(0.6) $
$
0.1
1.9
(1.9)
—
0.1
Changes to funded status recognized in
other comprehensive (income) loss:
Net loss (gain) during year, net of tax $
(0.5) $
2.2
$
1.0
$
(1.0) $
5.2
$
2.2
Amounts are generally amortized from AOCL over the expected future working lifetime of active plan participants.
The amount Veritiv expects to amortize from AOCL into net periodic pension cost in 2017 is not significant.
Fair Value of Plan Assets
U.S. and Canada pension plan assets are primarily invested in broad-based mutual funds and pooled funds
comprised of U.S. and non-U.S. equities, U.S. and non-U.S. high-quality and high-yield fixed income securities, and short-
term interest bearing securities or deposits.
The underlying investments of the U.S. plan assets are valued using quoted prices in active markets (Level 1). The
underlying investments of the Canada plan assets in equity and fixed income securities are measured at fair value using the
Net Asset Value ("NAV") provided by the administrator of the fund and the Company has the ability to redeem such assets at
the measurement date or within the near term without redemption restrictions. In accordance with ASU 2015-07, "Fair Value
Measurement (Topic 820)", investments that are measured at fair value using the NAV per share practical expedient have not
78
been classified in the fair value hierarchy. The following tables present Veritiv’s plan assets using the fair value hierarchy
which is reconciled to the amounts presented for the total pension benefit plan assets as of December 31:
As of December 31, 2016
(in millions)
Investments – U.S.:
Equity securities
Fixed income securities
Cash and short-term securities
Total
As of December 31, 2016
(in millions)
Investments – Canada:
Cash and short-term securities
Investments measured at NAV:
Equity securities
Fixed income securities
Total
As of December 31, 2015
(in millions)
Investments – U.S.:
Equity securities
Fixed income securities
Cash and short-term securities
Total
As of December 31, 2015
(in millions)
Investments – Canada:
Cash and short-term securities
Investments measured at NAV:
Equity securities
Fixed income securities
Total
$
$
$
$
$
$
$
$
Total
Level 1
Level 2
Level 3
$
50.0
25.7
0.2
$
50.0
25.7
0.2
75.9
$
75.9
$
— $
—
—
— $
Total
Level 1
Level 2
Level 3
0.3
$
0.3
$
— $
43.8
20.8
64.9
48.4
25.8
0.2
$
$
Total
0.3
$
— $
Level 1
Level 2
Level 3
$
48.4
25.8
0.2
— $
—
—
— $
74.4
$
74.4
$
Total
Level 1
Level 2
Level 3
0.6
$
0.6
$
— $
41.1
19.9
61.6
$
0.6
$
— $
—
—
—
—
—
—
—
—
—
—
—
—
The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is
significant to the measurement. Valuation methodologies used for assets and liabilities measured at fair value are as follows:
* Equity Securities: Commingled funds are valued at the net asset value of units held at year end, as determined by
a pricing vendor or the fund family. Mutual funds are valued at the net asset value of shares held at year end, as determined
by the closing price reported on the active market on which the individual securities are traded, or a pricing vendor or the
fund family if an active market is not available.
79
* Fixed Income Securities: Mutual funds are valued at the net asset value of shares held at year end, as determined
by the closing price reported on the active market on which the individual securities are traded, or a pricing vendor or the
fund family if an active market is not available.
* Cash and Short-term Securities: Cash and cash equivalents consist of U.S. and foreign currencies. Foreign
currencies are reported in U.S. dollars based on currency exchange rates readily available in active markets. Short-term
securities are valued at the net asset value of units held at year end.
The weighted-average asset allocations of invested assets within Veritiv’s defined benefit pension plans were as
follows:
As of December 31, 2016
(in millions)
Equity securities
Fixed income securities
Cash and short-term securities
Total
As of December 31, 2015
(in millions)
Equity securities
Fixed income securities
Cash and short-term securities
Total
U.S.
Canada
$
50.0
25.7
0.2
75.9
$
U.S.
Canada
$
48.4
25.8
0.2
74.4
$
43.8
20.8
0.3
64.9
41.1
19.9
0.6
61.6
$
$
$
$
Asset Allocation Range
U.S.
55 - 75%
20 - 40%
0 - 10%
Canada
50 - 70%
30 - 50%
0 - 5%
Asset Allocation Range
U.S.
55 - 75%
20 - 40%
0 - 10%
Canada
50 - 70%
30 - 50%
0 - 5%
Veritiv's investment objectives include maximizing long-term returns at acceptable risk levels, diversifying among
asset classes, as applicable, and among investment managers as well as establishing certain risk parameters within asset
classes.
Investment performance is evaluated at least quarterly. Total returns are compared to the weighted-average return of
a benchmark mix of investments. Individual fund investments are compared to historical 3, 5 and 10 year returns achieved
by funds with similar investment objectives.
Assumptions
The determination of Veritiv’s defined benefit obligations and pension expense is based on various assumptions,
such as discount rates, expected long-term rates of return, rate of compensation increases, employee retirement patterns and
payment selections, inflation, and mortality rates.
Veritiv's weighted average discount rates for its U.S. plans were determined by using cash flow matching techniques
whereby the rates of yield curves, developed from U.S. corporate yield curves, were applied to the benefit obligations to
determine the appropriate discount rate. Veritiv's weighted average discount rates for its Canadian plans were determined by
using spot rates from yield curves, developed from high-quality bonds (rated AA or higher) by established rating agencies,
matching the duration of the future expected benefit obligations.
Veritiv’s weighted-average expected rate of return was developed based on several factors, including projected and
historical rates of returns, investment allocations of pension plan assets and inflation expectations. Veritiv evaluates the
expected rate of return assumptions on an annual basis.
80
The following table presents significant weighted-average assumptions used in computing the benefit obligations:
Discount rate
Rate of compensation increases
Year Ended December 31,
2016
2015
U.S.
Canada
U.S.
Canada
3.76%
N/A
3.85%
3.00%
4.05%
N/A
4.00%
3.00%
The following table presents significant weighted-average assumptions used in computing net periodic benefit cost:
Discount rate
Rate of compensation increases
Expected long-term rate of return on assets
Cash Flows
Year Ended December 31,
2016
2015
U.S.
Canada
U.S.
Canada
4.05%
N/A
7.15%
4.00%
3.00%
5.50%
3.75%
N/A
7.15%
4.00%
3.00%
5.50%
Veritiv expects to contribute $0.1 million and $3.7 million to its U.S. and Canadian defined benefit pension and
SERP plans, respectively, during 2017. Future benefit payments under the defined benefit pension and SERP plans are
estimated as follows:
(in millions)
U.S.
Canada
2017
2018
2019
2020
2021
2022-2026
$
$
6.5
5.1
5.0
5.2
5.2
28.9
2.5
2.6
2.7
2.8
2.9
17.3
Multi-employer Plans
In conjunction with the Merger, Veritiv assumed responsibility for Unisource’s multi-employer plans. Veritiv's
contributions were $3.7 million, $3.9 million and $3.2 million for the years ended December 31, 2016, 2015, and 2014,
respectively. It is reasonably possible that changes to Veritiv employees covered under these plans might result in additional
contribution obligations. Any such obligations would be governed by the specific agreement between Veritiv and any such
plan. Veritiv's contributions did not represent more than 5% of total contributions to any multi-employer plans for the years
ended December 31, 2016, 2015 and 2014. At the date these Consolidated and Combined Financial Statements were issued,
Forms 5500 were not available for the plan years ending in 2016 and 2015.
The risks of participating in these multi-employer pension plans are different from a single employer plan in the
following aspects:
• Assets contributed to the multi-employer plans by one employer may be used to provide benefits to employees of
•
•
other participating employers,
If a participating employer ceases contributing to the plan, the unfunded obligations of the plan may be inherited by
the remaining participating employers, and
If the Company stops participating in any of the multi-employer plans, the Company may be required to pay those
plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
During the third and fourth quarters of 2016, the Company recorded undiscounted charges of $7.3 million and $2.5
million, respectively, related to the complete or partial withdrawal from various multi-employer pension plans. Of these
81
amounts, $7.5 million were recorded as part of the Company's restructuring efforts and $2.3 million were recorded as
distribution expense as it was unrelated to restructuring efforts. See Note 3, Merger, Integration and Restructuring Charges,
for additional information regarding these transactions. The Company records an estimated undiscounted charge when it
becomes probable that it has incurred a withdrawal liability. Approximately $9.8 million was recorded in other non-current
liabilities in the Consolidated Balance Sheets at December 31, 2016 for the Company's estimated withdrawal liability. Final
charges for these withdrawals will not be known until the plans issue their respective determinations. As a result, these
estimates may increase or decrease depending upon the final determinations. Currently, the Company expects payments will
occur over an approximate 20 year period. The Company expects to incur similar types of charges in future periods in
connection with its ongoing restructuring activities.
Veritiv’s participation in the multi-employer plans for the year ended December 31, 2016 is outlined in the table
below. The "EIN/Pension Plan Number" column provides the Employee Identification Number and the three-digit plan
number, if applicable. The Pension Protection Act zone listed below is based on the latest information Veritiv received from
the plan and is certified by the plan’s actuary. Plans in the red zone are generally less than 65% funded, plans in the yellow
zone are less than 80% funded and plans in the green zone are at least 80% funded. There were no changes in the status of
any zones in 2016. The "FIP/RP Status Pending/Implemented" column indicates plans for which a financial improvement
plan or a rehabilitation plan is either pending or has been implemented. The last column lists the expiration date(s) of the
collective-bargaining agreement(s).
EIN/Pension
Plan No.
Pension
Protection
Act Zone
Status
FIP/RP
Status
Pending/
Implemented
Veritiv's
Contributions
2016
2015
2014
Surcharge
Imposed
916145047/001
Green
No
$ 1.7
$ 1.7
$ 1.5
No
366044243/001
Red
Implemented
0.3
0.4
0.3
231511735/001
Yellow
Implemented
0.4
0.4
0.3
521074215/001
046372430/001
Red
Red
Implemented
—
0.1
0.1
Implemented
0.5
0.4
0.5
Yes
Yes
Yes
Yes
256029946/001
Red
Implemented
0.3
0.3
0.2
Yes
Expiration
Date(s) of
Collective
Bargaining
Agreement(s)
9/30/2016 -
3/31/2020
11/30/2016 &
7/31/2018
3/31/2018 &
7/31/2018
6/16/2020
9/30/2017 &
11/30/2017
3/31/2017 &
3/31/2019
3.2
3.3
2.9
0.5
0.6
0.3
$ 3.7
$ 3.9
$ 3.2
Pension Fund
Western Conference of
Teamsters Pension Trust
Fund (1)
Central States, Southeast &
Southwest Areas Pension
Fund (2)
Teamsters Pension Plan of
Philadelphia & Vicinity
Graphic Arts Industry Joint
Pension Trust
New England Teamsters &
Trucking Industry Pension
Western Pennsylvania
Teamsters and Employers
Pension Plan
Contributions for
individually significant plans
Contributions to other multi-
employer plans
Total contributions
(1) As of December 31, 2016, there were 16 collective bargaining units participating in the Western Conference of Teamsters Pension Trust. As of December
31, 2016, four were then in negotiations.
(2) As of December 31, 2016, there were four collective bargaining units participating in the Central States, Southeast & Southwest Areas Pension Fund. As
of December 31, 2016, none were then in negotiations.
11. FAIR VALUE MEASUREMENTS
At December 31, 2016 and 2015, the carrying amounts of cash, receivables, payables and other components of other
current assets and other current liabilities approximate their fair value due to the short maturity of these items.
Borrowings under the ABL Facility are at variable market interest rates, and accordingly, the carrying amount
approximates fair value.
82
The fair value of the 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 6, Derivative
Instrument, Hedging Activities and Risk Management, for additional information on the interest rate cap agreement.
The fair value analysis for the goodwill and long-lived asset impairments described in Note 4, Goodwill and Other
Intangible Assets, and Note 1, Business and Summary of Significant Accounting Policies, respectively, relied upon both
Level 2 data (publicly observable data such as market interest rates, the Company’s stock price, the stock prices of peer
companies and the capital structures of peer companies) and Level 3 data (internal data such as the Company’s operating and
cash flow projections). For the year ended December 31, 2016, the Company recognized $5.8 million in intangible asset
impairment charges related to its Print and Publishing segments' customer relationship intangible assets, included in selling
and administrative expenses, on the Consolidated and Combined Statements of Operations. The impairments were
determined after review of the segments' trended revenues and estimated cash flows (Level 3). As a result, the entire carrying
values were deemed impaired. For the year ended December 31, 2015, the Company recognized a $1.9 million goodwill
impairment charge for its Facility Solutions segment and $3.3 million in asset impairment charges related to property, plant
and equipment disposed of as part of its restructuring efforts. The goodwill impairment charge is included in selling and
administrative expense and the property, plant and equipment impairment charge is included in restructuring charges on the
Consolidated and Combined Statements of Operations. For the year ended December 31, 2016, there were no impairments
charged to restructuring expense. The Company has on occasion recognized other minor impairments when warranted as part
of its normal review of long-lived assets, and these impairments are included in selling and administrative expenses on the
Consolidated and Combined Statements of Operations. Total goodwill and long-lived asset impairments for the years ended
December 31, 2016 and 2015 were $7.7 million and $5.9 million, respectively. There were no asset impairments in 2014.
At December 31, 2016, 2015 and 2014, the pension plan assets were primarily comprised of mutual funds and
pooled funds. The underlying investments of these funds were valued using either quoted prices in active markets or valued
as of the most recent trade date. See Note 10, Employee Benefits Plans, for further detail.
At the time of the Merger, the Company recorded a $59.4 million contingent liability associated with the Tax
Receivable Agreement at fair value using a discounted cash flow model that reflected management's expectations about
probability of payment. The fair value of the Tax Receivable Agreement is a Level 3 measurement which relied upon both
Level 2 data (publicly observable data such as market interest rates) and Level 3 data (internal data such as the Company’s
projected revenues, taxable income and assumptions about the utilization of Unisource’s net operating losses, attributable to
taxable periods prior to the Merger, by the Company). The amount payable under the Tax Receivable Agreement 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 Tax Receivable Agreement. The contingent liability is remeasured at fair value at each reporting
period with the change in fair value recognized in other expense, net on the Consolidated and Combined Statements of
Operations. At December 31, 2016, the Company remeasured the contingent liability using a discount rate of 4.7% (Moody's
daily long-term corporate BAA bond yield). See Note 9, Related Party Transactions, for further discussion of the Tax
Receivable Agreement.
The following table provides a reconciliation of the beginning and ending balance of the contingent liability for the
year ended December 31, 2016:
(in millions)
Balance at December 31, 2014
Purchase accounting adjustment
Change in fair value adjustment recorded in other expense, net
Balance at December 31, 2015
Change in fair value adjustment recorded in other expense, net
Balance at December 31, 2016
Contingent Liability
$
$
60.5
0.6
1.9
63.0
4.9
67.9
There have been no transfers between the fair value measurement levels for the years ended December 31, 2016 and
2015. The Company recognizes transfers between the fair value measurement levels at the end of the reporting period.
83
12. SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
Other Current Assets
The components of other current assets were as follows:
(in millions)
Rebates receivable
Prepaid expenses
Other
Other current assets
Other Non-Current Assets
The components of other non-current assets were as follows:
(in millions)
Deferred financing costs
Investments in real estate joint ventures
Below market leasehold agreements
Other
Other non-current assets
Accrued Payroll and Benefits
The components of accrued payroll and benefits were as follows:
(in millions)
Accrued payroll and related taxes
Accrued commissions
Accrued incentive plans
Other
Accrued payroll and benefits
December 31,
2016
December 31,
2015
$
62.3
26.1
30.5
118.9
$
57.0
23.4
28.4
108.8
December 31,
2016
December 31,
2015
11.9
$
6.0
4.7
7.7
30.3
$
15.3
5.8
5.3
7.9
34.3
December 31,
2016
December 31,
2015
26.0
21.8
33.1
3.5
84.4
$
$
28.7
39.3
49.1
3.4
120.5
$
$
$
$
$
$
84
Other Accrued Liabilities
The components of other accrued liabilities were as follows:
(in millions)
Accrued taxes
Accrued customer incentives
Accrued freight
Accrued professional fees
Tax Receivable Agreement contingent liability
Other
Other accrued liabilities
Other Non-Current Liabilities
The components of other non-current liabilities were as follows:
(in millions)
Tax Receivable Agreement contingent liability
Deferred compensation
Straight-line rent
Above market leasehold agreements
Other, including multi-employer pension plan withdrawals
Other non-current liabilities
13. EARNINGS (LOSS) PER SHARE
December 31,
2016
December 31,
2015
9.1
$
23.3
13.9
7.3
8.5
40.4
13.7
24.0
11.5
10.0
7.4
33.8
102.5
$
100.4
December 31,
2016
December 31,
2015
$
59.4
21.6
15.7
3.1
21.4
55.6
19.6
12.2
4.5
13.7
121.2
$
105.6
$
$
$
$
Basic earnings (loss) per share for Veritiv common stock is calculated by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is similarly
calculated, except that the denominator is increased to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued, except where the inclusion of such common shares
would have an anti-dilutive impact.
On the Distribution Date, Veritiv had 16.00 million shares of common stock issued and outstanding, including 7.84
million shares issued in a private placement to the sole stockholder of UWWH in connection with the Merger.
The calculation of both basic and diluted loss per share for the year ended December 31, 2014 utilized 12.08 million
shares based on the weighted-average shares outstanding during this period, reflecting the impact of the private placement of
shares to the sole stockholder of UWWH on the Distribution Date.
The calculation of basic and diluted earnings per share for the years ended December 31, 2016 and 2015 utilized
15.97 million shares and 16.00 million shares for basic, respectively, and 16.15 million shares and 16.00 million for dilutive,
respectively, issued and outstanding based on the weighted average shares outstanding during this period, with the weighted
average shares outstanding for the diluted earnings per share having been adjusted for potentially dilutive shares.
During 2016 and 2015, the Company granted equity-based awards to certain of its employees.
See Note 15, Equity-Based Incentive Plans, for additional information.
85
A reconciliation of the numerators and denominators used in the basic and diluted earnings (loss) per share
calculations is as follows:
(in millions)
Numerator:
Income (loss) from continuing operations
(Loss) from discontinued operations, net of income taxes
Net income (loss)
Denominator:
Weighted average number of shares outstanding – basic
Weighted average number of shares outstanding – diluted
Earnings (loss) per share:
Basic
Continuing operations
Discontinued operations
Basic earnings (loss) per share
Diluted
Continuing operations
Discontinued operations
Diluted earnings (loss) per share
Antidilutive stock-based awards excluded from computation of diluted
earnings per share
Performance stock-based awards excluded from computation of diluted
earnings per share because performance conditions had not been met
Year Ended December 31,
2015
2016
2014
$
$
$
$
$
$
21.0
—
21.0
$
$
26.7
—
26.7
$
$
(19.5)
(0.1)
(19.6)
15.97
16.15
16.00
16.00
12.08
12.08
$
$
$
$
1.31
—
1.31
1.30
—
1.30
0.06
0.20
$
$
$
$
1.67
—
1.67
1.67
—
1.67
0.10
0.16
(1.61)
(0.01)
(1.62)
(1.61)
(0.01)
(1.62)
N/A
N/A
14. SHAREHOLDERS' EQUITY
On the Distribution Date, Veritiv amended and restated its Certificate of Incorporation and its Bylaws. The
following summarizes information concerning Veritiv's capital stock.
Authorized Capital Stock
As a result of the Spin-off, the Company’s authorized capital stock consists of 100.00 million shares of common
stock, par value $0.01 per share, and 10.00 million shares of preferred stock, par value $0.01 per share.
Common Stock
Shares Outstanding: On the Distribution Date, 8.16 million shares of Veritiv common stock were distributed on a
pro rata basis to the International Paper shareholders of record as of the close of business on June 20, 2014. Furthermore, the
UWWH Stockholder received 7.84 million shares of Veritiv common stock for all outstanding shares of UWWH common
stock that it held on the Distribution Date. Following these distributions, Veritiv had 16.00 million shares of common stock
issued and outstanding. On November 23, 2016, the UWWH Stockholder sold 1.76 million shares of Veritiv common stock
in an underwritten public offering. See the "Treasury Stock" section of this footnote below for additional information. There
were 15.69 million shares of common stock outstanding at December 31, 2016.
86
Dividends: Each holder of common stock shall be entitled to participate equally in all dividends payable with
respect to the common stock.
Voting Rights: The holders of the Company’s common stock are entitled to vote only in the circumstances set forth
in Veritiv's Amended and Restated Certificate of Incorporation. Each holder of common stock shall be entitled to one vote
for each share of common stock held of record by such holder upon all matters to be voted on by the holders of the common
stock.
Other Rights: Each holder of common stock shall be entitled to share equally, subject to any rights and preferences
of the preferred stock (as fixed by resolutions, if any, of the Board of Directors), in the assets of the Company available for
distribution, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of Veritiv, or
upon any distribution of the assets of the Company.
Preferred Stock
Subject to the provisions of the Amended and Restated Certificate of Incorporation, the Board of Directors of Veritiv
is authorized to provide for the issuance of up to 10.00 million shares of preferred stock in one or more series. The Board of
Directors may fix the number of shares constituting any series and determine the designation of the series, the dividend rates,
rights of priority of dividend payment, the voting powers (if any) of the shares of the series, and the preferences and relative
participating, optional and other rights, if any, and any qualifications, limitations or restrictions, applicable to the shares of
such series. No preferred stock was issued and outstanding as of December 31, 2016.
Treasury Stock
In conjunction with the November 2016 UWWH Stockholder offering and related Veritiv stock repurchase, Veritiv
incurred approximately $0.8 million in transaction-related fees, of which approximately $0.2 million was capitalized as part
of the cost to acquire the treasury stock with the remainder included in selling and administrative expense on the
Consolidated and Combined Statements of Operations. The Company may repurchase additional shares in the future,
however, there is currently no share repurchase authorization plan approved by the Company's Board of Directors.
Accumulated Other Comprehensive Loss
Comprehensive income (loss) is reported in the Consolidated and Combined 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). AOCL consisted of the following:
(in millions)
Balance at December 31, 2014
Unrealized net losses arising during the period
Amounts reclassified from AOCL
Net current period other comprehensive loss
Balance at December 31, 2015
Unrealized net losses arising during the period
Amounts reclassified from AOCL
Net current period other comprehensive loss
Balance at December 31, 2016
Foreign
currency
translation
adjustments
Retirement
liabilities
Interest
rate swap
AOCL
$
$
(14.7) $
(11.9)
(0.5)
(12.4)
(27.1)
(2.1)
—
(2.1)
(29.2) $
(7.4) $
—
—
—
(7.4)
(1.8)
0.1
(1.7)
(9.1) $
— $
(0.5)
—
(0.5)
(0.5)
(0.2)
—
(0.2)
(0.7) $
(22.1)
(12.4)
(0.5)
(12.9)
(35.0)
(4.1)
0.1
(4.0)
(39.0)
Veritiv's Swedish operations were liquidated in December 2015, which resulted in a $0.5 million reclassification of
foreign currency translation adjustments from AOCL into restructuring charges in the Consolidated and Combined
Statements of Operations. For the years ended December 31, 2016 and 2014, there were no similar reclassifications from
AOCL into earnings.
87
15. EQUITY-BASED INCENTIVE PLANS
Veritiv Omnibus Incentive Plan
Veritiv's 2014 Omnibus Incentive Plan (the "2014 Plan") provides for the grant of deferred share units ("DSUs"),
restricted stock units ("RSUs"), performance condition share units ("PCSUs"), and market condition performance share units
("MCPSUs"), among other awards. A total of 2.08 million shares of Veritiv common stock may be issued under the 2014
Plan, subject to certain adjustment provisions. As of December 31, 2016, there were approximately 1.1 million shares
available to be granted to any employee, director or consultant of Veritiv or a subsidiary of Veritiv. Grants are made at the
discretion of the Compensation and Leadership Development Committee of the Company's Board of Directors.
Deferred Share Units
The Company grants DSUs to its non-employee directors. Each DSU is the economical equivalent of one share of
Veritiv's common stock. The DSUs were fully vested and non-forfeitable as of the grant date and are payable following the
individual's termination of service as a Veritiv director. The DSUs granted in 2014 and 2015 are payable in cash and the
DSUs granted in 2016 are settled in stock. The cash-settled DSUs are classified as a non-current liability and are remeasured
at each reporting date, with a corresponding adjustment to compensation expense. At December 31, 2016 there were
approximately 55,100 DSUs outstanding with a fair value of $3.0 million. At December 31, 2015, there were approximately
43,500 DSUs outstanding with a fair value of $1.5 million. The Company recognized $0.6 million and $0.7 million in
expense related to these units for the years ended December 31, 2016 and 2015, respectively.
Restricted Stock Units
RSUs are awarded to key employees annually and cliff vest at the end of three years, subject to continued service.
The fair value of the RSU awards is based typically on either the closing price of Veritiv common stock on the date of grant
or the closing price on the trading date immediately prior to the date of grant if the grant date is not a trading date.
Compensation expense for the RSUs is recognized ratably from the grant date to the vesting date.
A summary of activity related to non-vested RSUs is presented below:
(units in thousands)
Non-vested at December 31, 2014
Granted
Vested
Forfeited
Non-vested at December 31, 2015
Granted
Vested
Forfeited
Non-vested at December 31, 2016
Number of
RSUs
Weighted
Average Grant
Date Fair Value
Per Share
— $
66
$
(1) $
(6) $
$
59
$
98
(1) $
(10) $
$
146
—
51.28
51.87
51.87
51.21
36.43
47.71
41.35
42.05
The total fair value of RSUs that vested during the year was not significant.
Performance Condition Share Units
PCSUs are awarded to key employees annually and cliff vest at the end of three years, subject to continued service
and the attainment of performance conditions. The PCSU award represents the contingent right to receive a number of shares
equal to a portion, all or a multiple (not to exceed 200%) of the target number of PCSUs. The PCSUs are divided into three
tranches, and each tranche is earned based on the achievement of an annual Adjusted EBITDA target which is set at the
88
beginning of each of the three years in the vesting period. The Company defines Adjusted EBITDA as earnings before
interest, income taxes, depreciation and amortization, restructuring charges, stock-based compensation expense, LIFO
(income) expense, non-restructuring asset impairment charges, non-restructuring severance charges, non-restructuring
pension charges, merger and integration expenses, loss from discontinued operations, net of income taxes, fair value
adjustments on the contingent liability associated with the Tax Receivable Agreement and certain other adjustments.
Compensation expense for each tranche is recognized ratably from the date the fair value is determined to the vesting date for
the number of awards expected to vest.
A summary of activity related to non-vested PCSUs is presented below:
(units in thousands)
Non-vested at December 31, 2014
Granted
Shares earned or lost based on actual performance
Vested
Forfeited
Non-vested at December 31, 2015
Granted
Shares earned or lost based on actual performance
Vested
Forfeited
Non-vested at December 31, 2016
(1) Represents weighted average grant date fair value for the 2015 and 2016 tranches.
(2) Represents weighted average grant date fair value for the 2016 tranche.
Market Condition Performance Share Units
Number of
PCSUs
Weighted
Average Grant
Date Fair Value
Per Share
— $
166
8
$
$
— $
(15) $
$
159
244
$
(22) $
— $
(26) $
$
355
—
43.86 (1)
51.28
—
51.87
51.23
36.43 (2)
36.43
—
41.49
42.14
MCPSUs are awarded to key employees annually and cliff vest at the end of three years, subject to continued service
and the attainment of performance conditions. The MCPSU award represents the contingent right to receive a number of
shares equal to a portion, all or a multiple (not to exceed 200%) of the target number of MCPSUs. The MCPSUs are divided
into three tranches and each tranche is earned based on the achievement of a total shareholder return ("TSR") target relative
to the TSR of an applicable peer group over the 1-, 2- and 3-year cumulative periods in the vesting period. The weighted
average grant date fair value of the MCPSUs is determined using a Monte Carlo simulation model. Assumptions used in the
2016 and 2015 models included a 25.0% expected volatility rate and a 1.1% risk-free interest rate. The expected volatility
rate is based on the historical volatility over the most recent period equal to the vesting period. Given Veritiv’s limited
trading history, an average of the peer group volatility was used for the portion of the historical period prior to the Merger and
Veritiv’s actual historical volatility was used for the portion of the period after the Merger. The risk-free interest rate is based
on the yield on U.S. Treasury securities matching the vesting period. Compensation expense is recognized ratably from the
grant date to the vesting date.
89
A summary of activity related to non-vested MCPSUs is presented below:
(units in thousands)
Non-vested at December 31, 2014
Granted
Shares earned or lost based on actual performance
Vested
Forfeited
Non-vested at December 31, 2015
Granted
Shares earned or lost based on actual performance
Vested
Forfeited/cancelled
Non-vested at December 31, 2016
Number of
MCPSUs
Weighted Average
Grant Date Fair
Value Per Share
— $
100
0
$
$
— $
(9) $
$
91
146
15
$
$
— $
(44) $
$
208
—
62.59
62.59
—
63.31
62.52
42.23
—
—
58.16
48.23
For the years ended December 31, 2016 and 2015, the Company recognized $8.3 million and $3.8 million,
respectively, in expense related to the aforementioned equity-based awards. The income tax benefit recognized in 2016 and
2015 related to stock-based compensation expense was $3.2 million and $1.5 million, respectively. As of December 31,
2016, total unrecognized stock-based compensation expense was $23.3 million and is expected to be recognized over a
weighted average period of 1.9 years. Unrecognized compensation expense for the 2017 and 2018 tranches of the PCSU
awards is estimated based on the Company's closing stock price at December 31, 2016. Dividends are not paid or accrued on
unvested stock units. The grant date fair values are not reduced for dividends as none are expected to be paid during the
vesting period.
International Paper Incentive Plans
At the time of the Spin-off, all equity awards held by employees of xpedx were granted under International Paper’s
2009 Incentive Compensation Plan or predecessor plans. In conjunction with the Spin-off and Merger, International Paper
retained all rights and obligations of these incentive plans. xpedx's stock-based compensation expense and related income tax
benefits associated with these International Paper plans were as follows:
(in millions)
Year Ended
December 31,
2014
Total stock-based compensation expense
Income tax benefit related to stock-based compensation
$
$
4.3
1.3
16. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, the Company is involved in various lawsuits, claims, and regulatory and administrative
proceedings arising out of its business relating to general commercial and contractual matters, governmental regulations,
intellectual property rights, labor and employment matters, tax and other actions.
Although the ultimate outcome of any legal proceeding or investigation cannot be predicted with certainty, based on
present information, including the Company's assessment of the merits of the particular claim, the Company does not expect
that any asserted or unasserted legal claims or proceedings, individually or in the aggregate, will have a material adverse
effect on its cash flow, results of operations or financial condition.
90
Escheat Audit
During 2013, Unisource was notified by the State of Delaware that it intended to examine the books and records of
Unisource to determine compliance with Delaware escheat laws. Since that date, seven other states have joined with
Delaware in the audit process, which is conducted by an outside firm on behalf of the states. While the original time period
for the audit was from 1981 to present, recent legal developments have resulted in Delaware narrowing the time period from
1998 to present. The Company has been informed that similar audits have generally taken four years or more to complete.
The Company has determined that the ultimate outcome of this audit cannot be reasonably estimated at this time. Any claims
or liabilities resulting from these audits could have a material impact on the Company’s financial condition, results of
operations and cash flows.
17. SEGMENT INFORMATION
The following is a brief description of the four reportable segments, organized by major product category:
• Print – The Print segment sells and distributes commercial printing, writing, copying, digital, wide format and
specialty paper products, graphics consumables and graphics equipment primarily in the U.S., Canada and Mexico.
This segment also includes customized paper conversion services of commercial printing paper for distribution to
document centers and form printers.
• Publishing – The Publishing segment sells and distributes coated and uncoated commercial printing papers to
publishers, retailers, converters, printers and specialty businesses for use in magazines, catalogs, books, directories,
gaming, couponing, retail inserts and direct mail. This segment also provides print management, procurement and
supply chain management solutions to simplify paper and print procurement processes for its customers.
• Packaging – The Packaging segment provides standard as well as custom and comprehensive packaging solutions
for customers based in North America and in key global markets. The business is strategically focused on higher
growth industries including light industrial/general manufacturing, food production, fulfillment and internet retail, as
well as niche verticals based on geographical and functional expertise.
• 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.
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.
The following tables present net sales, Adjusted EBITDA (the metric management uses to assess operating performance) and
certain other measures for each of the reportable segments and total continuing operations for the periods presented:
(in millions)
Year Ended December 31, 2016
Net sales
Adjusted EBITDA
Depreciation and amortization
Restructuring charges
Year Ended December 31, 2015
Net sales
Adjusted EBITDA
Depreciation and amortization
Restructuring charges
Year Ended December 31, 2014
Net sales
Adjusted EBITDA
Depreciation and amortization
Restructuring charges
Print
Publishing Packaging
Facility
Solutions
Corporate
& Other
Total
$
$ 3,047.4
76.8
12.4
5.2
3,271.8
79.0
13.5
3.6
2,956.1
55.4
9.7
1.5
$
1,033.6
23.6
3.1
0.1
1,215.5
34.7
3.1
—
1,075.5
27.1
1.4
—
2,854.2
221.2
12.4
4.6
2,829.9
212.6
14.4
3.8
2,259.4
157.0
9.7
1.4
$
$ 1,271.6
47.0
5.9
2.3
119.8
(176.4)
20.9
0.2
$ 8,326.6
192.2
54.7
12.4
1,289.3
41.7
7.1
2.5
1,070.3
33.6
4.6
0.6
111.2
(186.0)
18.8
1.4
45.2
(151.1)
12.2
0.5
8,717.7
182.0
56.9
11.3
7,406.5
122.0
37.6
4.0
91
The table below presents a reconciliation of income (loss) from continuing operations before income taxes reflected
in the Consolidated and Combined Statements of Operations to Total Adjusted EBITDA:
(in millions)
Income (loss) from continuing operations before income taxes
Interest expense, net
Depreciation and amortization
Restructuring charges
Stock-based compensation
LIFO (income) expense
Non-restructuring asset impairment charges
Non-restructuring severance charges
Non-restructuring pension charges
Merger and integration expense
Fair value adjustment on Tax Receivable Agreement contingent liability
Other
Adjusted EBITDA
$
$
Year Ended December 31,
2015
2014
2016
40.8
27.5
54.7
12.4
8.3
3.6
7.7
3.1
2.4
25.9
4.9
0.9
192.2
$
$
44.9
27.0
56.9
11.3
3.8
(7.3)
2.6
3.3
—
34.9
1.9
2.7
182.0
$
$
(21.6)
14.0
37.6
4.0
4.0
6.3
—
2.6
—
75.1
1.7
(1.7)
122.0
The table below summarizes total assets as of December 31, 2016 and December 31, 2015:
(in millions)
Print
Publishing
Packaging
Facility Solutions
Corporate & Other
Total assets
December 31,
2016
December 31,
2015
$
$
874.1
170.0
875.9
397.9
165.8
2,483.7
$
$
948.1
185.5
793.9
346.5
202.9
2,476.9
Prior to the Merger, the Company's operations and identifiable assets were primarily located in the U.S. After the
Merger, the Company's operations and identifiable assets are primarily located in the U.S. and Canada. The following table
presents net sales and property and equipment, net by geographic area.
(in millions)
U.S.
Canada
Rest of world
Total
Net Sales
Property and Equipment, Net
Year Ended December 31,
2016
2015
2014
December 31,
2016
December 31,
2015
$
$
7,552.3
$
7,961.3
$
6,848.9
$
333.8
$
631.2
143.1
628.9
127.5
408.2
149.4
35.0
3.0
8,326.6
$
8,717.7
$
7,406.5
$
371.8
$
345.2
16.0
2.5
363.7
No single customer accounted for more than 5% of net sales for the years ended December 31, 2016, 2015, and
2014. During the year ended December 31, 2016, approximately 47% of our purchases were made from ten suppliers.
92
18. QUARTERLY DATA (UNAUDITED)
The unaudited quarterly results of operations for 2016 and 2015 are summarized below:
2016
Three Months Ended
(in millions, except per share data)
March 31
June 30
September 30
December 31
Net sales
Cost of products sold
Net income
Weighted average number of shares outstanding
– basic
Weighted average number of shares outstanding
– diluted
Earnings per share (1):
Basic earnings per share
Diluted earnings per share
$
2,019.8
$
2,060.8
$
2,126.6
$
1,654.5
3.3
16.00
16.00
1,687.9
7.9
16.00
16.00
1,743.8
5.6
16.00
16.27
$
0.21
$
0.21
0.49
$
0.49
0.35
$
0.34
2,119.4
1,740.2
4.2
15.87
16.21
0.26
0.26
(1) See Note 13, Earnings (Loss) Per Share, for discussion about the shares of common stock utilized in the computation of basic and diluted earnings per
share for the year ended December 31, 2016.
Net sales
Cost of products sold
Net income (loss)
Weighted average number of shares outstanding
– basic and diluted
Earnings (loss) per share (1):
2015
Three Months Ended
March 31
June 30
September 30
December 31
$
2,137.9
$
2,159.3
$
2,219.8
$
1,761.9
(2.2)
1,768.3
4.3
1,825.8
14.5
2,200.7
1,804.3
10.1
16.00
16.00
16.00
16.00
Basic and diluted earnings (loss) per share
$
(0.14) $
0.27
$
0.91
$
0.63
(1) See Note 13, Earnings (Loss) Per Share, for discussion about the shares of common stock utilized in the computation of basic and diluted earnings per
share for the year ended December 31, 2015.
See the table below for the quarterly breakdown of merger and integration expenses and restructuring charges:
(in millions)
Integration expenses
Restructuring charges (income)
Integration expenses
Restructuring charges
$
$
$
$
March 31
6.2
1.7
$
$
2016
Three Months Ended
June 30
September 30
7.3
6.1
$
(0.3) $
5.8
December 31
6.3
$
5.2
$
March 31
2015
Three Months Ended
June 30
10.0
3.4
$
$
10.3
2.2
93
September 30
8.3
$
3.0
$
December 31
6.3
$
2.7
$
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of
the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), designed to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized or
reported within the time periods specified in SEC rules and forms. The Company’s management, with the participation of the
Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls
and procedures as of December 31, 2016. Based on that evaluation, the Company’s Chief Executive Officer and Chief
Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2016.
Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures,
which, by their nature, can provide only reasonable assurance regarding management's control objectives. The Company's
management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that our disclosure
controls and procedures can prevent all possible errors or fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that misstatements due to error or fraud will not occur or that
all control issues and instances of fraud, if any, within the Company have been detected. Judgments in decision-making can
be faulty and breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the
individual acts of one or more persons. The design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and while our disclosure controls and procedures are designed to be effective under
circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control
system, misstatements due to possible errors or fraud may occur and not be detected.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the fourth quarter of 2016 that
have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Management’s Annual Report On Internal Control Over Financial Reporting
Management’s Responsibility for the Financial Statements
The management of Veritiv Corporation is responsible for the preparation and integrity of the Consolidated Financial
Statements appearing in our Annual Report on Form 10-K. The financial statements were prepared in conformity with U.S.
GAAP appropriate in the circumstances and, accordingly, include certain amounts based on our best judgments and estimates.
Financial information in this Annual Report on Form 10-K is consistent with that in the financial statements.
Internal Control Over Financial Reporting
Management of our company is responsible for establishing and maintaining adequate internal control over financial
reporting as such term is defined in Rule 13a-15(f) and 15(d)-15(f) under the Exchange Act. Our internal control over
financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the Consolidated Financial Statements. Our internal control over financial reporting is supported by a program
of internal audits and appropriate reviews by management, written policies and guidelines, careful selection and training of
qualified personnel and a written code of conduct adopted by our board of directors that is applicable to all officers and
employees of our Company and subsidiaries, as well as a code of conduct that is applicable to all of our directors.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and
even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation
94
and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Management, including the Chief Executive Officer and the Chief Financial Officer, assessed the effectiveness of our
internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-
Integrated Framework (2013 Framework). Based on our assessment, management has concluded that internal controls over
financial reporting were effective as of December 31, 2016.
Our independent auditors, Deloitte & Touche LLP, an independent registered public accounting firm, are appointed by
the Audit and Finance Committee of our board of directors. Deloitte & Touche LLP has audited and reported on the
Consolidated Financial Statements of Veritiv Corporation, and has issued an attestation report on the effectiveness of our
internal control over financial reporting. The report of the independent registered public accounting firm is contained in this
Annual Report.
Audit and Finance Committee Responsibility
The Audit and Finance Committee of our board of directors, composed solely of directors who are independent in
accordance with the requirements of the New York Stock Exchange listing standards, the Exchange Act and our Corporate
Governance Guidelines, meets with the independent auditors, management and internal auditors periodically to discuss
internal control over financial reporting and auditing and financial reporting matters. The Audit and Finance Committee
reviews with the independent auditors the scope and results of the audit effort. The Audit and Finance Committee also meets
periodically with the independent auditors and the chief internal auditor without management present to ensure that the
independent auditors and the chief internal auditor have free access to the Audit and Finance Committee. Our Audit and
Finance Committee’s Report can be found in the Proxy Statement for the Annual Meeting of Stockholders to be held on May
25, 2017, which will be filed on or before April 13, 2017.
Attestation Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Veritiv Corporation
Atlanta, Georgia
We have audited the internal control over financial reporting of Veritiv Corporation and subsidiaries (the "Company") as of
December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's
principal executive and principal financial officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
95
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on
a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the accompanying consolidated financial statements as of and for the year ended December 31, 2016 of the Company and our
report dated March 14, 2017 expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 14, 2017
ITEM 9B. OTHER INFORMATION
Not applicable.
96
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(a) Directors of the Company.
This information is incorporated by reference to the Company’s Proxy Statement for the 2017 Annual Meeting of
Shareholders to be filed subsequent to the filing of this report under the heading "Proposal 1 – Election of Directors."
(b) Executive Officers of the Company.
This information can be found under "Executive Officers of the Company" in Part I, Item 1 of this report.
(c) Audit Committee Financial Experts.
This information is incorporated by reference to the Company’s Proxy Statement for the 2017 Annual Meeting of
Shareholders to be filed subsequent to the filing of this report under the heading "Corporate Governance—Board
Committees."
(d) Identification and Composition of the Audit and Finance Committee.
This information is incorporated by reference to the Company’s Proxy Statement for the 2017 Annual Meeting of
Shareholders to be filed subsequent to the filing of this report under the heading "Corporate Governance—Board
Committees."
(e) Compliance with Section 16(a) of the Exchange Act.
This information is incorporated by reference to the Company’s Proxy Statement for the 2017 Annual Meeting of
Shareholders to be filed subsequent to the filing of this report under the heading "Security Ownership of Certain
Beneficial Owners and Management—Section 16(a) Beneficial Ownership Reporting Compliance."
(f) Code of Ethics.
This information is incorporated by reference to the Company’s Proxy Statement for the 2017 Annual Meeting of
Shareholders to be filed subsequent to the filing of this report under the heading "Corporate Governance—Corporate
Governance Principles."
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the Company’s Proxy Statement for the 2017 Annual Meeting of
Shareholders to be filed subsequent to the filing of this report under the headings "Executive Compensation" and "Corporate
Governance—Director Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
This information is incorporated by reference to the Company’s Proxy Statement for the 2017 Annual Meeting of
Shareholders to be filed subsequent to the filing of this report under the headings "Security Ownership of Certain Beneficial
Owners and Management" and "Executive Compensation—Equity Compensation Plans."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
This information is incorporated by reference to the Company’s Proxy Statement for the 2017 Annual Meeting of
Shareholders to be filed subsequent to the filing of this report under the headings "Corporate Governance—Related Person
Transaction Policy" and "Corporate Governance—Director Independence."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
This information is incorporated by reference to the Company’s Proxy Statement for the 2017 Annual Meeting of
Shareholders to be filed subsequent to the filing of this report under the heading "Principal Accountant Fees and Services."
97
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed or incorporated by reference as part of this Form 10-K:
1. Financial Statements:
See Item 8. Financial Statements and Supplementary Data.
2. Financial Statement Schedules:
All schedules have been omitted as the required information is included in the footnotes or not applicable.
3. Exhibits:
See Exhibit Index of this Form 10-K, which is incorporated herein by reference.
ITEM 16. FORM 10-K SUMMARY
None.
98
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on March 14,
2017.
SIGNATURES
VERITIV CORPORATION
(Registrant)
By:
/s/ Mary A. Laschinger
Name: Mary A. Laschinger
Title: Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities indicated on March 14, 2017.
(i)
Principal executive officer:
/s/ Mary A. Laschinger
Chairman of the Board of Directors and Chief Executive Officer
Mary A. Laschinger
(ii)
Principal financial officer:
/s/ Stephen J. Smith
Senior Vice President and Chief Financial Officer
Stephen J. Smith
(iii) Principal accounting officer:
/s/ W. Forrest Bell
Chief Accounting Officer
W. Forrest Bell
(iv) Directors:
/s/ Daniel T. Henry
Daniel T. Henry
Director
/s/ Tracy A. Leinbach
Director
Tracy A. Leinbach
/s/ William E. Mitchell
William E. Mitchell
Director
/s/ Michael P. Muldowney
Director
Michael P. Muldowney
/s/ Charles G. Ward, III
Director
Charles G. Ward, III
/s/ John J. Zillmer
John J. Zillmer
Director
99
EXHIBIT INDEX
Exhibit No. Description
2.1
Agreement and Plan of Merger, dated as of January 28, 2014, by and among International Paper
Company, Veritiv Corporation (f/k/a/ xpedx Holding Company), xpedx Intermediate, LLC, xpedx,
LLC, UWW Holdings, LLC, UWW Holdings, Inc. and Unisource Worldwide, Inc., incorporated by
reference from Exhibit 2.1 to the Registrant’s Registration Statement on Form S-1 (File No.
333-193950) filed on April 4, 2014.
2.2
2.3
2.4
2.5
3.1
3.2
3.3
10.1
10.2
10.3
Amendment No. 1 to the Agreement and Plan of Merger, dated as of May 28, 2014, by and among
International Paper Company, Veritiv Corporation (f/k/a xpedx Holding Company), xpedx
Intermediate, LLC, xpedx, LLC, UWW Holdings, LLC, UWW Holdings, Inc. and Unisource
Worldwide, Inc., incorporated by reference from Exhibit 2.2 to the Registrant’s Registration Statement
on Form S-1 (File No. 333-193950) filed on June 5, 2014.
Amendment No. 2 to the Agreement and Plan of Merger, dated as of June 4, 2014, by and among
International Paper Company, Veritiv Corporation (f/k/a) xpedx Holding Company), xpedx
Intermediate, LLC, xpedx, LLC, UWW Holdings, LLC, UWW Holdings, Inc. and Unisource
Worldwide, Inc., incorporated by reference from Exhibit 2.3 to the Registrant’s Registration Statement
on Form S-1 (File No. 333-193950) filed on June 5, 2014.
Contribution and Distribution Agreement, dated as of January 28, 2014, by and among International
Paper Company, Veritiv Corporation (f/k/a/ xpedx Holding Company), UWW Holdings, Inc. and
UWW Holdings, LLC, incorporated by reference from Exhibit 2.4 to the Registrant’s Registration
Statement on Form S-1 (File No. 333-193950) filed on April 4, 2014.
Amendment No. 1 to the Contribution and Distribution Agreement, dated May 28, 2014, by and among
International Paper Company, Veritiv Corporation (f/k/a xpedx Holding Company), UWW Holdings,
Inc. and UWW Holdings, LLC, incorporated by reference from Exhibit 2.5 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-193950) filed on June 5, 2014.
Amended and Restated Certificate of Incorporation of Veritiv Corporation, incorporated by reference
from Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on July 3, 2014.
Certificate of Amendment of Amended and Restated Certificate of Incorporation of Veritiv
Corporation, incorporate by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K
filed on May 13, 2016.
Amended and Restated Bylaws of Veritiv Corporation, incorporated by reference from Exhibit 3.2 to
the Registrant's Current Report on Form 8-K filed on July 3, 2014
Credit Agreement, dated as of July 1, 2014, among Veritiv Corporation, xpedx Intermediate, LLC and
xpedx, LLC, as borrowers, the several lenders and financial institutions from time to time parties
thereto, Bank of America, N.A., as administrative agent and collateral agent for the lenders party
thereto, and the other parties thereto, together with the ABL Joinder Agreement, dated as of July 1,
2014, made by Unisource Worldwide, Inc. and Unisource Canada, Inc. for the benefit of the Lenders
under the Credit Agreement, incorporated by reference from Exhibit 10.1 to the Registrant's Current
Report on Form 8-K filed on July 3, 2014.
First Amendment to ABL Credit Agreement, dated as of August 11, 2016, among Veritiv Operating
Company (f/k/a Unisource Worldwide, Inc.) and Unisource Canada, Inc., as borrowers, Veritiv
Corporation and certain subsidiaries of Veritiv Operating Company, as loan parties, the several lenders
and financial institutions from time to time parties thereto, Bank of America, N.A., as administrative
agent and collateral agent for the lenders party thereto, and the other parties thereto, incorporated by
reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 15, 2016.
U.S. Guarantee and Collateral Agreement, dated as of July 1, 2014, made by xpedx Intermediate, LLC,
xpedx, LLC, the Subsidiary Borrowers and the U.S. Guarantors parties thereto and Veritiv Corporation,
in favor of Bank of America, N.A., as administrative agent and collateral agent for the Secured Parties
(as defined therein), together with the Assumption and Supplemental Agreement, dated as of July 1,
2014, made by Veritiv Corporation, Alco Realty, Inc., Graph Comm Holdings International, Inc.,
Graphic Communications Holdings, Inc., Paper Corporation of North America, Unisource International
Holdings, Inc., Unisource International Holdings Poland, Inc., and Unisource Worldwide, Inc., in favor
of Bank of America, N.A., as collateral agent and as administrative agent, incorporated by reference
from Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on July 3, 2014.
100
Exhibit No. Description
10.4
Canadian Guarantee and Collateral Agreement, dated as of July 1, 2014, made by Unisource Canada,
Inc. and the Canadian Guarantors parties thereto, in favour of Bank of America, N.A., as administrative
agent and collateral agent for the Secured Parties (as defined therein), incorporated by reference from
Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on July 3, 2014.
10.5
10.6
10.7
10.8
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22†
Registration Rights Agreement, dated as of July 1, 2014, between UWW Holdings, LLC and Veritiv
Corporation, incorporated by reference from Exhibit 10.4 to the Registrant's Current Report on Form 8-
K filed on July 3, 2014.
Tax Receivable Agreement, dated as of July 1, 2014, by and among Veritiv Corporation and UWW
Holdings, LLC, incorporated by reference from Exhibit 10.5 to the Registrant's Current Report on
Form 8-K filed on July 3, 2014.
Tax Matters Agreement, dated as of January 28, 2014, by and among International Paper Company,
Veritiv Corporation (f/k/a/ xpedx Holding Company) and UWW Holdings, Inc., incorporated by
reference from Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 (File No.
333-193950) filed on February 14, 2014.
Separation Agreement, dated as of June 30, 2014, between UWW Holdings, Inc. and Allan R. Dragone,
incorporated by reference from Exhibit 10.7 to the Registrant's Current Report on Form 8-K filed on
July 3, 2014.
Employment Agreement, dated as of January 28, 2014, between Veritiv Corporation (f/k/a xpedx
Holding Company) and Mary A. Laschinger, incorporated by reference from Exhibit 10.9 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-193950) filed on February 14, 2014.
Offer Letter, dated as of February 13, 2014, between Veritiv Corporation (f/k/a xpedx Holding
Company) and Stephen J. Smith, incorporated by reference from Exhibit 10.12 to the Registrant's Form
10-Q filed on August 14, 2014.
Form of Indemnification Agreement between Veritiv Corporation (f/k/a xpedx Holding Company) and
each of its directors, incorporated by reference from Exhibit 10.10 to the Registrant’s Registration
Statement on Form S-1 (File No. 333-193950) filed on June 11, 2014.
Veritiv Corporation 2014 Omnibus Incentive Plan, incorporated by reference from Exhibit 10.8 to the
Registrant's Current Report on Form 8-K filed on July 3, 2014.
2014 Short-Year Veritiv Incentive Plan adopted effective as of August 8, 2014, incorporated by
reference from Exhibit 10.15 to the Registrant's Form 10-Q filed on August 14, 2014.
Form of Notice of 2014 Long-Term Transition Incentive Award, incorporated by reference from
Exhibit 10.16 to the Registrant's Form 10-Q filed on August 14, 2014.
Form of Notice of 2014-15 Long-Term Transition Incentive Award, incorporated by reference from
Exhibit 10.17 to the Registrant's Form 10-Q filed on August 14, 2014.
Form of Notice of 2014-15-16 Long-Term Transition Incentive Award, incorporated by reference from
Exhibit 10.18 to the Registrant's Form 10-Q filed on August 14, 2014.
Terms and Conditions of Long-Term Transition Incentive Award Opportunities, incorporated by
reference from Exhibit 10.19 to the Registrant's Form 10-Q filed on August 14, 2014.
Veritiv Corporation Deferred Compensation Savings Plan, incorporated by reference from Exhibit
10.20 to the Registrant's Form 10-Q filed on November 14, 2014.
Form of Director Deferred Share Unit Award Agreement, incorporated by reference from Exhibit 10.21
to the Registrant's Form 10-K filed on March 24, 2015.
Form of Director Deferred Share Unit Award Agreement (Stock-Settled Award), incorporated by
reference from Exhibit 10.1 to the Registrant's Form 10-Q filed on August 9, 2016.
Form of Restricted Stock Unit Award Agreement, incorporated by reference from Exhibit 10.22 to the
Registrant's Form 10-K filed on March 24, 2015.
Form of Performance Share Award Agreement (Adjusted EBITDA Performance Shares), incorporated
by reference from Exhibit 10.23 to the Registrant's Form 10-K filed on March 24, 2015.
101
Exhibit No. Description
10.23†
Form of Performance Share Award Agreement (Relative TSR Performance Shares), incorporated by
reference from Exhibit 10.24 to the Registrant's Form 10-K filed on March 24, 2015.
10.24†
10.25†
10.26†
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
2015 Veritiv Corporation Annual Incentive Plan adopted effective as of March 4, 2015, incorporated by
reference from Exhibit 10.25 to the Registrant's Form 10-K filed on March 24, 2015.
Veritiv Corporation Executive Severance Plan adopted effective as of March 4, 2015, incorporated by
reference from Exhibit 10.26 to the Registrant's Form 10-K filed on March 24, 2015.
Separation Agreement, dated as of December 31, 2015, by and between Veritiv Corporation and Joseph
B. Myers, incorporated by reference from Exhibit 10.1 to the Registrant’s Form 8-K filed on January 8,
2016.
List of Subsidiaries.
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
Rule 13a-14(a) Certification of the Chief Executive Officer.
Rule 13a-14(a) Certification of the Chief Financial Officer.
Section 1350 Certification of the Chief Executive Officer.
Section 1350 Certification of the Chief Financial Officer.
101.INS*
XBRL Instance Document.
101.SCH*
XBRL Taxonomy Extension Schema Document.
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document.
† Management contract or compensatory plans or arrangements
* Filed herewith
102
SHAREHOLDER INFORMATION
TRANSFER AGENT
& REGISTRAR
INVESTOR
CONTACT
Computershare
P.O. Box 30170
College Station, TX 77842
computershare.com/investor
866.276.9370
Thomas C. Morabito
Director, Investor Relations
investor@veritivcorp.com
844.845.2136
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
FOR 2016
Deloitte & Touche LLP
Atlanta, GA
ANNUAL REPORT &
FORM 10-K COPIES
Copies of the Annual Report
and Form 10-K are available
and may be obtained by
contacting:
ANNUAL MEETING
The Veritiv Corporation
Annual Meeting will be held
on Thursday, May 25, 2017
in Atlanta, GA.
Veritiv Corporation
c/o Investor Relations
1000 Abernathy Rd. NE
Building 400, Suite 1700
Atlanta, GA 30328
844.845.2136
ir.veritivcorp.com
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report regarding
the Company’s future operating results, performance,
business plans, prospects, guidance and any other
statements not constituting historical fact are “forward-
looking statements” subject to the safe harbor created
by the Private Securities Litigation Reform Act of 1995. 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 or business plans
or prospects to differ materially from those expressed in,
or implied by, these statements. For a detailed discussion
of specific risks and uncertainties that could cause actual
results to differ from those contained in the forward-
looking statements, see the information under the heading
“Risk Factors” in our Annual Report on Form 10-K for the
year ended December 31, 2016, which is included in this
report, and in other filings we make with the SEC. 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.
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B U I L D I N G
O U R
F U T U R E
1000 Abernathy Rd. NE
Building 400, Suite 1700
Atlanta, GA 30328
veritivcorp.com
LinkedIn.com/company/ Veritiv
Facebook.com/ VeritivCorp
Twitter.com/ Veritiv
Twitter.com/ VeritivIR
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2 0 1 6 A N N U A L R E P O R T
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