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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

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

For the quarterly period ended March 31, 2021
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)
Delaware46-3234977
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
1000 Abernathy Road NE
Building 400, Suite 1700
                           Atlanta,Georgia30328
(Address of principal executive offices)(Zip Code)

(770) 391-8200
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueVRTVNew York Stock Exchange


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

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




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

The number of shares outstanding of the registrant's common stock as of April 30, 2021 was 15,664,599.




TABLE OF CONTENTS






Page




Table of Contents
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

VERITIV CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data, unaudited)

Three Months Ended
March 31,
20212020
Net sales (including sales to related party of $5.6 in 2020)
$1,559.3 $1,707.3 
Cost of products sold (including purchases from related party of $18.8 in 2020) (exclusive of depreciation and amortization shown separately below)
1,238.1 1,359.6 
Distribution expenses101.5 123.4 
Selling and administrative expenses166.4 203.6 
Depreciation and amortization14.5 13.8 
Restructuring charges, net4.3  
Operating income (loss)34.5 6.9 
Interest expense, net5.1 7.0 
Other (income) expense, net(1.0)(0.1)
Income (loss) before income taxes30.4 0.0 
Income tax expense (benefit)9.1 0.4 
Net income (loss)$21.3 $(0.4)
Earnings (loss) per share:
Basic earnings (loss) per share$1.34 $(0.02)
 Diluted earnings (loss) per share
$1.28 $(0.02)
Weighted-average shares outstanding:
Basic15.88 16.16 
Diluted16.66 16.16 

See accompanying Notes to Condensed Consolidated Financial Statements.
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Table of Contents
VERITIV CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions, unaudited)

Three Months Ended
March 31,
20212020
Net income (loss)$21.3 $(0.4)
Other comprehensive income (loss):
Foreign currency translation adjustments(0.3)(14.0)
Change in fair value of cash flow hedge, net of tax (1)
0.0 0.0 
Pension liability adjustments, net of tax (1)
0.0 0.0 
Other comprehensive income (loss)(0.3)(14.0)
Total comprehensive income (loss)$21.0 $(14.4)
(1) Amounts shown are net of tax impacts, which were not significant for the periods presented.

See accompanying Notes to Condensed Consolidated Financial Statements.



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Table of Contents
VERITIV CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions, except par value, unaudited)

March 31, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$109.0 $120.6 
Accounts receivable, less allowances of $41.1 and $41.6, respectively
853.3 849.5 
Inventories493.5 

465.4 
Other current assets118.2 

119.5 
Total current assets1,574.0 1,555.0 
Property and equipment (net of accumulated depreciation and amortization of $382.4 and $375.9, respectively)
182.9 

194.7 
Goodwill99.6 

99.6 
Other intangibles, net46.3 

47.4 
Deferred income tax assets56.9 

60.0 
Other non-current assets369.0 

378.3 
Total assets$2,328.7 $2,335.0 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable$513.4 $471.9 
Accrued payroll and benefits50.8 80.6 
Other accrued liabilities167.5 

182.2 
Current portion of debt14.9 

14.7 
Total current liabilities746.6 749.4 
Long-term debt, net of current portion600.7 

589.1 
Defined benefit pension obligations17.6 

18.2 
Other non-current liabilities386.4 

395.2 
Total liabilities1,751.3 1,751.9 
Commitments and contingencies (Note 12)

Shareholders' equity:
Preferred stock, $0.01 par value, 10.0 million shares authorized, none issued
 

 
Common stock, $0.01 par value, 100.0 million shares authorized; shares issued - 16.8 million and 16.6 million, respectively; shares outstanding - 15.5 million and 15.9 million, respectively
0.2 

0.2 
Additional paid-in capital632.8 

634.9 
Accumulated earnings (deficit)19.9 

(1.4)
Accumulated other comprehensive loss(33.8)

(33.5)
Treasury stock at cost - 1.3 million shares in 2021 and 0.7 million shares in 2020
(41.7)(17.1)
Total shareholders' equity577.4 583.1 
Total liabilities and shareholders' equity$2,328.7 $2,335.0 

See accompanying Notes to Condensed Consolidated Financial Statements.
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Table of Contents
VERITIV CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
Three Months Ended March 31,
20212020
Operating activities
Net income (loss)$21.3 $(0.4)
Depreciation and amortization14.5 13.8 
Amortization and write-off of deferred financing fees0.3 0.6 
Net losses (gains) on disposition of assets and sale of a business(2.2)0.1 
Provision for expected credit losses0.9 4.4 
Deferred income tax provision (benefit)3.1 5.2 
Stock-based compensation1.2 9.4 
Other non-cash items, net0.8 2.6 
Changes in operating assets and liabilities
Accounts receivable and related party receivable(10.3)(19.6)
Inventories(30.7)38.5 
Other current assets1.7 1.2 
Accounts payable and related party payable54.3 50.9 
Accrued payroll and benefits(29.8)(13.2)
Other accrued liabilities(10.9)(8.8)
Other(1.0)0.1 
Net cash provided by (used for) operating activities13.2 84.8 
Investing activities
Property and equipment additions(6.3)(8.9)
Proceeds from asset sales and sale of a business8.0 0.7 
Net cash provided by (used for) investing activities1.7 (8.2)
Financing activities
Change in book overdrafts(9.2)(24.7)
Borrowings of long-term debt1,392.8 1,479.8 
Repayments of long-term debt(1,378.9)(1,483.6)
Payments under right-of-use finance leases(3.3)(2.9)
Purchase of treasury stock(24.6)(3.5)
Payments under Tax Receivable Agreement (0.3)
Payments under other contingent consideration (3.5)
Other(2.9)(0.5)
Net cash provided by (used for) financing activities(26.1)(39.2)
Effect of exchange rate changes on cash(0.4)(0.8)
Net change in cash and cash equivalents(11.6)36.6 
Cash and cash equivalents at beginning of period120.6 38.0 
Cash and cash equivalents at end of period$109.0 $74.6 
Supplemental cash flow information
Cash paid for income taxes, net of refunds$11.2 $0.6 
Cash paid for interest4.6 6.2 
Non-cash investing and financing activities
Non-cash additions to property and equipment for right-of-use finance leases$0.2 $11.2 
Non-cash additions to other non-current assets for right-of-use operating leases11.3 10.8 

See accompanying Notes to Condensed Consolidated Financial Statements.
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Table of Contents
VERITIV CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions, unaudited)

2021
Common Stock IssuedAdditional Paid-in CapitalAccumulated Earnings (Deficit)
AOCL (1)
Treasury StockTotal
SharesAmountSharesAmount
Balance at December 31, 202016.6 $0.2 $634.9 $(1.4)$(33.5)(0.7)$(17.1)$583.1 
Net income (loss)21.3 21.3 
Other comprehensive income (loss)(0.3)(0.3)
Stock-based compensation1.2 1.2 
Issuance of common stock, net of stock received for minimum tax withholdings0.2 0.0 (3.3)(3.3)
Treasury stock purchases(0.6)(24.6)(24.6)
Balance at March 31, 202116.8 $0.2 $632.8 $19.9 $(33.8)(1.3)$(41.7)$577.4 
(1) Accumulated other comprehensive loss.


2020
Common Stock IssuedAdditional Paid-in CapitalAccumulated Earnings (Deficit)
AOCL (1)
Treasury StockTotal
SharesAmountSharesAmount
Balance at December 31, 201916.4 $0.2 $618.0 $(35.3)$(33.1)(0.3)$(13.6)$536.2 
Net income (loss)(0.4)(0.4)
Other comprehensive income (loss)(14.0)(14.0)
Stock-based compensation9.4 9.4 
Issuance of common stock, net of stock received for minimum tax withholdings0.1 0.0 (0.6)(0.6)
Adoption impact - Accounting Standards Update 2016-13(0.3)(0.3)
Treasury stock purchases(0.4)(3.5)(3.5)
Balance at March 31, 202016.5 $0.2 $626.8 $(36.0)$(47.1)(0.7)$(17.1)$526.8 
(1) Accumulated other comprehensive loss.

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents
VERITIV CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Veritiv Corporation ("Veritiv" or the "Company") is a North American business-to-business full-service provider of value-added packaging products and services, as well as facility solutions, print and publishing products and services. Additionally, Veritiv provides logistics and supply chain management solutions to its customers. Veritiv was established in 2014, following the merger (the "Merger") of International Paper Company's xpedx distribution solutions business ("xpedx") and UWW Holdings, Inc. ("UWWH"), the parent company of Unisource Worldwide, Inc. ("Unisource"). Veritiv operates from approximately 125 distribution centers primarily throughout the United States ("U.S."), Canada and Mexico.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for a complete set of annual audited financial statements. The accompanying unaudited financial information should be read in conjunction with the Consolidated Financial Statements and Notes contained in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") for the year ended December 31, 2020. In the opinion of management, all adjustments, including normal recurring accruals and other adjustments, considered necessary for a fair presentation of the interim financial information have been included. The operating results for the interim periods are not necessarily indicative of results for the full year, particularly in light of the novel coronavirus ("COVID-19") pandemic and its effects on the domestic and global economies. These financial statements include all of the Company's subsidiaries. All significant intercompany transactions between Veritiv's businesses have been eliminated.

Use of Estimates

The preparation of unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and certain financial statement disclosures. Estimates and assumptions are used for, but not limited to, revenue recognition, right-of-use ("ROU") asset and liability valuations, accounts and notes receivable valuations, inventory valuation, employee benefit plans, income tax contingency accruals and valuation allowances, multi-employer pension plan ("MEPP") withdrawal liabilities, contingency accruals and goodwill and other intangible asset valuations. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, actual results may ultimately differ from these estimates and assumptions.

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

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Accounting Pronouncements

Recently Adopted Accounting Standards

Effective January 1, 2021, the Company adopted Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740). The standard removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The update also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for goodwill and allocating taxes to members of a consolidated group. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The amendments in this update related to separate financial statements of legal entities that are not subject to tax should be applied on a retrospective basis for all periods presented. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. The adoption did not materially impact the Company's financial statements and disclosures.

Recently Issued Accounting Standards Not Yet Adopted

ASU 2020-04, Reference Rate Reform (Topic 848) - This standard provides temporary optional expedients and exceptions to accounting guidance for certain contract modifications and hedging arrangements to ease financial reporting burdens as the market transitions from the London Interbank Offered Rate ("LIBOR") and other interbank reference rates to alternative reference rates. The guidance is available for prospective application upon its issuance and can generally be applied to contract modifications and hedging relationships entered into March 12, 2020 through December 31, 2022. The Company has an interest rate cap arrangement and long-term debt for which existing payments are based on LIBOR. The Company is currently evaluating the timing of adoption and the related impact on its consolidated financial statements. Currently, the Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.

2. REVENUE RECOGNITION AND CREDIT LOSSES

Veritiv applies the five-step model to assess its contracts with customers. The Company's revenue is reported as net sales and is measured as the determinable transaction price, net of any variable consideration (e.g., sales incentives and rights to return product) and any taxes collected from customers and remitted to governmental authorities. Certain revenues are derived from shipments which are made directly from a manufacturer to a Veritiv customer. The Company is considered to be a principal to these transactions. Revenues from these sales are reported on a gross basis on the Condensed Consolidated Statements of Operations and have historically represented approximately 35% of Veritiv's total net sales. As a normal business practice, Veritiv does not enter into contracts that require more than one year to complete or that contain significant financing components. The Company considers handling and delivery as activities to fulfill its performance obligations. Billings for third-party freight are accounted for as net sales and handling and delivery costs are accounted for as distribution expenses. The Company has established credit and collection processes whereby collection assessments are performed and expected credit losses are recognized. Veritiv enters into incentive programs with certain of its customers, which are generally based on sales to those same customers. Veritiv follows the expected value method when estimating its retrospective incentives and records the estimated amount as a reduction to gross sales when revenue is recognized. Estimates of the variable consideration are based primarily on contract terms, current customer forecasts as well as historical experience.

Customer product returns are estimated based on historical experience and the identification of specific events necessitating an adjustment. The estimated return value is recognized as a reduction of gross sales and related cost of products sold. The estimated inventory returns value is recognized as part of inventories, while the estimated customer refund liability is recognized as part of other accrued liabilities on the Condensed Consolidated Balance Sheets. As of March 31, 2021 and December 31, 2020, estimated inventory returns were not significant.

A customer contract liability will arise when Veritiv has received payment for goods and services, but has not yet transferred the items to a customer and satisfied its performance obligations. Veritiv records a customer contract liability for performance obligations outstanding related to payments received in advance for customer deposits on equipment sales and other sale arrangements requiring prepayment, which are included in accounts payable on the Condensed Consolidated Balance Sheets. Veritiv expects to satisfy these remaining performance obligations and recognize the related revenues upon delivery of the goods
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and services to the customer's designated location within 12 months following receipt of the payment. Most equipment sales deposits are held for approximately 90 days and other sale arrangements requiring prepayment initially cover a 60 - 90 day period, but can be renewed by the customer.

See the table below for a summary of the changes to the customer contract liabilities for the three months ended March 31, 2021 and 2020:

Customer Contract Liabilities
(in millions)20212020
Balance at January 1,$12.2 $11.7 
    Payments received14.2 11.0 
    Revenue recognized from beginning balance(7.3)(9.0)
    Revenue recognized from current year receipts(7.1)(2.8)
Balance at March 31,$12.0 $10.9 

Historically, the Company's ten largest customers have generated approximately 10% of its consolidated annual net sales. Veritiv's principal markets are concentrated primarily across North America with net sales in the U.S., Canada and Mexico of approximately 87%, 10% and 2%, respectively. Veritiv evaluated the nature of the products and services provided to its customers as well as the nature of the customer and the geographical distribution of its customer base and determined that the best representative level of disaggregated revenue is the product category basis. The following is a brief description of the Company's four reportable segments, organized by major product category. This segment structure is consistent with the way the Chief Operating Decision Maker, who is Veritiv's Chief Executive Officer, makes operating decisions and manages the growth and profitability of the Company's business. The Company also has a Corporate & Other category, which includes certain assets and costs not primarily attributable to any of the reportable segments, as well as the Veritiv logistics solutions business which provides transportation and warehousing solutions.

Packaging – The Packaging segment provides custom and standard packaging solutions for customers based in North America and in key global markets. This segment services customers with a full spectrum of packaging product materials within the fiber-based, flexible and rigid categories. The business is strategically focused on higher growth industry sectors including manufacturing, food processing and service, fulfillment and internet retail, as well as niche sectors based on industry and product expertise. This segment also provides supply chain solutions, structural and graphic packaging design and engineering, automation, workflow and equipment services and kitting.

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

Print – The Print segment sells and distributes commercial printing, writing, copying, digital, specialty products and graphics consumables primarily in North America. Veritiv's broad geographic platform of operations coupled with the breadth of paper and graphics products, including exclusive private brand offerings, provides a foundation to service national, regional and local customers across North America.

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

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

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Allowance for Credit Losses

The components of the accounts receivable allowances were as follows:

(in millions)March 31, 2021December 31, 2020
Allowance for credit losses$30.7 $31.4 
Other allowances(1)
10.4 10.2 
Total accounts receivable allowances$41.1 $41.6 
(1) Includes amounts reserved for credit memos, customer discounts, customer short pays and other miscellaneous items.

Below is a rollforward of the Company’s allowance for credit losses for the three months ended March 31, 2021:
Packaging and Facility SolutionsPrint - High RiskPrint - Medium/Low Risk
(in millions)U.S.CanadaU.S.CanadaU.S.Canada
Publishing(1)
Rest of world
Corporate & Other(1)
Total
Ending balance, December 31, 2020$14.4 $0.5 $10.2 $0.7 $2.2 $0.0 $1.6 $1.0 $0.8 $31.4 
Add / (Deduct):
Provision for expected credit losses1.9 0.1 (0.8)0.0 0.3 0.0 (0.7)0.0 0.1 0.9 
Write-offs charged against the allowance(1.3)0.0 (0.2)0.0 0.0   0.0 (0.1)(1.6)
Recoveries of amounts previously written off0.0  0.0  0.0     0.0 
Other adjustments(2)
 0.0 1.4 0.0 (1.4)0.0  0.0  0.0 
Ending balance, March 31, 2021$15.0 $0.6 $10.6 $0.7 $1.1 $0.0 $0.9 $1.0 $0.8 $30.7 
(1) Publishing and Corporate & Other have only U.S. Operations.
(2) Other adjustments represent amounts reserved for foreign currency translation adjustments and reserves for certain customer accounts where revenue is not recognized because collectability is not probable, and may include accounts receivable allowances recorded in connection with acquisitions.


The Company, under certain circumstances, enters into note receivable agreements with customers. Expected credit losses are recognized when collectability is uncertain; these losses are included in selling and administrative expenses on the Condensed Consolidated Statements of Operations. For the three months ended March 31, 2021 and 2020, the Company recognized $0.0 million and $2.3 million, respectively, in the provision for expected credit losses related to these notes receivable. At March 31, 2021 and December 31, 2020, the Company held $2.0 million and $2.2 million, respectively, in notes receivable within other current assets on the Condensed Consolidated Balance Sheets.

3. LEASES

The Company leases certain property and equipment used for operations to limit its exposure to risks related to ownership. The major leased asset categories include: real estate, delivery equipment, material handling equipment and computer and office equipment. As of March 31, 2021, the Company operated from approximately 125 distribution centers of which approximately 115 were leased. These facilities are strategically located throughout the U.S., Canada and Mexico in order to efficiently serve the customer base in the surrounding areas while also facilitating expedited delivery services for special orders. The Company also leases various office spaces for corporate and sales functions.

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The components of lease expense were as follows:
(in millions)Three Months Ended
March 31,
Lease ClassificationFinancial Statement Classification20212020
Short-term lease expense(1)
Operating expenses$1.0 $0.9 
Operating lease expense(2)
Operating expenses$25.6 $27.1 
Finance lease expense:
Amortization of right-of-use assets
Depreciation and amortization$3.7 $3.5 
Interest expense
Interest expense, net0.7 0.8 
Total finance lease expense
$4.4 $4.3 
Total Lease Cost
$31.0 $32.3 
(1) Short-term lease expense is comprised of expenses related to leases with a term of twelve months or less, which includes expenses related to month-to-
month leases.
(2) Sublease income and variable lease expense are not included in the above table as the amounts were not significant for the periods presented.

Supplemental balance sheets and other information were as follows:
(in millions, except weighted-average data)March 31, 2021December 31, 2020
Lease ClassificationFinancial Statement Classification
Operating Leases:
Operating lease right-of-use assetsOther non-current assets$342.4 $351.7 
Operating lease obligations - currentOther accrued liabilities$83.2 $81.9 
Operating lease obligations - non-currentOther non-current liabilities296.4 307.4 
Total operating lease obligations
$379.6 $389.3 
Weighted-average remaining lease term in years5.96.1
Weighted-average discount rate4.7 %4.7 %
Finance Leases:
Finance lease right-of-use assetsProperty and equipment$73.4 $76.6 
Finance lease obligations - currentCurrent portion of debt$13.3 $13.4 
Finance lease obligations - non-currentLong-term debt, net of current portion66.2 68.9 
Total finance lease obligations
$79.5 $82.3 
Weighted-average remaining lease term in years7.07.1
Weighted-average discount rate3.7 %3.7 %

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Cash paid for amounts included in the measurement of lease liabilities was as follows:
(in millions)Three Months Ended March 31,
Lease ClassificationFinancial Statement Classification20212020
Operating Leases:
Operating cash flows from operating leases
Operating activities$26.5 $27.8 
Finance Leases:
Operating cash flows from finance leases
Operating activities$0.7 $0.8 
Financing cash flows from finance leases
Financing activities3.3 2.9 

Lease Commitments

Future minimum lease payments at March 31, 2021 were as follows:
(in millions)Finance Leases
Operating Leases (1)
2021 (excluding the three months ended March 31, 2021)$12.0 $75.5 
202215.6 87.1 
202313.3 67.1 
202411.5 53.7 
202510.7 42.8 
20268.0 38.0 
Thereafter19.9 73.8 
Total future minimum lease payments91.0 438.0 
    Amount representing interest(11.5)(58.4)
Total future minimum lease payments, net of interest$79.5 $379.6 
(1) Future sublease income of $2.0 million is excluded from the operating leases amount in the table above.

Total future minimum lease payments at March 31, 2021 for finance and operating leases, including the amount representing interest, are comprised of $455.9 million for real estate leases and $73.1 million for non-real estate leases.

At March 31, 2021, the Company had committed to additional future obligations of approximately $24.3 million for real estate operating leases that have not yet commenced and therefore are not included in the table above. These leases will commence within the next nine months with an average lease term of approximately nine years.

4. RESTRUCTURING CHARGES

2020 Restructuring Plan

During the second quarter of 2020, the Company initiated a restructuring plan in response to the impact of the COVID-19 pandemic on its business operations and the ongoing secular changes in its Print and Publishing segments. During the fourth quarter of 2020, the Company expanded the initial plan to further align its cost structure with ongoing business needs as the Company executes on its stated corporate strategy. The initial and expansion activities are collectively referred to as the "2020 Restructuring Plan." The 2020 Restructuring Plan includes (i) a reduction of the Company's U.S. salaried workforce by approximately 15% across all business segments and corporate functions, (ii) the closure of certain warehouse facilities and retail stores, (iii) adjustments to various compensation plans, (iv) repositioning of inventory to expand the Company's service radius and (v) other actions.

The Company currently estimates it will incur total restructuring charges of between $70 million and $87 million in connection with the 2020 Restructuring Plan. These costs will include the following activities (i) employee termination and other one-time compensation costs, (ii) real estate exit costs, (iii) certain inventory related costs and (iv) other exit costs. Through March 31, 2021, the Company has incurred approximately $56.5 million in costs and charges. Initial charges were incurred and recorded in June 2020. The Company expects to substantially complete the 2020 Restructuring Plan by the end of 2021.
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Other direct costs reported in the table below include facility closing costs and other incidental costs associated with the development, communication, administration and implementation of these initiatives.

The following is a summary of the Company's 2020 Restructuring Plan liability activity for the three months ended March 31, 2021 (costs incurred exclude any non-cash portion of restructuring gains or losses on asset disposals):


(in millions)Severance and Related CostsOther Direct CostsTotal
Balance at December 31, 2020$15.4 $6.9 $22.3 
Costs incurred(0.3)2.7 2.4 
Payments(5.2)(1.6)(6.8)
Balance at March 31, 2021$9.9 $8.0 $17.9 

In addition to the costs incurred in the table above, during the three months ended March 31, 2021, the Company expensed $1.9 million of Other Direct Costs, which was prepaid during the fourth quarter of 2020.

Additionally, the Company holds other restructuring liabilities related to the previous restructuring plans that as of March 31, 2021, totaled $23.3 million, of which $19.7 million was related to MEPP withdrawal obligations that will be paid-out over an approximate 20-year period. These other liabilities as of December 31, 2020, totaled $24.0 million, of which $20.0 million was related to MEPP withdrawal obligations.

See Note 13, Segment and Other Information, for the impact that charges from these restructuring plans had on the Company's reportable segments.

5. DEBT

The Company's debt obligations were as follows:

(in millions)March 31, 2021December 31, 2020
Asset-Based Lending Facility (the "ABL Facility")$534.5 $520.2 
Commercial card program1.6 1.3 
Finance leases79.5 82.3 
Total debt615.6 603.8 
Less: current portion of debt(14.9)(14.7)
Long-term debt, net of current portion$600.7 $589.1 

ABL Facility

On April 9, 2020, the Company amended its ABL Facility to extend the maturity date to April 9, 2025, reduced the aggregate commitments from $1.4 billion to $1.1 billion and adjusted the pricing grid for applicable interest rates. All other significant terms remained substantially the same. The Company recognized a one-time charge of $0.6 million to interest expense, net, on the Condensed Consolidated Statement of Operations, for the write-off of a portion of the previously deferred financing costs associated with lenders in the ABL Facility that exited the amended ABL Facility. In addition, the Company incurred and deferred $3.4 million of new financing costs associated with this transaction, reflected in other non-current assets on the Condensed Consolidated Balance Sheet, which will be amortized to interest expense on a straight-line basis over the amended term of the ABL Facility.

Availability under the ABL Facility is determined based upon a monthly borrowing base calculation which includes eligible customer receivables and inventory, less outstanding borrowings, letters of credit and certain designated reserves. As of March 31, 2021, the available additional borrowing capacity under the ABL Facility was approximately $343.8 million. As of March 31, 2021, the Company held $12.1 million in outstanding letters of credit.
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The ABL Facility has a springing minimum fixed charge coverage ratio of at least 1.00 to 1.00 on a trailing four-quarter basis, which will be tested only when specified availability is less than the limits outlined under the ABL Facility. At March 31, 2021, the above test was not applicable and based on information available as of the date of this report it is not expected to be applicable in the next 12 months.

Commercial Card Program

The Company has a commercial purchasing card program that is used for business purpose purchasing and must be paid in-full monthly. At March 31, 2021, the card carried a maximum credit limit of $37.5 million. At March 31, 2021 and December 31, 2020, $1.6 million and $1.3 million, respectively, was outstanding on the commercial card. The net change in the outstanding balance is classified as a financing activity on the Condensed Consolidated Statements of Cash Flows.

6. INCOME TAXES

The Company calculated the expense for income taxes during the three months ended March 31, 2021, by applying an estimate of the annual effective tax rate ("AETR") for the full fiscal year to "ordinary" income or loss (pre-tax income excluding unusual or infrequently occurring discrete items) for the reporting period. For the three months ended March 31, 2020, due to the heightened uncertainty surrounding the COVID-19 pandemic, Veritiv was unable to reasonably estimate its AETR and used its actual year-to-date effective tax rate to calculate income tax expense.

The following table presents the expense (benefit) for income taxes and the effective tax rates for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,
(in millions)20212020
Income (loss) before income taxes$30.4 $0.0 
Income tax expense (benefit)9.1 0.4 
Effective tax rate29.9 %*
* not meaningful

The difference between the Company's effective tax rates for the three months ended March 31, 2021 and 2020, and the U.S. statutory tax rate of 21.0% primarily relates to state income taxes (net of federal income tax benefit), non-deductible expenses, tax expense for stock compensation vesting, Global Intangible Low-Taxed Income ("GILTI"), and the Company's pre-tax book income (loss) by jurisdiction. In addition, Veritiv recognized the tax-effect of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in the quarter ended March 31, 2020, and recorded an estimated $2.1 million benefit, primarily related to the carryback of net operating loss (“NOL” or “NOLs”) generated in 2019 to prior years in which the U.S. statutory tax rate was 35%.

The CARES Act was signed into law on March 27, 2020 and makes significant economic stimulus changes and additional changes to the U.S. tax code, including, but not limited to, allowing the carryback of NOLs occurring in 2018, 2019, and 2020 to the prior five years and eliminating the taxable income limitation, changes interest expense limitation, includes a technical correction for qualified improvement property depreciation and provides additional employee retention credits.

7. RELATED PARTY TRANSACTIONS

On March 3, 2021, Veritiv announced that its Board of Directors authorized a $50.0 million share repurchase program (the "2021 Share Repurchase Program"). Executing within the 2021 Share Repurchase Program, on March 9, 2021, Veritiv entered into a Share Repurchase Agreement with UWW Holdings, LLC (the "UWWH Stockholder"), pursuant to which the Company agreed to repurchase (the “Share Repurchase”) an aggregate of 553,536 shares of its common stock owned by the UWWH Stockholder for an aggregate purchase price of $23.2 million. The Share Repurchase closed on March 12, 2021 and the Company funded the Share Repurchase with cash on hand. Concurrently with the closing of the Share Repurchase, the UWWH Stockholder sold the remainder of its shares of Veritiv common stock to an unrelated third party.
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Agreements with the UWWH Stockholder prior to the Share Repurchase

In January 2020, in connection with the Tax Receivable Agreement ("TRA") executed at the time of the Merger, Veritiv paid $0.3 million in principal and interest to the UWWH Stockholder for the utilization of pre-merger NOLs in its 2018 federal and state tax returns. In December 2020, the Company and the UWWH Stockholder agreed to settle the TRA. The Company paid the UWWH Stockholder a total of $12.0 million in settlement of all past and future liabilities that would have been owed under the TRA and the parties agreed to a mutual release of claims under the TRA. See Note 9, Fair Value Measurements, for additional information regarding the TRA.

On November 19, 2020, the UWWH Stockholder sold 1.40 million shares of Veritiv common stock in an underwritten public offering. The Company did not sell or repurchase any shares and did not receive any of the proceeds. Following completion of such sale, which reduced the UWWH Stockholder's ownership below 10% of Veritiv's outstanding common stock, Georgia-Pacific, as joint owner of the UWWH Stockholder, is no longer treated as a related party. The Company considers its stockholders that own more than 10.0% of its outstanding common stock to be related parties as defined within ASC 850, Related Party Disclosures.

Transactions with Georgia-Pacific

Veritiv purchases certain inventory items from, and sells certain inventory items to, Georgia-Pacific in the normal course of business. The following table summarizes the financial impact of the transactions with Georgia-Pacific during the prior year period when it was considered a related party:

Three Months Ended March 31,
(in millions)2020
Sales to Georgia-Pacific, reflected in net sales$5.6 
Purchases of inventory from Georgia-Pacific, recognized in cost of products sold
18.8 

8. DEFINED BENEFIT PLANS

Veritiv does not maintain any active defined benefit plans for its non-union employees. Veritiv maintains a defined benefit pension plan in the U.S. for employees covered by certain collectively bargained agreements. Veritiv also assumed responsibility for Unisource's defined benefit plans, which include frozen cash balance accounts for certain former Unisource employees. The components of net periodic benefit cost (credit) other than the service cost component are included in other (income) expense, net on the Condensed Consolidated Statements of Operations. Amounts are generally amortized from AOCL over the expected future working lifetime of active plan participants.

Total net periodic benefit cost (credit) associated with these plans is summarized below:
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
(in millions)U.S.CanadaU.S.Canada
Components of net periodic benefit cost (credit):
Service cost
$0.6 $0.1 $0.6 $0.1 
Interest cost
$0.3 $0.5 $0.4 $0.6 
Expected return on plan assets
(1.1)(1.0)(1.0)(0.9)
 Total other components
$(0.8)$(0.5)$(0.6)$(0.3)
Net periodic benefit cost (credit)$(0.2)$(0.4)$0.0 $(0.2)


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9. FAIR VALUE MEASUREMENTS

At March 31, 2021 and December 31, 2020, the carrying amounts of cash and cash equivalents, receivables, payables, other components of other current assets and other accrued liabilities, and the short-term debt associated with the commercial card program approximate their fair values due to the short maturity of these items. Cash and cash equivalents may include highly-liquid investments with original maturities to the Company of three months or less that are readily convertible into known amounts of cash.

Borrowings under the ABL Facility are at variable market interest rates, and accordingly, the carrying amount approximates fair value, which is a Level 2 measurement. The fair value of the debt-related interest rate cap was derived from a discounted cash flow analysis based on the terms of the agreement and Level 2 data for the forward interest rate curve adjusted for the Company's credit risk and was not significant for the periods presented in this report. See Note 5, Debt, for additional information regarding the Company's ABL Facility and other obligations.

At March 31, 2021 and December 31, 2020, the Company had assets held for sale of $1.4 million and $0.4 million, respectively. These assets are included in other current assets on the Condensed Consolidated Balance Sheets at the lower of their carrying value or fair value at March 31, 2021 and December 31, 2020, respectively.

At the time of the Merger, the Company recorded a $59.4 million contingent liability associated with the TRA at fair value using a discounted cash flow model. The contingent liability was remeasured at fair value at each reporting period-end with the change in fair value recognized in other (income) expense, net on the Condensed Consolidated Statements of Operations. In December 2020, the Company and the UWWH Stockholder agreed to settle the TRA. See Note 7, Related Party Transactions, for additional information regarding the TRA.

10. EARNINGS (LOSS) PER SHARE

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

A summary of the numerators and denominators used in the basic and diluted earnings (loss) per share calculations is as follows:
Three Months Ended
March 31,
(in millions, except per share data)20212020
Numerator:
Net income (loss)$21.3 $(0.4)
Denominator:
Weighted-average shares outstanding – basic
15.88 16.16 
Dilutive effect of stock-based awards
0.78  
Weighted-average shares outstanding – diluted
16.66 16.16 
Earnings (loss) per share:
Basic earnings (loss) per share$1.34 $(0.02)
Diluted earnings (loss) per share$1.28 $(0.02)
Antidilutive stock-based awards excluded from computation of diluted earnings per share ("EPS")
0.11 1.28 
Performance stock-based awards excluded from computation of diluted EPS because performance conditions had not been met
0.07 0.32 

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In accordance with the Company's 2014 Omnibus Incentive Plan, as amended and restated as of March 8, 2017, shares of the Company's common stock were issued to plan participants whose Restricted Stock Units and/or Performance Condition Share Units vested during those periods. The net share issuance is included on the Condensed Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2021 and 2020. For additional information related to these plans refer to the Company's Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2020.

See the table below for information related to these transactions.

(in millions)20212020
Three months ended March 31,
Shares issued0.3 0.2 
Shares recovered for minimum tax withholding(0.1)(0.1)
Net shares issued0.2 0.1 

11. ACCUMULATED OTHER COMPREHENSIVE LOSS ("AOCL")

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

The following table provides the components of AOCL at March 31, 2021 (amounts are shown net of their related income tax effect, if any):

(in millions)Foreign currency translation adjustmentsRetirement liabilitiesInterest rate capAOCL
Balance at December 31, 2020$(24.2)$(9.1)$(0.2)$(33.5)
     Unrealized net gains (losses) arising during the period(0.3)0.0 0.0 (0.3)
Net current period other comprehensive income (loss)(0.3)0.0 0.0 (0.3)
Balance at March 31, 2021$(24.5)$(9.1)$(0.2)$(33.8)

The following table provides the components of AOCL at March 31, 2020 (amounts are shown net of their related income tax effect, if any):

(in millions)Foreign currency translation adjustmentsRetirement liabilitiesInterest rate capAOCL
Balance at December 31, 2019$(26.6)$(6.2)$(0.3)$(33.1)
Unrealized net gains (losses) arising during the period(14.0)0.0 0.0 (14.0)
Net current period other comprehensive income (loss)(14.0)0.0 0.0 (14.0)
Balance at March 31, 2020$(40.6)$(6.2)$(0.3)$(47.1)

12. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

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

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

Western Pennsylvania Teamsters and Employers Pension Fund

During the second quarter of 2019, in the course of negotiations for a collective bargaining agreement, Veritiv negotiated a partial withdrawal from the Western Pennsylvania Teamsters and Employers Pension Fund (the "Western Pennsylvania Fund"), a MEPP related to its Warrendale, Pennsylvania location, and recognized an estimated partial withdrawal liability of $6.5 million, which was unchanged as of March 31, 2021.

During the first quarter of 2020, Veritiv negotiated the complete withdrawal from the Western Pennsylvania Fund related to the second bargaining unit at its Warrendale, Pennsylvania location and recognized an estimated complete withdrawal liability of $7.1 million, which was unchanged as of March 31, 2021. The withdrawal charge was recorded in distribution expenses as it was not related to a restructuring activity.

The Company records an estimated undiscounted charge when it becomes probable that it has incurred a withdrawal liability. Final charges for MEPP withdrawals are not known until the plans issue their respective determinations. As a result, these estimates may increase or decrease depending upon the final determinations. As of March 31, 2021, the Company has not yet received the determination letters for the partial and subsequent full withdrawal from the Western Pennsylvania Fund. The Company expects that payments will occur over an approximate 20-year period, which could run consecutively.

13. SEGMENT AND OTHER INFORMATION

Veritiv's business is organized under four reportable segments: Packaging, Facility Solutions, Print, and Publishing and Print Management ("Publishing").

The following tables present net sales, Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, restructuring charges, net, integration and acquisition expenses and other similar charges including any severance costs, costs associated with warehouse and office openings or closings, consolidation, and relocation and other business optimization expenses, stock-based compensation expense, changes in the LIFO reserve, non-restructuring asset impairment charges, non-restructuring severance charges, non-restructuring pension charges, net, fair value adjustments related to contingent liabilities assumed in mergers and acquisitions and certain other adjustments), which is the metric management uses to assess operating performance of the segments, and certain other measures for each of the reportable segments and Corporate & Other for the periods presented:
(in millions)PackagingFacility SolutionsPrintPublishingTotal Reportable SegmentsCorporate & OtherTotal
Three Months Ended March 31, 2021
Net sales$854.6 $206.1 $323.2 $148.1 $1,532.0 $27.3 $1,559.3 
Adjusted EBITDA78.0 11.5 12.3 5.1 106.9 (47.4)
Depreciation and amortization
6.1 2.0 1.6 0.0 9.7 4.8 14.5 
Restructuring charges, net
2.7 0.5 1.6 0.0 4.8 (0.5)4.3 
Three Months Ended March 31, 2020
Net sales$802.6 $259.7 $452.2 $166.7 $1,681.2 $26.1 $1,707.3 
Adjusted EBITDA59.6 9.0 11.2 3.6 83.4 (47.2)
Depreciation and amortization
5.3 1.9 2.1 0.0 9.3 4.5