Income Taxes

12 Months Ended

Dec. 31, 2019

On December 22, 2017, the United States (“U.S.”) government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The Act made broad and complex changes to the U.S. tax code, including, a reduction in the U.S. federal corporate income tax rate from 35.0% to 21.0%. As of December 31, 2018, the Company completed its accounting for the tax effects of the Act. Overall, the Company recorded a net tax benefit of ($28.9) through the provision for income taxes for the years ended December 31, 2018 and 2017. This tax benefit was primarily related to impact of the change in U.S. federal corporate income tax rates on deferred taxes and the one-time transition tax. An additional tax liability related to the one-time transition tax of $0.7 was recorded on the opening balance sheet in accordance with purchase accounting.

Income Tax Expense (Benefit)

The components of earnings before income tax expense (benefit) were as follows:



	Successor			Predecessor
(In millions)	June 3, 2019 through December 31, 2019			January 1, 2019 through June 2, 2019			December 31, 2018			December 31, 2017
Domestic	$	(16.4	)	$	(18.6	)	$	(4.0	)	$	(18.0	)
Foreign	(3.5		)	(5.3		)	(11.7		)	4.3
Total	$	(19.9	)	$	(23.9	)	$	(15.7	)	$	(13.7	)



The components of our income tax expense (benefit) were as follows:

	Successor			Predecessor
(In millions)	June 3, 2019 through December 31, 2019			January 1, 2019 through June 2, 2019			December 31, 2018			December 31, 2017
Current tax expense:
Federal	$	1.4		$	1.1		$	2.8		$	4.3
State	0.5			0.2			1.1			0.5
Foreign	2.2			1.3			3.2			6.0
Total current expense	4.1			2.6			7.0			10.8
Deferred tax expense (benefit):
Federal	(6.9		)	(4.4		)	(4.8		)	(47.9		)
State	0.8			(0.9		)	(1.2		)	0.1
Foreign	(0.7		)	(2.2		)	(8.0		)	(4.3		)
Total deferred tax expense (benefit)	(6.8		)	(7.5		)	(14.1		)	(52.1		)
Total income tax expense (benefit)	$	(2.7	)	$	(4.9	)	$	(7.1	)	$	(41.4	)

The differences between income taxes expected at the U.S. federal statutory income tax rate and the reported income tax (benefit) expense are summarized as follows:



	Successor			Predecessor
(In millions)	June 3, 2019 through December 31, 2019			January 1, 2019 through June 2, 2019			December 31, 2018			December 31, 2017
Income tax benefit at statutory rate	$	(4.2	)	$	(5.0	)	$	(3.3	)	$	(4.8	)
U.S. State income taxes	1.2			(0.7		)	(0.1		)	(0.2		)
Tax related to foreign activities	2.3			0.5			(2.4		)	0.1
U.S. Federal tax credits	(0.1		)	—			(0.4		)	(2.9		)
Foreign currency gains/(losses)	—			—			0.8			(3.0		)
Domestic production activities deduction	—			—			—			(0.9		)
Remeasurement of deferred taxes related to the Act	—			—			(0.2		)	(30.4		)
Transition tax related to the Act	—			—			0.2			4.3
U.S. Foreign income tax credits from amended tax returns	—			—			(1.8		)	(2.8		)
Global intangible low-taxed income	0.3			—			0.6			—
Foreign-derived intangible income deduction	(0.6		)	(0.1		)	(0.5		)	—
Non-deductible transaction costs	—			0.6			—			—
Other, net	(1.4		)	(0.1		)	(0.1		)	(0.9		)
Income tax expense (benefit)	$	(2.7	)	$	(4.9	)	$	(7.1	)	$	(41.4	)

Effective tax rate	13.3		%	20.5		%	45.0		%	301.7		%

Deferred Taxes - Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future.



Deferred tax assets (liabilities) consist of the following:

	Successor			Predecessor
(In millions)	December 31, 2019			December 31, 2018
Unrealized foreign exchange	$	0.1		0.3
Stock Options	0.4			—
Net operating losses and credits	2.0			1.8
Non-deductible interest carryforward	7.4			2.5
Other	1.3			0.6
Sub-total deferred income tax assets	11.2			5.2
Valuation allowance	(1.3		)	(0.6	)
Net deferred income tax assets	$	9.9		4.7

Depreciation	(14.4		)	(4.1	)
Amortization	(110.7		)	(70.2	)
Total deferred tax liabilities	$	(125.1	)	(74.3	)

Net total deferred tax liabilities before unrecognized tax benefits	$	(115.2	)	(69.6	)
Deferred tax impact of unrecognized tax benefits	0.2			0.1
Net total deferred tax liabilities after unrecognized tax benefits	$	(115.0	)	(69.5	)

In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss).

As of December 31, 2019 and December 31, 2018, the Company had, in millions, $2.0 and $2.5, respectively, in federal net operating loss carryforwards that will expire in 2030 through 2036; $0.2 and $0.4, respectively, of tax benefits related to state net operating loss carryforwards, which expire in 2020 through 2035; and $5.1 and $3.3, respectively, of foreign net operating loss carryforwards a portion of which expire in 2022 through 2024, however the majority of which are subject to an indefinite carryforward period. Management believes it is not more likely than not that a portion of the foreign net operating losses will be utilized. In recognition of this risk, we have provided a valuation allowance, in millions, of $1.3 and $0.6, respectively, of valuation allowance which was recorded through income tax expense.

In the United States, IRC Section 382 imposes a limitation on the utilization of net operating losses (NOL), credit carryforwards, built-in losses, and built-in deductions after an ownership change. We experienced an ownership change within the meaning of IRC Section 382 as a result of the Ranpak Business Combination. The Company performed a calculation of this limitation and determined the carryforwards will not be restricted or limited.

The Company considers the undistributed earnings of our foreign subsidiaries as of December 31, 2019, to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. As of December 31, 2019, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $48.7 million. The Company does not anticipate the need to repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business.

We are subject to taxation in the United States (federal, state, local) and foreign jurisdictions. As of December 31, 2019, tax years 2016 through 2019 are subject to examination by the tax authorities.

Unrecognized Income Tax Benefits



The components of our unrecognized tax benefits were as follows:

	Successor		Predecessor
(In millions)	June 3, 2019 through December 31, 2019		January 1, 2019 through June 2, 2019		December 31, 2018			December 31, 2017
Unrecognized income tax benefits at the beginning of the period	$	0.6	$	0.6	$	1.8		$	0.2
Increases related to prior year tax positions	0.2		—		—			1.5
Decreases related to prior year tax positions	—		—		(1.2		)	(0.2		)
Increases related to current year tax positions	0.6		—		0.2			0.3
Foreign currency impact	—		—		(0.1		)	—
Unrecognized income tax benefits at the end of the period	$	1.4	$	0.6	$	0.6		$	1.8

As of December 31, 2019 and December 31, 2018, the Company had, in millions, unrecognized income tax benefits of $0.6 and $0.2, respectively that, if recognized, would impact the effective tax rate. As of December 31, 2019 and December 31, 2018, the Company had accrued interest and penalty, in millions, of $0.3 and $0.2, respectively. We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet. The Company does not anticipate a significant change to the total amount of unrecognized income tax benefits within the next twelve months.