This Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management regarding our financial condition and results of operations, liquidity and certain material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of our future financial condition or results of operations. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Item 8 of this report.
Executive Overview
The COVID-19 Pandemic
The COVID-19 pandemic has had widespread, rapidly evolving and unpredictable impacts on global societies, economies, financial markets and business practices, and created significant uncertainty regarding potential impacts toVeritiv ("Veritiv" or the "Company"). Federal and state governments have implemented measures in an effort to contain the virus, including physical distancing recommendations, travel restrictions, border closures, limitations on public gatherings, work-from-home recommendations, supply chain logistical changes and closure of non-essential businesses, some of which have since been eased. Although the Company has not experienced any closures of its distribution centers,Veritiv serves customers across a broad range of industry sectors and geographies, with varying COVID-19 impacts. Primarily beginning inApril 2020 , the COVID-19 pandemic began having a negative impact on the Company's financial results, including decreased sales activity. The Company has seen economic improvements during 2021 in many of the markets where it operates as global vaccine distribution efforts continue. Sales activity during 2021 exceeded 2020 levels for three out of four of the Company's reportable segments, including the Packaging segment, which exceeded pre-COVID-19 levels.Veritiv's first priority remains the health and safety of its employees, customers and their families. The Company has taken steps to limit exposure and enhance the safety of its facilities for employees working to continue to supply vital products to its customers. In response to the pandemic,Veritiv initiated itsCorporate Incident Response Team and initiated enhanced health and safety measures across its facilities. The Company modified practices at its distribution centers and offices to adhere to guidance fromthe United States ("U.S")Centers for Disease Control and Prevention and local health and governmental authorities with respect to social distancing, enhanced cleaning protocols and usage of personal protective equipment, where appropriate. In addition, the Company implemented global travel restrictions and work-from-home policies for employees who have the ability to work remotely. InApril 2020 ,Veritiv took several actions to help mitigate the effects of the decreased sales activity and improve liquidity. These actions included (i) temporarily reducing salaries for senior leaders ranging from 10% to 50% throughJune 2020 , (ii) temporarily reducing annual cash retainers for independent directors by 50% throughJune 2020 , (iii) placing approximately 15% of its salaried workforce on temporary furloughs throughmid-July 2020 , (iv) adjusting its supply chain operations staff depending on volume at specific locations, (v) suspending its share repurchase program, which was resumed inMarch 2021 and (vi) reducing discretionary spending including planned capital expenditures. InJuly 2020 ,Veritiv took additional actions to enhance liquidity in response to the impacts of the COVID-19 pandemic, including implementing cost-savings and cash preservation initiatives as described under the heading "2020 Restructuring Plan" below.Veritiv's management expects that cash provided by operating activities and available capacity under the Asset-Based Lending Facility (the "ABL Facility") will provide sufficient funds to operate the business and meet other liquidity needs. As ofDecember 31, 2021 ,Veritiv had cash and cash equivalents of$49.3 million and also had$557.2 million in available additional borrowing capacity under the ABL Facility. InMay 2021 , the Company amended its ABL Facility to, among other things, extend the maturity date toMay 2026 . The current circumstances are dynamic and the impacts of the COVID-19 pandemic on the Company's business operations, including the duration and impact on overall customer demand, cannot be reasonably estimated at this time. The extent to which the COVID-19 pandemic impacts the Company's business, results of operations, access to sources of liquidity and financial condition will depend on future developments. These developments, which are uncertain and difficult to predict, 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, measures adopted or recommended by local and federal governments or health authorities in response to the pandemic, the availability, adoption and effectiveness of vaccines 23 --------------------------------------------------------------------------------
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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 or long-term changes in customer behavior.
See Part I, Item 1A, Risk Factors in this report, for additional information on
risks related to the COVID-19 pandemic.
Other Recent Developments
2022 Share Repurchase Program
OnMarch 1, 2022 ,Veritiv announced that its Board of Directors authorized a$200 million share repurchase program (the "2022 Share Repurchase Program"). The 2022 Share Repurchase Program authorizes the Company, from time to time, to purchase shares of its common stock through open market transactions, privately negotiated transactions, forward, derivative, or accelerated repurchase transactions, tender offers or otherwise, including Rule 10b5-1 trading plans, in accordance with all applicable securities laws and regulations. The timing and method of any repurchases, which will depend on a variety of market factors, including market conditions, are subject to results of operations, financial conditions, cash requirements and other factors. This authorization may be suspended, terminated, increased or decreased by the Board of Directors at any time. 2021 Share Repurchase Program OnMarch 3, 2021 ,Veritiv announced that its Board of Directors authorized a$50 million share repurchase program (the "2021 Share Repurchase Program"). OnMay 24, 2021 , the Company announced that its Board of Directors increased the 2021 Share Repurchase Program authorization to a total of$100 million . The 2021 Share Repurchase Program replaced the$25 million share repurchase authorization previously approved byVeritiv's Board of Directors inMarch 2020 (the "2020 Share Repurchase Program"). The Company completed its repurchases under the 2021 Share Repurchase Program with repurchases totaling nearly$100 million , the authorized repurchase limit, representing approximately 11% of the shares that were outstanding atDecember 31, 2020 .
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'sU.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$76 million in connection with the 2020 Restructuring Plan. Initial charges were incurred and recorded inJune 2020 . The 2020 Restructuring Plan was substantially complete as ofDecember 31, 2021 with remaining charges to be incurred through the end of 2022. See Note 4 of the Notes to Consolidated Financial Statements for information related to the Company's restructuring efforts.
Company Strategy
In 2021,Veritiv continued to execute against its long-term strategy to be the leading provider of business-to-business packaging products and services, as well as paper and facility solutions products and services. The Company continues to invest in organic packaging growth including selling and supply chain capabilities and to pursue inorganic packaging growth opportunities. The Company also continues to evaluate alternatives for non-core components of our business including potential divestitures.
Business Overview
Veritiv is a leading 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 onJuly 1, 2014 following the merger of International Paper Company's xpedx distribution solutions business andUWW Holdings, Inc. , the parent company of 24 --------------------------------------------------------------------------------
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of 100% of the equity interest in various
(collectively, “AAC”). The Company operates from 115 distribution centers
primarily throughout the
Veritiv's business is organized under four reportable segments: Packaging, Facility Solutions, Print, and Publishing and Print Management ("Publishing"). This segment structure is consistent with the way the Chief Operating Decision Maker, who isVeritiv'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 theVeritiv logistics solutions business which provides transportation and warehousing solutions. The following summary describes the products and services offered in each of the reportable segments: •Packaging -Veritiv is a global provider of packaging products, services and solutions. The Packaging segment provides custom and standard packaging solutions for customers based inNorth America and in key global markets. This segment services its customers with a full spectrum of packaging product materials within flexible, corrugated and fiber, ancillary packaging, rigid and equipment categories. The business is strategically focused on higher growth industry sectors including manufacturing, food and beverage, wholesale and retail, healthcare and transportation, as well as specialty sectors based on industry and product expertise.Veritiv's packaging professionals create customer value through supply chain solutions, structural and graphic packaging design and engineering, automation, workflow and equipment services and kitting. •Facility Solutions -Veritiv is a global provider of hygiene and facility solutions products and services. The Facility Solutions segment sources and sells cleaning, break-room and other supplies in product categories that include towels and tissues, food service, personal protective equipment, cleaning chemicals and skincare, primarily inNorth America . Through this segmentVeritiv manages a world class network of leading suppliers in most facilities solutions categories. Additionally, the Company offers total cost of ownership solutions with re-merchandising, budgeting and compliance reporting and inventory management. Its sales force is trained to bring leading vertical expertise to the major North American geographies. •Print - The Print segment sells and distributes commercial printing, writing, copying, digital, specialty products and graphics consumables primarily inNorth 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 acrossNorth 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 theU.S. This segment also provides print management, procurement and supply chain management solutions to simplify paper and print procurement processes for its customers.
Results of Operations, Including Business Segments
The following discussion compares the consolidated operating results ofVeritiv for the years endedDecember 31, 2021 and 2020. For the discussion of results for 2020 compared to 2019, refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations ofVeritiv's Annual Report on Form 10-K for the year endedDecember 31, 2020 , which was filed with theSEC onMarch 3, 2021 . 25 --------------------------------------------------------------------------------
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Year Ended December 31, 2021 vs. 2020 Increase (Decrease) (in millions) 2021 2020 $ % Net sales$ 6,850.5 $ 6,345.6 $ 504.9 8.0 %
Cost of products sold (exclusive of depreciation and
amortization shown separately below)
5,417.9 5,040.2 377.7 7.5 % Distribution expenses 419.3 429.8 (10.5) (2.4) % Selling and administrative expenses 732.7 717.9 14.8 2.1 % Depreciation and amortization 55.2 57.7 (2.5) (4.3) % Restructuring charges, net 15.4 52.2 (36.8) (70.5) % Operating income (loss) 210.0 47.8 162.2 339.3 % Interest expense, net 17.2 25.1 (7.9) (31.5) % Other (income) expense, net (4.7) (20.3) 15.6 76.8 % Income (loss) before income taxes 197.5 43.0 154.5 359.3 % Income tax expense (benefit) 52.9 8.8 44.1 501.1 % Net income (loss)$ 144.6 $ 34.2 $ 110.4 322.8 % Net Sales Net sales increased by$504.9 million , or 8.0%. The Packaging segment's net sales were responsible for approximately 88% of the total increase. Net sales increased in all reportable segments, except Facility Solutions. Net sales for the Facility Solutions segment declined by$28.3 million . Net sales in 2021 were negatively impacted by the COVID-19 pandemic while inflationary market price increases across the Company's product portfolio continued throughout 2021. To the extent feasible, the Company has adjusted its prices to reflect the impact of inflation on the cost of purchased materials and services. Also, despite constraints in the broader supply chain, the Company was able to mitigate some of the impact to its customers through leveraging its portfolio of suppliers and its North American supply chain network. Management expects higher market prices and marketplace supply chain challenges to continue through at least the first half of 2022. See the "Segment Results" section for additional discussion.
Cost of Products Sold (exclusive of depreciation and amortization shown
separately below)
Cost of products sold increased by$377.7 million , or 7.5%, primarily due to higher net sales as previously discussed. See the "Segment Results" section for additional discussion. Cost of products sold increased at a slower rate than net sales due to improvements in pricing, as well as changes in both segment and customer mix. Distribution Expenses Distribution expenses decreased by$10.5 million , or 2.4%. The decrease was primarily attributable to (i) an$11.7 million decrease in facility and equipment rent expense, (ii) a$7.1 million multi-employer pension plan withdrawal charge in the first quarter of 2020 that did not repeat in 2021 and (iii) a$6.4 million decrease in wages and temporary employee expenses, partially offset by a$17.0 million increase in freight and logistics expense. The decrease in facility and equipment rent expense was primarily driven by consolidation of the Company's facilities. The decrease in wages and temporary employee expenses was primarily driven by actions taken by the Company in response to the COVID-19 pandemic, including lowering headcount across the Company. The increase in freight and logistics expense was primarily driven by an increase in third-party freight and higher diesel fuel and carrier prices.
Selling and Administrative Expenses
Selling and administrative expenses increased by$14.8 million , or 2.1%. The increase was primarily due to (i) a$12.3 million increase in personnel expenses, (ii) a$4.8 million increase in professional fees expense, (iii)$3.7 million in lower net gains from the sale of a business and facilities as compared to the prior year period and (iv) a$1.5 million increase in marketing and communications expense, partially offset by a$7.8 million decrease in bad debt expense. The increase in personnel expenses was primarily driven by (i) higher wages, (ii) higher incentive compensation expenses and (iii) an increase in travel 26 --------------------------------------------------------------------------------
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and entertainment expenses, partially offset by a decrease in commission expenses due to a change in the sales force compensation plans. Higher wages included the reinstatement of annual performance-related salary increases and the Company's matching contributions to certain defined contribution plans. In the fourth quarter of 2021, selling and administrative expenses were elevated due to higher compensation expenses associated with improved company performance and higher professional fees expense.
Depreciation and Amortization
Depreciation and amortization expense decreased by
primarily due to lower depreciation on information technology related assets.
Restructuring Charges, Net
Restructuring charges, net decreased by$36.8 million , or 70.5%. 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. As ofDecember 31, 2021 , the Company has substantially completed its 2020 Restructuring Plan. See
Note 4 of the Notes to Consolidated Financial Statements for information
related to the Company’s restructuring efforts.
Interest Expense, Net
Interest expense, net decreased by$7.9 million , or 31.5%. The decrease was primarily due to (i) lower average interest rates and (ii) a lower average balance on the ABL Facility. The lower average balance was due to positive operating cash flow, which was used to reduce the ABL Facility balance. Interest expense, net in 2021 consisted of (i)$12.2 million of interest expense on the Company's ABL Facility, (ii)$2.8 million of finance lease interest expense, (iii)$1.5 million for amortization and write-off of deferred financing costs related to the ABL Facility and (iv)$0.7 million in miscellaneous interest expense. Interest expense, net in 2020 consisted of (i)$18.9 million of interest expense on the Company's ABL Facility, (ii)$3.0 million of finance lease interest expense, (iii)$2.1 million for amortization and write-off of deferred financing costs related to the ABL Facility and (iv)$1.1 million in miscellaneous interest expense. See Note 6 of the Notes to Consolidated Financial Statements for information related to the ABL Facility.
Other (Income) Expense, Net
Other (income) expense, net, in 2021 was income of$4.7 million . This was a net unfavorable change of$15.6 million , as compared to 2020. InDecember 2020 , the Company andUWW Holdings, LLC (the "UWWH Stockholder") agreed to settle the Tax Receivable Agreement ("TRA"), resulting in the recognition of a favorable fair value adjustment of$20.1 million , recorded in other (income) expense in 2020, that did not repeat in 2021. See Note 8 and Note 10 of the Notes to Consolidated Financial Statements for information related to the TRA. This was partially offset by (i)$1.5 million of lower pension expenses and (ii) a$1.0 million adjustment to a contingent consideration earnout in the prior year that did not repeat. The remainder was driven by improvements in foreign exchange impacts and other miscellaneous items.
Effective Tax Rate
Veritiv's effective tax rates were 26.8% and 20.5% for the years endedDecember 31, 2021 and 2020, respectively. The difference between the Company's effective tax rates and theU.S. statutory tax rate of 21.0% primarily relates to state income taxes (net of federal income tax benefit), non-deductible expenses, tax credits, Global Intangible Low-Taxed Income, the tax impact of stock compensation vesting and the Company's pre-tax book income (loss) by jurisdiction. In addition, the Company's effective tax rate for the year endedDecember 31, 2020 includes a$3.7 million benefit related to the tax effect of TRA changes and a$2.4 million benefit related to the carryback of net operating losses under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").
Segment Results
Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, restructuring charges, net, integration and acquisition expenses and other similar charges including any severance costs, costs associated with warehouse and office openings or closings, consolidation, and relocation and other business optimization expenses, stock-based compensation expense, changes in the LIFO reserve, non-restructuring asset impairment charges, non-restructuring severance charges, non-restructuring pension charges, net, fair value adjustments related to contingent liabilities assumed in mergers and acquisitions and certain other adjustments) is the primary financial performance measureVeritiv uses to manage its businesses, to monitor its results of operations, to measure its performance against the ABL Facility and to incentivize its management. 27 --------------------------------------------------------------------------------
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Veritiv believes investors commonly use Adjusted EBITDA as a key financial metric for valuing companies. In addition, the credit agreement governing the ABL Facility permits the Company to exclude these and other charges in calculating Consolidated EBITDA, as defined in the ABL Facility. This common metric is intended to align shareholders, debt holders and management. Adjusted EBITDA is a non-GAAP financial measure and is not an alternative to net income, operating income or any other measure prescribed byU.S. generally accepted accounting principles ("U.S. GAAP").
Adjusted EBITDA has limitations as an analytical tool and should not be
considered in isolation or as a substitute for analysis of
reported under
•does not reflect the Company's income tax expenses or the cash requirements to pay its taxes; and •although depreciation and amortization charges are non-cash charges, it does not reflect that the assets being depreciated and amortized will often have to be replaced in the future, and the foregoing metric does not reflect any cash requirements for such replacements. Other companies in the industry may calculate Adjusted EBITDA differently thanVeritiv 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 toVeritiv to invest in the growth of its business.Veritiv compensates for these limitations by relying both on the Company'sU.S. GAAP results and by using Adjusted EBITDA for supplemental purposes. Additionally, Adjusted EBITDA is not an alternative measure of financial performance underU.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 suchU.S. GAAP measures. Due to the shared nature of the distribution network to support the Packaging, Facility Solutions and Print segments, 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. Prior to the fourth quarter of 2021,Veritiv was unable to compute the impact of changes in sales volume based on changes in sales of each individual product for the Packaging and Facility Solutions segments. Rather, the Company assumed that the margin stayed constant and estimated 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 were identified, the remaining sales variance was attributed to price/mix. As a result of the Company's recent information technology enhancements, the Company has improved its insight into products within these segments and is now able to isolate the change in sales attributed to volume and price separately at the item level for the majority of products and thus it no longer needs to rely on cost of products sold as a proxy for the changes in sales volumes. This change in calculation method is deemed to be a more accurate and transparent way to measure volume, price and mix changes in sales for these segments.
The Company approximates foreign currency effects by applying the foreign
currency exchange rate for the prior period to the local currency results for
the current period. 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 the demand for paper and related products is due to the widespread use of electronic media and permanent product substitution, more e-commerce, less print advertising, fewer catalogs and a reduced volume of direct mail, among other factors. This trend, which may have been accelerated by the COVID-19 pandemic, 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. 28 --------------------------------------------------------------------------------
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Included in the following table are net sales and Adjusted EBITDA for each of
the reportable segments and Corporate & Other:
Facility Corporate & (in millions) Packaging Solutions Print Publishing Other Year EndedDecember 31, 2021 Net sales$ 3,760.4 $ 894.0 $ 1,484.2 $ 596.6 $ 115.3 Adjusted EBITDA 393.5 52.7 96.0 18.7 (218.3) Adjusted EBITDA as a % of net sales 10.5 % 5.9 % 6.5 % 3.1 % * Year EndedDecember 31, 2020 Net sales$ 3,316.7 $ 922.3 $ 1,458.2 $ 543.5 $ 104.9 Adjusted EBITDA 300.0 41.6 33.7 12.8 (200.5) Adjusted EBITDA as a % of net sales 9.0 % 4.5 % 2.3 % 2.4 % * * - not meaningful
See Note 16 of the Notes to Consolidated Financial Statements for a
reconciliation of net income (loss) as reflected on the Consolidated Statements
of Operations to Adjusted EBITDA for the reportable segments.
Packaging
The table below presents selected data with respect to the Packaging segment: Year Ended December 31, Increase (Decrease) (in millions) 2021 2020 $ % Net sales$ 3,760.4 $ 3,316.7 $ 443.7 13.4 % Adjusted EBITDA 393.5 300.0 93.5 31.2 % Adjusted EBITDA as a % of net sales 10.5 % 9.0 % 150 bps The table below presents the components of the net sales change compared to the prior year: (in millions) Increase (Decrease) Volume $ 90.0 Foreign currency 22.7 Price/Mix 331.0 Total change $ 443.7 Net sales increased$443.7 million , or 13.4%, compared to 2020. The net sales increase was primarily attributable to higher market prices as well as increased sales volume in all product categories and end use sectors and favorable foreign currency impacts. Sales to consumer electronics, heavy manufacturing and healthcare customers improved significantly compared to the prior year. Net sales were positively impacted by strong e-commerce demand in 2021. Management expects the strong demand and supply chain constraints to continue through at least the first half of 2022 and the Company has invested in additional inventory to support its customers. Adjusted EBITDA increased$93.5 million , or 31.2%, compared to 2020. The increase in Adjusted EBITDA was primarily attributable to cost of products sold increasing at a slower rate than net sales and higher net sales, partially offset by (i) a$23.8 million increase in selling and administrative expenses and (ii) a$20.7 million increase in distribution expenses. The increase in selling and administrative expenses was primarily driven by (i) a$15.4 million increase in personnel expenses, (ii) a$3.1 million increase in professional fees expense and (iii) a$2.6 million increase in bad debt expense. The increase in personnel expenses was associated with (i) higher wages and benefits to support the Company's Packaging growth strategy and (ii) higher incentive compensation expenses, partially offset by a decrease in commission expenses driven by a change in the sales force compensation plans. The increase in distribution expenses was primarily driven by increased utilization of the 29 --------------------------------------------------------------------------------
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distribution network, which is reflected in (i) a
freight and logistics expense, (ii) a
and (iii) a
Facility Solutions
The table below presents selected data with respect to the Facility Solutions
segment:
Year Ended December 31, Increase (Decrease) (in millions) 2021 2020 $ % Net sales$ 894.0 $ 922.3 $ (28.3) (3.1) % Adjusted EBITDA 52.7 41.6 11.1 26.7 % Adjusted EBITDA as a % of net sales 5.9 % 4.5 % 140 bps The table below presents the components of the net sales change compared to the prior year: (in millions) Increase (Decrease) Volume $ (109.3) Foreign currency 16.7 Price/Mix 64.3 Total change $ (28.3) Net sales decreased$28.3 million , or 3.1%, compared to 2020. The net sales decrease was primarily attributable to decreased sales of skincare products, chemicals and wipers primarily driven by the negative impact on demand from the COVID-19 pandemic which began in the prior year, partially offset by higher market prices and favorable foreign currency impacts. Negative impacts to customer demand have included business and school temporary closures, travel restrictions, constraints on large venues hosting sporting, conventions and entertainment events as well as extended work-from-home measures. However, food service and can liners product categories had increased sales due to strong demand, which partially offset the overall reduced customer demand in the Facility Solutions segment. Management expects the facility solutions future growth to follow the broader facility solutions away-from-home market in 2022. Adjusted EBITDA increased$11.1 million , or 26.7%, compared to 2020. The increase in Adjusted EBITDA was primarily attributable to (i) a$6.3 million decrease in selling and administrative expenses, (ii) a$5.1 million decrease in distribution expenses and (iii) cost of products sold decreasing at a faster rate than net sales, partially offset by decreased net sales. The decrease in selling and administrative expense was primarily driven by a$7.8 million decrease in personnel expenses, including lower commission expenses, primarily driven by a change in the sales force compensation plans. The decrease in distribution expenses was primarily driven by a$4.2 million decrease in personnel expenses.
The table below presents selected data with respect to the Print segment:
Year Ended December 31, Increase (Decrease) (in millions) 2021 2020 $ % Net sales$ 1,484.2 $ 1,458.2 $ 26.0 1.8 % Adjusted EBITDA 96.0 33.7 62.3 184.9 % Adjusted EBITDA as a % of net sales 6.5 % 2.3 % 420 bps 30 --------------------------------------------------------------------------------
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The table below presents the components of the net sales change compared to the prior year: (in millions) Increase (Decrease) Volume $ (86.7) Foreign currency 11.3 Price/Mix 101.4 Total change $ 26.0 Net sales increased$26.0 million , or 1.8%, compared to 2020. The net sales increase was primarily attributable to higher market prices driven by strong demand, compared to the prior year period when there was a significant negative impact on demand due to the COVID-19 pandemic, and favorable foreign currency impacts. The net sales increase was partially offset by lower volume primarily due to higher net sales in 2020 that occurred prior to the COVID-19 pandemic, resulting in a negative impact on 2021. Management expects the strong demand and supply chain constraints to continue throughout 2022. Adjusted EBITDA increased$62.3 million , or 184.9%, compared to 2020. The Adjusted EBITDA increase was primarily attributable to (i) cost of products sold increasing at a slower rate than net sales, (ii) a$17.0 million decrease in distribution expenses, (iii) a$14.2 million decrease in selling and administrative expenses and (iv) higher net sales. The decrease in distribution expenses was primarily driven by (i) a$12.0 million decrease in facility and equipment rent expense, primarily driven by consolidation of the Company's facilities and (ii) a$4.6 million decrease in personnel expenses. The decrease in selling and administrative expenses was primarily driven by (i) an$8.3 million decrease in personnel expenses and (ii) a$5.6 million decrease in bad debt expense. Publishing
The table below presents selected data with respect to the Publishing segment:
Year Ended December 31, Increase (Decrease) (in millions) 2021 2020 $ % Net sales$ 596.6 $ 543.5 $ 53.1 9.8 % Adjusted EBITDA 18.7 12.8 5.9 46.1 % Adjusted EBITDA as a % of net sales 3.1 % 2.4 % 70 bps The table below presents the components of the net sales change compared to the prior year: (in millions) Increase (Decrease) Volume $ 34.9 Foreign currency - Price/Mix 18.2 Total change $ 53.1 Net sales increased$53.1 million , or 9.8%, compared to 2020. The net sales increase was primarily attributable to an increase in demand compared to prior year, when there was a significant negative impact on demand due to the COVID-19 pandemic, as well as higher market prices. Adjusted EBITDA increased$5.9 million , or 46.1%, compared to 2020. The Adjusted EBITDA increase was primarily attributable to (i) increased net sales and (ii) a$4.3 million decrease in selling and administrative expenses, partially offset by cost of products sold increasing at a faster rate than net sales. The decrease in selling and administrative expenses was primarily driven by a$4.8 million decrease in bad debt expense. 31 --------------------------------------------------------------------------------
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Corporate & Other
Year Ended December 31, Increase (Decrease) (in millions) 2021 2020 $ % Net sales$ 115.3 $ 104.9 $ 10.4 9.9 % Adjusted EBITDA (218.3) (200.5) (17.8) (8.9) %
Net sales increased
increase was primarily attributable to an increase in the price of freight
brokerage services, partially offset by a decrease in volume.
Adjusted EBITDA decreased$17.8 million , or 8.9%, compared to 2020. The Adjusted EBITDA decrease was primarily driven by a$21.0 million increase in selling and administrative expenses, partially offset by increased net sales. The increase in selling and administrative expenses was primarily driven by (i) a$16.7 million increase in incentive compensation expense driven by the Company outperforming incentive targets and (ii) a$3.6 million increase in professional fees expense.
Liquidity and Capital Resources
The cash requirements of the Company are provided by cash flows from operations
and borrowings under the ABL Facility. See Note 6 of the Notes to
Consolidated Financial Statements for additional information regarding the
Company’s debt position.
The following table sets forth a summary of cash flows for the years endedDecember 31, 2021 and 2020. For information regarding the Company's cash flows for 2019, refer to the "Liquidity and Capital Resources" section of Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations ofVeritiv's Annual Report on Form 10-K for the year endedDecember 31, 2020 , which was filed with theSEC onMarch 3, 2021 . Year Ended December 31, (in millions) 2021 2020 Net cash provided by (used for): Operating activities$ 154.7 $ 289.2 Investing activities (4.3) (5.3) Financing activities (221.4) (202.6) Analysis of Cash Flows 2021 Cash Flows
The Company ended 2021 with
decrease of
Company used its
down its long-term debt.
Net cash provided by operating activities decreased primarily as a result of an increase in accounts receivable and inventory levels, partially offset by an increase in accounts payable, driven by increasing sales in the current period as compared to the pandemic driven decreases in the 2020 period. The decrease in cash flows from operating assets and liabilities was partially offset by improvements in operating results. Net cash used for investing activities was a slightly lower use of cash due to lower capital expenditures offset by lower cash proceeds received from the sale of a business and other assets. Net cash used for financing activities was a higher use of cash primarily due to an increase in common stock repurchases partially offset by lower net repayments under the Company's ABL Facility. 32 --------------------------------------------------------------------------------
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2021 Special Operating Activities
InDecember 2021 , the Company prepaid$3.3 million of restructuring costs for other one-time compensation, which remained as a component of other current assets on the Consolidated Balance Sheet as ofDecember 31, 2021 . Also, as ofDecember 31, 2021 , the Company had not yet paid the$19.1 million in payroll taxes it had incurred and deferred throughDecember 31, 2020 , related to the CARES Act. During 2021 the Company used its$75.0 million of cash held in highly-liquid investments to pay down its long-term debt.
2021 Special Financing Activities
Throughout 2021, the Company repurchased 1,734,810 shares of its common stock at a cost of$100.0 million under its 2021 Share Repurchase Program. During the second quarter of 2021, in conjunction with the amendment of the ABL Facility, the Company incurred and paid$3.3 million in new financing fees. See Note 6 of the Notes to Consolidated Financial Statements for additional information regarding the Company's debt obligations.
2020 Special Operating Activities
In response to the COVID-19 pandemic, the Company (i) deferred the payment of$19.1 million in payroll taxes incurred throughDecember 31, 2020 , as provided by the CARES Act and (ii) beginning in the second quarter of 2020 invested$75.0 million of its cash in highly-liquid investments instead of paying down its long-term debt. During the fourth quarter of 2020, the Company prepaid$8.1 million of restructuring costs for other one-time compensation, of which$7.0 million remained as a component of other current assets on the Consolidated Balance Sheet as ofDecember 31, 2020 .
2020 Special Financing Activities
During the fourth quarter of 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. During the first quarter of 2020, the Company repurchased 383,972 shares of its common stock at a cost of$3.5 million under its 2020 Share Repurchase Program, which was suspendedMarch 27, 2020 . During the second quarter of 2020, in conjunction with the amendment of the ABL Facility, the Company incurred and paid$3.4 million in new financing fees.
Funding and Liquidity Strategy
ABL Facility
OnMay 20, 2021 , the Company amended its ABL Facility to extend the maturity date toMay 20, 2026 , adjust the pricing grid for applicable interest rates and update certain provisions to facilitate the transition from LIBOR to a new replacement benchmark rate. All other significant terms remained substantially the same. Previously, onApril 9, 2020 , the Company amended its ABL Facility to extend the maturity date toApril 9, 2025 , reduce the aggregate commitments from$1.4 billion to$1.1 billion and adjust the pricing grid for applicable interest rates. All other significant terms remained substantially the same. The ABL Facility is comprised ofU.S. and Canadian sub-facilities of$1.1 billion and$150.0 million , respectively. The ABL Facility is available to be drawn inU.S. dollars, in the case of theU.S. sub-facilities, and inU.S. dollars or Canadian dollars, in the case of the Canadian sub-facilities, or in other currencies that are mutually agreeable. 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 ofVeritiv and without the consent of any other lenders. The ABL Facility may be prepaid atVeritiv'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. In conjunction with the amendments of the ABL Facility in 2021 and 2020, the Company incurred and deferred$3.3 million and$3.4 million , respectively, in new financing costs, which are reflected in other non-current assets on the Consolidated Balance Sheets and will be amortized to interest expense on a straight-line basis over the new 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 33 --------------------------------------------------------------------------------
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ofDecember 31, 2021 , the available additional borrowing capacity under the ABL Facility was approximately$557.2 million . As ofDecember 31, 2021 , the Company held$11.0 million in outstanding letters of credit. The ABL Facility has a springing minimum fixed charge coverage ratio of at least 1.00 to 1.00 on a trailing four-quarter basis, which will be tested only when specified availability is less than limits outlined under the ABL Facility. AtDecember 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. 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 ofCanada , a banker's acceptance rate or base rate plus a margin rate. For the years endedDecember 31, 2021 and 2020, the weighted-average borrowing interest rates were 1.8% and 2.9%, respectively.
Short and long-term funding strategy
Veritiv's management expects that the Company's primary future cash needs will be for working capital, capital expenditures, contractual commitments, share repurchases and strategic investments.Veritiv's ability to fund its capital and operating needs will depend on its ongoing ability to generate cash from operations, availability of borrowings under the ABL Facility and access to the capital markets. IfVeritiv's cash flows from operating activities are lower than expected, the Company would 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 permitVeritiv to finance its capital and operating needs on acceptable terms and conditions, the Company's access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including the liquidity of the overall capital markets and the current state of the economy. To preserve liquidity, particularly during the COVID-19 pandemic, the Company may invest a portion of its cash in highly-liquid investments with original maturities to the Company of three months or less that are readily convertible into known amounts of cash. The Company currently estimates it will incur total restructuring charges of between$70 million and$76 million in connection with the 2020 Restructuring Plan. The 2020 Restructuring Plan was substantially complete as of December 31, 2021. See Note 4 of the Notes to Consolidated Financial Statements for additional information regarding the Company's restructuring efforts. The Company currently estimates that during 2022 it will spend approximately$35 million for capital expenditures covering both maintenance and strategic investments. As provided by the CARES Act, in response to the COVID-19 pandemic the Company deferred$19.1 million of payroll taxes, which it had incurred throughDecember 31, 2020 . InJanuary 2022 the Company paid$10.1 million of the deferred payroll taxes and currently expects to pay the remaining amount in December 2022. See Note 3 of the Notes to Consolidated Financial Statements for information regarding the Company's lease commitments, including leases that have not yet commenced. See Note 9 of the Notes to Consolidated Financial Statements for information regarding the Veritiv Deferred Compensation Savings Plans obligation, the Company's funding status of its pension plans and its multi-employer pension plan commitments. Additionally, the Company has recognized liabilities for uncertain tax positions, cash-based long-term incentive plans and unscheduled portions of the Veritiv Deferred Compensation Savings Plans, however, the Company cannot predict with reasonable certainty the timing of future cash outflows associated with these liabilities. All of the cash held byVeritiv's non-U.S. subsidiaries is available for general corporate purposes.Veritiv considers the earnings of certain non-U.S. subsidiaries to be permanently invested outside theU.S. on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and management's specific plans for reinvestment of those subsidiary earnings. The table below summarizes the Company's cash and cash equivalent positions as ofDecember 31, 2021 and 2020: As of December
31,
(in millions) 2021
2020
Cash and cash equivalents held in the
Cash held in foreign subsidiaries 23.5
19.6
Total Cash and cash equivalents$ 49.3 $ 120.6 34
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Table of Contents Inflation and Changing Prices Essentially all of the Company's revenue is derived from the sale of its products and services in competitive markets. To the extent feasible, the Company has adjusted its prices to reflect the impact of inflation on the cost of purchased materials and services. Impacts on the Company's results from price and product mix are discussed in the "Segment Results" section.
Critical Accounting Estimates
The preparation of financial statements in conformity withU.S. GAAP requires the Company to 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. 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. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, actual results may ultimately differ from these estimates and assumptions, particularly in light of the COVID-19 pandemic and its effects on the domestic and global economies. Estimates are revised as additional information becomes available. See the "Use of Estimates" section of
Note 1 of the Notes to Consolidated Financial Statements for additional
information regarding the Company’s estimates.
Revenue Recognition
Revenue generally consists of a single performance obligation to transfer a promised good or service and is short-term in nature. Revenues are recognized when control of the promised goods or services is transferred toVeritiv's customers and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services. Certain revenues are derived from shipments which are made directly from a manufacturer to aVeritiv customer. The Company is considered to be a principal to these transactions because, among other factors, it maintains control of the goods after they leave the supplier and before they are received at the customer's location, in most cases it selects the supplier and sets the price to the customer, and it bears the risk of the customer defaulting on payment or rejecting the goods. Revenues from these sales are reported on a gross basis on the Consolidated Statements of Operations and have historically represented approximately 35% ofVeritiv's total net sales.Veritiv enters into incentive programs with certain of its customers, which are generally based on sales to those same customers. Estimates of the variable consideration are based primarily on contract terms, current customer forecasts as well as historical experience.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. 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.
See Note 2 of the Notes to Consolidated Financial Statements for additional
information regarding the Company’s revenues.
Allowance for Credit Losses
The Company's allowance for credit losses reflects the best estimate of expected losses to the Company's accounts receivable portfolio determined on the basis of historical experience, current conditions, reasonable and supportable forecasts and specific allowances for known troubled accounts. In developing the allowance for credit losses, the Company utilizes internal risk ratings that are determined based on a number of factors including a periodic evaluation of each customer's financial condition where possible. In addition to leveraging the internally developed risk ratings and historical experience, the expected credit loss estimates are developed using quantitative analyses, where meaningful, and qualitative analyses to forecast the impact that external factors and economic indicators may have on the amount that the Company expects to collect. The allowances contain uncertainties because the calculation requires management to make assumptions and apply judgment 35 --------------------------------------------------------------------------------
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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 ofVeritiv'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 pre-tax income would have been approximately$1.0 million .
See Note 2 of the Notes to Consolidated Financial Statements for additional
information regarding the Company’s credit losses.
Income Taxes
The Company's determination of the provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. The provision for income taxes primarily reflects a combination of income earned and taxed in the variousU.S. federal and state, as well as foreign, jurisdictions. Tax law changes, increases or decreases in book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate. The impact of the COVID-19 pandemic may change the mix of earnings by jurisdiction and has increased the risk that operating losses may occur within certain jurisdictions that could lead to the recognition of valuation allowances against certain deferred tax assets in the future, if these losses are prolonged beyond current expectations. This would negatively impactVeritiv's income tax expense, net earnings, and balance sheet.
Employee Benefit Plans
Veritiv sponsors defined benefit plans and Supplemental Executive Retirement Plans. Except for certain union employees who continue to accrue benefits under theU.S. defined benefit pension plan in accordance with their collective bargaining agreements, the defined benefit pension plans are frozen. See Note 9 of the Notes to Consolidated Financial Statements for additional information regarding 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, or more frequently when changes in circumstances warrant a reassessment. 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 ofDecember 31, 2021 , the weighted-average discount rates used to compute the benefit obligations were 2.54% and 2.95% for theU.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 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 rates of return used to calculate the pension expense for the year ended 2021 were 7.15% and 5.00% for theU.S. and Canadian plans, respectively. 36 --------------------------------------------------------------------------------
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The following illustrates the effects of a 1% change in the discount rate or
return on plan assets on the 2021 net periodic pension cost and projected
benefit obligation (in millions):
Projected Benefit Assumption Change Net Periodic Benefit Cost Obligation Discount rate 1% increase $ 0.7 $ (18.5) 1% decrease 1.1 22.8 Return on plan assets 1% increase (1.4) N/A 1% decrease 1.4 N/A
See Note 9 of the Notes to Consolidated Financial Statements for a
comprehensive discussion of
expense, including a discussion of the actuarial assumptions and the policy for
recognizing the associated gains and losses.
Leases
The Company determines if an arrangement is a lease at lease inception and reviews lease arrangements for finance or operating lease classification at their commencement date. In order to value the right-of-use ("ROU") assets and related liabilities, the Company makes certain estimates and assumptions related to establishing the lease term, discount rates and variable lease payments (e.g., rent escalations tied to changes in the Consumer Price Index). The exercise of any lease renewal or asset purchase option is at the Company's sole discretion. The lease term for all of the Company's leases includes the noncancelable period of the lease and any periods covered by renewal options that the Company is reasonably certain to exercise. Certain leases include rent escalations pre-set in the agreements, which are factored into the lease payment stream. Similar to a variable lease payment, certain delivery equipment leases include a provision for an amount the Company may be required to pay at the end of the lease for any residual value deficiency incurred by the lessor upon resale of the underlying asset. The Company uses the implicit rate of interest when it is available; however, as most of the Company's leases do not provide an implicit rate of interest, the Company uses its incremental borrowing rate based on information available at the lease commencement date in determining the discounted value of the lease payments. Lease expense and depreciation expense are recognized on a straight-line basis over the lease term, or for a finance lease, over the shorter of the life of the underlying asset or the lease term. The Company's decisions to cease operations in certain warehouse facilities and retail locations leads to different accounting treatment depending upon whether the leased properties are considered abandoned versus properties that the Company has the intent and ability to sublease. Abandoned ROU assets are assessed for impairment based on estimates of undiscounted operating cash flows until the anticipated cease-use date and any remaining lease expense is accelerated through the anticipated cease-use date. Leases for which the Company has the intent and ability to sublease are assessed for impairment and any remaining ROU asset values are amortized over the shorter of the remaining useful lives of the assets or lease term. The intent and practical ability to sublease and estimates of future cash flows attributable to the sublease are assessed considering the terms of the lease agreement, certain market conditions, remaining lease terms and the time required to sublease the facility and other factors.
See Note 3 of the Notes to Consolidated Financial Statements for additional
information regarding the Company’s leases.
Impairment or Disposal of Long-Lived Assets and
A long-lived asset is potentially impaired when the asset's carrying amount exceeds its expected future undiscounted cash flows. When this situation occurs, the Company must estimate the fair value of the long-lived asset and reduce the carrying amount to the fair value if it is less than the carrying amount. A goodwill impairment exists when the carrying amount of goodwill exceeds its fair value. Assessments of possible impairments of long-lived assets and goodwill are made annually in the fourth quarter, and when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable through future operations. The amount and timing of any impairment charges based on these assessments require the estimation of future cash flows and the fair market value of the related assets based on management's best estimates of certain key factors. These key factors include future selling prices and volumes, operating, inventory, energy and freight costs and various other projected operating economic factors. 37 --------------------------------------------------------------------------------
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The calculation of lease impairment charges requires significant judgments and estimates, including estimated sublease rentals, discount rates and future cash flows based on the Company's experience and knowledge of the market in which the property is located, previous efforts to dispose of similar assets and an assessment of current market conditions. As these key factors change in future periods, the Company will update its impairment analyses to reflect the latest estimates and projections.Goodwill is reviewed for impairment on a reporting unit basis. The testing of goodwill for possible impairment is performed by completing a Step 0 test or electing to by-pass the Step 0 test and comparing the fair value of a reporting unit with its carrying value, including goodwill. The Step 0 test utilizes qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Qualitative factors include: macroeconomic conditions; industry and market considerations; overall financial performance and cost factors to determine whether a reporting unit is at risk for goodwill impairment. In the event a reporting unit fails the Step 0 goodwill impairment test, it is necessary to move forward with a comparison of the fair value of the reporting unit with its carrying value, including goodwill. In calculating the estimated fair value of its reporting units,Veritiv uses an income approach that utilizes discounted cash flows and requires management to make significant assumptions and estimates related to the forecasts of future revenues, profit margins and discount rates. Subsequent changes in economic and operating conditions can affect these assumptions and could result in additional interim testing and goodwill impairment charges in future periods. Upon completion, the resulting estimated fair values are then analyzed for reasonableness by comparing them to earnings multiples for historic industry business transactions and by comparing the sum of the reporting unit fair values to the fair value of the Company as a whole. As of the date of the Company's annual goodwill impairment test in 2021 and 2020, the Company's analyses reflected an excess fair value over carrying value of approximately 179% and 26%, respectively. Intangible assets acquired in a business combination are recorded at fair value. The Company's intangible assets may 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 Note 1 , Note 5 and Note 10 of the Notes to Consolidated
Financial Statements for additional information regarding the Company’s
long-lived assets, goodwill, other intangible assets and impairment assessments.
Recently Issued Accounting Standards
See Note 1 of the Notes to Consolidated Financial Statements for information
regarding recently issued accounting standards.
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