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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2019
 
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from           to           .
 
Commission file number:
001-38348
Ranpak Holdings Corp.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
98-1377160
(State or Other Jurisdiction of 
Incorporation or Organization)
 
(I.R.S. Employer
Identification Number)
 
7990 Auburn Road
Concord Township, Ohio 44077
(Address of Principal Executive Offices)
 
Tel: 440-354-4445
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Class A Ordinary Shares, par value $0.0001 per share
 
PACK
 
New York Stock Exchange
Warrants, each whole warrant exercisable for one Class A
 
PACKWS
 
New York Stock Exchange
  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of November 5, 2019, the registrant had 47,361,352 of its Class A common shares, $0.0001 par value per share, outstanding (which includes 6,116,454 Class A common shares that are subject to an earn-out provision as described in Part 1, Item 1 of this report) and 6,511,293 of its Class C common shares, $0.0001 par value per share, outstanding, of which 731,383 Class C common shares are subject to an earn-out.



RANPAK HOLDINGS CORP.
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2019
 
TABLE OF CONTENTS
 
 
Page






Index to Unaudited Condensed Consolidated Financial Statements
RANPAK HOLDINGS CORP.

                        1

RANPAK HOLDINGS CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in millions, except share and per share data)


 
Successor
 
 
Predecessor
 
Three Months Ended
September 30, 2019
 
June 3, 2019 through September 30, 2019
 
 
January 1, 2019 through June 2, 2019
 
Three Months Ended
September 30, 2018
 
Nine Months Ended
September 30, 2018
Net sales
$
69.1

 
$
85.4

 
 
$
106.4

 
$
65.1

 
$
191.9

Cost of sales
39.6

 
52.6

 
 
61.2

 
37.7

 
109.7

Selling, general and administrative
17.7

 
22.5

 
 
23.8

 
12.6

 
37.8

Transaction costs

 
0.3

 
 
7.4

 
1.0

 
1.2

Depreciation and amortization
10.3

 
13.3

 
 
17.7

 
10.7

 
32.3

Other operating expense, net
0.5

 
0.8

 
 
2.2

 
1.2

 
2.7

Income (loss) from operations
1.0

 
(4.1
)
 
 
(5.9
)
 
1.9

 
8.2

Interest expense
9.5

 
17.5

 
 
20.2

 
8.0

 
22.9

Foreign currency gain
(3.2
)
 
(4.1
)
 
 
(2.2
)
 
(0.9
)
 
(4.2
)
Income (loss) before income taxes
(5.3
)
 
(17.5
)
 
 
(23.9
)
 
(5.2
)
 
(10.5
)
Income tax benefit
(3.7
)
 
(5.5
)
 
 
(4.9
)
 
(5.5
)
 
(5.9
)
Net income (loss)
$
(1.6
)
 
$
(12.0
)
 
 
$
(19.0
)
 
$
0.3

 
$
(4.6
)
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
(11.1
)
 
(6.3
)
 
 
23.6

 
(1.1
)
 
(5.4
)
Comprehensive income (loss)
$
(12.7
)
 
$
(18.3
)
 
 
$
4.6

 
$
(0.8
)
 
$
(10.0
)
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income per share—basic and diluted
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) per share

 

 
 
$
(19,195.40
)
 
$
279.43

 
$
(4,660.08
)
 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding

 

 
 
995

 
995

 
995

 
 
 
 
 
 
 
 
 
 
 
Two-class method
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per common stock, Class A and C-basic and diluted
(0.03
)
 
(0.22
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of Class A and C common stock outstanding, basic and diluted
53,871,068

 
53,870,568

 
 
 
 
 
 
 
__________
See notes to unaudited condensed consolidated financial statements.


                        2

RANPAK HOLDINGS CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)


Successor
 
 
Predecessor

September 30, 2019
 
 
December 31, 2018
ASSETS

 
 

Current Assets

 
 

   Cash and cash equivalents
$
13.6

 
 
$
17.5

   Receivables, net
28.5

 
 
31.5

   Inventories, net
12.5

 
 
11.8

   Income tax receivable
6.1

 
 
3.4

   Prepaid expenses and other current assets
2.8

 
 
4.1

             Total current assets
63.5

 
 
68.3

 
 
 
 
 
Property, plant and equipment, net
121.2

 
 
73.0

Goodwill
411.6

 
 
355.7

Intangible assets, net
465.5

 
 
293.7

Other assets
3.7

 
 
2.0

Total Assets
$
1,065.5

 
 
$
792.7

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY

 
 

Current Liabilities

 
 

   Accounts payable
$
11.4

 
 
$
12.3

   Accrued liabilities and other
12.1

 
 
10.8

   Current portion of long-term debt
5.4

 
 
4.4

   Deferred machine fee revenue
2.4

 
 
0.3

             Total current liabilities
31.3

 
 
27.8

 
 
 
 
 
   Long-term debt
515.2

 
 
494.9

   Deferred income taxes
110.9

 
 
69.8

Capital lease obligations
6.0

 
 
0.2

   Other liabilities
2.5

 
 
3.6

Total Liabilities
665.9

 
 
596.3

 
 
 
 
 
Commitments and Contingencies — Note 7

 
 

Shareholders' Equity

 
 

Common stock, $0.01 par; 1,000 shares authorized; 995 shares issued and outstanding at December 31, 2018

 
 

Class A common stock, $0.0001 par; 200,000,000 shares authorized, 47,361,352 shares issued and outstanding at September 30, 2019

 
 

Class C common stock, $0.0001 par value, 200,000,000 shares authorized, 6,511,293 issued and outstanding at September 30, 2019

 
 

 Additional paid-in capital
429.8

 
 
291.4

 Accumulated deficit
(23.9
)
 
 
(69.9
)
Treasury stock, zero shares, at September 30, 2019 and 5 shares, at cost, December 31, 2018

 
 
(1.5
)
Accumulated other comprehensive loss
(6.3
)
 
 
(23.6
)
Total Shareholders' Equity
399.6

 
 
196.4

 
 
 
 
 
Total Liabilities and Shareholders' Equity
$
1,065.5

 
 
$
792.7


__________
See notes to unaudited condensed consolidated financial statements.

                        3

RANPAK HOLDINGS CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions, except share data)


Successor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ordinary Shares
 
Common Stock
 
 
 
 
 
 
Class A
Class B
 
Class A
Class C
 
Additional Paid-In Capital
Accumulated Deficit
Accumulated Other Comprehensive Income
Total Shareholders' Equity
 
Shares
Amount
Shares
Amount
 
Shares
Amount
Shares
Amount
 
 
 
 
 
Balance at June 3, 2019
2,770,967


11,250,000


 




 
$
16.9

$
(11.9
)
$

$
5.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forward Purchase Shares
15,000,000






 








 




Additional Shares Purchased
16,149,317






 








 




Conversion of Forward Purchase & Additional Shares
(31,149,317
)





 
25,454,282


5,695,035


 
256.0



256.0

Shares Canceled




(3,854,664
)

 








 
(31.7
)


(31.7
)
Convert Class B




(7,395,336
)

 
547,500




 
4.5



4.5

Convert Public Shares








 
14,581,346






 
119.9



119.9

Convert Private Placement Warrants








 
658,051


84,875


 
6.1



6.1

Shares subject to $15.00 earnout
 
 
 
 
 
2,940,336


 
 
 
24.2



24.2

Shares subject to $12.50 earnout
 
 
 
 
 
3,018,617


731,383


 
30.8



30.8

Shares subject to $12.25 earnout
 
 
 
 
 
157,500


 
 
 
1.3



1.3

Public Shares Redeemed
(2,770,967
)





 








 




Issue restricted stock units








 








 
0.2



0.2

Foreign currency translation








 








 


4.8

4.8

Net loss








 








 

(10.4
)

(10.4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2019

$



 
47,357,632


6,511,293


 
$
428.2

$
(22.3
)
$
4.8

$
410.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issue restricted stock units
 
 
 
 
 
 
 
 
 
 
1.6



1.6

Issue Director Shares
 
 
 
 
 
3,720

 
 
 
 
 
 
 
 
Foreign currency translation
 
 
 
 
 
 
 
 
 
 


(11.1
)
(11.1
)
Net loss
 
 
 
 
 
 
 
 
 
 

(1.6
)

(1.6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2019




 
47,361,352


6,511,293


 
$
429.8

$
(23.9
)
$
(6.3
)
$
399.6


__________
See notes to unaudited condensed consolidated financial statements.


                        4

RANPAK HOLDINGS CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions, except share data)


Predecessor
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
Amount
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Total Shareholders' Equity
Balance at January 1, 2018
995

$

 
$
291.4

 
$
(61.3
)
 
$
(1.5
)
 
$
(16.3
)
 
$
212.3

Net loss




 


 
(6.8
)
 


 


 
(6.8
)
Foreign currency translation




 


 


 


 
4.5

 
4.5

Balance at March 31, 2018
995


 
291.4

 
(68.1
)
 
(1.5
)
 
(11.8
)
 
210.0

Net income




 


 
1.9

 


 


 
1.9

Foreign currency translation




 


 


 


 
(8.8
)
 
(8.8
)
Balance at June 30, 2018
995


 
291.4

 
(66.2
)
 
(1.5
)
 
(20.6
)
 
203.1

Net income
 
 
 
 
 
$
0.3

 
 
 
 
 
$
0.3

Foreign currency translation
 
 
 
 
 
 
 
 
 
$
(1.1
)
 
(1.1
)
Balance at September 30, 2018
995

$

 
$
291.4

 
$
(65.9
)
 
$
(1.5
)
 
$
(21.7
)
 
202.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2019
995


 
291.4

 
(69.9
)
 
(1.5
)
 
(23.6
)
 
196.4

Net loss




 


 
(3.2
)
 


 


 
(3.2
)
Foreign currency translation




 


 


 


 
(3.4
)
 
(3.4
)
Balance at March 31, 2019
995


 
291.4

 
(73.1
)
 
(1.5
)
 
(27.0
)
 
189.8

Net loss




 


 
(15.8
)
 


 


 
(15.8
)
Purchase of Ranpak Corp.
(995
)


 
(291.4
)
 
88.9

 
1.5

 
(47.1
)
 
(248.1
)
Foreign currency translation




 


 


 


 
74.1

 
74.1

Balance at June 2, 2019
$

 
$

 
$

 
$

 
$

 
$


__________
See notes to unaudited condensed consolidated financial statements.


                        5

RANPAK HOLDINGS CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)




 
Successor
 
 
Predecessor

 
June 3, 2019 through September 30, 2019
 
 
January 1, 2019 through June 2, 2019
 
Nine Months Ended
September 30, 2018
Cash Flows from Operating Activities
 

 
 

 

Net loss
 
$
(12.0
)
 
 
$
(19.0
)
 
$
(4.6
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 

 
 

 

Depreciation and amortization
 
20.1

 
 
26.6

 
48.3

Amortization of deferred financing costs
 
0.7

 
 
7.5

 
2.0

Loss on disposal of fixed assets
 
0.2

 
 
1.0

 
1.4

Deferred income taxes
 
(1.3
)
 
 
0.6

 
(3.4
)
Loss (gain) on derivative contract
 
6.4

 
 

 
(0.6
)
Currency (gain) on foreign denominated notes payable
 
(3.3
)
 
 
(2.4
)
 
(4.1
)
Restricted stock unit grants
 
1.8

 
 

 

Changes in operating assets and liabilities:
 

 
 

 

(Increase) decrease in receivables, net
 
(5.3
)
 
 
3.5

 
(10.7
)
Decrease (increase) in inventory
 
2.7

 
 
(1.3
)
 
(1.0
)
(Increase) decrease in prepaid expenses and other assets
 
(0.3
)
 
 
2.7

 
0.1

Increase in other assets
 
(0.2
)
 
 
(1.3
)
 
(1.7
)
(Decrease) increase in accounts payable
 
(25.4
)
 
 
(2.8
)
 
0.1

Increase (decrease) in accrued liabilities
 
2.9

 
 
7.1

 
(1.2
)
Increase in other liabilities
 
1.4

 
 
2.3

 
2.3

                Net cash (used in) provided by operating activities
 
(11.6
)
 
 
24.5

 
26.9

Cash Flows from Investing Activities
 

 
 

 

Capital expenditures:
 

 
 

 

Converter equipment
 
(9.7
)
 
 
(9.9
)
 
(17.9
)
Other fixed assets
 
(0.8
)
 
 
(0.6
)
 
(2.6
)
Total capital expenditures
 
(10.5
)
 
 
(10.5
)
 
(20.5
)
Cash paid for acquisitions
 
(945.6
)
 
 

 

Patent and trademark expenditures
 
(0.2
)
 
 
(0.3
)
 
(0.4
)
                Net cash used in investing activities
 
(956.3
)
 
 
(10.8
)
 
(20.9
)
Cash Flows from Financing Activities
 

 
 

 

Proceeds from issuance of term loans and credit facility
 
539.0

 
 

 

Proceeds from sale of common stock
 
302.4

 
 

 

Redemption of stock
 
(158.3
)
 
 

 

Financing costs of debt facilities
 
(12.6
)
 
 

 

Payments on term loans and credit facility
 

 
 
(13.3
)
 
(5.4
)
Payments of promissory note
 
(4.0
)
 
 

 

                Net cash provided by (used in) financing activities
 
666.5

 
 
(13.3
)
 
(5.4
)
Effect of Exchange Rate Changes on Cash
 
5.2

 
 
(7.7
)
 
2.0

Net (Decrease) Increase in Cash and Cash Equivalents
 
(296.2
)
 
 
(7.3
)
 
2.6

Cash and Cash Equivalents, beginning of period
 
309.8

 
 
17.5

 
8.6

Cash and Cash Equivalents, end of period
 
$
13.6

 
 
$
10.2

 
$
11.2

__________
See notes to unaudited condensed consolidated financial statements.

                        6

RANPAK HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share and per share data)


Note 1 Nature of Operations

Ranpak Holdings Corp. (formerly known as One Madison Corporation) (the “Company” or “Ranpak”) is a leading provider of environmentally sustainable, systems-based, product protection solutions for e-Commerce and industrial supply chains. Through proprietary protective packaging systems and paper consumables, the Company offers a full suite of protective packaging solutions. The Company’s business is global, with a strong presence in the United States and Europe.

One Madison Corporation ("One Madison") was originally formed as a blank check company incorporated on July 13, 2017 and was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. One Madison units, Class A ordinary shares originally sold as part of the units, and warrants originally sold as part of the units sold in the Company’s initial public offering on January 22, 2018 were listed in the New York Stock Exchange (the "NYSE") under the symbols "OMAD.U", "OMAD" and "OMAD.WS", respectively. The Class A ordinary shares and warrants comprising the units began separately trading on February 26, 2018. Upon the closing of the business combination (the "Closing") as described below, these shares and warrants that were converted as part of the transaction, began trading under the symbols "PACK" and "PACK WS", respectively.

On June 3, 2019, the Company, consummated a business combination (the “Ranpak Business Combination”) pursuant to the Stock Purchase Agreement dated December 12, 2018 by and among the Company, Rack Holdings L.P., a Delaware limited partnership (“Seller”), and Rack Holdings, Inc., a Delaware corporation and a direct wholly owned subsidiary of Seller (“Rack Holdings”). The Company, through its wholly owned subsidiary, Ranger Packaging LLC (the “Acquiring Entity”), acquired all of the issued and outstanding equity interests of Rack Holdings from Seller, on the terms and subject to the conditions set forth in the Stock Purchase Agreement. Refer to Note 4 for further discussion of the Ranpak Business Combination. In connection with the Ranpak Business Combination, the Company domesticated to a Delaware corporation on May 31, 2019 and changed its name to Ranpak Holdings Corp.
 

                        7

RANPAK HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share and per share data)

Note 2 Basis of Presentation and Summary of Significant Accounting Policies
Unaudited Interim Financial Statements These unaudited condensed consolidated interim financial statements should be read in conjunction with Ranpak Holdings Corp.'s audited consolidated financial statements and accompanying notes for each of the three years ended December 31, 2018, 2017, and 2016 and Rack Holdings' audited consolidated financial statements and accompanying notes for each of the three years ended December 31, 2018, 2017, and 2016, which are included in the Company’s Form 10-K for the year ended December 31, 2018 and the Company’s Registration Statement on Form S-4, as amended (File No. 333-230030), respectively .
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with instructions to Form 10-Q and Rule 10-01 of Securities and Exchange Commission (“SEC”) Regulation S-X as they apply to interim financial information. Accordingly, the interim condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements, although the Company believes that the disclosures made are adequate to make the information not misleading.
The interim condensed consolidated financial statements are unaudited, but in the Company’s opinion include all adjustments that are necessary for a fair statement of operations for the periods presented. The interim financial results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.

Predecessor and Successor Reporting—On June 3, 2019, the Company consummated the acquisition of all outstanding and issued equity interests of Rack Holdings, pursuant to the Stock Purchase Agreement, and now owns 100% of Rack Holdings Inc. and its wholly owned subsidiaries. The Ranpak Business Combination is accounted for under the scope of Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”) as One Madison was deemed to be the accounting acquirer while Rack Holdings was deemed the "Predecessor". Accordingly, the business combination is accounted for using the acquisition method which requires the Company to record the fair value of assets acquired and liabilities assumed from Rack Holdings (See Note 4).

The financial statements separate the Company’s presentation into two distinct periods. The period before the Closing of the Ranpak Business Combination (labeled Predecessor Period) depicts the financial statements of Rack Holdings, and the period after the Closing (labeled Successor Period) depicts the financial statements of the Company, including the consolidation of One Madison with Rack Holdings and application of acquisition method of accounting. As a result of the application of the acquisition method of accounting as of the Closing, the financial statements for the Predecessor Periods and for the Successor Period are presented on a different basis of accounting and are, therefore, not comparable.

Principles of Consolidation—The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries prepared in conformity with U.S. GAAP. All intercompany balances and transactions have been eliminated in consolidation.
Use of EstimatesThe preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and such differences could be material.

Derivative Financial Instruments—The Company uses derivatives as part of the normal business operations to manage its exposure to fluctuations in interest rates associated with variable interest rate debt. The Company has established policies and procedures that govern the risk management of these exposures. The primary objective in managing these exposures is to decrease the volatility of cash flows affected by changes in interest rates.

We use interest rate swap contracts to manage interest rate exposures. Derivatives are recorded in the consolidated balance sheets at fair value. Changes in the fair value of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive loss, and subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. If a derivative is deemed to be ineffective, the change in fair value of the derivative is recognized directly in earnings. The changes in the fair values of derivatives not designated as hedges are recognized directly in earnings, as a component of interest expense. Prior to September 25, 2019, the Company did not apply hedge accounting to its outstanding interest rate swap, and changes in fair value were recorded directly to interest expense.


                        8

RANPAK HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share and per share data)

Emerging Growth Company—Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act of 1933, as amended, registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
New Accounting Standards Issued and Not Yet AdoptedIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The FASB has issued several additional ASUs since this time that add additional clarification to certain issues existing after the original ASU was released. All the related ASUs are effective for the Company’s annual reporting period beginning January 1, 2019, and interim reporting periods within annual reporting periods beginning on January 1, 2020. The new standard could change the amount and timing of revenue and costs for certain significant revenue streams, increase areas of judgment and related internal controls requirements, change the presentation of revenue for certain contract arrangements, and possibly require changes to the Company’s software systems to assist in both internally capturing accounting differences and externally reporting such differences through enhanced disclosure requirements.
The standards permit the use of either the retrospective or cumulative effect transition method. The Company will adopt the modified retrospective method where it will have to recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings while prior period amounts will not be adjusted and will continue to be reported in accordance with the Company’s legacy accounting under ASC 605. The Company has assigned both internal and external consulting resources to assist in its evaluation and is finalizing its evaluation of the impact of the standard. As part of its ongoing evaluation, the Company is assessing the impact of the Company's accounting for arrangements that include variable consideration (i.e. discounts, credits, and milestone payments) and multiple performance obligations. Currently, the Company's revenue is generated from arrangements with distributors and end users involving combinations of product and user fees that are evaluated under ASC 605-25 and ASC 840. The majority of the Company’s revenues is derived from the sale of its primary product, paper consumables. The Company currently allocates revenue between the lease and non-lease component of its arrangements which is consistent with the requirements under ASC 606. As such, the Company does not anticipate any material impact from the allocation of transaction price among the lease and non-lease components.
Within its arrangements, the Company has variable consideration including but not limited to discounts and credits.  Impacts associated with variable consideration under its arrangements such as discounts and credits are not material as the Company is currently accounting for this consideration consistent with the new standard. The Company preliminarily reviewed its sales commission policies to determine impact under ASC 606 and does not anticipate a material impact to its financial statements as the commissions currently being paid are immaterial to the Company’s financial statements. In addition, the Company expects that the changes in accounting for contingent milestone payments will have an effect on the future accounting treatment for the arrangements under the End of Line Automation Neopack Solutions S.A.S dba e3Neo (“e3Neo”) product line. The previous accounting guidance contained specific guidance related to the accounting for milestone payments including, if certain criteria were met, the ability to recognize all consideration related to the milestone once that milestone was achieved. The revenue ASUs do not contain guidance specific to milestone payments, thereby requiring potential milestone payments to be considered in accordance with the overall revenue recognition model. As a result, revenue from contingent milestone payments may be recognized earlier under the revenue ASUs than under the existing guidance, based on an assessment of the probability of achievement of the milestones and the likelihood of a significant reversal of such revenue at each reporting date. Revenue from the end of line automation (e3Neo) product line was less than 5% of total revenues in 2018 so the Company does not expect a material impact from any change in accounting for this product line. The Company is also evaluating any changes in balance sheet classification under ASC 606 and has not currently identified any changes. While the Company continues to assess the potential impacts of the new standard, including the areas described above, it cannot reasonably estimate the impact of the new standard on its consolidated financial statements and related notes.

                        9

RANPAK HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share and per share data)

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020 with early adoption permitted. On October 16, 2019, the FASB delayed the implementation of ASU 2016-02 for private companies until fiscal years beginning after December 15, 2020. The Company is assessing the potential impact of the new standard on the consolidated financial statements and the change in adoption.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements in ASC Topic 820, Fair Value Measurement. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is assessing the potential impact of the new standard on the consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Derivatives and Hedging, (Topic 815) and Financial Instruments, (Topic 825). The amendments clarify the scope of the credit losses standard and address issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments. Codification Improvements to Topic 326, Financial Instruments - Credit Losses is effective upon our adoption of ASU 2016-13. On October 16, 2019, the FASB delayed the implementation of ASU 2016-13 for private companies until fiscal years beginning after December 15, 2020. The Company is currently assessing this new guidance and will make a determination as to when to adopt ASU 2016-13. The amendments address partial-term fair value hedges and fair value hedge basis adjustments. Codification Improvements to Topic 815, Derivatives and Hedging are effective for us beginning the first annual reporting period beginning after December 15, 2019. Amendments on Topic 825, Financial Instruments mainly address the scope of the guidance, the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which equity securities have to be remeasured at historical exchange rates. For amendments related to ASU 2016-01 (Topic 825, Financial Instruments), the effective date is fiscal years and interim period beginning after December 20, 2020, with early adoption permitted. On October 16, 2019, the FASB delayed the implementation of ASU 2016-01 for private companies until fiscal years beginning after December 15, 2020. The Company is currently assessing this new guidance and will make a determination as to when to adopt ASU 2016-01 as well as the impact adopting ASU 2019-04 will have on the Company's condensed consolidated financial statements.



                        10

RANPAK HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share and per share data)

Note 3 Supplemental Balance Sheet Data

Accounts ReceivableThe allowance for doubtful accounts was as follows:

 
Successor
 
 
Predecessor

 
September 30, 2019
 
 
December 31, 2018
Allowance for doubtful accounts
 
$
(0.2
)
 
 
$
(0.2
)

InventoriesThe components of inventories were as follows at:

 
Successor
 
 
Predecessor

 
September 30, 2019
 
 
December 31, 2018
Inventories
 

 
 

Raw materials
 
$
7.9

 
 
$
4.1

Finished goods
 
5.0

 
 
8.0

Total inventories
 
12.9

 
 
12.1

Less reserve for obsolescence
 
(0.4
)
 
 
(0.3
)
Total inventories, net
 
$
12.5

 
 
$
11.8


Property, Plant and EquipmentDepreciation expense is recorded in cost of sales and depreciation and amortization in the unaudited condensed consolidated statements of operations and comprehensive loss was as follows:

Successor
 
 
Predecessor

Three Months Ended
September 30, 2019
 
June 3, 2019 through September 30, 2019
 
 
January 1, 2019
through June 2,
2019
 
Three Months Ended
September 30, 2018
 
Nine Months Ended
September 30, 2018
Depreciation expense included in cost of sales
$
5.1

 
$
6.9

 
 
$
8.9

 
$
5.3

 
$
15.9

Depreciation expense included in depreciation and amortization expense
0.4

 
0.5

 
 
0.7

 
0.4

 
1.0

Total depreciation expense
$
5.5

 
$
7.4

 
 
$
9.6

 
$
5.7

 
$
16.9




                        11

RANPAK HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share and per share data)

Note 4 Acquisition
Ranpak Business Combination—On June 3, 2019, the Company consummated the acquisition of all outstanding and issued equity interests of Rack Holdings pursuant to the Stock Purchase Agreement for consideration of $799.6 million and 140.0 million ($160.8 million) in cash, (A) $341.5 million and 140.0 million of which was used by the Seller to repay outstanding indebtedness and unpaid transaction expenses as contemplated by the Stock Purchase Agreement and (B) the remainder of which was paid to Seller. The purchase price paid at Closing was estimated and subject to customary post-Closing adjustments which included an adjustment of $0.7 million for net working capital and as additional consideration.

The Ranpak Business Combination is accounted for under ASC 805. Pursuant to ASC 805, the Company has been determined to be the accounting acquirer. Refer to Note 2 for more information. Rack Holdings constitutes a business with inputs, processes, and outputs. Accordingly, the acquisition of Rack Holdings constitutes the acquisition of a business for purposes of ASC 805 and due to the change in control of Rack Holdings was accounted for using the acquisition method. The Company recorded the fair value of assets acquired and liabilities assumed from Rack Holdings.
 
The allocation of the consideration to the assets acquired and liabilities assumed is based on various estimates. As of September 30, 2019, the Company completed its evaluation of net working capital as part of the purchase price paid at Closing and paid additional consideration of $0.7 million. The Company continues to evaluate the fair value of the acquired intangible assets and equipment. As such, to the extent of these estimates, the purchase price allocation is preliminary and subject to change within the respective measurement period which will not extend beyond one year from the acquisition date. Any adjustments will be recognized in the reporting period in which the adjustment amounts are determined.

The following represents the preliminary purchase price allocation for the Ranpak Business Combination:

Amount
Total Consideration, net of cash
$
945.6




Cash and cash equivalents
10.1

Accounts receivable
28.2

Inventories
15.5

Property, plant and equipment
118.8

Other assets
4.7

Intangible assets
480.8

Total identifiable assets acquired
658.1

Accounts payable
8.6

Accrued expenses
7.4

Other liabilities
4.5

Deferred tax liabilities
112.8

Net identifiable liabilities acquired
133.3

Goodwill
$
420.8












                        12

RANPAK HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share and per share data)

Intangible assets and property, plant and equipment balance comprise the following:
 
Preliminary
Fair Value
 
Remaining
Useful Lives
Trade Names/Trademarks
$
106.0

 
Indefinite
Customer/Distributor Relationships
205.7

 
15 years
Patented/Unpatented Technology
164.1

 
10 years
In-Process Research & Development
5.0

 
10 years
Total Preliminary Fair Value
480.8

 
 
Carrying Value as of 06/2/2019
274.6

 
 
Adjustment amount
$
206.2

 
 
 
 
 
 
Machinery and Equipment
$
108.1

 
5 years
Buildings and Improvements
6.6

 
15 years
Land
4.1

 
N/A
Total Preliminary Fair Value
118.8

 
 
Carrying Value as of 06/02/2019
71.9

 
 
Adjustment amount
$
46.9

 
 
The preliminary fair values for the trade names/trademarks, and patented/unpatented technology were determined using the Relief-from-Royalty Method, which is a combination of an Income Approach and Market Approach. The preliminary fair value for customer/distributor relationships was determined using the Multi-Period Excess Earnings Method, which is an Income-based Approach.
The preliminary fair value for land was determined using Sales Comparison and Cost Approaches, depending on location. The preliminary fair value for machinery and equipment, and buildings and improvements were determined using a combination of the Cost Approach and Market Approach, considering physical deterioration when determining current reproduction costs.
The preliminary estimates of remaining useful lives for the intangible assets and property, plant, and equipment were determined by assessing the period of economic benefit of the asset.

Goodwill represents the excess of the total purchase consideration over the fair value of the underlying net assets, largely arising from the assembled workforce, new customers and the replacement of customer and technology attrition. Goodwill is not amortized for tax purposes.

Transaction costs incurred in the Ranpak Business Combination totaled $48.0 million. Of this amount, $12.6 million was classified as debt issuance costs, including $1.7 million presented as assets and $10.9 million presented as a reduction to debt within the condensed consolidated balance sheets. Transaction costs of $0.0 million were expensed in the Successor Period from July 1, 2019 through September 30, 2019, $0.3 million was expensed in the Successor Period from June 3, 2019 through September 30, 2019, $7.4 million was expensed in the Predecessor Period from January 1, 2019 through June 2, 2019, and $1.0 million was expensed in the Predecessor Period from July 1, 2018 through September 30, 2018 and $1.2 million was expensed in the Predecessor Period from January 1, 2018 through September 30, 2018 within income from operations in the condensed consolidated statement of operations.


                        13

RANPAK HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
(in millions, except share and per share data)


Amount
Deferred financing costs
$
12.6

Transaction costs
25.6

Payment of accrued transaction costs
9.8

Total
$
48.0




Debt issuance costs:


Presented as reduction to debt
$
10.9

Presented as asset
1.7

Total debt issuance costs
$
12.6




The following information represents the unaudited supplemental pro forma results of the Company’s condensed consolidated statement of operations as if the Ranpak Business Combination occurred on January 1, 2018, for the three months and nine months ended September 30, 2019 and 2018, after giving effect to certain adjustments, including depreciation and amortization of the assets acquired and liabilities assumed based on their estimated fair values and changes in interest expense resulting from changes in debt (in millions):

 
Three Months Ended September 30,
 
Nine Months Ended September 30,

 
2019
 
2018
 
2019
 
2018
Net Sales
 
$
70.4

 
$
64.7

 
$
196.9

 
$
188.3


 

 

 

 

Net (loss) income
 
$
0.8

 
$
0.3