Description of Business
Veritiv Corporation ("Veritiv" or the "Company") is a North American business-to-business distributor of print, publishing, packaging, facility and logistics solutions. Established in 2014, following the merger of International Paper Company’s ("International Paper" or "Parent") xpedx division ("xpedx") and UWW Holdings, Inc. ("UWWH"), the parent company of Unisource Worldwide, Inc. ("Unisource"), the Company operates from approximately 180 distribution centers primarily throughout the U.S., Canada and Mexico.
The Spin-off and Merger
On July 1, 2014 (the "Distribution Date"), International Paper completed the previously announced spin-off of xpedx to its shareholders (the "Spin-off"), forming a new public company called Veritiv. Immediately following the Spin-off, UWWH merged with and into Veritiv (the "Merger"). The primary reason for the business combination was to create a North American business-to-business distribution company with a broad geographic reach, an extensive product offering and a differentiated and leading service platform. The Merger has been reflected in Veritiv’s financial statements using the acquisition method of accounting, with Veritiv as the accounting acquirer of UWWH.
On the Distribution Date:
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• | 8.16 million shares of Veritiv common stock were distributed on a pro rata basis to the International Paper shareholders of record as of the close of business on June 20, 2014. Immediately following the Spin-off, but prior to the Merger, International Paper’s shareholders owned all of the shares of Veritiv common stock outstanding, and |
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• | A cash payment of $404.2 million was distributed to International Paper, which was comprised of: (i) a special payment of $400.0 million, (ii) reduced by a $15.3 million preliminary working capital adjustment and (iii) increased by $19.5 million of transaction expense-related adjustments. During the fourth quarter of 2014, the working capital and transaction expense-related adjustments were finalized, resulting in an additional cash payment of $30.7 million to International Paper. Of the total payment, $432.8 million was reflected as a reduction to equity while the remaining $2.1 million was recorded in the Consolidated Statement of Operations for 2014. |
In addition to the above payment, International Paper also has a potential earnout payment of up to $100.0 million that would become due in 2020 if Veritiv's aggregate EBITDA for fiscal years 2017, 2018 and 2019 exceeds an agreed-upon target of $759.0 million, subject to certain adjustments. The $100.0 million potential earnout payment would be reflected by Veritiv as a reduction to equity at the time of payment.
Immediately following the Spin-off on the Distribution Date:
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• | UWW Holdings, LLC, the sole shareholder of UWWH, (the "UWWH Stockholder") received 7.84 million shares of Veritiv common stock for all outstanding shares of UWWH common stock that it held on the Distribution Date, in a private placement transaction, |
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• | Veritiv and the UWWH Stockholder entered into a registration rights agreement (the "Registration Rights Agreement") that provides the UWWH Stockholder with certain demand registration rights and piggyback registration rights which is more fully described in Note 9, Related Party Transactions, |
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• | Veritiv and the UWWH Stockholder entered into a tax receivable agreement (the "Tax Receivable Agreement") which is more fully described in Note 9, Related Party Transactions, and |
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• | The UWWH Stockholder received approximately $33.9 million of cash proceeds associated with preliminary working capital and net indebtedness adjustments, as well as cash proceeds of $4.7 million associated with transaction expense-related adjustments. During the fourth quarter of 2014, the Company finalized the working capital and net indebtedness adjustments, resulting in an additional cash payment of $5.7 million to the UWWH Stockholder. Of the total payment, $39.1 million was recorded as part of the purchase price consideration for Unisource while the remaining $5.2 million was recorded in the Consolidated Statement of Operations for 2014. |
Immediately following the completion of the Spin-off and Merger, International Paper shareholders owned approximately 51%, and the UWWH Stockholder owned approximately 49%, of the shares of Veritiv common stock on a fully-diluted basis. Immediately following the completion of the Spin-off, International Paper did not own any shares of Veritiv common stock. See Note 2, Merger with Unisource, for further details on the Merger.
Veritiv’s common stock began regular-way trading on the New York Stock Exchange on July 2, 2014 under the ticker symbol VRTV.
Basis of Presentation
Prior to the Distribution Date, Veritiv’s financial position, results of operations and cash flows consisted of only the xpedx business of International Paper and were derived from International Paper’s historical accounting records. The financial results of xpedx have been presented on a carve-out basis through the Distribution Date, while the financial results for Veritiv, post Spin-off, are prepared on a stand-alone basis. As such, the audited Consolidated and Combined Financial Statements for the year ended December 31, 2014 consist of the consolidated results of Veritiv on a stand-alone basis for the six months ended December 31, 2014, and the combined results of operations of xpedx for the six months ended June 30, 2014 on a carve-out basis.
The Combined Financial Statements for the year ended December 31, 2013 consist entirely of the combined results of xpedx on a carve-out basis.
During 2011, xpedx ceased its Canadian operations, which had provided distribution of printing supplies to Canadian-based customers. Additionally, xpedx ceased its printing press distribution business, which was located in the U.S. Both of these businesses were historically included in xpedx's Print segment. These impacts are reported here as Discontinued Operations.
All significant intercompany transactions between Veritiv's businesses have been eliminated. All significant intercompany transactions between xpedx and International Paper have been included for the periods prior to the Spin-off and were considered to be effectively settled for cash at the time the transaction was recorded. The total net effect of the settlement of these intercompany transactions is reflected in the Consolidated and Combined Statement of Cash Flows for the years ended December 31, 2014 and 2013 as a financing activity.
For periods prior to the Spin-off, the combined financial statements include expense allocations for certain functions previously provided by International Paper, including, but not limited to, general corporate expenses related to finance, legal, information technology, human resources, communications, insurance and stock-based compensation. These expenses have been allocated on the basis of direct usage when identifiable, with the remainder principally allocated on the basis of percent of capital employed, headcount, sales or other measures. Management considers the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to or for the benefit received by xpedx during those periods. The allocations may not, however, reflect the expenses xpedx would have incurred as an independent company for the periods presented. Actual costs that may have been incurred if xpedx had been a stand-alone company would depend on a number of factors, including the organizational structure, whether functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure. Veritiv is unable to determine what such costs would have been had xpedx been independent. See Note 9, Related Party Transactions, for further information.
Following the Spin-off, certain corporate and other related functions described above continued to be provided by International Paper under a transition services agreement. During the six months ended December 31, 2014, the Company recognized $15.5 million in selling and administrative expenses related to this agreement. For the year ended December 31, 2015, the Company recognized $10.0 million in selling and administrative expenses related to this agreement. As of December 31, 2015, all of the functions originally provided by International Paper under this agreement have been fully transitioned to the Company.
Effective October 1, 2015, the Company adopted Accounting Standards Update ("ASU") 2015-17 Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. As a result of the adoption, deferred income tax assets and liabilities, along with any related valuation allowance, are now reported as non-current. The Company adopted this guidance prospectively, thus prior periods were not retrospectively adjusted to conform to the new guidance.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and certain financial statement disclosures. Estimates and assumptions are used for, but not limited to, revenue recognition, accounts receivable valuation, inventory valuation, employee benefit plans, income tax contingency accruals and valuation allowances, and goodwill and other intangible asset valuations. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Estimates are revised as additional information becomes available.
Summary of Significant Accounting Policies
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, collectability is reasonably assured and delivery has occurred. Revenue is recognized when the customer takes title and assumes the risks and rewards of ownership. When management cannot conclude collectability is reasonably assured for shipments to a particular customer, revenue associated with that customer is not recognized until cash is collected or management is otherwise able to establish that collectability is reasonably assured. Multiple contracts with a single counterparty are accounted for as separate arrangements.
Revenue is recorded at the time of shipment for customer terms designated free on board ("f.o.b") shipping point. For sales transactions with customers designated f.o.b. destination, revenue is recorded when the product is delivered to the customer’s delivery site, when title and risk of loss are transferred. Shipping terms are determined on a customer-by-customer or order-by-order basis. Effective January 1, 2016, the Company harmonized its shipping terms to be f.o.b. destination. Management determined that any shipments in transit at December 31, 2015 would honor the f.o.b. destination terms resulting in a reduction of $27.0 million and $1.8 million to net sales and operating income, respectively, for the year ended December 31, 2015.
Certain revenues are derived from shipments arranged by the Company made directly from a manufacturer to a customer. The Company is considered to be a principal to these transactions because, among other factors, it controls pricing to the customer, bears the credit risk of the customer defaulting on payment and is the primary obligor. Revenues from these sales are reported on a gross basis in the Consolidated and Combined Statements of Operations and amounted to $3.3 billion, $2.9 billion, and $2.4 billion for the years ended December 31, 2015, 2014 and 2013, respectively.
Taxes collected from customers relating to product sales and remitted to governmental authorities are accounted for on a net basis. Accordingly, such taxes are excluded from both net sales and expenses.
Purchase Incentives and Customer Rebates
Veritiv enters into agreements with suppliers that entitle Veritiv to receive rebates, allowances and other discounts based on the attainment of specified purchasing levels or sales to certain customers. Purchase incentives are recorded as a reduction to inventory and recognized in cost of products sold when the sale occurs. During the year ended December 31, 2015, approximately 40% of the Company's purchases were made from ten suppliers.
Veritiv also enters into incentive agreements with its customers, which are generally based on sales to those same customers. Veritiv records estimated rebates to customers as a reduction to gross sales as customer revenue is recognized.
Distribution Expenses
Distribution expenses consist of storage, handling and delivery costs including freight to the Company's customers’ destination. Handling and delivery costs were $380.5 million, $322.3 million, and $252.9 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Merger and Integration Expenses
Merger and integration expenses are expensed as incurred. Merger expenses include advisory, legal and other professional fees directly associated with the Merger. Integration expenses include professional services and project management fees, retention compensation, information technology conversion costs, termination benefits (including change-in-control bonuses), rebranding and other costs to integrate the combined businesses of xpedx and Unisource.
Accounts Receivable and Allowances
Accounts receivable are recognized net of allowances that primarily consist of allowance for doubtful accounts of $24.2 million and $31.7 million as of December 31, 2015 and 2014, respectively, with the remaining balance of $9.1 million and $7.3 million being comprised of other allowances as of December 31, 2015 and 2014, respectively. The allowance for doubtful accounts reflects the best estimate of losses inherent in the Company’s accounts receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other available evidence. The other allowances balance is inclusive of returns, discounts and any other items affecting the realization of these assets. Accounts receivable are written off when management determines they are uncollectible.
Below is a rollforward of the Company's accounts receivable allowances for the years ended December 31, 2015, 2014, and 2013: |
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| Year Ended December 31, |
(in millions) | 2015 | | 2014 | | 2013 |
Beginning balance, January 1 | $ | 39.0 |
| | $ | 22.7 |
| | $ | 25.3 |
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Add / (Deduct): | | | | | |
Provision for bad debt expense | 7.4 |
| | 12.8 |
| | 6.4 |
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Net write-offs and other adjustments | (13.1 | ) | | (9.8 | ) | | (9.0 | ) |
Other(1) | — |
| | 13.3 |
| | — |
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Ending balance, December 31 | $ | 33.3 |
| | $ | 39.0 |
| | $ | 22.7 |
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(1) For the year ended December 31, 2014, Other represents accounts receivable allowances recorded in connection with the Merger.
Inventories
The Company's inventories are primarily comprised of finished goods and primarily valued at cost as determined by the last-in first-out ("LIFO") method. Such valuations are not in excess of market. Elements of cost in inventories include the purchase price invoiced by a supplier, plus inbound freight and related costs and reduced by estimated volume-based discounts and early pay discounts available from certain suppliers. Approximately 88% and 86% of inventories were valued using the LIFO method as of December 31, 2015 and 2014, respectively. If the first-in, first-out method had been used, total inventory balances would be increased by approximately $71.8 million and $79.1 million at December 31, 2015 and 2014, respectively.
The Company reduces the value of obsolete and inactive inventory based on the difference between the LIFO cost of the inventory and the estimated market value using assumptions of future demand and market conditions. To estimate the net realizable value, the Company considers factors such as age of the inventory, the nature of the products, the quantity of items on-hand relative to sales trends, current market prices and trends in pricing, its ability to use excess supply in another channel, historical write-offs and expected residual values or other recoveries.
Veritiv maintains some of its inventory on a consignment basis in which the inventory is physically located at the customer's premises or a third-party warehouse. Veritiv had $51.4 million and $51.6 million of consigned inventory as of December 31, 2015 and 2014, respectively, valued on a LIFO basis, net of reserves.
Property and Equipment, Net
Property and equipment are stated at cost, less accumulated depreciation. Expenditures for replacements and major improvements are capitalized, whereas repair and maintenance costs that do not improve service potential or extend economic life are expensed as incurred. The Company capitalizes certain computer software and development costs incurred in connection with developing or obtaining software for internal use. Costs related to the development of internal use software, other than those incurred during the application development stage, are expensed as incurred.
The components of property and equipment, net were as follows:
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(in millions) | December 31, | | December 31, |
2015 | | 2014 |
Land, buildings and improvements | $ | 129.6 |
| | $ | 128.9 |
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Machinery and equipment | 123.6 |
| | 110.2 |
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Equipment capital leases and assets related to financing obligations with related party | 224.5 |
| | 232.0 |
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Internal use software | 135.0 |
| | 114.4 |
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Construction-in-progress | 14.0 |
| | 14.0 |
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Less: Accumulated depreciation and software amortization | (263.0 | ) | | (222.1 | ) |
Property and equipment, net | $ | 363.7 |
| | $ | 377.4 |
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Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Land is not depreciated, and construction-in-progress ("CIP") is not depreciated until ready for service. Leased property and improvements to leased property are amortized on a straight-line basis over the lease term or useful life of the asset, whichever is less.
Depreciation and amortization for property and equipment, other than land and CIP, is based upon the following estimated useful lives:
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Buildings | 40 years |
Leasehold improvements | 1 to 20 years |
Machinery and equipment | 3 to 15 years |
Equipment capital leases and assets related to financing obligations with related party | 3 to 15 years |
Internal use software | 3 to 5 years |
Depreciation and amortization expense, including the depreciation expense for equipment capital leases, assets related to financing obligations and amortization expense of internal use software, totaled $51.0 million, $32.9 million and $15.9 million for the years ended December 31, 2015, 2014, and 2013, respectively. During 2015 and 2014, there were no depreciation amounts included in restructuring. During 2013, $0.3 million of depreciation was included in restructuring.
Accumulated depreciation on equipment capital leases and assets related to financing obligations with the related party was $20.1 million and $15.6 million for the years ended December 31, 2015 and 2014, respectively.
Amortization expense of the internal use software was $18.4 million, $11.0 million and $8.3 million for the years ended December 31, 2015, 2014, and 2013, respectively.
As of December 31, 2015 and 2014, unamortized internal use software costs, including amounts recorded in CIP, were $45.0 million and $44.6 million, respectively.
Upon retirement or other disposal of property and equipment, the cost and related amount of accumulated depreciation are eliminated from the asset and accumulated depreciation accounts, respectively. The difference, if any, between the net asset value and the proceeds is included in net income.
Leases
The Company leases certain property and equipment used for operations. Such lease arrangements are reviewed for capital or operating classification at their inception.
Capital lease obligations consist of delivery equipment, material handling equipment, computer hardware and office equipment which are leased through third parties under non-cancelable leases with terms generally ranging from three to eight years. Many of the delivery equipment leases include annual rate increases based on the Consumer Price Index which are included in the calculation of the initial lease obligation. The carrying value of the related equipment associated with these capital leases is included within property and equipment, net in the Consolidated Balance Sheets and depreciated over the term of the lease. The Company does not record rent expense for capital leases. Rather, rental payments under the lease are recognized as a reduction of the capital lease obligation and interest expense. Depreciation expense for assets under capital leases is included in the total depreciation expense disclosed in the Consolidated and Combined Statements of Operations.
All other leases are operating leases. Certain lease agreements include renewal options and rent escalation clauses. Assets subject to an operating lease and the related lease payments are not recorded on the Company’s balance sheet. Rent expense is recognized on a straight-line basis over the expected lease term.
The term for all types of leases begins on the date the Company becomes legally obligated for the rent payments or takes possession of the asset, whichever is earlier.
Goodwill and Other Intangible Assets, Net
Goodwill relating to a single business reporting unit is included as an asset of the applicable segment. Goodwill arising from major acquisitions that involve multiple reportable segments is allocated to the reporting units based on the relative fair value of the reporting unit.
Goodwill is reviewed by Veritiv for impairment on a reporting unit basis annually on October 1st or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The testing of goodwill for possible impairment is a two-step process. In the first step, the fair value of a reporting unit is compared with its carrying value, including goodwill. If fair value exceeds the carrying value, goodwill is not considered to be impaired. If the fair value of a reporting unit is below the carrying value, then step two is performed to measure the amount of the goodwill impairment loss for the reporting unit. This analysis requires the determination of the fair value of all of the individual assets and liabilities of the reporting unit, including any currently unrecognized intangible assets, as if the reporting unit had been purchased on the analysis date. Once these fair values have been determined, the implied fair value of the unit’s goodwill is calculated as the excess, if any, of the fair value of the reporting unit determined in step one over the fair value of the net assets determined in step two. The carrying value of goodwill is then reduced to this implied value, or to zero if the fair value of the assets exceeds the fair value of the reporting unit, through a goodwill impairment charge. During the fourth quarter of 2015, the Company's annual goodwill impairment testing indicated that the implied value of the Facility Solutions goodwill was less than its carrying value. Accordingly, Veritiv recorded a $1.9 million impairment charge in selling and administrative expense relating to the Facility Solutions goodwill. See Note 4, Goodwill and Other Intangible Assets.
Intangible assets acquired in a business combination are recorded at fair value. The Company's intangible assets include customer relationships, trademarks and trade names and non-compete agreements. Intangible assets with finite useful lives are subsequently amortized using the straight-line method over the estimated useful lives of the assets.
No goodwill or intangible asset impairment charges were recorded during the years ended 2014 and 2013.
Impairment of Long-Lived Assets
Long-lived assets, including finite lived intangible assets, are tested for impairment whenever events or changes in circumstances indicate their carrying value may not be recoverable. The Company assesses the recoverability of long-lived assets based on the undiscounted future cash flow the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When an impairment is identified, the Company reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values.
For the year ended December 31, 2015, impairment charges of $4.0 million were recorded for certain long-lived assets that supported multiple segments, with $0.7 million recorded as selling and administrative expense and $3.3 million recorded as restructuring expense. See Note 3, Merger, Integration and Restructuring Charges. No long-lived asset impairment charges were recorded during the years ended 2014 and 2013.
Employee Benefit Plans
The Company sponsors and/or contributes to defined contribution plans, defined benefit pension plans and multi-employer pension plans in the United States. In addition, the Company and its subsidiaries have various pension plans and other forms of retirement arrangements outside the United States. See Note 10, Employee Benefit Plans, for additional information.
Prior to the Spin-off, certain of xpedx’s employees participated in defined benefit pension and other post-retirement benefit plans sponsored and accounted for by International Paper. In conjunction with the Spin-off, the above plans were frozen for the xpedx employees, and International Paper retained the associated liabilities. Certain xpedx union employees were added as participants to the Unisource defined benefit pension plan. In conjunction with the Merger, Veritiv assumed responsibility for Unisource’s defined benefit plans and Supplemental Executive Retirement Plan ("SERP") in the U.S. and Canada. Except as discussed below, these plans were frozen prior to the Merger. Union employees continue to accrue benefits under the U.S. defined benefit pension plan in accordance with their collective bargaining agreements.
The determination of defined benefit pension and postretirement plan obligations and their associated costs requires the use of actuarial computations to estimate participant plan benefits to which the employees will be entitled. The Company’s significant assumptions in this regard include discount rates, rate of future compensation increases, expected long-term rates of return on plan assets, mortality rates, and other factors. Each assumption is developed using relevant company experience in conjunction with market-related data in the U.S. and Canada. All actuarial assumptions are reviewed annually with third-party consultants and adjusted, as necessary.
For the recognition of net periodic postretirement cost, the calculation of the expected long-term rate of return on plan assets is derived using the fair value of plan assets at the measurement date. Actual results that differ from the Company's assumptions are accumulated and amortized on a straight line basis only to the extent they exceed 10% of the higher of the fair value of plan assets or the projected benefit obligation, over the estimated remaining service period of active participants. The fair value of plan assets is determined based on market prices or estimated fair value at the measurement date.
The Company also makes contributions to multi-employer pension plans for its union employees covered by such plans. For these plans, the Company recognizes a liability only for any required contributions to the plans or surcharges imposed by the plans that are accrued and unpaid at the balance sheet date. The Company does not record an asset or liability to recognize the funded status of the plans.
Stock-Based Compensation
The Company measures and records compensation expense for all stock-based awards based on the grant date fair values over the vesting period of the awards. See Note 15, Equity-Based Incentive Plans, for additional information.
Income Taxes
Veritiv's income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. Veritiv records its global tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where treatment of a position is uncertain, liabilities are recorded based upon an evaluation of the more likely than not outcome considering technical merits of the position. Changes to recorded liabilities are made only when an identifiable event occurs that alters the likely outcome, such as settlement with the relevant tax authority or the expiration of statutes of limitation for the subject tax year. Significant judgments and estimates are required in determining the consolidated income tax expense.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Significant judgment is required in evaluating the need for and amount of valuation allowances against deferred tax assets. The realization of these assets is dependent on generating sufficient future taxable income.
While Veritiv believes that these judgments and estimates are appropriate and reasonable under the circumstances,
actual resolution of these matters may differ from recorded estimated amounts.
Fair Value Measurements
Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.
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Level 1 – | Quoted market prices in active markets for identical assets or liabilities. |
Level 2 – | Observable market-based inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
Level 3 – | Unobservable inputs for the asset or liability reflecting the reporting entity’s own assumptions or external inputs from inactive markets. |
Foreign Currency
The assets and liabilities of the foreign subsidiaries are translated from their respective local currencies to the U.S. dollars at the appropriate spot rates as of the balance sheet date. Changes in the carrying value of these assets and liabilities attributable to fluctuations in spot rates are recognized in foreign currency translation adjustment, a component of accumulated other comprehensive income (loss) ("AOCI"). See Note 14, Shareholders' Equity, for further detail.
The revenues and expenses of the foreign subsidiaries are translated using the monthly average exchange rates during the year. The gains or losses from foreign currency transactions are included in other expense (income), net in the Consolidated and Combined Statements of Operations.
Recently Issued Accounting Standards
Recently Issued Accounting Standards Not Yet Adopted |
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Standard | | Description | | Effective Date | | Effect on the Financial Statements or Other Significant Matters |
ASU 2014-09, Revenue from Contracts with Customers | | The standard will replace existing revenue recognition standards and significantly expand the disclosure requirements for revenue arrangements. It may be adopted either retrospectively or on a modified retrospective basis to new contracts and existing contracts with remaining performance obligations as of the effective date. | | January 1, 2018; early adoption date is no earlier than December 15, 2016 | | The Company is currently evaluating the alternative methods of adoption (full retrospective or modified retrospective), and the effect on its Consolidated Financial Statements and related disclosures. The Company plans to adopt this ASU on January 1, 2018. |
ASU 2015-11, Simplifying the Measurement of Inventory | | The standard requires companies to measure inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. This ASU will not apply to inventories measured by either the last-in first-out method or retail inventory method. | | January 1, 2017 | | The Company is currently evaluating the impact the ASU may have on its first-in first-out based inventory, which is approximately 12% of the Company's inventory balance as of December 31, 2015. The Company plans to adopt this ASU on January 1, 2017. |
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Standard | | Description | | Effective Date | | Effect on the Financial Statements or Other Significant Matters |
ASU 2016-02, Leases (Topic 842) | | The standard requires lessees to put most leases on their balance sheet, but recognize expenses in their statement of operations in a manner similar to current accounting guidance. The new guidance also eliminates the current guidance related to real estate specific provisions. | | January 1, 2019; early adoption is permitted | | The Company is currently evaluating the impact the ASU will have on its Consolidated Financial Statements and related disclosures. The Company plans to adopt this ASU on January 1, 2019. |
Recently Adopted Accounting Standards |
Standard | | Description | | Effective Date | | Effect on the Financial Statements or Other Significant Matters |
ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs; ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements | | ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-15 states that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. The recognition and measurement guidance for debt issuance costs is not affected by the amendments in these updates. | | January 1, 2016; application is to be retrospective; early adoption is permitted | | The Company adopted ASU 2015-03 and 2015-15 during the second and third quarter of 2015, respectively; neither had any impact to the Consolidated Financial Statements and related disclosures. Deferred financing fees related to the Company's asset-based lending facility (the "ABL Facility") remain classified within other non-current assets. |
ASU 2015-05, Intangibles - Goodwill and Other - Internal Use Software | | The amendments in this update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. | | January 1, 2016 | | The Company adopted this update prospectively for all new transactions entered into or materially modified after the date of adoption. |
ASU 2015-17 Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes | | To simplify the presentation of deferred income taxes, the amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. | | January 1, 2017; early adoption is permitted | | Effective October 1, 2015, the Company adopted this update prospectively, thus prior periods were not retrospectively adjusted to conform to the new guidance. |
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