UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ | |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
December 31,or
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
__________ toCommission file number
RANPAK HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
Delaware | 98-1377160 | |
(State or | (I.R.S. Employer | |
incorporation or organization) | ||
Identification Number) |
7990 Auburn Road
Concord Township, Ohio 44077
(Address of principal executive offices) (Zip Code)
(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 | PACK | New York Stock Exchange | ||
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐Yesx No ☒¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ¨☒Nox
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 ☒Yesx 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 ☒Yesx 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,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒The aggregate market value of the registrant’sshares of Class A common stock, par value $0.0001 per share held by non-affiliates of the registrant was approximately $205,481,275,$264,910,754, based on the closing sale price of $7.44 per share as reported on the New York Stock Exchange.
As of March 2, 2021, the registrant had 69,053,220 of its Class A common shares, of the registrant’s common stock,$0.0001 par value $0.0001 per share, issuedoutstanding and outstanding as6,511,293 of February 28, 2020.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive proxy statement for its 20202021 Annual Meeting of Stockholders, to be held on May 28, 2020,26, 2021, are incorporated by reference into Part II and Part III of this Form 10-K.
Ranpak Holdings Corp.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2020
Table of Contents
Page | ||||
Part I | ||||
Item 1 | ||||
2 | ||||
1A | 14 | |||
1B | 31 | |||
2 | 31 | |||
3 | 31 | |||
4 | 32 | |||
Part II | ||||
Item 5 | ||||
32 | ||||
6 | 33 | |||
7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 33 | ||
7A | 50 | |||
8 | 52 | |||
9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 88 | ||
9A | 88 | |||
9B | 89 | |||
Part III | ||||
Item 10 | ||||
89 | ||||
Item | 89 | |||
Item | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 89 | ||
Item | Certain Relationships and Related | 89 | ||
Item | 89 | |||
Part IV | ||||
Item 15 | ||||
Exhibits and Financial Statement Schedules | 89 | |||
Item 16 |
| Form 10-K Summary | 90 | |
93 |
Cautionary Notice Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Annual Report on Form 10-K (“Report”), including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Annual Report, on Form 10-K, words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions, as they relate to us or our management, identify forward-looking statements.
The forward-looking statements contained in this Annual Report on Form 10-K and the Exhibits attached hereto are based on our current expectations and beliefs concerning future developments and their potential effects on us taking into account information currently available to us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks include, but are not limited to:
• | our inability to secure a sufficient supply of paper to meet our production requirements; |
• | the impact of the price of kraft paper on our results of operations; |
• | our reliance on third party suppliers; |
• | the COVID-19 pandemic and associated response; |
• | the high degree of competition in the markets in which we operate; |
• | consumer sensitivity to increases in the prices of our products; |
• | changes in consumer preferences with respect to paper products generally; |
• | continued consolidation in the markets in which we operate; |
• | the loss of significant end-users of our products or a large group of such end-users; |
• | our failure to develop new products that meet our sales or margin expectations; |
• | our future operating results fluctuating, failing to match performance or to meet expectations; |
• | our ability to fulfill our public company obligations; and |
• | other risks and uncertainties indicated from time to time in filings made with the Securities and Exchange Commission (the “SEC”). |
PART I
Throughout this Report, when we refer to secure a sufficient supply of paper to meet our production requirements;
Unless otherwise requires.
In November 2020, the SEC enacted changes to a number of financial disclosure requirements in Regulation S-K aiming to streamline and reduce duplicative disclosure by eliminating certain prescribed information in favor of a more principles-based approach (collectively, the “November 2020 Amendments”). The November 2020 Amendments were published in the Federal Register on January 11, 2021 and became effective on February 10, 2021. Under the November 2020 Amendments, we are permitted to provide disclosure consistent with the recent amendments at any time after February 10, 2021. We have elected to provide certain disclosure consistent with the November 2020 Amendments throughout this Report.
Non-U.S. Generally Accepted Accounting Principles (“GAAP”) Information
The financial statements separate the Company'sCompany’s presentation into two distinct periods. The periodperiods before the Closingclosing of the Ranpak Business Combination (labeled Predecessor Period) depicts(herein defined) depict the financial statements of Rack Holdings Corp., and its subsidiaries (the “Predecessor”). The period from January 1, 2019 through June 2, 2019 is further referred to herein as the period“1H 2019 Predecessor Period.” All periods subsequent to June 3, 2019 after the Closing (labeled Successor Period) depictsconsummation of the Ranpak Business Combination depict the financial statements of the Company, including the consolidation of One Madison Corporation with Rack Holdings and application of acquisition method of accounting.(the “Successor”). As a result of the application of the acquisition method of accounting under the scope of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”) as of the Closing,closing of the Ranpak Business
Combination, the financial statements for the Predecessor Periodsperiods and for the Successor Periodsperiods are presented on a different basis of accounting and are, therefore not comparable.
Due to the Predecessor and Successor periods, for the convenience of readers, we have presented the 12-month period ended December 31, 2019 on a combined basis (reflecting simple arithmetic combination of the GAAP Predecessor and Successor Periods without further adjustment) in certain areas of this Report in order to present a meaningful comparison against the corresponding period in the 12-months ended December 31,2020 or 2018.
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). However, weU.S. GAAP. We have, however, also calculatedisclosed below Earnings Before Interest, Taxes, Depreciation and present EBITDAAmortization (“EBITDA”) and adjusted EBITDA (“AEBITDA”), which are non-GAAP financial
EBITDA and adjusted EBITDAAEBITDA have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. In particular, EBITDA and adjusted EBITDAAEBITDA should not be viewed as substitutes for, or superior to, net income (loss) prepared in accordance with GAAP as a measure of profitability or liquidity. Some of these limitations are:
• | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA and |
• | EBITDA and |
• | AEBITDA does not consider the potentially dilutive impact of equity-based compensation; |
• | EBITDA and |
• | AEBITDA does not take into account any restructuring and integration costs; and |
• | other companies, including companies in our industry, may calculate EBITDA and |
EBITDA — EBITDA is a non-GAAP financial measure that we calculate as net income (loss), adjusted to exclude: benefit from (provision for) income taxes; interest expense; and depreciation and amortization.
AEBITDA — AEBITDA is a non-GAAP financial measure that we calculate as net income (loss), adjusted to exclude: benefit from (provision for) income taxes; interest expense; depreciation and amortization; stock-based compensation expense; expenses related to the Ranpak Business Combination and, in certain periods, certain other one-time or non-recurring income and expense items.
We also believe that adjusting these non-GAAP measures for comparability between the Predecessor, Successor and Pro Forma periods is useful to the user of our financial statements.
ITEM 1. BUSINESS
Our Business
Ranpak is a leading provider of environmentally sustainable, systems-based, product protection solutions and end-of-line automation solutions for e-commerce and industrial supply chains. Since its inception in 1972, Ranpak has delivered high quality protective packaging solutions, while maintaining its commitment to environmental sustainability. We differentiate ourselves by our:
• | Distinct Business |
• | Environmentally Sustainable Product |
• | Attractive Financial |
• | Diversified End-User |
• | Well Established, Long-Term Distributor Relationships. We have arrangements with |
• | Reputation as a Reliable Leader in Comprehensive Fiber-Based |
• | Unique Approach to Automation. We provide end-of-line automation systems that solve two distinct challenges facing end-users of our products: |
i. | Customization to place the right amount of voidfill, wrapping or cushioning in the box to reduce the total cost of ownership by reducing labor and paper costs; and |
ii. | We also provide several automated box-sizing solutions and corrugated case erectors to tailor the corrugated box to the highest product to reduce voidfill needs and optimize logistics with smaller boxes. |
These solutions offer numerous benefits including the reduction of shipping costs, waste, and labor, resulting in improved efficiency.
• | Multiple Drivers of |
i. | Growth of E-commerce. E-commerce is a significant growth driver in our business. Approximately |
ii. | Focus on Sustainability. Additionally, we believe both our end-users and consumers, generally, are demonstrating an increasing preference for environmentally sustainable solutions. We believe that these increasing preferences in |
favor of environmental sustainability will also be a significant driver of our continued growth. We believe our investments into paper innovations help close the price gap for sustainable solutions, an important tailwind for continued growth. |
iii. | Demand for Automated |
iv. | Expansion into Retail |
v. | Continued Product Development and |
vi. | Geographic Expansion. Historically, geographic expansion has fueled our growth, and we believe further geographic expansion will continue to drive our future growth. |
• | Keen Focus on |
• | Intellectual |
• | Focus on Talent and |
Our Product Lines
Our protective packaging systems are designed to be flexible and responsive to the needs of our end-users. The flexibility and breadth of our full range of systems allows us to provide our end-users with the optimal protective solution to meet their specific needs. These protective packaging solutions, which include the accompanying paper consumables, fall into four broad categories:
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automating their |
Moreover, unlike many competitive products (e.g., foam, air pillows, bubble wrap, loose fill, etc.), our paper packaging materials are fiber-based, renewable and environmentally sustainable. Our paper consumables do not include plastic or other resin-based components. Instead, they are paper-based and biodegradable, renewable, and curb-side recyclable. Additionally, the majorityall of our paper consumables sold to end-users are created from entirely or partially recycled content and the vast majority are sourced from suppliers that are SFI and/or FSC certified. Finally, our consumables ship in bulk which is efficient for customers in shipping and require less storage space than many competing products.
Our Distribution Model
We sell our paper consumable products to an established network of approximately 250 distributors worldwide who, in turn, store, market and sell our products to end-users. Moreover, substantially all of our net salesrevenue from distributors areis generated by those who have agreed to exclusivity with usour products and not to sell or promote non-Ranpakcompetitors’ paper-based protective packaging systems to any end-users they serve.solutions. Our sales and marketing teams, as well as our highly-skilledhighly skilled engineers, work closely with distributors and ultimate end-users, on-site or remotely, to optimize the custom configuration and installation of our protective packaging systems at the end-user’s facility. Sales through our global distributor network accounted for 86.0%85.5% of our net salesrevenue in 2019.
In addition, we sell our products directly to certain select end-users. In some cases, these end-users operate some of the largest, most complex and sophisticated warehouse operations into which our protective packaging systems are integrated. Our engineering and other teams also assist our direct-sale end-users in ensuring the optimal customized installation of our products at their facilities. Direct sales to end-users accounted for 14.0%14.5% of our net salesrevenue in 2019.
Through our distributor network and our direct sales, we serve greater than 30,00033,000 end-users including participants in e-commerce, the auto after-market, IT/electronics, machinery, home goods, industrial, warehousing/transport services, healthcare, and other markets. Our universe of end-users is diverse, with approximatelygreater than 80.0% of distributor-serviced accountsend-users generating less than $10,000 in net salesrevenue in 2019. None of our individual end-users accounted for more than 11.0% of our net sales in 2019.
Our Performance
In 2019,2020, we generated net salesrevenue of $269.5$298.2 million and $2.2$11.7 million of income (loss) from operations on a combined basis.operations. Our salesrevenues are geographically diverse, with 48.9%42.7% of our 20192020 net salesrevenue generated from end-users in North America, 45.2%47.0% generated from end-users in Europe, and 5.9%10.3% generated from end-users in Asia and other locations. In addition, approximately 54.8%61.0% of our net salesrevenue in 20192020 was generated from outside the United States.
We also believe, based on our performance during the ongoing COVID-19 pandemic and its macroeconomic impact, as well as the global financial crisis from 2007 to 2010, that our business is relatively resilient to economic recessions due in part to the nature of our input costs, including paper, and our ability to adjust our operations. During the global financial crisis, declining paper costs and a reduction in our growth capital expenditures enabled us to protect profit margins and grow free cash flow despite reduced sales volume. Accordingly, from 2007 to 2010,So far, the COVID-19 pandemic has highlighted the world economy’s growing emphasis on e-commerce and we have experienced minimal declinegrowth in net salesrevenues and reduced, but positive, EBITDA growth.
Our Strategy
Our strategy for adding to our customer base includes investing in innovation, our sales force and distributor relationships across all end markets as well as expanding geographically. Beyond our leading position in paper-based Void-Fill and Cushioning protective packaging systems, we expect to also focus on other emerging applications, such as Wrapping, Automation, Cold Chain, and retail consumables, for continued growth. While still relatively small, representing 9.9%13.0% of our net salesrevenue in 2019,2020, our Wrapping product line expanded in 2014 through the acquisition of Geami, which provides a highly effective and environmentally friendly alternative to plastic bubble wrap, as well as an opportunity to expand our distribution channels into the retail and retail shipping segments. As weAlthough our initiative to expand into the retail channel has been delayed due to the ongoing COVID-19 pandemic, we believe we willexpect to have the opportunity to increase our product line in the future to include environmentally friendly packaging materials directly for sale to end users. Although ourcustomers. Our Automation solution represented only 2.7%2.9% of our net salesrevenue in 20192020, however, following our acquisition of e3neo in 2017,its development through acquisitions and organic growth to date, we believe it will serve as a platform for expansion to better serve end-users with higher volume requirements and more sophisticated end of lineend-of-line needs. Moreover, we seek to increase our penetration with existing customers
and broaden our customer base to include business segments that we have not historically served. We will also continue to identify additional product and service opportunities for our current and future end userend-user markets.
As the world economy works to recover from the impact of COVID-19, we look to solidify our gains in e-commerce and Void-Fill products, as well as be an integral partner in facilitating the industrial sectors return to normal operations. We believe these factors contribute to the significant tailwinds for our growth expansion.
We are pursuing this strategy of expanding our customer base in several ways. We have a global sales organization that works hand-in-hand with the sales representatives of our approximately 250 distributors to introduce all of our products and services to potential accounts in all end markets. Our full range of products allows our organization to serve any type of business with protective packaging needs. We will also seek to broaden our customer base through geographic expansion by enhancing our regional capabilities in sales and marketing and expanding sales of our existing product lines in growth regions, such as Asia-Pacific, South America, and Central and Eastern Europe.
We seek to enhance our position as a leading global provider of innovative sustainable packaging solutions that our customers rely on to improve performance, cost competitiveness and automation to enhance productivity within their operations. In order to achieve these goals, we are focused on the following strategic priorities.
• | Grow |
• | Drive |
• | Pursue targeted growth |
• | Grow via partnerships and |
Our Products and Services
Our Business Model
We have a full suite of paper-based protective packaging solutions for end-users. These solutions are designed to ensure that our end-users’ products reach their shipping destination in a cost-effective manner with minimal breakage. Our protective packaging solutions fall into four broad categories: Void-Fill, Cushioning, Wrapping, and Automation.
We employ a "razor/razor-blade"“razor/razor-blade” business model with respect to the sale of our Void-Fill, Cushioning, and Wrapping solutions. Under this model, we provide our proprietary protective packaging systems to our distributors for a nominal user fee, charged on a per-unit basis. We also provide our systems directly to certain select end-users. We derive substantially all of our net salesrevenue (over 90% in each period presented) through the sale of high-margin paper consumables that work exclusively with our protective systems. Our paper consumables are converted from raw paper through our paper conversion processes, using paper sourced and subsequently converted to our specifications as to a number of factors, including basis weight, tensile strength, directional
We retain ownership of most of our Void-Fill, Cushioning and Wrapping protective systems (other than, e.g., certain disposable Wrapping systems and FillPak® Manual). This model allows distributors and end-users access to our proprietary systems at little or no capital expense and enables us or our distributors to reclaim un- or under-utilized units for refurbishment and redeployment, which benefits us, our distributors and our end-users through increased efficiency and cost savings. As of December 31, 2019,2020, we had an installed base of over 104,600approximately 117,400 protective packaging systems.
Each protective system offered under our Void-Fill, Cushioning and Wrapping product lines is distinguished by its level of automation, the speed at which it dispenses paper consumables, the type and form of paper it consumes, and the type of protective paper or pad it produces. We believe we offer the widest variety of paper-based protective packaging systems in the industry. In contrast to some more limited product offerings of our competitors, we have numerous void-fill, cushioningVoid-Fill, Cushioning and wrappingWrapping systems, and extensive options to create custom variations.
We convert the vast majority of raw paper at four U.S. and two European production facilities to create rolls and bundles of paper that integrate with our protective packaging systems and into direct or consumable products. Our systems predominantly use kraft paper of varying weights, sizes and configurations. In 2019, 49.7%2020, 53.8% of our raw paper supply consisted of 100% recycled sheet, 43.7%42.2% consisted of 100% virgin sheet, and 6.6%4.0% consisted of a blended sheet incorporating both virgin and recycled fiber. We believe we offer the widest variety of bundle, roll sizes and formats in the industry.
For the vast majority of end-users, we work with our distributors to place our protective packaging systems at end-user sites. We sell bundles and rolls to our distributors who, in turn, sell bundles and rolls to end-users for use with our protective packaging systems. In select cases, we place systems with and sell paper directly to end-users.
For each unit, we set targets for minimum annual paper consumption in order to justify the capital deployed to that account. Accordingly, our sales team, in conjunction with our distributors, help our end-users select which unit or units meet their specific needs, based on their own volume requirements and business objectives.
In addition, we have a customized Automation suite of products, which we market under the Ranpak Automation brand, that provides higher volume customers with a highly-automatedhighly automated box sizing system, accurate dispensing, labor-free packing, and optimization consulting services. Unlike end-users of our Void-Fill, Cushioning and Wrapping product lines, we rarely sell recurring consumables to our Automation customers. Instead, Ranpak Automation customer’s purchase directly from us the automated box-sizing machines and equipment they need to optimize their end of lineend-of-line capabilities. Accordingly,Often, with respect to our Automation product line, we generally do not retain ownership of the machines, nor do we customarily have maintenance or support obligations beyond an initial warranty period. However, the automation market is rapidly evolving and we have expanded Automation services to offer extended service within and beyond the initial warranty period, packaging line design solutions, as well as the sale of spare parts. We see this as a potential growth position as the Automation installed base expands.
Void-Fill
We sell our Void-Fill products under the brand name “FillPak.”FillPak®. We offer a variety of FillPak® units, each of which is designed to convert paper to fill empty spaces in secondary packages and limit object movement during the shipping process. We introduced our
FillPak® family of products in 2003 to provide an environmentally friendly solution to the growing void-fill market that arose with the explosion of e-commerce. We believe our FillPak® systems are known in the marketplace for their efficacy, speed, efficiency and reliability.
We have an installed base of approximately 60 thousand68,000 FillPak® units as of December 31, 2019.2020. In 2019,2020, our FillPak® products generated $112.4$125.0 million in net sales,revenue, which accounted for 41.7%41.9% of our total net sales.
The primary competitors to our Void-Fill product line are plastic air pillows and foam peanuts or loose fill. We believe our Void-Fill product line is superior to each of these competitors for a number of reasons. First, the packaging material is sustainable and environmentally friendly. Our Void-Fill paper packaging material is paper-based, renewable, biodegradable and curb-side recyclable for end consumers. Second, unlike air pillows, our packaging product can more easily fit into void spaces within smaller shipping boxes due to the inherent flexibility of paper. Third, when air pillows are punctured from pressure damages, they lose 100% of their protective packaging properties, whereas paper packaging retains protective properties even when subject to substantial pressure. Fourth, our products provide a better box opening experience, which is important to many e-commerce retailers.
Cushioning
We sell our Cushioning products under the brand name “PadPak.“PadPak®.” We offer a variety of PadPak® units, each of which provide protection for fragile objects from shocks and vibrations experienced during the shipping process. These proprietary systems convert paper into cushioning pads by crimping the paper to trap air between the layers and/or winding paper into dense discs for use in cushioning particularly heavy objects for shipping. Our PadPak® family of products was the original product offering from when our company was founded in 1972. We believe our PadPak® systems are known in the marketplace for their high level of breakage protection, low in-the-box cost, high-speed throughput and operational reliability.
We have an installed base of approximately 32 thousand34,000 PadPak® units as of December 31, 2019.2020. In 2019,2020, our PadPak® products generated $123.1$125.7 million in net sales,revenue, which accounted for 45.7%42.2% of our total net sales.
The primary competitors to our Cushioning product line are foam-in-place, plastic bubble on demand and other competing paper systems. We believe our PadPak® products are superior to these products for a number of reasons. First, our PadPak® product line is more environmentally friendly than foam and plastic bubble wrap, as the paper packaging material is entirely paper-based, biodegradable and curb-side recyclable for end consumers, whereas foam products are chemical- and petroleum-based. As a result, foams are not biodegradable and, in production, foam-in-place can release harmful byproducts. Also, foam-in-place, EPE/EPS foams and plastic bubble wrap are of limited recyclability. Second, we believe our PadPak® cushioning solutions absorb shocks and maintain their shape better than other packaging media, likesuch as plastic bubble wrap, which is not well-suited for sharp or heavy products and can transmit shock to lighter weight products. Third, within an end-user’s facility, we believe our PadPak® systems require less physical space and less maintenance and are easier to handle than the toxic elements required by packaging systems like polymer-based foam-in-place. Moreover, our PadPak® systems can be deployed in greater number of configurations, at a higher level of automation, and require less facility space for material storage than bubble wrap applications, and safe storage versus hazardous chemicals like foam-in-place chemicals.
Wrapping
We sell our Wrapping products under the brand names “WrapPak,” “Geami,”WrapPak®, Geami®, and "ReadyRoll."“ReadyRoll.” We manufacture a variety of WrapPak® and Geami® converter units. Our WrapPak® protective packaging systems crimp kraft paper into flat pads that, we believe, are highly effective in wrapping, interleaving, box-lining and cold chain applications.
Our Geami® product line is a high-end wrapping system that combines tissue paper and kraft paper which is dispensed simultaneously by Geami® converting machines. The kraft paper is die-cut at our production facilities using a proprietary process, so that when it is dispensed on-site by an end-user the paper expands into a two-dimensional ridged honeycomb. The tissue paper provides surface protection for the wrapped item and separates layers of the honeycomb to maximize its cushioning properties. The resulting Geami construction is ideal for securely wrapping household goods and other fragile items.
We have an installed base of approximately 12 thousand16,000 WrapPak® units, including 11,090which were predominantly Geami® converter units, as of December 31, 2019.2020. In 2019,2020, Wrapping products generated $26.7$38.8 million in net sales,revenue, which accounted for 9.9%13.0% of our total net sales.revenue. Geami® net salesrevenue includes sale of tissue rolls in addition to kraft paper.
We offer both motorized Geami® dispensing systems and manual systems, where the operator simply pulls the paired sheets against tension to expand the die-cut kraft paper. We also offer the Geami® combination of die-cut and tissue in a disposable cardboard dispenser as well as in a Geami-basedGeami®-based offering to be sold directly to consumers without a dispenser in retail stores under the brand
name "Ranpak“Ranpak ReadyRoll."” We do not set minimum annual paper consumption targets for the disposable units, as the full production cost and margin associated with the dispenser is covered with each sale.
The primary competitor to our Wrapping product lines is plastic bubble wrap. We believe our Wrapping products are superior to plastic bubble wrap for a number of reasons. First, we believe our Wrapping products are more environmentally friendly. Our Wrappingfriendly, as the paper packaging material is paper-based, curb-side recyclable and biodegradable, whereas plastic film-based wrapping products, like plastic bubble wrap, are often difficult for consumers to recycle if they are recyclable at all. Second, we believe our Wrapping solutions absorb shocks and maintain their shape better than bubble wrap, which is not well-suited for sharp or heavy products and can transmit shock to lighter weight products. Third, our Wrapping systems can be deployed in greater number of configurations, at a higher level of automation, and require less facility space for material storage than bubble wrap applications. Finally, we believe that Geami® and Ranpak ReadyRoll provide a much more elegant unboxing experience for our end-users’ customers, particularly when compared to that of plastic bubble wrap.
Automation
We sell a highly-customizedhighly customized Automation solution under the brand name “Ranpak Automation.” Our Ranpak Automation product line is focused on designing, manufacturing, and selling highly automated, turn-key integrated box-sizing systems to high-volume end-users. We are in the process of expanding Ranpak Automation'sAutomation’s offering to grow the ongoing spare parts design and service business. The systems are designed to help minimize the use of in-the-box packaging for these end-users while fully automating their end of lineend-of-line operations. We acquired our Ranpak Automation product line through our acquisition of Neopack Solutions S.A.S. in 2017 ("e3neo"(“e3neo”).
Our highly-automatedhighly automated Ranpak Automation systems integrate devices that determine the optimal box height for the items to be shipped with a mechanism that automatically sizes the height of the box to fit the item. These systems are designed to give end-users the flexibility to make various box heights along a single production line. Moreover, our Automation systems consist of linked modular units that can easily be expanded with additional modules to meet an end-user’s changing needs.
In 2019, our2020, Ranpak Automation products generated $7.3$8.7 million in net sales,revenue, which accounted for 2.7%2.9% of our total net sales.
Unlike our Void-Fill, Cushioning and Wrapping systems, we currently design and sell our Automation systems outright to our customers, and derive net salesrevenue from our Automation products by designing, manufacturing, installing and servicing Automation systems at our end-users’end-user facilities. Accordingly, our current business model for our Automation product line involves the direct or indirect sale of highly-customizedhighly customized systems, designed on the basis of our consultancy and product engineering expertise.
We believe the growing operational, through-put requirements and a tight labor market experienced by medium- and large-scale e-commerce retailers will increase the demand for highly-automated end of linehighly automated end-of-line systems. Accordingly, we expect our Automation business model and product offerings, as well as those of our competitors, to evolve rapidly within the next several years as the market continues to develop and we address the growing needs of our end-users.
We believe our Automation product line is superior to its competition for a number of reasons. First, in our view, our Automation systems can typically operate at a higher speed than comparable products, resulting in a higher through-put for end-users. Second, our Automation systems typically require less floor space for installation and operation in an end-user’s facility. Third, we believe our Automation systems provide end-users with greater flexibility than our competitors’ products, in terms of the high level of customization and the ease of expansion through the addition of new modules.
Industry
Although the macroeconomic effects of COVID-19 are not yet fully known, our relevant addressable market of the broader global protective packaging industry wasis an estimated $7.5$8.8 billion in 20192021 and growing. The global protective packaging industry is fragmented and competitive with market leaders accounting for a relatively small share of the market. This fragmentation is due primarily to the variety of product types and the myriad of applications in which they are used around the world.
Protective packaging is used to store and protect goods during shipping and handling from shock, vibration, abrasion and other damages. It is mainly used to fill the empty space between the product/merchandise and exterior carton or container (often referred to as dunnage), or to protect goods during shipment. As a general matter, the value of the goods being shipped, as well as the potential cost of breakage, far outweigh the cost of in-the-box protective packaging, which drives the demand for effective protective packaging solutions like ours. Protective packaging comes in various forms such as foam, air pillows, bubble wrap, cushion products, loose fill (e.g., Styrofoam packing peanuts), paperboard protectors and protective mailers, as well as non-engineered solutions such as newsprint, tissue paper, shredded corrugated cardboard and other materials.
The protective packaging industry is characterized by a diversity of applications and end markets, within both the industrial and consumer segments. Historically, growth in the protective packaging industry has been positively impacted by trends such as expedited delivery of individualized packages, globalization of the supply chain, and increased focus on efficiency and reduced shipping costs. We believe more recent and future growth drivers include further expansion of e-commerce activity, increased customization of protective packaging systems in markets such as electronics, and increased demand for environmentally-friendlyenvironmentally friendly protective packaging. Moreover, in our view, those markets most closely linked to e-commerce and/or sustainable packaging are those best positioned for growth in the future.
Our Market
Our end-useend-user market consists of any business that sells and ships products requiring random packaging. Accordingly, these end-users are highly dependent on their ability to obtain a cost-effective and efficient in-the-box packaging solution. Our end-users operate in a variety of businesses, including e-commerce, the automotive after-market, IT/electronics, machinery/manufacturing, home goods, pharmaceuticals, retail and others.
We primarily sell our products to our distributors which, in turn, market and sell our products to our end-users. We also sell products directly to select end-users. In 2019, 86.0%2020, 85.5% of our net salesrevenue was derived from sales to our distributors and approximately 14.0%14.5% of our net salesrevenue was derived from sales directly to end-users.
Distributors
Additionally, our distributors benefit from the collaborative approach we foster with our internal sales, engineering and marketing organization. We work with our distributors to win additional end-users of our paper-based products that the distributor, in turn, can service on an on-going basis with a broad suite of packaging equipment and supplies. Our distributors also typically address the needs of our end-users directly with respect to any ongoing protective system service needs. In order to facilitate the collaborative process, we meet with our distributors to discuss end-user needs and potential solutions, provide training programs (including through our Ranpak Academy program) for distributors that are designed to cultivate their knowledge of, and loyalty to, our brands, as well as provide the tools they need to successfully market and place our systems.
As a result of these and other efforts, we have built and maintained a well-established distributor network that is comprised primarily of long-term business relationships, as demonstrated by an average relationship greater than 20 years with our top ten global distributors. The continuity of these relationships evidenceevidences the strength of our business model, as well as the value proposition for our distributors and end-users. Furthermore, the depth and longevity of these relationships result in a distributor network that is highly knowledgeable and well versed in conveying the benefits of our systems to end-users.
We believe that our distributor-based distribution model is particularly well suited to the highly fragmented nature of the protective packaging solution end-user market we seek to serve by enabling us to reach a broad range of end users across size, industry and geography while maintaining a lean internal salesforce and capital base.
We charge our distributors for the paper consumables they purchase from us to provide to end-users, as well as a user fee for each protective packaging system they obtain from us for installation with an end-user. Our distributors take possession of our systems and paper consumables at our facilities and are responsible for any transit costs incurred to ship our products to their own inventory warehouses or an end-user’s location. Moreover, distributors take responsibility to insureensure that the converters are, and remain, a highly valuable asset to all the players along the value chain.
End-UsersEnd-Users. . We have greater than 30,00033,000 end-users located across North America, Europe, Asia, Oceania, South America, and Africa. These end-users operate in wide variety of businesses and rely on our systems for a cost-effective and efficient paper-based protective packaging solution that meets their operational and shipping needs. Our universe of end-users is diverse and historically stable, with approximatelygreater than 80.0% of distributor-serviced accounts generating less than $10,000 in annual net salesrevenue in 2019. None of our end-users individually accounted for more than 11.0% of our net sales in 2019.2020. Our end-users vary in size from extremely small specialty manufacturers or retailers to some of the largest global e-commerce companies. While most of our end-users purchase our products from our distributors, we also sell our products directly to select end-users. Direct sales to end-users accounted for approximately 14.0%14.5% of our net salesrevenue in 2019.2020.
E-commerceE-commerce. . We believe changing consumer preferences and buying habits will drive continued e-commerce growth, both among pure-play e-commerce companies, as well as among historical brick-and-mortar companies seeking to expand their e-commerce
presence. We further believe the critical necessity of brand owners to optimize supply chains and reduce capital spend drives the important trend in concentration of logistics through third partythird-party logistics providers that in turn drives increasing needs for efficient packaging end-of-line solutions. The availability of a broader product selection on-line, faster delivery times, and increased in-store pickup options all drive significant growth in on-line sales. This expansion of e-commerce is a worldwide trend that we believe will continue to accelerate as on-line penetration grows in developed and emerging markets. The ongoing COVID-19 pandemic has demonstrated the growing macroeconomic emphasis on e-commerce in the global economy. Although some of our e-commerce end-users are focused on the responsible reduction of their need for void-fill material more broadly, they generally require protective packaging solutions that can be integrated into their existing supply and distribution infrastructures on a low-cost and efficient basis. Most commonly, our e-commerce end-users purchase our Void-Fill solutions, but
Industrial Manufacturing. Our industrial manufacturing end market includes end users manufacturing products utilized for tools, construction supplies, energy and utilities, chemicals, paints, and metals. We believe demand in these sectors will increase as growing populations and expanding middle classes in developing countries generate more disposable income. Higher demand for advanced machines spurs increased spending on tools and robotics while higher demand for housing, infrastructure and commercial buildings benefits the tools and construction supplies sectors. Sales to industrial manufacturing end-users accounted for approximately 12.6% of our net revenue in 2020.
Automotive Aftermarket. Aftermarket. The automotive after-market is driven by the need for replacement parts as automobiles age, as well as by the desire of consumers to customize vehicles to enhance performance and improve aesthetics. Increasing average age of vehicles and digitalization of component delivery sales and services, along with the advent of on-line portals distributing after-market components is expected to contribute to the continued growth of the automotive after-market industry.Our automotive after-market end-users require protective packaging solutions that have strong protective qualities, as the products they ship are often heavy, require greater care in handling, and have a higher individual per-unit value. Accordingly, these end-users most commonly purchase our Cushioning solutions. Our packaging solutions are typically designed to integrate into these end-users’ existing industrial processes for the production and distribution of automotive parts. Sales to our automotive after-market end-users accounted for approximately 10.0%9.9% of our net salesrevenue in 2019.2020.
ElectronicsIT/Electronics. . Widespread product innovation combined with an expanding working population, a corresponding growth in household formation and disposable incomes are key factors contributing to the growth of the global consumer electronics market. Thriving demand for smartphones across the globe and the miniaturization of electronic devices are additional factors boosting growth in the global consumer electronics market. We believe this demand for electronics will continue to grow as innovation, such as the Internet-of-Things and voice-connected devices, drives increased demand for the latest electronics hardware. Our IT/electronics end-users customarily sell products such as computer hardware and electronics that are often already securely packaged in primary packages by the manufacturer and, as a result, require less robust protective packaging systems from us. Sales to our IT/electronics end-users accounted for approximately 7.0%7.6% of our net salesrevenue in 2019.2020.
Industrial MachineryMachinery. . We believe demand for industrial machinery and equipment used in manufacturing sectors ranging from automobile production,such as agriculture, construction, mining, packaging, materials handling and toolsfood processing will increase as economies expand, thus requiring additional infrastructure spend as well as increasing the need to feed growing middle-class populations and expanding middle classes in developing countries generate more disposable income. Higher demand for advanced machines spurs increased spending on tools and robotics while higher demand for housing, infrastructure and commercial buildings benefitsacross the tools and construction equipment sectors. Increasing social awareness of green technologies results in higher demand for industrial machines used in the manufacturing of solar panels, wind turbines, and batteries. Our machinery end-users typically ship machinery and parts that can be fragile and, therefore, require our Cushioning solutions to insure against damage in transit.globe. Sales to our machinery end-users accounted for approximately 7.0%6.1% of our net salesrevenue in 2019.2020.
Other
. Our end-users also operate in many other industries, includingOur Sales, Marketing, and Distribution
Our sales and marketing efforts are focused on developing and expanding distributor relationships, cultivating large accounts, co-selling with distributor sales representatives, educating end-users on the advantages of our product offerings and capturing customer requirements to drive our product innovation efforts. Our flexible go-to-market strategy consists of sales and marketing efforts aimed at distributors and end-users to drive demand through distribution. This sales, marketing and distribution organization allows us to reach end-users across industries and around the globe.
Our internal sales and marketing team partners with distributors to proactively target new accounts and pull sales through the distribution network. We intend to continue investing in our distributor partners and sales force to optimize their market focus, enter new vertical segments, and provide our distributor partners with training, marketing programs and technical support, including through our Ranpak Academy, a training and product education program we offer frequently to new and existing distributors. Our training programs are designed to cultivate distributor knowledge and loyalty to our brands and to provide distributors with the tools necessary to successfully place our systems with the end-users they serve.
Our internal sales teams, marketing operations, and customer service operations are organized geographically with sales and support operations aligned under North American, European and Asia-Pacific geographies. Each geography is managed through a structure of regional general sales managers and national account managers, as well as individual account managers who cover specific states, countries or industries within a region.
As of December 31, 2019,2020, we employed approximately 7480 sales, marketing and customer service personnel in the United States; 9594 sales, marketing and customer service personnel in Europe; and 2223 sales, marketing and customer service personnel in Asia.
Our Manufacturing and Assembly Processes
We manufacture and assemble proprietary protective systems that convert kraft paper into a broad range of packaging and cushioning products to address our customers’ needs. Our objective is to leverage our scale to achieve purchasing efficiencies and reduce our total delivered cost across our regions. We do this while adhering to strategic performance metrics and stringent purchasing practices. All four of our U.S. sites and both of our European sites renewed their certification under ISO 9001:2015 standards in 2019.
We purchase the components for our protective packaging systems, as well as certain assembled systems, from a variety of well-established international design and manufacturing partners. We then assemble certain proprietary protective systems at our in-house facilities, employing highly-skilledhighly skilled machine assembly teams. We also outsource the manufacture and assembly of a number of our proprietary protective systems to third partythird-party manufacturing partners to be built in accordance with our design specifications, with a majority originating from China. We hold our suppliers to strict quality standards, and periodically conduct in-person audits of their facilities. With respect to our Ranpak Automation product line, the products are designed and manufactured at our in-house facilities or external contractors before installation at a customer’s facility. In the first half of 2020, we expect to completecompleted a Center of Excellencefacility dedicated solely to Ranpak Automation in Kerkrade, the Netherlands, located approximately three miles from our Heerlen The Netherlands.location, to enhance our production capacity in our Automation business. We believe this state-of-the-art facility will substantially increaseincreases our manufacturing and R&D capabilities, as well as provideprovides a showroom for potential customers to see our extensive Automation product line.
We believe our design and manufacturing partners provide an important complement to our in-house design and manufacturing expertise. These partnerships give us great flexibility in choosing the optimal design and manufacturing solution for any product, whether that be entirely out-sourced, entirely in-sourced, or a blend of out-sourcing and in-sourcing. Accordingly, this network allows us to make design and manufacturing decisions on the basis of numerous factors, including cost, efficiency, level of intellectual property protection and reliability.
Our Paper Suppliers
We purchase both 100% virgin and 100% recycled kraft paper, as well as blends and bogus paper (a blend of entirelymaterials recycled paper materials),from post-consumer waste, from various suppliers for conversion into the paper consumables we sell. Before we determine to purchase paper from any supplier, the supplier must undergo a qualification process to ensure that its product meets our exacting requirements. This qualification process involves an evaluation of the physical specifications of the potential supply source, as well as extensive testing for the paper’s convertibility —– on the fan-folding, rewinding and die-cutting raw paper converters in our facilities —– and in the protective packaging systems we place with our end-users. The vast majorityAll of our paper is sourced from suppliers that are SFI and/or FSC certified. Once a supplier is qualified, we purchase large rolls of kraft paper from that supplier for integration into our existing supply and production chain. The paper rolls are converted at our facilities before sale to our distributors and direct end-users for use with our Void-Fill, Cushioning and Wrapping protective systems.
In 2019,2020, we purchased paper from approximately 2722 paper suppliers and our largest single source of paper supplies sold us approximately 60%44.9% of the paper supplies purchased in North America. While the cost of paper supplies is our largest input cost, we negotiate supply and pricing arrangements with most of our paper suppliers annually, many of which we have long-standing relationships with, which helps us mitigate shorter term fluctuations in paper cost.
Our Competition
The markets in which we operate are highly competitive and fragmented due to the large number of participants and the variety of product types and applications in which they are used around the world. Industry participants include specialized firms that focus on protective packaging, packaging companies that offer protective products among other product lines, and packaging material producers that supply packaging materials to end-users. Other competitors focus on narrow market segments (such as thermal), provide a limited range of products, or operate in a discrete geography. Finally, some competitors offer commoditized products, such as protective mailers or non-systems-based solutions that can be used for less sophisticated protective packaging needs.
Companies in the protective packaging industry employ a variety of strategies to gain market share and compete. We are one of the few suppliers offering a full suite of fiber-based renewable protective packaging solutions to a diversified set of end markets on a global basis. Our “in-the-box” protective packaging solutions serve to minimize movement of products in a box and provide cushioning or bracing, which minimize damage. Most frequent competing products are air pillows, bubble wrap, foam-in-place, loose-fill and other fiber-based solutions. We believe fiber-based solutions are the most versatile option used for a wide variety of products in various end markets (electronics, automotive, e-commerce) and is the preferred environmentally friendly solution. Competition for most of our packaging products is based primarily on packaging product quality (reliability and durability), breakage protection, service, price, speed/throughput, environmental sustainability, and company reputation. Since competition is also based upon innovations in packaging technology, we maintain ongoing research and developmentR&D programs to enable us to maintain technological leadership. We protect our investments in improving technology through maintaining a comprehensive patenting program and aggressively pursue infringers of our patented technology, features, and processes.
We compete with companies producing competing products that are well-established, have significant scale, and have a broad product offering. There are other manufacturers of protective packaging products, some of which are companies offering similar products that operate across regions and others that operate in a single region or single country. Our primary competitors include Sealed Air Product Care Division, Pregis (FP International/Easypack), Intertape Polymer Group (IPG), Storopack and Sprick. Most competing manufacturers offer multi-substrate solutions including foam, loose-fill, plastic air pillows, and plastic bubble wrap in addition to a fiber-based offering. We believe we are the only major “in-the-box” protective packaging specialist that has a focus on a single environmentally friendly substrate (i.e., fiber) which enables us to have a best in class product offering as well as the credibility with customers that we are truly devoted to seeking environmentally sustainable solutions. We believe that we are one of the leading suppliers of fiber-based packaging materials and related systems in the principal geographic areas in which we offer those products. Additionally, due to internal technology development investments and the acquisition of the Ranpak Automation product line in 2017, we believe we are a leader in automated void reduction systems technology. Our Automation segment designs, manufactures, and sells automated box sizing equipment and provides turn-key end of lineend-of-line solutions to our customers.
Human Capital Resources
As of December 31, 2019,2020, we had approximately 595645 employees worldwide, approximately 255264 of whom were located in the United States. Approximately 130We have 153 of our employees located in Europe who are covered by collective bargaining agreements.
We are proud to count men and women of all races and ethnicities as members of our Board of Directors, management team, and employee workforce. In 2020, we joined The Board Challenge as a Charter Pledge Partner. The Board Challenge is an initiative to improve diverse representation in corporate U.S. boardrooms. As a Charter Pledge Partner, we acknowledge that we already have diversity in our boardroom and pledge to use our resources to accelerate change within other companies. We are a global headquarters are in Concord Township, Ohio. Our wholly owned subsidiary,organization that values life experiences, ideas, and cultures that each of our employees bring to Ranpak, B.V., maintainsstriving to create an atmosphere of acceptance and respect, facilitating an encouraging environment, and helping employees attain professional and educational goals. We strive to maintain an active dialogue with our European headquarters in Heerlen, The Netherlands, as well as our Ranpak Automation Center of Excellence.
Our Intellectual Property
Our intellectual property provides a strong competitive advantage. We own or license over 610645 U.S. and foreign patents and patent applications directed to various innovations related to packaging machines, stock material, packaging processes, and packaging products, as well as more than 140180 U.S. and foreign trademark registrations and trademark applications that protect our branding of our packaging products, services, and equipment. We continue to innovate and advance that competitive advantage. We have filed an average of approximately 25 U.S. and foreign patent applications per year over the past 10 years. We are also vigilant in protecting our intellectual property, by monitoring competitor activity, providing notice to potential infringers, and bringing litigation whenever and wherever necessary and appropriate.
Seasonality
Ranpak estimates that approximately 34.9% of its net revenue in 2020, either directly or to distributors, was destined for end-users in the e-commerce sectors, whose businesses frequently follow traditional retail seasonal trends, including a concentration of sales in the holiday period in the fourth quarter. Ranpak’s results tend to follow similar patterns, with the highest net revenue typically recorded in its fourth fiscal quarter and the slowest sales in its first fiscal quarter of each fiscal year. Ranpak expects this seasonality to continue in the future, as a result of which its results of operations between fiscal quarters in a given year may not be directly comparable.
Governmental Regulation
Federal, State, Local, and International Regulations
We are required to comply with numerous laws and regulations covering areas such as workplace health and safety, data privacy and protection, labor and employment. We monitor changes in these laws to maintain compliance with applicable requirements. Compliance with, or liability under, these laws and regulations may require us to incur significant costs and have a material adverse effect on our capital expenditures, earnings, and competitive position.
Environmental Matters
We are subject to a number of federal, state, local and foreign environmental,international environmental-related health and safety laws and regulations that govern, among other things, the manufacture and assembly of our products,products; the discharge or pollutants into the air, soil and water andwater; the use, handling, transportation, storage and disposals of hazardous materials.materials; and environmental remediation or reclamation activities. We are required to hold various permits to conduct our operations. Compliance with, or liability under, these laws, regulations and permits can require us to incur significant costs.
Legal Proceedings
From time to time, we have and may again become party to intellectual property litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. Historically, one category of legal proceeding to which we have been a party has involved claims of patent or other intellectual property infringement. While we are judicious in initiating litigation to those circumstances justified by legal and business considerations, we have initiated and will continue to initiate affirmative action to protect our intellectual property. This litigation includes defending counterclaims brought by the counterparty against whom we have initiated a claim of infringement as part of their infringement-defense strategy.
Corporate Information
We are publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “PACK.” Our corporate headquarters is located at 7990 Auburn Road, Concord Township, Ohio 44077. Our telephone number is (440) 354-4445. We maintain a website at www.ranpak.com.www.ranpak.com. We will make available, free of charge, on this website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such reports are available, electronically filed with, or furnished to the Securities and Exchange Commission (“SEC”). These reports are also available at the SEC’s website, www.sec.gov.www.sec.gov. Apart from SEC filings, we also use our website to publish information which may be important to investors, such as presentations to analysts.
ITEM 1A.
RISK FACTORSSummary Risk Factors
Our business faces significant risks. In addition to the summary below, you should carefully review the “Risk Factors” section of this Report. We may be subject to additional risks and uncertainties not presently known to us or that we currently deem immaterial. Our business, financial condition and results of operations could be materially adversely affected by any of these risks, and the trading prices of our common stock could decline by virtue of these risks. These risks should be read in conjunction with the other information in this Report. Some of the more significant risks relating to our business include:
• | The COVID-19 pandemic has impacted our business and could in the future materially and adversely affect our business. |
• | We may be unable to secure a sufficient supply of paper to meet our production requirements given the limited number of suppliers that produce paper suitable for our products. |
• | Paper pricing may negatively impact our results of operations, including our profit margins, and financial condition. |
• | If significant tariffs or other restrictions are placed on the import of Chinese goods, or if China places tariffs or other restrictions on the import of U.S. goods, our business, financial condition or results of operations may be materially adversely affected. |
• | We rely on third-party distributors to store, sell, market, service and distribute our products. |
• | We are dependent upon certain key personnel. |
• | Our level of outstanding indebtedness could adversely affect our financial condition and ability to fulfill our obligations. |
• | Certain of our stockholders, including JS Capital, own a significant portion of the outstanding voting stock of the Company. |
• | The price for our securities may be volatile. |
• | Our business is exposed to risks associated with our reliance on third-party suppliers to provide both the components used in our protective packaging systems as well as certain fully assembled protective packaging systems. |
• | Unfavorable end-user responses to price increases could have a material adverse impact on our business, results of operations and financial condition. |
• | Continued consolidation in sectors in which many of our end-users operate may adversely affect our business, financial condition or results of operations. |
• | Our efforts to expand beyond our core product offerings and into adjacent markets may not succeed and could adversely impact our business, financial condition or results of operations. |
• | The global nature of our operations exposes us to numerous risks that could materially adversely affect our financial condition or results of operations. |
• | Fluctuations between foreign currencies and the U.S. dollar could materially impact our consolidated financial condition or results of operations. |
• | We are subject to a variety of environmental and product registration laws that expose us to potential financial liability and increased operating costs. |
• | If we are not able to protect or maintain our trademarks, patents and other intellectual property, we may not be able to prevent competitors from developing similar products or from marketing their products in a manner that capitalizes on our trademarks, and this loss of a competitive advantage may have a material adverse effect on our business, financial position or results of operations. |
• | Our acquisition and integration of businesses could adversely affect our business, financial condition or results of operations. |
• | Our insurance policies may not cover all operating risks and a casualty loss beyond the limits of our coverage could adversely impact our business. |
• | Our annual effective income tax rate can change materially as a result of changes in our mix of U.S. and foreign earnings and other factors, including changes in tax laws and changes made by regulatory authorities. |
• | The full realization of our deferred tax assets may be affected by a number of factors, including earnings in the United States. |
• | We are subject to taxation in multiple jurisdictions. As a result, any adverse development in the tax laws of any of these jurisdictions or any disagreement with our tax positions could have a material adverse effect on our business, consolidated financial condition or results of operations. |
• | Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations. |
• | We may be required to take write-downs or write-offs, restructuring and impairment or other charges in connection with the business combination that could have a significant negative effect on our financial condition, results of operations and stock price, which could cause you to lose some or all of your investment. |
• | Our debt financing may adversely affect our leverage and financial condition and thus negatively impact the value of our shareholders’ investment in us. |
• | We may be unable to obtain additional financing to fund our operations or growth. |
• | Provisions in our organizational documents may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Class A common stock and could entrench management. |
Risks Related to Our Business
The COVID-19 pandemic has impacted our business and could in the future materially and adversely affect our business.
The novel strain of the coronavirus identified in late 2019 and now affecting the global community has impacted and is expected to continue to impact our business and operations, and the full nature and extent of the impact is highly uncertain and may be beyond our control. Among other things, uncertainties relating to COVID-19 include the duration of the outbreak, the severity of the virus, and the actions, or perception of actions that may be taken, to contain or treat its impact, by governments and others, including declarations of states of emergency, business closures, manufacturing restrictions and a prolonged period of travel, commercial and/or other similar restrictions and limitations.
As many governmental measures providing for business shutdowns generally exclude critical infrastructure and the businesses that support critical infrastructure, such as packaging companies like us, all of our manufacturing facilities currently remain operational. Nevertheless, the impact of these measures over time, as well as additional measures we have adopted or may adopt in the future that are intended to protect the health and safety of our employees, is uncertain and could limit our manufacturing productivity. Likewise, in the event large numbers of our manufacturing workforce become ill with COVID-19 or otherwise, our productivity could be adversely affected. Any such reduction in our manufacturing productivity, whether resulting from governmental or our internal policies intended to contain the spread of the COVID-19 virus or from employee illness could hinder our ability to meet customer demand, which could have a material adverse effect on our financial condition and results of operation.
Similarly, as a result of the COVID-19 pandemic and measures taken in response to it, our suppliers and vendors may not have the materials, capacity, or capability to enable the manufacture of the parts we use to assemble our packaging machines or the paper we convert into packaging consumables. To date, we experienced delays in obtaining certain supplies used in the assembly of our packaging machines that we source from China. While these delays have not resulted in our inability to deliver packaging machines to any of our distributors or end-users, to the extent they continue, or other of our suppliers or vendors are unable to provide us with the supplies we need according to our schedule and specifications, we may need to seek alternate suppliers or vendors, which may be more expensive, may not be available or may result in delays in shipments to us and subsequently to our distributors or end-users, each of which would affect our results of operations. Additionally, restrictions or disruptions in transportation logistics, such as reduced availability of sea or ground transport, port closures and increased border controls or closures, may result in delays and could result in higher costs, either of which could harm our profitability, make our products less competitive, or cause our distributors or end-users to seek alternative suppliers.
Additionally, social distancing and similar measures adopted in many jurisdictions around the world have impacted our ability to demonstrate and install our protective packaging systems and Automation products and, as a result, such demonstrations and installations have been delayed, which could have a material adverse effect on our business, results of operations, and financial condition.
Furthermore, many of our end-users have been and could continue to be negatively impacted as a result of disruption in demand for their products due to the decline in global economic activity resulting from the COVID-19 pandemic. To the extent demand for the products sold by our end-users continues to decline or the duration of any decline is longer than they anticipate, our distributors’ and end-users’ demand for our packaging systems will also decline, which could negatively impact our sales and have a material adverse effect on our business, results of operations and financial condition.
The impact of the COVID-19 pandemic continues to evolve and its duration and ultimate disruption to our operations, supply chain, distributors and end-users, and the related financial impact on us, cannot be estimated at this time. Should any such disruptions continue for an extended period of time, the impact could have a more severe adverse effect on our business, results of operations and financial condition.
We may be unable to secure a sufficient supply of paper to meet our production requirements given the limited number of suppliers that produce paper suitable for our products.
A limited number of paper mills produce paper that is suitable for use in our products in the markets in which we operate, and if they fail, experience interruptions in service, or are otherwise unable or unwilling to fill our purchase orders, we may not be able to produce enough of our paper consumables to meet our own production requirements. In addition, there are several grades or types of paper that we use in our products that we obtain from a single source due to the specificity of our requirements and limitations in the available paper products in a given market. For example, in 20192020, we purchased approximately 60%44.9% of our raw paper requirements in North America from a single supplier, WestRock Company (“
If WestRock or one of our other major suppliers of paper in any of the markets in which we operate, fails or experiences an interruption or delay in service, there may be short-term or long-term disruption in our ability to secure paper from qualified sources and we may not have enough inventory to maintain our production schedule or continue to provide paper consumables to our distributors and end-users on a timely basis, or at all. For example, at most of our facilities, quantities of raw paper stored on-site represent approximately five days of paper consumables production at such facilities due to cost savings and storage limitations. Any such failure, interruption or delay may result in on-site paper storage at our paper consumable production facilities being depleted and, as a result, a reduction in the volume of production and sales of our paper consumables, which may have a material adverse effect on our business, results of operations and financial condition.
Paper pricing may negatively impact our results of operations, including our profit margins, and financial condition.
Our primary input is kraft paper, which we purchase from various paper suppliers around the world. Increases in global or regional market demand for paper-based products could increase the cost of the kraft paper we purchase. Increases in the price of kraft paper could also result from, among other things, increases in the cost of the raw materials used in paper production or increases in the cost of the energy our suppliers use to manufacture paper.
While historically, we have been able to successfully manage the impact of higher paper costs both by entering into annual fixed-price contracts with our suppliers, as well as by increasing the selling prices of our products, if we are unable to minimize the effects of any increases in paper costs through sourcing, pricing or other actions, our results of operations and financial condition may be materially adversely affected.
Our business is exposed to risks associated with our reliance on third partythird-party suppliers to provide both the components used in our protective packaging systems as well as certain fully-assembledfully assembled protective packaging systems.
These risks include, but are not limited to:
• | the |
• | the risk that our suppliers, including those in China that supply a majority of the components and systems provided to our end-users, will experience operational delays or disruptions, including as a result of the ongoing coronavirus outbreak, that will affect our ability to produce protective packaging systems or provide them to our distributors and end-users; |
• | the risk that our suppliers will fail, or will no longer be able to provide the components which we use to produce our protective packaging systems; |
• | the risk that our suppliers will not be able to meet an increase in demand for the components which we use to produce our |
• | the risk that our suppliers’ costs will increase, |
• | the risk that suppliers of fully assembled protective packaging systems will increase their prices or will no longer be able to provide us with protective packaging systems; and |
• | the risk that our suppliers in China will be subject to increased trade barriers as a result of U.S.-Chinese trade measures, and such trade barriers will increase the costs of these components and systems or negatively impact our ability to purchase these components and systems. |
For example, since the outbreak of a novel strain of coronavirus in China in December 2019,the ongoing COVID-19 pandemic, we have experienced delays in the supply of certain components used in the assembly of certain of our protective packaging systems. Should these delays continue or should our supply of such components be interrupted, our business and results of operations may be adversely affected.
In addition, some of our third partythird-party suppliers for components and fully-assembledfully assembled systems, including certain suppliers impacted by the ongoing coronavirus outbreak, represent our only source for such products. If we are unable to continue to purchase such components and systems from such suppliers, we may face additional costs or delays, or be unable to obtain similar components and systems. These and other factors may have a material adverse effect on our business, results of operation or financial condition.
Demand for our products could be adversely affected by changes in end-user or consumer preferences, which could have a material adverse effect on our business, financial condition or results of operations.
Our net salesrevenue depends primarily on the volume of purchases by our end-users in the e-commerce industry and other industries it serves. End-user preferences for packaging formats, as well as the preferences of our end-users, can influence net sales.revenue. Changes in these preferences, as well as changes in consumer behavior generally, could negatively impact demand for our products which could have a material adverse effect on our business, financial condition or results of operations.
Moreover, we position ourselves in the protective packaging market as the leading environmentally sustainable protective packaging solutions provider. Although we believe a market and consumer preference for environmentally sustainable solutions is a trend that is likely to continue, there is no guarantee that it will do so or that we will benefit from the continuing trend. If the current trend in favor of environmental sustainability does not continue, diminishes, or shifts away from paper and fiber-based products, demand for our products could decrease, which could have an adverse impact on our business or results of operations, including through reduced net salesrevenue and a subsequent decrease in gross margin and earnings. Additionally, the advent of emerging or improved technologies, such as the potential widespread availability of lower cost bio-plastics or increased recyclability of resin-based packaging solutions, could
satisfy market and consumer demand for environmentally sustainable packaging solutions and negatively impact our business, financial condition or results of operations even if the current trend in favor of environmentally sustainable solutions continues.
Continued consolidation in sectors in which many of our end-users operate may adversely affect our business, financial condition or results of operations.
Many of the sectors in which many of our end-users operate, such as the e-commerce, automotive after-market, IT/electronics, machinery and home goods markets, have been consolidating in recent years, and this trend may continue. Because our business relies on integrating our protective packaging systems into end-users’ existing operations and generating revenue through the sale of our paper consumables, increased consolidation may have an adverse impact on our or our distributors’ ability to attract
The loss of end-users, particularly our e-commerce end-users, or a reduction in their production requirements, could have a significant adverse impact on our net salesrevenue and profitability.
Although we have a diverse base of end-users, the loss of significant end-users or a large group of end-users, or a reduction in their production requirements, could have an adverse effect on our net salesrevenue and, depending on the magnitude of the loss or reduction, our financial condition or results of operations. There can be no assurance that our existing end-user relationships will continue or be renewed at the same level of production, or at all, in the future.
In particular, a number of our e-commerce end-users that currently use our paper consumables for void-fill, cushioning or wrapping including our largest single end-user which accounted for approximately 10.0% of our net sales for the year ended December 31, 2019, have established internal goals or initiatives relating to reducing the quantity of consumables that they utilize in their product packaging as part of environmental responsibility initiatives. If these end-users achieve their goals or if additional end-users pursue similar initiatives, they may require a reduced quantity of our paper consumables for protective packaging of their products. The loss of any e- commerce end-users, or a reduction in their purchasing levels, could have a material adverse effect on our business, financial condition or results of operations.
Our investments in research and developmentR&D may not yield the results expected.
In order to compete in the protective packaging market, we must, among other things, adapt to changing consumer preferences and a competitive market through technological innovation. As a result of technological innovation as well as changing consumer preferences, new products can become standardized rapidly, leading to more intense competition and ongoing price erosion. In order to maintain our competitive advantage, we have invested, and will continue to invest, in research and developmentR&D of new products and technologies. However, these investments may not yield the innovation or results expected on a timely basis, or at all, and any resulting technological innovations may not lead to successful new products or otherwise improve our performance and competitive advantage. Furthermore, our competitors may develop new products that are better suited to meet consumer demands, may develop and introduce such products before we are able to do so or may otherwise negatively impact the success of our new products, any of which could have a material adverse impact on our business, financial condition or results of operations.
The global nature of our operations exposes us to numerous risks that could materially adversely affect our financial condition or results of operations.
We maintain production facilities in three countries and territories, and our products are distributed to approximately 50 countries and territories around the world. A substantial portion of our operations are located outside of the United States and 54.8%61.0% of our 2019 sales were2020 revenue was generated outside of the United States. These operations, particularly in developing regions, are subject to various risks that may not be present or as significant for our U.S. and European operations. Economic uncertainty in some of the geographic regions in which we operate, including developing regions, could result in the disruption of commerce and negatively impact our cash flows or operations in those areas. Risks inherent in our international operations include:
• | foreign currency exchange controls and tax rates, and exchange rate fluctuations, including devaluations; |
• | the potential for changes in regional and local economic conditions, including local inflationary pressures; |
• | laws and regulations governing foreign investment, foreign trade and currency exchange, such as those on transfer or repatriation of funds, which may affect our ability to repatriate cash as dividends or otherwise and may limit our ability to convert foreign cash flows into U.S. dollars; |
• | restrictive governmental actions such as those on trade protection matters, including antidumping duties, tariffs, embargoes and prohibitions or restrictions on acquisitions or joint ventures; |
• | the imposition of tariffs and other trade barriers, and the effects of retaliatory trade measures; |
• | compliance with U.S. laws and regulations, including those affecting trade and foreign investment and the U.S. Foreign Corrupt Practices Act of 1977, as amended (the |
• | compliance with tax laws, or changes to such laws or the interpretation of such laws, affecting taxable income, tax deductions, or other attributes relating to our non-U.S. earnings or operations; |
• | difficulties of enforcing agreements and collecting receivables through certain foreign legal systems; |
• | difficulties of enforcement and variations in protection of intellectual property and other legal rights; |
• | more expansive legal rights of foreign unions or works councils; |
• | changes in labor conditions and difficulties in staffing and managing international |
• | import and export delays caused, for example, by an extended strike at the port of entry, or major disruptions to international or domestic trade routes due to strikes, shortages, acts of terrorism or acts of war could cause a delay in our supply chain operations; |
• | geographic, language and cultural differences between personnel in different areas of the world; |
• | political, social, legal and economic instability, civil unrest, war, catastrophic events, acts of terrorism, and widespread outbreaks of infectious diseases. including the ongoing COVID-19 pandemic; and |
• | compliance with data protection and privacy regulations in many of the countries in which we operate, including the General Data Protection Regulation (“GDPR”) in the EU which has been in effect since May 2018. Under this regulation, our collection, processing storage, use and transmission of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, differing views on data privacy or security breaches. |
These and other factors may have a material adverse effect on our international operations and, consequently, on our financial condition or results of operations.
If significant tariffs or other restrictions are placed on the import of Chinese goods, or if China places tariffs or other restrictions on the import of U.S. goods, our business, financial condition or results of operations may be materially adversely affected.
If significant tariffs or other restrictions are placed on the import of Chinese goods or if China places significant tariffs or other restrictions on the import of U.S. goods, our business, financial condition or results of operations may be materially adversely affected. For example, in September 2018, the U.S. government assessed a 10% tariff on thousands of categories of goods, including parts that we import from China to our domestic facilities to assemble our protective systems. Additionally, the U.S. government continues to signal that it may alter trade agreements and terms between China and the United States, including limiting trade with China, and may impose additional tariffs on imports from China. If additional duties are imposed or increasingly retaliatory trade measures taken by either the United States or China, we could need to materially increase our capital expenditures relating to the assembly of our protective systems, which could require us to raise our prices and result in the loss of end-users and harm our operating performance. Alternatively, we may seek alternative supply sources outside of China which may result in significant costs and disruption to our operations. In any such event, our business could be impacted by retaliatory trade measures taken by China or other countries in response to existing or future tariffs, or the imposition of additional tariffs, any of which could cause us to raise prices or make changes to our operations, and could materially harm our business, financial condition or results of operations.
A major loss of or disruption in our assembly and distribution operations could adversely affect our business, financial condition or results of operations.
A disruption in operations at one or more of our assembly and distribution facilities, or those of our suppliers, could have a material adverse effect on our business or operations. Disruptions could occur for many reasons, including fire, natural disasters, weather, unplanned maintenance or other manufacturing problems, outbreaks of infectious diseases, including the ongoing
Furthermore, alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which could negatively affect our business and financial performance. If one of our key assembly or paper converter facilities is unable to assemble our products or convert raw paper into our paper consumables, respectively, for an extended period of time, our net salesrevenue may be reduced by the shortfall caused by the disruption and we may not
be able to meet our distributors’ and end-users’ needs, which could have a material adverse effect on our business, financial condition or results of operations.
Fluctuations between foreign currencies and the U.S. dollar could materially impact our consolidated financial condition or results of operations.
Approximately 54.8%61.0% of our net salesrevenue in 2019 were2020 was generated outside the United States. We translate net salesrevenue and other results denominated in foreign currency into U.S. dollars for our consolidated financial statements. As a result, we are exposed to currency fluctuations both in receiving cash from our international operations and in translating our financial results back to U.S. dollars. During periods of a strengthening U.S. dollar, we reported international net salesrevenue and net earnings could be reduced because foreign currencies may translate into fewer U.S. dollars. Foreign exchange rates can also impact the competitiveness of products produced in certain jurisdictions and exported for sale into other jurisdictions. These changes may impact the value received for the sale of oursour goods versus those of our competitors.
Foreign exchange rates may also impact the ability of our customers to secure sufficient funds in U.S. dollars or European currency to purchase goods for export. For example, many of our distributors are local entities in the markets in which they operate and utilize foreign currencies to operate their business. Such distributors must convert their local currency into U.S. dollars or European currency in their business with us, for which foreign exchange rate fluctuations may present additional challenges for the operation of their business. We cannot predict the effects of exchange rate fluctuations on our future operating results or business. As exchange rates vary, our results of operations and profitability may be harmed.
We could experience disruptions in operations and/or increased labor costs.
In Europe, most of our employees, including most of our employees in the Netherlands, are represented by either labor unions or workers councils and are covered by collective bargaining agreements that are generally renewable on an annual or bi-annual basis. In addition, as our business expands globally, we may be subject to new labor-related requirements that may impose additional requirements or costs on our business. As is the case with any negotiation, we may not be able to negotiate or renew acceptable collective bargaining agreements in such cases, which could result in strikes or work stoppages by affected workers. Renewal of collective bargaining agreements could also result in higher wages or benefits paid to union members. A disruption in operations or higher ongoing labor costs could materially adversely affect our business, financial condition or results of operations.
We are subject to a variety of environmental and product registration laws that expose us to potential financial liability and increased operating costs.
We are subject to a number of federal, state, local and foreign environmental, health and safety laws and regulations that govern, among other things, the manufacture and assembly of our products, the discharge of pollutants into the air, soil and water and the use, handling, transportation, storage and disposal of hazardous materials.
Many jurisdictions require us to have operating permits for our assembly and warehouse facilities and operations. Any failure to obtain, maintain or comply with the terms of these permits could result in fines or penalties, revocation or non-renewal of our permits, or orders to temporarily or permanently cease certain operations, and may have a material adverse effect on our business, financial condition or results of operations.
Some jurisdictions in which we operate have laws and regulations that govern the registration and labeling of some of our products. For example, we expect significant future environmental compliance obligations for our European operations as a result of the European Union (“EU”) Directive “Registration, Evaluation, Authorization, and Restriction of Chemicals” (EU Directive No. 2006/1907) enacted on December 18, 2006. The directive, known as REACH, imposes several requirements related to the identification and management of risks related to chemical substances manufactured or marketed in Europe. The EU also enacted in 2008 a “Classification, Labeling and Packaging” regulation, known as the CLP Regulation, which aligns the EU system of classification, labeling and packaging of chemical substances to the Globally Harmonized System. Other jurisdictions may impose similar requirements. Compliance with these requirements can be costly.
We cannot predict with reasonable certainty the future cost of environmental compliance, industrial hygiene within our facilities, product registration, or environmental remediation. Environmental laws have become more stringent and complex over time and may continue to do so. Our environmental costs and operating expenses will be subject to these evolving regulatory requirements and will depend on the scope and timing of the effectiveness of requirements in these various jurisdictions. As a result of such requirements, we may be subject to an increased regulatory burden, including significant future environmental compliance, hygiene, health and safety obligations.
Increased compliance costs, increasing risks and penalties associated with violations, or our inability to market some of our products in certain jurisdictions may have a material adverse effect on our business, financial condition or results of operations.
If we are not able to protect or maintain our trademarks, patents and other intellectual property, we may not be able to prevent competitors from developing similar products or from marketing their products in a manner that capitalizes on our trademarks, and this loss of a competitive advantage may have a material adverse effect on our business, financial position or results of operations.
Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our owned and licensed intellectual property. If we are unable to maintain the proprietary nature of our intellectual property, this loss of a competitive advantage could result in decreased net revenue or increased operating costs, either of which could have a material adverse effect on our business, financial condition or results of operations.
We own a large number of patents and pending patent applications on our products, aspects thereof, methods of use and/or methods of manufacturing. There is a risk that our patents may not provide meaningful protection and patents may never be issued for our pending patent applications. Furthermore, we have historically focused and expect to continue to focus on strategically protecting our patents, including through pursuing infringement claims, which, especially in Europe, carries the risk that a court will determine our patents are invalid or unenforceable.
Trademark and trade name protection is important to our business. Although most of our trademarks are registered in the United States and in the foreign countries/regions in which we operate, we may not be successful in asserting trademark or trade name protection. In addition, the laws of some foreign countries/regions may not protect our intellectual property rights to the same extent as the laws of the United States. The costs required to protect our trademarks and trade names may be substantial.
We cannot be certain that we will be able to assert these intellectual property rights successfully in the future or that they will not be invalidated, circumvented or challenged. Other parties may infringe on our intellectual property rights and may thereby dilute the value of our intellectual property in the marketplace. Third parties, including competitors, may assert intellectual property infringement or invalidity claims against us that could be upheld.
Intellectual property litigation, which could result in substantial cost to and diversion of effort by us, may be necessary to protect our proprietary technology or for us to defend against claimed infringement of the rights of others and to determine the scope and validity of others’ proprietary rights. We may not prevail in any such litigation, and if we are unsuccessful, we may not be able to obtain any necessary licenses on reasonable terms or at all.
Any failure by us to protect our trademarks and other intellectual property rights may have a material adverse effect on our business, financial condition or results of operations.
Our acquisition and integration of businesses could adversely affect our business, financial condition or results of operations.
From time to time, we consider acquisitions that either complement or expand our existing lines of business as part of our growth strategy. We are unable to predict the size, timing and number of acquisitions we may complete, if any, in the future. Integrating acquired businesses may create substantial costs, delays or other problems for us that could adversely affect our business, financial condition or results of operations. In addition, we may incur expenses associated with sourcing, evaluating and negotiating acquisitions (including those that are not completed), and we also may pay fees and expenses associated with financing acquisitions to investment banks and other advisors. We may also assume the liabilities of an acquired company, there can be no assurances that all potential liabilities will be identified or known to us and any such liabilities could materially adversely impact our business and financial condition.
Furthermore, we may not be able to successfully integrate any acquired businesses or realize all of the expected synergies from previously acquired businesses or related strategic initiatives. If we are unable to achieve the benefits that we expect to achieve from our strategic initiatives, we could adversely affect our business, financial condition or results of operations. Additionally, while we execute these acquisitions and related integration activities, it is possible that our attention may be diverted from our ongoing operations which may have a negative impact on our business.
We are subject to taxation in multiple jurisdictions. As a result, any adverse development in the tax laws of any of these jurisdictions or any disagreement with our tax positions could have a material adverse effect on our business, consolidated financial condition or results of operations.
We are subject to taxation in, and to the tax laws and regulations of, multiple jurisdictions as a result of the international scope of our operations and corporate and financing structure. Tax laws are dynamic and subject to change as new laws are passed and new
interpretations of the law are issued or applied. Many countries in the European Union, as well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development, are actively considering changes to existing tax laws that, if enacted, could increase our tax obligations in countries where we do business. Additional changes in tax laws could increase our overall taxes and our business, consolidated financial condition or results of operations could be adversely affected in a material way. In addition, the tax authorities in any applicable jurisdiction, including the U.S., may disagree with the positions we have taken or intend to take regarding the tax treatment or characterization of any of our transactions. If any applicable tax authorities, including U.S. tax authorities, were to successfully challenge the tax treatment or characterization of any of our transactions, it could have a material adverse effect on our business, consolidated financial condition or results of our operations.
We may be required to take write-downs or write-offs, restructuring and impairment or other charges in connection with the business combination that could have a significant negative effect on our financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.
Although we conducted due diligence on Rack Holdings before we acquired it, we cannot assure you that this diligence revealed all material issues that may be present in Rack Holdings’ business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of our and Rack Holdings’ control will not later arise. As a result, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in losses. Even if our due diligence successfully identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be noncash items and may not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to be unable to obtain future financing on favorable terms or at all.
Our level of outstanding indebtedness could adversely affect our financial condition and ability to fulfill our obligations.
We have outstanding debt, and the outstanding indebtedness may:
• | adversely impact our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or other general corporate purposes; |
• | require us to dedicate a substantial portion of our cash flow to payment of principal and interest on our debt and fees on our letters of credit, which reduces the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes; |
• | subject us to the risk of increased sensitivity to interest rate increases based upon variable interest rates, including our outstanding borrowings (if any); |
• | increase the possibility of an event of default under the financial and operating covenants contained in our existing debt instruments; and |
• | limit our ability to adjust to rapidly changing market conditions, reduce our ability to withstand competitive pressures and make it more vulnerable to a downturn in general economic conditions of our business than their competitors with less debt. |
Our ability to make scheduled payments of principal or interest with respect to our debt will depend on our ability to generate cash and our future financial results. If we are unable to generate sufficient cash flow from operations in the future to service our debt obligations, we might be required to refinance all or a portion of our existing debt or to obtain new or additional such facilities. However, we might not be able to refinance our existing debt or obtain any such new or additional facilities on favorable terms or at all.
We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an emerging growth company within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We could remain an emerging growth company for up to five years from the date of our IPO, although circumstances could cause us to lose that status earlier, including if the market value of our Class A common stock held by non-affiliates exceeds $700 million as of any June 30th before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less attractive because we will
rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the 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 registration statement declared effective or do not have a class of securities registered under the Exchange Act) 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 an election to opt out is irrevocable. We have 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, we, 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 our 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.
Our management was unable to make a full assessment regarding internal control over financial reporting for the year ended December 31, 2019, and our disclosure controls and procedures were not effective at December 31, 2019.
The Company completed the Ranpak Business Combination on June 3, 2019. Prior to the Ranpak Business Combination, the Company was a publicly traded, blank check company and the Ranpak business was part of a private, Delaware limited partnership. As a result, the design of public company internal controls over financial reporting for the Company post-Ranpak Business Combination has required and will continue to require significant time and resources from our management and other personnel. Therefore, management was unable, without deploying an unreasonable level of resources, to conduct an assessment of the Company’s internal control over financial reporting as of December 31, 2019.
Despite the fact that our management was unable to make a full assessment regarding internal control over financial reporting, in the course of preparing our financial statements as of and for the year ended December 31, 2019, we identified certain deficiencies in internal control over financial reporting that we believed to be material weaknesses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. Based on the determination that material weaknesses in our internal control over financial reporting existed as a result of an insufficient number of trained professionals with an appropriate level of public-company accounting knowledge, training and experience, our management concluded that our disclosure controls and procedures were ineffective. Management developed and executed a plan to remedy these material weaknesses, which were fully remediated in 2020. There can be no guarantee that potential material weaknesses will be alleviated in the time anticipated by management. Moreover, there can be no guarantee material weaknesses, so long as they prevail, do not lead to errors in our financial statements.
In addition, for as long as we remain an emerging growth company, we will not be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. There can be no guarantee that, once such requirement applies to us, the independent registered public accounting firm attestation requirement will not result in the identification of additional deficiencies or material weaknesses with respect to Ranpak’s internal control over financial reporting. Any such deficiencies or material weaknesses could lead to errors in our financial statements and will also require us to expend time and resources in executing a remediation.
Risk Related to Ownership of Our Securities
A significant portion of our total outstanding shares may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of common stock in the public market could occur at any time, either pursuant to the Registration Statement on Form S-3 filed on June 13, 2019, as amended, or otherwise. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of December 31, 2020, JS Capital holds approximately 39.7% of our total outstanding shares. Pursuant to the terms of the forward purchase agreements entered into at the time of the IPO and the reallocation agreement, the founder shares may not be transferred until the earlier to occur of (i) one year after the closing or (ii) the date on which we complete a liquidation, merger, share exchange or other similar transaction that results in all of our public shareholders having the right to exchange their common stock for cash, securities or other property. Notwithstanding the foregoing, if the last sale price of our common stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and other similar transactions) for any 20 trading days within any 30-trading day period commencing at least 150 days after the closing, the common stock into which the founder shares convert will be released from these transfer restrictions. Additional sales of our common stock into the market may cause the market price of our common to
drop significantly. In the first quarter of 2021, our stock exceeded $15.00 for the necessary 20-day trading period, removing all applicable restrictions on our common stock.
Certain of our stockholders, including JS Capital, own a significant portion of the outstanding voting stock of the Company.
As of December 31, 2020, JS Capital holds approximately 39.7% of our total outstanding shares. As long as JS Capital owns or controls a significant percentage of outstanding voting power, JS Capital will have the ability to strongly influence all corporate actions requiring shareholder approval, including the election and removal of directors and the size of our Board of Directors, any amendment of our organizational documents, or the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets. The interests of JS Capital may not align with the interests of our other shareholders. JS Capital is in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us. JS Capital may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
Provisions in our organizational documents may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Class A common stock and could entrench management.
Our organizational documents contain provisions that may discourage unsolicited takeover proposals that shareholders may consider to be in their best interests. These provisions include the ability of the Board of Directors to designate the terms of and issue new series of preference shares, which may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
Our organizational documents designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for substantially all disputes between the Company and our stockholders, to the fullest extent permitted by law, which could limit the Company’s stockholders’ ability to obtain a favorable judicial forum for disputes with the Company or our directors, officers, stockholders, employees or agents.
Our organizational documents provide that, to the fullest extent permitted by law, unless the Company consents to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for:
• | any derivative action or proceeding brought on behalf of the Company; |
• | any action asserting a claim of breach of a fiduciary duty owed to the Company or the Company’s stockholders by any of the Company’s directors, officers or other employees; |
• | any action asserting a claim against the Company or any of the Company’s directors, officers or employees arising out of or relating to any provision of the DGCL or the proposed organizational documents; or |
• | any action asserting a claim against the Company or any of the Company’s directors, officers, stockholders or employees that is governed by the internal affairs doctrine of the Court of Chancery of the State of Delaware. |
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or any of the Company’s directors, officers, or other employees, which may discourage lawsuits with respect to such claims. However, stockholders will not be deemed to have waived the Company’s compliance with the federal securities laws and the rules and regulations thereunder and this provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act, which provides for the exclusive jurisdiction of the federal courts with respect to all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, this provision applies to Securities Act claims and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Accordingly, there is uncertainty as to whether a court would enforce such provision with respect to suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. If a court were to find the choice of forum provision contained in the Company’s proposed organizational documents to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions, which could harm the Company’s business, results of operations and financial condition.
The NYSE may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
Our, Class A common stock is listed on the NYSE. We cannot guarantee that our securities will remain listed on the NYSE. In order to continue listing our securities on the NYSE, we must maintain certain financial, distribution and share price levels. If the NYSE delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we
expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
• | a limited availability of market quotations for our securities; |
• | reduced liquidity for our securities; |
• | a determination that our Class A common stock are a “penny stock” which will require brokers trading in our Class A common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
• | a limited amount of news and analyst coverage; and |
• | a decreased ability to issue additional securities or obtain additional financing in the future. |
The price of our securities may be volatile.
The price of our securities can vary due to general market and economic conditions and forecasts, our general business condition and the release of our financial reports. During 2020, our Class A common shares traded between $5.94 and $13.44 per share. Fluctuations in the price of our securities could contribute to the loss of all or part of your investment. In an active market for our securities, the trading price of our securities following the business combination could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our securities and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.
Factors affecting the trading price of our securities following the business combination may include:
• | actual or anticipated fluctuations in our annual or quarterly financial results or the annual or quarterly financial results of companies perceived to be similar to us; |
• | changes in the market’s expectations about our operating results; |
• | success of competitors; |
• | our operating results failing to meet the expectation of securities analysts or investors in a particular period; |
• | changes in financial estimates and recommendations by securities analysts concerning the Company or the market in general; |
• | operating and stock price performance of other companies that investors deem comparable to the Company; |
• | changes in laws and regulations affecting our business; |
• | commencement of, or involvement in, litigation involving the Company; |
• | changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; |
• | the volume of common stock available for public sale; |
• | any major change in our Board of Directors or management; |
• | sales of substantial amounts of common stock by our directors, executive officers or significant shareholders or the perception that such sales could occur; and |
• | general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism. |
Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general and NYSE have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to the Company could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price for our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our common stock adversely, the price and trading volume of our common stock could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst who may cover us were to cease their coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
Risks Related to Our Indebtedness
Our debt financing may adversely affect our leverage and financial condition and thus negatively impact the value of our shareholders’ investment in us.
We are a borrower under senior secured credit facilities provided by Goldman Sachs Merchant Banking Division consisting of a $270.9 million dollar-denominated first lien term facility, a €138.6 million euro-denominated first lien term facility and a $45.0 million revolving facility. Our senior secured credit facilities, impose, and future financing agreements are likely to impose, operating and financial restrictions on our activities which may adversely affect our ability to finance capital expenditures, acquisitions, debt service requirements or to engage in new business activities or otherwise adversely affect our ability to execute our business strategy compared to our competitors who have less debt. In some cases, these restrictions require us to comply with or maintain certain financial tests and ratios. Subject to certain exceptions, such agreements restrict our ability to, among other things:
• | incur additional indebtedness, issue disqualified stock and make guarantees; |
• | incur liens on assets; |
• | engage in mergers or consolidations or fundamental changes; |
• | sell assets; |
• | pay dividends and distributions or repurchase capital stock; |
• | make investments, loans and advances, including acquisitions; |
• | amend organizational documents; |
• | enter into certain agreements that would restrict the ability to incur liens on assets; |
• | repay certain junior indebtedness; |
• | enter into sale-leasebacks; |
• | engage in transactions with affiliates; and |
• | in the case of the direct parent holding company of the U.S. Borrower, engage in activities other than passively holding the equity interests in the U.S. Borrower. |
Further, various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of the covenants in our existing or future financing agreements, including with respect to the senior secured credit facilities, could result in a default under those agreements and under other agreements containing cross-default provisions. Such a default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. In addition, the limitations imposed by our existing and future financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing. We cannot assure you that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with these agreements or that we will be able to refinance our debt on terms acceptable to us, or at all.
General Risk Factors
We experience competition in the markets for our products and services
We compete with a number of companies that produce and/or sell similar or competing packaging products from a variety of materials. We have several foreign and domestic competitors that are well established in the protective packaging market, including some with substantially greater financial, technical and other resources than we have or broader geographic reach. Many of our existing competitors also invest substantial resources in ongoing R&D, and we anticipate increased competition as consumer
preferences and other trends increase the appeal of our product areas. To the extent that our competitors introduce new products or technologies, such developments could render our products obsolete, less competitive or uneconomical.
We compete with these companies on, among other factors, the performance characteristics of our products, service, price, and the ability to develop new packaging products and solutions. Accordingly, we may not be able to maintain a competitive advantage over our competitors with respect to these or other factors, which may adversely affect our net revenue, which could have a material adverse effect on our business, results of operations or financial condition.
Unfavorable end-user responses to price increases could have a material adverse impact on our business, results of operations and financial condition.
From time to time, and especially in periods of rising paper costs, we increase the prices of our products. Significant price increases, particularly if not taken by competitors in respect of similar products, could result in lower net revenue. For instance, interruptions in paper supply may lead us to increase the price of our paper consumables while plastic-based packaging competitors would not similarly increase the price of their products, which may result in a reduction in our market share and net revenue. Such loss of end-users or lower net revenue may materially adversely affect our business, results of operations and financial condition.
Our performance, competitive position and prospects for future growth could be negatively impacted if new products we develop do not meet sales or margin expectations, which could have a material adverse effect on our business, financial condition or results of operations.
Our performance is dependent in part on our continuing ability to develop products that appeal to end-users by providing new or enhanced value propositions and provide us with a favorable return on the products’ cost through sales of paper consumables. The development and introduction cycle of each of these new products can be lengthy and involve high levels of investment. New products may not meet sales or margin expectations due to many factors, including our inability to (i) accurately predict demand, end-user preferences and evolving industry standards; (ii) resolve technical and technological challenges in a timely and cost-effective manner; or (iii) achieve manufacturing efficiencies. To the extent any new products do not meet our sales or margin expectations, our competitive position and future growth prospects may be negatively impacted, which could have a materially adverse effect on our business, financial condition or results of operations.
Our efforts to expand beyond our core product offerings and into adjacent markets may not succeed and could adversely impact our business, financial condition or results of operations.
We may seek to expand beyond our core fiber-based protective packaging systems and develop products or business strategies that have wider applications for manufacturers, end-users, or consumers. Expanding into new markets would require us to devote substantial additional resources to such expansion, and our ability to succeed in developing such products to address such markets is not certain. It is likely that we would need to take additional steps, such as hiring additional personnel, partnering with new third parties and incurring considerable R&D expenses, in order to pursue such an expansion successfully.
Any such expansion would be subject to additional uncertainties. For example, we could encounter difficulties in attracting new end-users due to lower levels of familiarity with our brand among potential distributor partners and end-users in markets we do not currently serve. As a result, we may not be successful in future efforts to expand into or achieve profitability from new markets, new business models or strategies or new product types, and our ability to generate net revenue from our current products and continue our existing business may be negatively affected. If any such expansion does not enhance our ability to maintain or grow net revenue or recover any associated development costs, our business, financial condition or results of operations could be adversely affected.
Uncertain global economic conditions have had and could continue to have an adverse effect on our financial condition or results of operations.
Uncertain global economic conditions have had and may continue to have an adverse impact on our business in the form of lower net revenue due to weakened demand, unfavorable changes in product price/mix, or lower profit margins. For example, global economic downturns have adversely impacted some of our end-users, such as automotive companies, distributors, electronic manufacturers, machinery manufacturers, home goods manufacturers and e-commerce and mail order fulfillment firms, and other end-users that are particularly sensitive to business and consumer spending.
During economic downturns or recessions, there can be heightened competition for net revenue and increased pressure to reduce selling prices as end-users may reduce their volume of purchases. Also, reduced availability of credit may adversely affect the ability of some of our end-users and suppliers to obtain funds for operations and capital expenditures. This could negatively impact our ability to obtain necessary supplies as well as the sales of materials and equipment to affected end-users. This could also result in reduced or delayed collections of outstanding accounts receivable from distributors or end-users. If we lose significant sales volume,
are required to reduce our selling prices significantly or are unable to collect amounts due, there could be a negative impact on our profitability and cash flows, which could have a material adverse effect on our business, financial condition or results of operations.
Cyber risk and the failure to maintain the integrity of our operational or security systems or infrastructure, or those of third parties with which we do business, could have a material adverse effect on our business, financial condition or results of operations.
We are subject to an increasing number of information technology vulnerabilities, threats and targeted computer crimes which pose a risk to the security of our systems and networks and the confidentiality, availability, and integrity of our data.
Disruptions or failures in the physical infrastructure or operating systems that support our businesses and end- users,end-users, or cyber-attacks or security breaches of our networks or systems, could result in the loss of end-users and business opportunities, legal liability, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensatory costs, and additional compliance costs, any of which could materially adversely affect our business, financial condition or results of operations. While we attempt to mitigate these risks, our systems, networks, products, solutions and services remain potentially vulnerable to advanced and persistent threats.
We also maintain and have access to sensitive, confidential or personal data or information in certain of our businesses that are subject to privacy and security laws, regulations and end-user controls. Despite our efforts to protect such sensitive, confidential or personal data or information, our facilities and systems and those of our end- users and third-party service providers may be vulnerable to security breaches, theft, misplaced or lost data, programming and/or human errors that could lead to the compromising of sensitive, confidential or personal data or information, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions, which in turn could adversely affect our business, financial condition or results of operations.
We are subject to anti-corruption and anti-money laundering laws with respect to both our domestic and international operations, and non-compliance with such laws can subject us to criminal and civil liability and harm our business.
We are subject to the Foreign Corrupt Practices Act, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and possibly other anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit us from authorizing, offering, or directly or indirectly providing improper payments or benefits to recipients in the public or private sector. We can be held liable for the corrupt or other illegal activities of these third-parties,third parties, our employees, representatives, contractors and agents, even if we do not explicitly authorize such activities. In addition, although we have implemented policies and procedures to ensure compliance with anticorruption and related laws, there can be no assurance that all of our employees, representatives, contractors, partners, or agents will comply with these laws at all times. Noncompliance with these laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and debarment from contracting with certain governments or other persons, the loss of export privileges, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations and financial condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. Enforcement actions and sanctions could further harm our business, results of operations and financial condition.
Product liability claims or regulatory actions could adversely affect our financial results or harm our reputation or the value of our brands.
Claims for losses or injuries purportedly caused by some of our products arise in the ordinary course of business. In addition to the risk of substantial monetary judgments, product liability claims or regulatory actions could result in negative publicity that could harm our reputation in the marketplace or adversely impact the value of our brands or ability to sell our products in certain jurisdictions. We could also be required to recall possibly defective products, or voluntarily do so, which could result in adverse publicity and significant expenses and reduced net sales.revenue. Although we maintain product liability insurance coverage, potential product liabilities claims could be excluded or exceed coverage limits under the terms of our insurance policies or could result in increased costs for such coverage.
Political and economic instability and risk of government actions affecting our business and our end-users or suppliers may adversely impact our business, results of operations and cash flows.
We are exposed to risks inherent in doing business in each of the countries/regions or regions in which we or our end-users or suppliers operate including: civil unrest, acts of terrorism, sabotage, epidemics, force majeure, war or other armed conflict and related government actions, including sanctions/embargoes, the deprivation of contract rights, the inability to obtain or retain licenses required by us to operate our plants or import or export our goods or raw materials, the expropriation or nationalization of our assets,
and restrictions on travel, payments or the movement of funds. In particular, if additional restrictions on trade with
We rely on third partythird-party distributors to store, sell, market, service and distribute our products.
We rely on our network of third partythird-party distributors to store, sell (in the case of paper consumables), market, service and distribute our protective packaging systems and paper consumables to a majority of our end-users. Because we rely on third partythird-party distributors, we are subject to a number of risks, including:
• | the risk that distributors may terminate or decline to renew their contractual relationship with us; |
• | the risk that we may not be able to renew our contracts with distributors on the same contractual terms; |
• | the risk that distributors, or the services that they rely on, will fail, or will be unable to deliver our protective packaging systems and paper-based products in a timely manner; |
• | the risk that distributors will be otherwise unable or unwilling to sell, market, service and distribute our products to end-users at the same rate they have historically, or at all; and |
• | the risk that end-users will increasingly seek to purchase consumables directly from suppliers, which would require us to alter our business model in order to accommodate direct-to-consumer sales. |
If we fail to maintain our relationships with our distributors, or if our distributors do not meet the sales, marketing and service expectations of our end-users, our business, financial condition or results of operations could be materially adversely affected.
We depend on third parties for transportation services.
We rely primarily on third parties for delivery of our raw materials, as well as for transportation to certain select end-users to which we directly sell our products. In particular, a significant portion of the raw materials we use are transported by ship, railroad or trucks, which modes of transportation are highly regulated. If any of our third-party transportation providers were to fail to deliver raw materials to us in a timely manner, or fail to deliver our products to our direct end-users in a timely manner, we might be unable to manufacture our products in response to end-user demand. For example, at most of our facilities, quantities of raw paper stored on-site represent approximately five days of paper consumables production at such facilities due to cost savings and storage limitations. In addition, if any of these third parties were to cease operations or cease doing business with us, it might be unable to replace them at reasonable cost. Any failure of a third-party transportation provider to deliver raw materials or finished products in a timely manner could harm our reputation, negatively impact our end-user relationships and have a material adverse effect on our financial condition or results of operations.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.
We are subject to laws, regulations and rules enacted by national, regional and local governments and the NYSE. In particular, we are required to comply with certain SEC, NYSE and other legal or regulatory requirements. Compliance with, and monitoring of, applicable laws, regulations and rules may be difficult, time consuming and costly. Those laws, regulations and rules and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws, regulations and rules, as interpreted and applied, could have a material adverse effect on our business and results of operations.
We are subject to litigation in the ordinary course of business, and uninsured judgments or a rise in insurance premiums may adversely impact our results of operations and financial condition.
In the ordinary course of business, we are subject to a variety of legal proceedings and legal compliance risks in our areas of operation around the world, including product liability claims, actions brought against us by our employees and other legal proceedings. Any such claims, regardless of merit, could be time-consuming and expensive to defend and could divert management’s attention and resources.
In accordance with customary practice, we maintain insurance against some, but not all, of these potential claims. We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the risks presented. The levels of insurance we maintain may not be adequate to fully cover any and all losses or liabilities. Further, we may not be able to maintain insurance at commercially acceptable premium levels or at all.
If any significant accident, judgment, claim (or a series of claims) or other event is not fully insured or indemnified against, the cost of such accident, judgment, claim(s) or other event could have a material adverse impact on our business, financial condition or results of operations. There can be no assurance as to the actual amount of these liabilities or the timing thereof. We cannot be certain that the outcome of current or future litigation will not have a material adverse impact on our business, results of operations and financial condition.
Our insurance policies may not cover all operating risks and a casualty loss beyond the limits of our coverage could adversely impact our business.
Our business is subject to operating hazards and risks relating to handling, storing, transporting and use of the products we sell. We maintain insurance policies in amounts and with coverage and deductibles that we believe are reasonable and prudent. Nevertheless, our insurance coverage may not be adequate to protect us from all liabilities and expenses that may arise from claims for personal injury or death or property damage arising in the ordinary course of business, and our current levels of insurance may not be maintained or available in the future at economical prices. If a significant liability claim is brought against us that is not adequately covered by insurance, we may have to pay the claim with our own funds, which could have a material adverse effect on our business, financial condition or results of operations.
Our annual effective income tax rate can change materially as a result of changes in our mix of U.S. and foreign earnings and other factors, including changes in tax laws and changes made by regulatory authorities.
Our overall effective income tax rate is equal to our total tax expense as a percentage of total earnings before tax. However, income tax expense and benefits are not recognized on a global basis but rather on a jurisdictional or legal entity basis. Losses in one jurisdiction may not be used to offset profits in other jurisdictions and may cause an increase in our tax rate. Changes in the mix of earnings (or losses) between jurisdictions and assumptions used in the calculation of income taxes, among other factors, could have a significant effect on our overall effective income tax rate, which may have a material adverse effect on our financial condition or results of operations.
The full realization of our deferred tax assets may be affected by a number of factors, including earnings in the United States.
We have deferred tax assets including state and foreign net operating loss carryforwards, accruals not yet deductible for tax purposes, employee benefit items, interest expense carryforwards, and other items. We have established valuation allowances to reduce the deferred tax assets to an amount that is more likely than not to be realized. Our ability to utilize the deferred tax assets depends in part upon our ability to generate future taxable income, including the scheduled reversal of deferred tax liabilities that have been generated as a result of the transaction, within each respective jurisdiction during the periods in which these temporary differences reverse or our ability to carryback any losses created by the deduction of these temporary differences. We expect to realize the assets over an extended period. If we are unable to generate sufficient future taxable income in the U.S. and/or certain foreign jurisdictions, or if there is a significant change in the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowances against our deferred tax assets. Our effective tax rate would increase if we were required to increase our valuation allowances against our deferred tax assets. In addition, changes in statutory tax rates or other legislation or regulation may change our deferred tax assets or liability balances, with either favorable or unfavorable impacts on our effective tax rate.
Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.
We are subject to income and other taxes in the United States, and our domestic tax liabilities are subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
• | changes in the valuation of our deferred tax assets and liabilities; |
• | expected timing and amount of the release of any tax valuation allowances; |
• | tax effects of stock-based compensation; |
• | costs related to intercompany restructurings; |
• | changes in tax laws, regulations or interpretations thereof; or |
• | lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates. |
In addition, we may be subject to audits of our income, sales and other taxes by U.S. federal and state authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations.
We may record a significant amount of goodwill and other identifiable intangible assets and we may never realize the full carrying value of the related assets.
We record a significant amount of goodwill and other identifiable intangible assets, including end userend-user relationships, trademarks and developed technologies. We test goodwill and intangible assets with indefinite useful lives for possible impairment annually during the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. Amortizable intangible assets are periodically reviewed for possible impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment may result from, among other things, (i) a decrease in our expected net earnings; (ii) adverse equity market conditions; (iii) a decline in current market
We are dependent upon certain key personnel.
Our ability to successfully operate our business is dependent upon the efforts of certain key personnel, including our senior management. The unexpected loss of the services of one or more of our directors or executive officers and our inability to hire and retain replacements could have a detrimental effect on us and negatively impact our operations and profitability.
Disruption and volatility of the financial and credit markets could affect our external liquidity sources.
Our principal sources of liquidity are accumulated cash and cash equivalents, short-term investments, cash flow from operations and amounts available under our lines of credit, including secured credit facilities, term loans and a revolving credit facility. We may be unable to refinance any of our indebtedness on commercially reasonable terms or at all.
Additionally, conditions in financial markets could affect financial institutions with which we have relationships and could result in adverse effects on our ability to utilize fully our committed borrowing facilities.
We may be unable to obtain additional financing to fund our operations or growth.
We may require additional financing to fund our operations or growth. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the Company.
ITEM 1B.
None.
ITEM 2.
Our global headquarters are in Concord Township, Ohio. Our wholly owned subsidiary, Ranpak B.V., maintains our European headquarters in Heerlen, The Netherlands.
We have facilities for the assembly of our systems in Concord Township, Ohio; Heerlen, The Netherlands; and Nyrany, Czech Republic. We convert our paper consumables in Concord Township, Ohio; Kansas City, Missouri; Raleigh, North Carolina; Reno, Nevada; Heerlen, The Netherlands; and Nyrany, Czech Republic. We have a dedicated Ranpak Automation facility in Kerkrade, the Netherlands.
We also maintain sales offices in Shanghai, China; Dijon, France;Laoshan, China; Paris, France; Tokyo, Japan; and Singapore.
The geographic dispersion of theseour manufacturing facilities gives us the flexibility to make our products available to our distributors and direct end-use customers at a location that is closer to their own facilities.
ITEM 3.
From time to time, we may be involved in various legal proceedings, lawsuits, and claims incidental to the conduct of our business. Our businesses are also subject to extensive regulation, which may result in regulatory proceedings against us.
ITEM 4. MINE SAFETY DISCLOSURESMine Safety Disclosures
Not applicable.
PART II
ITEM 5.
Our Class A Common Shares and warrants are listed on The New York Stock Exchangethe NYSE under the symbols “PACK” and “PACK.WS,symbol, “PACK.” respectively. Prior to the consummation
Holders of the Ranpak Business Combination on June 3, 2019, our units, Class A Shares and warrants were listed on the New York Stock Exchange under the symbols "OMAD.U," "OMAD" and "OMAD.WS," respectively. The units commenced public trading on January 18, 2018 and the Class A Shares and warrants commenced public trading separately on February 21, 2018. Upon consummation of the Ranpak Business Combination, our units automatically separated into their component securities and, as a result, no longer trade as a separate security. These units were delisted from The New York Stock Exchange.
As of February 29, 2020,March 2, 2021, there were 2223 holders of record of our Class A Common Shares 2and two holders of our Class C Common Shares and 20 holders of record of our public warrants.Shares. The actual number of holders is greater than the number of record holders
Dividends
We have not paid any cash dividends on our common shares to date and do not intend to pay cash dividends in the foreseeable future. The payment of cash dividends in the future will be dependent upon our revenues and earnings, capital requirements and general financial condition. In addition, our boardBoard of directorsDirectors is not currently contemplating and does not anticipate declaring stock dividends in the foreseeable future. Our ability to declare dividends is limited by restrictive covenants contained within our Facilities as defined in the NotesFacilities. Refer to Note 11 to our consolidated financial statements Note 10, "
Performance Graph
The following stock price performance graph should not be deemed incorporated by reference by any general statement incorporating by reference this Report into any filing under the Exchange Act or the Securities Act, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts.
The graph below compares the cumulative total return of our common stock from June 3, 2019 through December 31, 2019,2020, with the comparable cumulative return of two indices, the Russell 2000 Index (“RTY”) and the Dow Jones U.S. Containers and Packaging Index.
The graph plots the growth in value of a $100.00 initial investment in our common and in each of the indexes over the indicated time periods, and assumes reinvestment of all dividends, if any, paid on the securities. We have not paid any cash dividends and, therefore, the cumulative total return calculation for us is based solely upon share price appreciation and not upon reinvestment of cash dividends. The share price performance shown on the graph is not necessarily indicative of future price performance.
ITEM 6.
On June 3, 2019, we consummated the acquisition of all outstanding and issued equity interests of Rack Holdings, Inc. (“Rack Holdings”) pursuant to a stock purchase agreement.agreement (the “Ranpak Business Combination”). The Company (then One Madison Corporation) was deemed to be the accounting acquirer in the Ranpak Business Combination, as a result of which the Company allocated its purchase price to Rack Holdings'Holdings’ assets and liabilities at fair value, which created a new basis of accounting. Until the consummation of the Ranpak Business Combination, Rack Holdings operated as a separate business holding all of the historical assets and liabilities related to our business. Except as otherwise provided herein, our financial statement presentation includes (1)(i) the results of Rack Holdings and its subsidiaries as our accounting predecessor forin Predecessor periods, prior to the completion of the Ranpak Business Combination, and (2)(ii) the consolidated results of Rack Holdings and its subsidiaries and One Madison Corporation for periods afterSuccessor periods.
Pursuant to the completion ofNovember 2020 Amendments, we elect to provide disclosure consistent with the Ranpak Business Combination. Inrecent amendments to Regulation S-K, Item 301, which eliminate the table below for our fiscal year ended December 31, 2019, the full year information presented is the result of combining the predecessor Rack Holdings for the period January 1, 2019 through June 2, 2019 and the successor businesses from June 3, 2019 through December 31, 2019.
As of and for the years ended December 31, | ||||||||||||||||
(in millions, except per share amounts) | 2019 | 2018 | 2017 | 2016 | ||||||||||||
Statement of Operations Data: | ||||||||||||||||
Net sales | $ | 269.5 | $ | 267.9 | $ | 244.1 | $ | 224.7 | ||||||||
Gross profit | $ | 110.9 | $ | 114.6 | $ | 112.4 | $ | 104.4 | ||||||||
Gross margin % | 41.2 | % | 42.8 | % | 46.0 | % | 46.5 | % | ||||||||
Depreciation and amortization | $ | 58.4 | $ | 64.5 | $ | 61.1 | $ | 59.1 | ||||||||
Transaction costs | $ | 7.7 | $ | 3.3 | $ | 0.4 | $ | 0.3 | ||||||||
Operating income | $ | 2.2 | $ | 11.0 | $ | 31.2 | 16.7 | |||||||||
Net (loss) income | $ | (36.2 | ) | $ | (8.6 | ) | $ | 27.7 | $ | (10.8 | ) | |||||
Weighted average shares outstanding | 995 | 995 | 1,000 | |||||||||||||
Weighted average number of Class A and C common stock outstanding, basic and diluted | 55,392,201 | |||||||||||||||
Net income (loss) per share - basic and diluted | ||||||||||||||||
Net income (loss) per share | $ | (8,697.61 | ) | $ | 27,801.00 | $ | (10,762.00 | ) | ||||||||
Two-class method: | ||||||||||||||||
Net loss per common stock. Class A and C - basic and diluted | $ | (0.31 | ) | |||||||||||||
Statement of Cash Flows Data: | ||||||||||||||||
Net cash provided by operating activities | $ | 9.6 | $ | 42.0 | $ | 46.2 | $ | 37.2 | ||||||||
Capital expenditures - converter equipment (1) | $ | (26.4 | ) | $ | (21.8 | ) | $ | (22.8 | ) | $ | (22.8 | ) | ||||
Net cash used in investing activities | $ | (657.1 | ) | $ | (25.3 | ) | $ | (29.1 | ) | $ | (25.5 | ) | ||||
Net cash provided by (used in) financing activities | $ | 665.4 | $ | (7.7 | ) | $ | (14.2 | ) | $ | (12.5 | ) | |||||
Cash interest paid (1) | $ | 28.3 | $ | 29.0 | $ | 26.8 | $ | 31.3 | ||||||||
Cash taxes paid (1) | $ | 8.3 | $ | 7.6 | $ | 8.3 | $ | 9.8 | ||||||||
Balance Sheet Data: | ||||||||||||||||
Current assets | $ | 71.4 | $ | 68.3 | $ | 56.4 | $ | 38.4 | ||||||||
Converter equipment, net | $ | 93.0 | $ | 51.2 | $ | 52.1 | $ | 34.3 | ||||||||
Total assets | $ | 1,104.4 | $ | 792.7 | $ | 833.3 | $ | 813.2 | ||||||||
Current liabilities | $ | 31.9 | $ | 27.8 | $ | 29.1 | $ | 22.1 | ||||||||
Total liabilities | $ | 572.6 | $ | 596.3 | $ | 621.1 | $ | 648.6 | ||||||||
Debt | $ | 428.2 | $ | 506.5 | $ | 511.5 | $ | 496.9 | ||||||||
Cash | $ | 19.7 | $ | 17.5 | $ | 8.6 | $ | 5.3 | ||||||||
Net debt | $ | 408.5 | $ | 489.0 | $ | 502.9 | $ | 491.6 | ||||||||
Total shareholders’ equity | $ | 531.8 | $ | 196.4 | $ | 212.3 | $ | 164.6 | ||||||||
(1) For 2019, totals include the Predecessor and Successor periods |
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary NoteNotice Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Annual Report, on Form 10-K, including, without limitation, statements under “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Annual Report, on Form 10-K, words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions, as they relate to us or our management, identify forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. No assurance can be given that results in any forward-looking statement will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially. The cautionary statements made in this Annual Report on Form 10-K should be read as being applicable to all forward-looking statements whenever they appear in this Annual Report on Form 10-K.Report. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
The forward-looking statements contained in this Report and the Exhibits attached hereto are dependent upon events,based on our current expectations and beliefs concerning future developments and their potential effects on us taking into account information currently available to us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, and uncertainties (some of which are beyond our control) or other assumptions that may be outside of the Company’s control. The Company’scause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, they could cause our actual results to differ materially from those discussed in thesethe forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the sectionssection titled, “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Annual ReportReport. Except as required by law, we are not undertaking any obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. You should not take any statement regarding past trends or activities as a representation that the trends or activities will continue in the future. Accordingly, you should not put undue reliance on Form 10-K.
Overview
Ranpak is a leading provider of environmentally sustainable, systems-based, product protection solutions and end-of-line automation solutions for e-commerce and industrial supply chains. Since itsour inception in 1972, Ranpak haswe have delivered high quality protective packaging solutions, while maintaining itsour commitment to environmental sustainability. Ranpak assembles itsWe assemble our protective packaging systems and providesprovide the systems and paper consumables to customers, which include direct end-users and itsour network of exclusive paper packaging solution distributors, who in turn place the systems with and sell paper to commercial and industrial users for the conversion of paper into packaging materials. Ranpak operatesWe operate manufacturing facilities in Concord Township, Ohio; Kansas City, Missouri; Raleigh, North Carolina; and Reno, Nevada in the United States, in Heerlen and Kerkrade, the Netherlands and as well as
Nyrany, Czech Republic. RanpakIn the second quarter of 2020, we opened a new production facility for our automation business in Kerkrade, the Netherlands, located approximately three miles from our Heerlen location, to enhance our production capacity in our automation business. We also maintainsmaintain sales and administrative offices in Dijon,Paris, France; Paris, France;Laoshan, China; Shanghai, China; Tokyo, Japan; and Singapore. Ranpak isWe are a global business that generated approximately 54.8%61.0% of itsour 2020 net sales for the fiscal year 2019revenue outside of the United States.
As of December 31, 2019, Ranpak2020, we had an installed base of over 104,600approximately 117.4 thousand protective packaging systems serving a diverse set of distributors and end-users. RanpakWe generated net salesrevenue of $106.4$298.2 million in the Predecessor Period,2020. Additionally, we generated net revenue of $163.1 million in the Successor Period $269.5and $106.4 million in the combined year ended December 31,1H 2019 and $267.9 million and $244.1 million, for the years ended December 31, 2018 and 2017, respectively.
The Ranpak Business Combination
On June 3, 2019, we consummated the acquisition of all outstanding and issued equity interests of Rack Holdings, Inc. (“Rack Holdings”) pursuant to a stock purchase agreement for consideration of $794.9 million, which reflects a post-closing adjustment of $0.7 million for net working capital and additional consideration, and €140.0 million ($160.8 million) in cash, (A)(i) $341.5 million and €140.0 million of which, respectively, was used by the Seller to repay outstanding indebtedness and unpaid transaction expenses as contemplated by the stock purchase agreement and (B)(ii) the remainder of which was paid to Rack Holdings L.P. ("Seller"(“Seller”).
The Company (then One Madison Corporation) was deemed to be the accounting acquirer in the Ranpak Business Combination, as a result of which the Company allocated its purchase price to Rack Holdings'Holdings’ assets and liabilities at fair value, which created a new basis of accounting. Until the consummation of the Ranpak Business Combination, Rack Holdings operated as a separate business holding all of the historical assets and liabilities related to our business.
The Ranpak Business Combination was financed, in part, with debt of approximately $534.6 million, which became Ranpak’s direct obligation upon the consummation of the Ranpak Business Combination. Upon the consummation of the Ranpak Business Combination on June 3, 2019, Rack Holdings'Holdings’ then-existing debt, which amounted to approximately $487.6 million as of such date, was repaid in full. In December 2019, the Company closed a public offering of its Class A common stock generating net proceeds of approximately $107.7 million that was used to pay down the First Lien Dollar Term Facility.
Following the Ranpak Business Combination, we have hired, and expect to hire additional staff and implement procedures and processes to address regulatory and other customary requirements applicable to operating public companies. We have incurred additional annual expenses for, among other things, directors’ and officers’ liability insurance, director fees, and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees. We estimated that these incremental costs on an annual basis amountedwould amount to approximately $2.0 million or more per year, resulting in higher operating expenses in future periods. The closing of the Ranpak Business Combination also resulted in the elimination of certain non-recurring expenses incurred prior to the Ranpak Business Combination, which amounted to $35.4 million for the year ended December 31, 2019.
Factors Affecting the Comparability of Ranpak’sOur Results of Operations
The following factors may have affected the comparability of Ranpak’s results of operations between the periods presented in this Annual Report on Form 10-K and may affect the comparability of its results of operations in future periods.
Effect of Currency Fluctuations
. As a result of the geographic diversity of Ranpak’s operations, it is exposed to the effects of currency translation. Currency transaction exposure results when Ranpak generates netIn addition, Ranpak is subject to currency translation exposure because the operations of its subsidiaries are measured in their functional currency which is the currency of the primary economic environment in which the subsidiary operates. Any currency balances that are denominated in currencies other than the functional currency of the subsidiary are re-measured into the functional currency, with the resulting gain or loss recorded in the foreign currency (gains) losses line-item in Ranpak’s income statement. In turn, subsidiary income statement balances that are denominated in currencies other than the U.S. dollar are translated into U.S. dollars, Ranpak’s functional currency, in consolidation using the average exchange rate in effect during each fiscal month during the period, with any related gain or loss recorded as foreign currency translation adjustments in other comprehensive income (loss). The assets and liabilities of subsidiaries that use functional currencies other than the U.S. dollar are translated into U.S. dollars in consolidation using period end exchange rates, with the effects of foreign currency translation adjustments included in accumulated other comprehensive income (loss).
Ranpak does not currently hedge its foreign currency transaction or translation exposure. As a result, significant currency fluctuations could impact the comparability of its results between periods, while such fluctuations coupled with material mismatches in net salesrevenue and expenses could also adversely impact its cash flows. See “Qualitative and Quantitative Disclosures About Market Risk.”
Acquisitions
. On February 28, 2017, Ranpak acquired e3neo for total consideration of $3.3 million, including contingent consideration of $1.1 million which was paid in full in 2018, plus an earn-out opportunity, whichIn October 2020, we acquired certain amortizable intangible assets, including patents and other intellectual property, from a European manufacturer in a €1.1 million (or $1.3 million) asset acquisition transaction. Please refer to Note 9, “Goodwill, Long-Lived, and Intangible Assets, net” to our consolidated financial statements included elsewhere in this Report on Form 10-K. for further detail.
While recent acquisitions such as e3neo, have been relatively small, any significant future business acquisitions may impact the comparability of Ranpak’s results in future periods with those for prior periods.
Impact of the COVID-19 Pandemic. Ranpak estimates that approximately one-thirdThe COVID-19 pandemic has resulted in rapid changes in market and economic conditions around the world as COVID-19 continues to spread. We derive a significant portion of its netour revenue from sales either directly orof Void-Fill, Cushioning and Wrapping solutions to distributors, are destinede-commerce end-users and demand from these end-users has been strong, offsetting reductions in demand for end-usersthese products from customers in other industries. However, social distancing and similar measures adopted in many jurisdictions around the e-commerce sectors, whose businesses frequently follow traditional retail seasonal trends, including a concentration of sales in the holiday period in the fourth quarter. Ranpak’s results tendworld have impacted our ability to follow similar patterns, with the highest net sales typically recorded in its fourth fiscal quarterdemonstrate and the slowest sales in its first fiscal quarter of each fiscal year. Ranpak expects this seasonality to continue in the future,install our protective packaging systems and Automation products and, as a result, such demonstrations and installations have been delayed. If social distancing measures continue for an extended period of which itstime, growth in our protective packaging system base, acquisition of new customers and sales of Automation products may be adversely affected. We believe that these impacts are not unique to us and that our industry competitors have been impacted in a similar fashion. We are deemed an essential business under the Memorandum on Identification of Essential Critical Infrastructure Workers During COVID-19 Response issued by the United States Cybersecurity and Infrastructure Security Agency and pursuant to state decisions in states where our domestic production and distribution facilities are located. We continue to operate our production and distribution facilities, both domestically and internationally, albeit subject to social distancing and other measures to promote a safe operating environment. While we have experienced limited delays in receiving certain supplies we use to assemble our packaging systems, to date, these measures have not materially impacted the cost of producing and distributing our products, the cost and availability of raw materials and components, and we have encountered minimal disruption in our ability to fulfill customer orders. We continue to monitor our liquidity position closely and have extended payment terms to certain of our customers when necessary, while correspondingly seeking extended terms from our key suppliers. While we do not currently expect COVID-19 to have a material impact on our business, results of operations, between fiscal quartersfinancial condition or liquidity, at the time of this filing, we cannot predict the extent to which we will ultimately be impacted due to the evolving and highly uncertain nature and duration of the COVID-19 pandemic. See “Risk Factors” located previously in a given year may not be directly comparable.this Report. We will continue to evaluate the nature and extent of the impact to our business, results of operations, financial condition, and cash flows.
Key Performance Indicators and Other Factors Affecting its Performance
Ranpak uses the following key performance indicators and assessesmonitors the following other factors to analyze its business performance, determine financial forecasts, and help develop long-term strategic plans:
Protective Packaging Systems Base
—
|
| December 31, 2020 |
|
| December 31, 2019 |
|
| Change |
|
| % Change |
| ||||
Protective Packaging Systems |
| (in thousands) |
|
|
|
|
| |||||||||
Cushioning machines |
|
| 33.6 |
|
|
| 32.3 |
|
|
| 1.3 |
|
|
| 4.0 |
|
Void-fill machines |
|
| 68.0 |
|
|
| 60.6 |
|
|
| 7.4 |
|
|
| 12.2 |
|
Wrapping machines |
|
| 15.8 |
|
|
| 11.7 |
|
|
| 4.1 |
|
|
| 35.0 |
|
Total |
|
| 117.4 |
|
|
| 104.6 |
|
|
| 12.8 |
|
|
| 12.2 |
|
(in thousands) | As of December 31, | 2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||||||
Protective Packaging Systems | 2019 | 2018 | 2017 | Change | % Change | Change | % Change | ||||||||||||||
Cushioning machines | 32.3 | 31.4 | 30.0 | 0.9 | 2.9 | % | 1.4 | 4.8 | % | ||||||||||||
Void-fill machines | 60.6 | 57.2 | 52.9 | 3.4 | 5.9 | % | 4.3 | 8.2 | % | ||||||||||||
Wrapping machines | 11.7 | 8.9 | 7.6 | 2.8 | 32.0 | % | 1.3 | 16.7 | % | ||||||||||||
Total | 104.6 | 97.5 | 90.5 | 7.1 | 7.3 | % | 7.0 | 7.7 | % |
Paper Costs
. Paper is a key component of Ranpak’s cost of sales and paper costs can fluctuate significantly between periods. Ranpak purchases both 100% virgin and 100% recycled paper, as well as blends, from various suppliers for conversion into the paper consumables it sells. The cost of paper supplies is Ranpak’s largest input cost, and it negotiates supply and pricing arrangements withmost of its paper suppliers annually, with a view towards mitigating fluctuations in paper cost. Nevertheless, as paper is a commodity, its price on the open market, and in turn the prices Ranpak negotiates with suppliers at a given point in time, can fluctuate significantly, and is affected by several factors outside of Ranpak’s control, including supply and demand and the cost of other commodities that are used in the manufacture of paper, including wood, energy and chemicals. The market for Ranpak’s solutions is competitive and it may be difficult for Ranpak to pass on increases in paper prices to its customers immediately, or at all, which has in the past and could in the future adversely affectedaffect its operating results.
Basis of Presentation
Net Sales
We sell our paper products to end usersend-users primarily through an established distributor network and direct sales to select end users. The Company’send-users. Our protective packaging solutions fall into four broad categories: Void-Fill, Cushioning, Wrapping, and End-of-Line Automation. The Void-Fill protective systems convert paper to fill empty spaces in secondary packages and protect objects. The Cushioning protective systems convert paper into cushioning pads. The Wrapping protective systems create pads or paper mesh to securely wrap and protect fragile items as well as to line boxes and provide separation when shipping multiple objects. The End-of-Lineend-of-line Automation solutions include capital equipment which can size, pad, fill, flap, lid, tape and/or label the product in an integrated fashion with the speed and flow of the customer’s packaging line.
Charges for rebates and other allowances are recognized as a deduction from revenue on an accrual basis in the period in which the associated revenue is recorded. When we estimate our rebate accruals, we consider customer-specific contractual commitments including stated rebate rates and history of actual rebates paid.
We also charges mostcharge many customers a quarterly/annual fee for the use of itsour protective packaging systems on a per-unit basis, which is generally billed in advance, recorded as deferred net salesrevenue upon billing and subsequently recorded as net salesrevenue on a straight-line basis when earned over the period. Net salesrevenue also includeincludes sales of Ranpak Automation'sAutomation’s highly automated box sizing system to certain higher volume customers. See Note 4, "Revenue8, “Revenue Recognition, Contracts with Customers"Customers” to the auditedour consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Cost of Sales.
Selling, General and Administrative.
Transaction Costs.
Depreciation and Amortization.
Other Operating Expense (Income), Net. Net. Other operating expense (income), net, includes losses on the return of equipment, mainly protective packaging systems, by customers, research and developmentR&D expenses and particularly in 2017, litigation-related settlements. Returned systems are typically refurbished or disposed for salvage value.
Interest expense
Foreign currency loss (gain)
Income tax expense (benefit)
Emerging Growth Company
Results of Operations
The following table setstables set forth Ranpak’s results of operations for 2020, the year ended December 31,Successor Period, and the 1H 2019 on a Predecessor/Successor, combined basis and for the year ended, December 31, 2018Predecessor Period, with line items presented in millions of dollars.
The Ranpak Business Combination is accounted for under the scope of Financial Accounting Standards Board's Accounting Standards Codification ("ASC") Topic 805,
In addition, in our discussion below, we include certain unaudited, non-GAAP pro forma data for 2020, the year ended December 31, 2019.Successor Period, and the 1H 2019 Predecessor Period. This data is based on our historical financial statements included elsewhere in this Annual Report, on Form 10-K, adjusted (where applicable) to remove the effect of costs incurred to consummate the Ranpak Business Combination, other one-time costs incurred due to the Company entering into the Ranpak Business Combination and for purchase accounting adjustments related to the Ranpak Business Combination as well as to reflect a constant currency presentation between periods for the convenience of readers. We refer to these data as pro forma data in our discussion. However, such pro forma data have not been prepared in accordance with Article 11 of Regulation S-X. We reconcile this data to our GAAP data for the same period under “Presentation and Reconciliation of GAAP to Non-GAAP Measures” for the year ended December 31,2020 and 2019.
Comparison of 2020 to the Successor Period (June 3, 2019 to December 31, 2019),and 1H 2019 Predecessor Period (January 1, 2019 to June 2, 2019), and Year Ended December 31, 2018
|
| Successor |
|
|
| Predecessor |
| ||||||||||||||||||
|
| Year Ended December 31, | June 3, 2019 – December 31, 2019 |
|
|
| January 1, 2019 – June 2, 2019 |
| |||||||||||||||||
|
| 2020 |
|
| % Net revenue |
|
| 2019 |
|
| % Net revenue |
|
|
| 2019 |
|
| % Net revenue |
| ||||||
Net revenue |
| $ | 298.2 |
|
| ― |
|
| $ | 163.1 |
|
| ― |
|
|
| $ | 106.4 |
|
| ― |
| |||
Cost of goods sold |
|
| 175.6 |
|
|
| 58.9 |
|
|
| 97.4 |
|
|
| 59.7 |
|
|
|
| 61.2 |
|
|
| 57.5 |
|
Gross profit |
|
| 122.6 |
|
|
| 41.1 |
|
|
| 65.7 |
|
|
| 40.3 |
|
|
|
| 45.2 |
|
|
| 42.5 |
|
Selling, general and administrative expenses |
|
| 72.5 |
|
|
| 24.3 |
|
|
| 37.7 |
|
|
| 23.1 |
|
|
|
| 23.8 |
|
|
| 22.4 |
|
Transaction costs |
|
| 2.2 |
|
|
| 0.7 |
|
|
| 0.3 |
|
|
| 0.2 |
|
|
|
| 7.4 |
|
|
| 7.0 |
|
Depreciation and amortization expense |
|
| 31.5 |
|
|
| 10.6 |
|
|
| 17.2 |
|
|
| 10.5 |
|
|
|
| 17.7 |
|
|
| 16.6 |
|
Other operating expense, net |
|
| 4.7 |
|
|
| 1.6 |
|
|
| 2.4 |
|
|
| 1.5 |
|
|
|
| 2.2 |
|
|
| 2.1 |
|
Income (loss) from operations |
|
| 11.7 |
|
|
| 3.9 |
|
|
| 8.1 |
|
|
| 5.0 |
|
|
|
| (5.9 | ) |
|
| (5.5 | ) |
Interest expense |
|
| 30.2 |
|
|
| 10.1 |
|
|
| 27.3 |
|
|
| 16.7 |
|
|
|
| 20.2 |
|
|
| 19.0 |
|
Foreign currency (gain) loss |
|
| 6.1 |
|
|
| 2.0 |
|
|
| 0.7 |
|
|
| 0.4 |
|
|
|
| (2.2 | ) |
|
| (2.1 | ) |
Loss before income tax benefit |
|
| (24.6 | ) |
|
| (8.2 | ) |
|
| (19.9 | ) |
|
| (12.2 | ) |
|
|
| (23.9 | ) |
|
| (22.5 | ) |
Income tax benefit |
|
| (1.2 | ) |
|
| (0.4 | ) |
|
| (2.7 | ) |
|
| (1.7 | ) |
|
|
| (4.9 | ) |
|
| (4.6 | ) |
Net loss |
| $ | (23.4 | ) |
|
| (7.8 | ) |
| $ | (17.2 | ) |
|
| (10.5 | ) |
|
| $ | (19.0 | ) |
|
| (17.9 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
| $ | 67.9 |
|
|
|
|
|
| $ | 39.2 |
|
|
|
|
|
|
| $ | 22.9 |
|
|
|
|
|
AEBITDA |
| $ | 93.7 |
|
|
|
|
|
| ― |
|
|
|
|
|
|
| ― |
|
|
|
|
|
|
| Pro Forma |
| |||||||||||||||||||||
|
| Year Ended December 31, |
| |||||||||||||||||||||
|
| 2020 |
|
| % Net revenue |
|
| 2019 |
|
| % Net revenue |
|
| $ Change |
|
| % Change |
| ||||||
Net revenue |
| $ | 298.9 |
|
| ― |
|
| $ | 277.4 |
|
| ― |
|
| $ | 21.5 |
|
|
| 7.8 |
| ||
Cost of goods sold |
|
| 175.9 |
|
|
| 58.8 |
|
|
| 158.6 |
|
|
| 57.2 |
|
|
| 17.3 |
|
|
| 10.9 |
|
Gross profit |
|
| 123.0 |
|
|
| 41.2 |
|
|
| 118.8 |
|
|
| 42.8 |
|
|
| 4.2 |
|
|
| 3.5 |
|
Selling, general and administrative expenses |
|
| 72.9 |
|
|
| 24.4 |
|
|
| 55.6 |
|
|
| 20.0 |
|
|
| 17.3 |
|
|
| 31.1 |
|
Transaction costs |
|
| 2.2 |
|
|
| 0.7 |
|
|
| - |
|
|
| - |
|
|
| 2.2 |
|
| ― |
| |
Depreciation and amortization expense |
|
| 31.7 |
|
|
| 10.6 |
|
|
| 34.8 |
|
|
| 12.5 |
|
|
| (3.1 | ) |
|
| (8.9 | ) |
Other operating expense, net |
|
| 4.7 |
|
|
| 1.6 |
|
|
| 5.0 |
|
|
| 1.8 |
|
|
| (0.3 | ) |
|
| (6.0 | ) |
Income (loss) from operations |
|
| 11.5 |
|
|
| 3.8 |
|
|
| 23.4 |
|
|
| 8.4 |
|
|
| (11.9 | ) |
|
| (50.9 | ) |
Interest expense |
|
| 30.1 |
|
|
| 10.1 |
|
|
| 35.9 |
|
|
| 12.9 |
|
|
| (5.8 | ) |
|
| (16.2 | ) |
Foreign currency (gain) loss |
|
| 6.2 |
|
|
| 2.1 |
|
|
| (1.5 | ) |
|
| (0.5 | ) |
|
| 7.7 |
|
|
| (513.3 | ) |
Loss before income tax benefit |
|
| (24.8 | ) |
|
| (8.3 | ) |
|
| (11.0 | ) |
|
| (4.0 | ) |
|
| (13.8 | ) |
|
| 125.5 |
|
Income tax benefit |
|
| (1.4 | ) |
|
| (0.5 | ) |
|
| - |
|
|
| - |
|
|
| (1.4 | ) |
| ― |
| |
Net loss |
| $ | (23.4 | ) |
|
| (7.8 | ) |
| $ | (11.0 | ) |
|
| (4.0 | ) |
| $ | (12.4 | ) |
|
| 112.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
| $ | 67.9 |
|
|
|
|
|
| $ | 84.5 |
|
|
|
|
|
| $ | (16.6 | ) |
|
| (19.6 | ) |
AEBITDA |
| $ | 93.7 |
|
|
|
|
|
| $ | 87.3 |
|
|
|
|
|
| $ | 6.4 |
|
|
| 7.3 |
|
Successor | Predecessor | |||||||||||||
June 3, through December 31, | January 1, through June 2, | Year Ended December 31, | ||||||||||||
2019 ($) | % Net sales | 2019 ($) | % Net sales | 2018 ($) | % Net sales | |||||||||
Net sales | 163.1 | 106.4 | 267.9 | |||||||||||
Cost of sales | 97.4 | 59.7 | 61.2 | 57.5 | 153.3 | 57.2 | ||||||||
Gross Profit | 65.7 | 40.3 | 45.2 | 42.5 | 114.6 | 42.8 | ||||||||
Selling, general and administrative | 37.7 | 23.1 | 23.8 | 22.4 | 53.2 | 19.8 | ||||||||
Transaction costs | 0.3 | 0.2 | 7.4 | 7.0 | 3.3 | 1.2 | ||||||||
Depreciation and amortization | 17.2 | 10.5 | 17.7 | 16.7 | 43.2 | 16.1 | ||||||||
Other operating expense, net | 2.4 | 1.5 | 2.2 | 2.0 | 3.9 | 1.5 | ||||||||
Income from operations | 8.1 | 5.0 | (5.9 | ) | (5.6 | ) | 11.0 | 4.1 | ||||||
Interest expense | 27.3 | 16.7 | 20.2 | 19.0 | 30.9 | 11.6 | ||||||||
Foreign currency (gain) loss | 0.7 | 0.4 | (2.2 | ) | (2.0 | ) | (4.2 | ) | (1.6 | ) | ||||
Loss before income taxes | (19.9 | ) | (12.2 | ) | (23.9 | ) | (22.5 | ) | (15.7 | ) | (5.9 | ) | ||
Income tax benefit | (2.7 | ) | (1.7 | ) | (4.9 | ) | (4.6 | ) | (7.1 | ) | (2.6 | ) | ||
Net loss | (17.2 | ) | (10.5 | ) | (19.0 | ) | (17.9 | ) | (8.6 | ) | (3.2 | ) | ||
Non-GAAP: | ||||||||||||||
EBITDA | 39.2 | 22.9 | 79.7 | |||||||||||
Adjusted EBITDA | 84.6 |
Net Revenue
The following table and the discussion that follows compares Ranpak’s net salesrevenue by geographic region and by product line for the years ended December 31,2020 and 2019 and 2018, on a GAAP basis and on a non GAAP,non-GAAP, pro forma basis as described above and in the discussion below. See also “Presentation and Reconciliation of GAAP to Non-GAAP Measures” for the year ended December 31, 2019.
|
| Successor |
|
|
| Predecessor |
| ||||||||||||||||||
|
| Year Ended December 31, | June 3, 2019 – December 31, 2019 |
|
|
| January 1, 2019 – June 2, 2019 |
| |||||||||||||||||
|
| 2020 |
|
| % Net revenue |
|
| 2019 |
|
| % Net revenue |
|
|
| 2019 |
|
| % Net revenue |
| ||||||
North America |
| $ | 127.4 |
|
|
| 42.7 |
|
| $ | 81.8 |
|
|
| 50.2 |
|
|
| $ | 50.1 |
|
|
| 47.1 |
|
Europe/Asia |
|
| 170.8 |
|
|
| 57.3 |
|
|
| 81.3 |
|
|
| 49.8 |
|
|
|
| 56.3 |
|
|
| 52.9 |
|
Net revenue |
| $ | 298.2 |
|
|
| 100.0 |
|
| $ | 163.1 |
|
|
| 100.0 |
|
|
| $ | 106.4 |
|
|
| 100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cushioning machines |
| $ | 125.7 |
|
|
| 42.2 |
|
| $ | 72.3 |
|
|
| 44.3 |
|
|
| $ | 46.4 |
|
|
| 43.6 |
|
Void-fill machines |
|
| 125.0 |
|
|
| 41.9 |
|
|
| 69.1 |
|
|
| 42.4 |
|
|
|
| 42.7 |
|
|
| 40.1 |
|
Wrapping machines |
|
| 38.8 |
|
|
| 13.0 |
|
|
| 17.6 |
|
|
| 10.8 |
|
|
|
| 8.8 |
|
|
| 8.3 |
|
Other |
|
| 8.7 |
|
|
| 2.9 |
|
|
| 4.1 |
|
|
| 2.5 |
|
|
|
| 8.5 |
|
|
| 8.0 |
|
Net revenue |
| $ | 298.2 |
|
|
| 100.0 |
|
| $ | 163.1 |
|
|
| 100.0 |
|
|
| $ | 106.4 |
|
|
| 100.0 |
|
|
| Pro Forma |
| |||||||||||||||||||||
|
| Year Ended December 31, |
| |||||||||||||||||||||
|
| 2020 |
|
| % Net revenue |
|
| 2019 |
|
| % Net revenue |
|
| $ Change |
|
| % Change |
| ||||||
North America |
| $ | 127.4 |
|
|
| 42.6 |
|
| $ | 132.4 |
|
|
| 47.7 |
|
| $ | (5.0 | ) |
|
| (3.8 | ) |
Europe/Asia |
|
| 171.5 |
|
|
| 57.4 |
|
|
| 145.0 |
|
|
| 52.3 |
|
|
| 26.5 |
|
|
| 18.3 |
|
Net revenue |
| $ | 298.9 |
|
|
| 100.0 |
|
| $ | 277.4 |
|
|
| 100.0 |
|
| $ | 21.5 |
|
|
| 7.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cushioning machines |
| $ | 125.9 |
|
|
| 42.1 |
|
| $ | 125.4 |
|
|
| 45.2 |
|
| $ | 0.5 |
|
|
| 0.4 |
|
Void-fill machines |
|
| 125.1 |
|
|
| 41.9 |
|
|
| 113.5 |
|
|
| 40.9 |
|
|
| 11.6 |
|
|
| 10.2 |
|
Wrapping machines |
|
| 38.8 |
|
|
| 13.0 |
|
|
| 26.9 |
|
|
| 9.7 |
|
|
| 11.9 |
|
|
| 44.2 |
|
Other |
|
| 9.1 |
|
|
| 3.0 |
|
|
| 11.6 |
|
|
| 4.2 |
|
|
| (2.5 | ) |
|
| (21.6 | ) |
Net revenue |
| $ | 298.9 |
|
|
| 100.0 |
|
| $ | 277.4 |
|
|
| 100.0 |
|
| $ | 21.5 |
|
|
| 7.8 |
|
Successor | Predecessor | Pro Forma | ||||||||||||||||||||||
June 3, through December 31, | January 1, through June 2, | Year Ended December 31, | Year Ended December 31, | Change to December 31, | ||||||||||||||||||||
2019 ($) | % Net sales | 2019 ($) | % Net sales | 2018 ($) | % Net sales | 2019 ($) | % Net sales | 2018 ($) | 2018 (%) | |||||||||||||||
North America | 81.8 | 50.2 | % | 50.1 | 47.1 | % | 131.4 | 49.0 | % | 132.4 | 47.7 | % | 1.0 | 0.8 | % | |||||||||
Europe/Asia | 81.3 | 49.8 | % | 56.3 | 52.9 | % | 136.5 | 51.0 | % | 145.0 | 52.3 | % | 8.5 | 6.2 | % | |||||||||
Total | 163.1 | 100.0 | % | 106.4 | 100.0 | % | 267.9 | 100.0 | % | 277.4 | 100.0 | % | 9.5 | 3.6 | % | |||||||||
Cushioning machines | 72.3 | 44.3 | % | 50.8 | 43.6 | % | 119.9 | 45.0 | % | 125.4 | 45.2 | % | 5.5 | 4.6 | % | |||||||||
Void-Fill machines | 69.1 | 42.4 | % | 43.3 | 40.1 | % | 118.2 | 44.0 | % | 113.5 | 40.9 | % | (4.7 | ) | (4.0 | )% | ||||||||
Wrapping machines | 17.6 | 10.8 | % | 9.1 | 8.3 | % | 19.4 | 7.0 | % | 26.9 | 9.7 | % | 7.5 | 39.1 | % | |||||||||
Other | 4.1 | 2.5 | % | 3.2 | 8.0 | % | 10.4 | 4.0 | % | 11.6 | 4.2 | % | 1.2 | 11.3 | % | |||||||||
Total | 163.1 | 100.0 | % | 106.4 | 100.0 | % | 267.9 | 100.0 | % | 277.4 | 100.0 | % | 9.5 | 3.6 | % |
Net sales
Net revenue in North America for 2020 totaled $127.4 million. Net revenue in North America was $81.8 million in the Successor Period and $50.1 million in the 1H 2019 Predecessor Period for a combined $131.9 million in 2019. Net revenue in North America decreased $4.5 million, or 3.4% attributable to a decline in cushioning and void-fill volumes, partially offset by an increase in automation,wrapping sales. Pro forma net revenue in North America was $127.4 million for 2020, a $5.0 million, or 3.8%, decrease from pro forma net revenue in North America of $132.4 million for 2019 after purchase accounting adjustments.
Net revenue in Europe/Asia for 2020 totaled $170.8 million. Net revenue in Europe/Asia was $81.3 million in the Successor Period and $56.3 million in the 1H 2019 Predecessor Period, for a combined $137.6 million in 2019. Net revenue in Europe/Asia increased $33.2 million or 24.1% driven primarily by growth in wrapping, void-fill, and cushioning sales. Pro forma net revenue in Europe/Asia was $171.5 million for 2020, a $26.5 million, or 18.3%, increase from pro forma net revenue of $145.0 million for 2019 after purchase accounting adjustments and wrapping volumes.
Cost of Sales
Cost of salesgoods sold for 2020 totaled $175.6 million. Cost of goods sold was $97.4 million in the Successor Period and $61.2 million in the 1H 2019 Predecessor Period, and $153.3for a combined $158.6 million for the year ended December 31, 2018.in 2019. Cost of sales for the combined year ended December 31, 2019 was $158.6 million, an increase of $5.3goods sold increased $17.0 million or 3.3%, from $153.3 million for the year ended December 31, 201810.7% due to aincreases in sales year over year and higher depreciation expense of $7.6 million due to the Ranpak Business Combination fair value purchase accounting adjustment of
Selling, General, and Administrative Expenses (SG&A)
SG&A expenses werefor 2020 was $72.5 million. SG&A was $37.7 million in the Successor Period and $23.8 million in the 1H 2019 Predecessor Period, and $53.2for a combined $61.5 million for the year ended December 31, 2018.in 2019. SG&A expenses for the combined year ended December 31, 2019 were $61.5 million, an increase of $8.3increased $11.0 million or 15.7%, from $53.2 million for the year ended December 31, 201817.9% due to the cancellation and write-off of certain insurance policies related to the Predecessor,severance costs, non-cash equity compensation costs, increased support of growth initiatives, non-cash equity compensation costs and increased costs associated with being a public company. Pro forma SG&A expenses increased by $1.2$17.3 million, or 2.2%31.1%, to $72.9 million in 2020 from $55.6 million for the year ended December 31, 2019 from $54.4 million for the year ended December 31, 2018 onafter adjusting to a constant currency basis. The increase is due mainly to increased support of growth initiatives and costs associated with being a public company.in both periods. As a percentage of pro forma net sales,revenue, pro forma SG&A decreasedincreased to 24.4% in 2020 from 20.0% in the pro forma year ended December 31, 2019 from 20.7% for the year ended December 31, 2018 on a constant currency basis.
Transaction Costs
We incurred transaction costs related toof $2.2 million associated with the Ranpak Business Combination ofWarrant Exchange and other transactions in 2020. We incurred approximately $0.3 million in the Successor Period and $7.4 million in the 1H 2019 Predecessor Period and $3.3for a combined $7.7 million forassociated with the year ended December 31, 2018.
Depreciation and Amortization
Depreciation and amortization expenses for 2020 were $31.5 million. Depreciation and amortization expenses were $17.2 million in the Successor Period and $17.7 million in the 1H 2019 Predecessor Period, and $43.2for a combined $34.9 million for the year ended December 31, 2018.in 2019. Depreciation and amortization expenses for the combined year ended December 31, 2019 were $34.9 million, a decrease of $(8.3)decreased $3.4 million, or (19.1)%, from $43.2 million for the year ended December 31, 2018,9.7% due to the Ranpak Business Combination fair value adjustments, their related amortizable lives and changes in currency rates. Pro forma depreciation and amortization expenses decreased by $(7.9)$3.1 million, or (18.6)%8.9%, to $31.7 million in 2020 from $34.8 million for the year ended December 31, 2019 from $42.7 million for the year ended December 31, 2018 on a constant currency basis. As a percentage of pro forma net sales,revenue, pro forma depreciation and amortization expenses decreased to 10.6% in 2020 from 12.5% for the year ended December 31,in 2019 from 16.3% for the year ended December 31, 2018 on a constant currency basis.
Other Operating Expense, (Income), Net
Other operating expense, (income),net for 2020 was $4.7 million. Other operating expense, net was $2.4 million in the Successor Period and $2.2 million in the 1H 2019 Predecessor Period, and $3.9 million for the year ended December 31, 2018. Other operating expenses (income), net, for thea combined year ended December 31, 2019 was $4.6 million an increase of $0.7 million, or 14.8%, from $3.9 million forin 2019, nearly flat to the year ended December 31, 2018, mainly reflecting an increase in research and development expense and loss on the sale of equipment from the prior period.current year. Pro forma other operating expense, (income), net, increased $1.6 million, or 46.5%, towas $5.0 million for the year ended December 31,in 2020 and 2019 from $3.4 million for the year ended December 31, 2018 on a constant currency basis. As a percentage of pro forma net sales,revenue, pro forma other operating expenses (income),expense, net, increaseddecreased to 1.7% in 2020 from 1.8% on a pro forma basis for the year ended December 31,in 2019 from 1.3% for the year ended December 31, 2018 on a constant currency basis.
Interest Expense
Interest expense for 2020 was $30.2 million. Interest expense was $27.3 million in the Successor Period and $20.2 million in the 1H 2019 Predecessor Period, and $30.9for a combined $47.5 million for the year ended December 31, 2018.in 2019. Interest expense for the combined year ended December 31, 2019 was $47.5 million, an increase of $16.6decreased $17.3 million, or 53.3%, from $30.9 million for the year ended36.4%. Interest expense decreased due to decreased debt levels and lower interest rates, as well as transaction-related expenses in June 2019 and December 31, 2018, reflecting2019, which included a write-off of deferred financing fees and the termination of an interest rate hedgeswap. Interest expense in 2020 also includes the second half of 2018, increased debt levels, the write-off of deferred financing fees related$8.2 million Exit Payment (defined herein, refer to debt paid off as part of the Ranpak Business Combination,“Liquidity and higher interest rates, partially offset by payment of debt as a result of the use of proceeds from the secondary offering.Capital Resources” in Item 7 for further information). Pro forma interest expense increaseddecreased by $5.0$5.8 million, or 16.3%16.2%, to $30.1 million in 2020 compared to $35.9 million for the year ended December 31, 2019 from $30.9 million for the year ended December 31, 2018 on a constant currency basis. As a percentage of pro forma net sales,revenue, pro forma interest expense increaseddecreased to 10.1% in 2020 from 12.9% for the year ended December 31, 2019 from 11.7% for the year ended December 31, 2018 on a constant currency basis.
Foreign Currency (Gain) Loss
Foreign currency (gain)loss for 2020 was $6.1 million. Foreign currency loss was $0.7 million in the Successor Period $(2.2)and foreign currency gain was $2.2 million in the 1H 2019 Predecessor Period, and $(4.2)for a combined gain of $1.5 million for the year ended December 31, 2018.in 2019. Foreign currency (gain) loss for the combined year ended December 31, 2019 was $(1.5)increased $7.6 million an decrease of $(2.7) million, or (64.2)%, from $(4.2) million for the year ended December 31, 2018, reflectingdue to favorable movements in Euro exchange rates, as well as the net impact of the re-measurement of Ranpak’s Euro-denominated term facility and its Euro-denominated intercompany note to a Dutch subsidiary in the Predecessor Periods.periods. Pro forma foreign currency gainloss was $(1.5)$6.2 million for the year ended December 31, 2019in 2020 compared to a $(4.2)gain of $1.5 million foreign currency gain for the year ended December 31, 20182019 on a constant currency basis. As a percentage of pro forma net sales,revenue, pro forma foreign currency (gain) loss decreased to (0.5)% for the year ended December 31, 20192.1% in 2020 from (1.6)% for the year ended December 31, 2018 on a constant currency basis.
Income Tax Provision/(Benefit)
Income tax provision/(benefit)benefit for 2020 was $(2.7) million in the Successor Period or an effective tax rate of 13.6%, $(4.9) million in the 2019 Predecessor Period or an effective tax rate of 20.6% and $(7.1)$1.2 million, or an effective tax rate of 45.1% for the year ended December 31, 2018.6.2%. Income tax provision/(benefit) for the combined year ended December 31, 2019 was $(7.6) million, an increase of $(0.5) million, or 7.4%, from $(7.1) million for the year ended December 31, 2018. Pro forma income tax benefit was $0.0$2.7 million or an effective tax rate of 0.0%in the Successor Period and $4.9 million in the 1H 2019 Predecessor Period, for the year ended December 31, 2019 compared to a taxcombined benefit of $(7.0)$7.6 million or an effective tax rate of 44.1% for the year ended December 31, 2018 on a constant currency basis.
Net (Loss) Income
Net (loss) incomeloss for 2020 was $(17.2)$23.4 million. Net loss was $17.2 million in the Successor Period $(19.0)and $19.0 million in the 1H 2019 Predecessor Period, and $(8.6) million for the year ended December 31, 2018. Net (loss) income for thea combined year ended December 31, 2019 was $(36.2) million, an increase innet loss of $(27.6)$36.2 million in 2019. Net loss decreased $12.8 million, or 324.1%, from $(8.6) million for the year ended December 31, 2018.35.4%. Pro forma net (loss)loss was $(11.0)$23.4 million for the year ended December 31, 2019in 2020 compared to pro forma net loss of $(8.9)$11.0 million for the year ended December 31, 20182019 on a constant currency basis. The change was primarily due to the reasons discussed above.
EBITDA and Adjusted EBITDA
EBITDA for 2020 was $39.2$67.9 million compared to a combined $84.5 million in the Successor Period, $22.9 million in the 2019 Predecessor Period and $79.7 million for the year ended December 31, 2018. EBITDA for the combined year ended December 31, 2019 was $62.1 million, a decrease of $(17.6) million, or (22.1)%, from $79.7 million for the year ended December 31, 2018.2019. Adjusting for transaction costs associated with the Ranpak Business Combination, constant currency and other one-time costs, pro forma AEBITDA for 2020 totaled $93.7 million, an increase of $6.4 million, or 7.3% on a constant currency basis Adjusted EBITDA wasfrom $87.3 million an increase of $2.7 million from $84.6 million for the year ended December 31, 2018 on a constant currency basis.
Comparison of Predecessor Year Ended December 31,2019 to 2018 to Predecessor Year Ended December 31, 2017
Discussions of operations for the years ended December 31, 2018 and 2017 with line items presented in millions of dollars.
Predecessor | |||||||||||||||||
Year Ended December 31, | Change to December 31, | ||||||||||||||||
2018 ($) | % Net sales | 2017 ($) | % Net sales | 2017 ($) | 2017 (%) | ||||||||||||
Net sales | $ | 267.9 | $ | 244.1 | $ | 23.8 | 9.8 | % | |||||||||
Cost of sales | 153.3 | 57.2 | % | 131.7 | 54.0 | % | 21.6 | 16.4 | % | ||||||||
Gross Profit | 114.6 | 42.8 | % | 112.4 | 46.0 | % | 2.2 | 1.9 | % | ||||||||
Selling, general and administrative | 53.2 | 19.8 | % | 46.3 | 19.0 | % | 6.9 | 14.9 | % | ||||||||
Transaction costs | 3.3 | 1.2 | % | 0.4 | 0.1 | % | 2.9 | 814.5 | % | ||||||||
Depreciation and amortization | 43.2 | 16.1 | % | 41.9 | 17.2 | % | 1.3 | 3.1 | % | ||||||||
Other operating expense, net | 3.9 | 1.5 | % | (7.4 | ) | (3.0 | )% | 11.3 | (152.8 | )% | |||||||
Income from operations | 11.0 | 4.1 | % | 31.2 | 12.8 | % | (20.2 | ) | (64.7 | )% | |||||||
Interest expense | 30.9 | 11.6 | % | 30.7 | 12.6 | % | 0.3 | 0.8 | % | ||||||||
Foreign currency (gain) loss | (4.2 | ) | (1.6 | )% | 14.2 | 5.8 | % | (18.4 | ) | (129.8 | )% | ||||||
Loss before income taxes | (15.7 | ) | (5.9 | )% | (13.7 | ) | (5.6 | )% | (2.1 | ) | 15.0 | % | |||||
Income tax benefit | (7.1 | ) | (2.6 | )% | (41.4 | ) | (17.0 | )% | 34.3 | (82.9 | )% | ||||||
Net loss | $ | (8.6 | ) | (3.2 | )% | $ | 27.7 | 11.3 | % | $ | (36.4 | ) | (131.3 | )% |
Predecessor | |||||||||||||||||
Year Ended December 31, | Change to December 31, | ||||||||||||||||
2018 ($) | % Net sales | 2017 ($) | % Net sales | 2017 ($) | 2017 (%) | ||||||||||||
North America | $ | 131.4 | 49.0 | % | $ | 130.4 | 53.0 | % | $ | 1.0 | 0.8 | % | |||||
Europe/Asia | 136.5 | 51.0 | % | 113.7 | 47.0 | % | 22.8 | 20.1 | % | ||||||||
Total | $ | 267.9 | 100.0 | % | $ | 244.1 | 100.0 | % | $ | 23.8 | 9.7 | % | |||||
Cushioning machines | $ | 119.9 | 45.0 | % | $ | 107.5 | 44.0 | % | 12.4 | 11.6 | % | ||||||
Void-Fill machines | 118.2 | 44.0 | % | 114.1 | 47.0 | % | 4.1 | 3.7 | % | ||||||||
Wrapping machines | 19.4 | 7.0 | % | 16.1 | 7.0 | % | 3.3 | 20.4 | % | ||||||||
Other | $ | 10.4 | 4.0 | % | 6.4 | 2.0 | % | 4.0 | 62.2 | % | |||||||
Total | $ | 267.9 | 100.0 | % | $ | 244.1 | 100.0 | % | 23.8 | 9.7 | % |
Presentation and Reconciliation of US GAAP to Non-GAAP Measures
As noted above, we believe that in order to better understand the performance of the Company, providing non-GAAP financial measures to users of our financial information is helpful. Ranpak believes presentation of these non-GAAP measures is useful because they are many of the key measures that allow management to evaluate more effectively its operating performance and compare the results of its operations from period to period and against its peers without regard to financing methods or capital structure. Management does not consider these non-GAAP measures in isolation or as an alternative to similar financial measures determined in accordance with GAAP. Additionally, as a result of the Ranpak Business Combination, we believe that users of our financial information will find that the non-GAAP, pro forma data for the year ended December 31, 2019 is useful when comparing between the current and prior fiscal years.periods. The computations of EBITDA and adjusted EBITDAAEBITDA may not be comparable to other similarly titled measures of other companies. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, measures of financial performance as determined in accordance with GAAP or as indicators of operating performance.
The following tables and related notes reconcile certain non-GAAP measures including the non-GAAP pro forma measures, to GAAP information presented in this Annual Report on Form 10-K for the years ended December 31, 20192020 and 2018:
|
| Successor |
| |||||||||
|
| Year Ended December 31, 2020 |
| |||||||||
|
| As reported |
|
| Adjustments(6) |
|
| Non-GAAP Pro Forma |
| |||
Net revenue |
| $ | 298.2 |
|
| $ | 0.7 |
|
| $ | 298.9 |
|
Cost of goods sold |
|
| 175.6 |
|
|
| 0.3 |
|
|
| 175.9 |
|
Gross profit |
|
| 122.6 |
|
|
| 0.4 |
|
|
| 123.0 |
|
Selling, general and administrative expenses |
|
| 72.5 |
|
|
| 0.4 |
|
|
| 72.9 |
|
Transaction costs |
|
| 2.2 |
|
|
| - |
|
|
| 2.2 |
|
Depreciation and amortization expense |
|
| 31.5 |
|
|
| 0.2 |
|
|
| 31.7 |
|
Other operating expense, net |
|
| 4.7 |
|
|
| - |
|
|
| 4.7 |
|
Income from operations |
|
| 11.7 |
|
|
| (0.2 | ) |
|
| 11.5 |
|
Interest expense |
|
| 30.2 |
|
|
| (0.1 | ) |
|
| 30.1 |
|
Foreign currency loss |
|
| 6.1 |
|
|
| 0.1 |
|
|
| 6.2 |
|
Loss before income tax benefit |
|
| (24.6 | ) |
|
| (0.2 | ) |
|
| (24.8 | ) |
Income tax benefit |
|
| (1.2 | ) |
|
| (0.2 | ) |
|
| (1.4 | ) |
Net loss |
| $ | (23.4 | ) |
| $ | (0.0 | ) |
|
| (23.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Add(4): |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense - COS |
|
|
|
|
|
|
|
|
|
| 31.1 |
|
Depreciation and amortization expense - D&A |
|
|
|
|
|
|
|
|
|
| 31.6 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
| 30.1 |
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
| (1.5 | ) |
EBITDA |
|
|
|
|
|
|
|
|
|
| 67.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments(5): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss translation |
|
|
|
|
|
|
|
|
|
| 5.9 |
|
Constant currency |
|
|
|
|
|
|
|
|
|
| (0.3 | ) |
Non-cash impairment losses |
|
|
|
|
|
|
|
|
|
| 2.5 |
|
M&A, restructuring, severance |
|
|
|
|
|
|
|
|
|
| 5.9 |
|
Amortization of restricted stock units |
|
|
|
|
|
|
|
|
|
| 7.2 |
|
Warrant Exchange and transaction costs |
|
|
|
|
|
|
|
|
|
| 2.2 |
|
Other non-core and non-cash adjustments |
|
|
|
|
|
|
|
|
|
| 2.4 |
|
AEBITDA |
|
|
|
|
|
|
|
|
| $ | 93.7 |
|
Successor | Predecessor | Pro Forma | Predecessor | Pro Forma | ||||||||||||||||||||||||
June 3, 2019 through December 31, 2019 | January 1, 2019 through June 2, 2019 | Combined Year Ended December 31, 2019 | Adj. (8) | Year Ended December 31, 2019 | % of net sales | Year Ended December 31, 2018 | % of net sales | Better/(Worse) to Predecessor Year Ended December 31, 2018 | ||||||||||||||||||||
Net sales | $ | 163.1 | $ | 106.4 | $ | 269.5 | $ | 7.9 | (1) | $ | 277.4 | $ | 267.9 | $ | 9.5 | 3.5 | ||||||||||||
Cost of sales | 97.4 | 61.2 | 158.6 | — | (2) | 158.6 | 57.2 | 153.3 | 57.2 | 5.3 | 3.5 | |||||||||||||||||
Gross Profit | 65.7 | 45.2 | 110.9 | 7.9 | 118.8 | 42.8 | 114.6 | 42.8 | 4.2 | 3.7 | ||||||||||||||||||
Selling, general and administrative | 37.7 | 23.8 | 61.5 | (5.9 | ) | (3) | 55.6 | 20.0 | 53.2 | 19.8 | 2.4 | 4.5 | ||||||||||||||||
Transaction costs | 0.3 | 7.4 | 7.7 | (7.7 | ) | (3) | — | — | 3.3 | 1.2 | (3.3 | ) | (100.0 | ) | ||||||||||||||
Depreciation and amortization | 17.2 | 17.7 | 34.9 | (0.1 | ) | (4) | 34.8 | 12.5 | 43.2 | 16.1 | (8.4 | ) | (19.4 | ) | ||||||||||||||
Other operating expense, net | 2.4 | 2.2 | 4.6 | 0.4 | 5.0 | 1.8 | 3.9 | 1.5 | 1.1 | 28.2 | ||||||||||||||||||
Income (loss) from operations | 8.1 | (5.9 | ) | 2.2 | 21.2 | 23.4 | 8.4 | 11.0 | 4.1 | 12.4 | 112.7 | |||||||||||||||||
Interest expense | 27.3 | 20.2 | 47.5 | (11.6 | ) | (5) | 35.9 | 12.9 | 30.9 | 11.6 | 5.0 | 16.2 | ||||||||||||||||
Foreign currency (gain) loss | 0.7 | (2.2 | ) | (1.5 | ) | — | (1.5 | ) | (0.5 | ) | (4.2 | ) | (1.6 | ) | 2.7 | (64.3 | ) | |||||||||||
Loss before income taxes | (19.9 | ) | (23.9 | ) | (43.8 | ) | 32.8 | (11.0 | ) | (4.0 | ) | (15.7 | ) | (5.9 | ) | 4.7 | (29.9 | ) | ||||||||||
Income tax (benefit) expense | (2.7 | ) | (4.9 | ) | (7.6 | ) | 7.6 | (6) | — | — | (7.1 | ) | (2.6 | ) | 7.1 | (100.0 | ) | |||||||||||
Net (loss) income | $ | (17.2 | ) | $ | (19.0 | ) | $ | (36.2 | ) | $ | 25.2 | (11.0 | ) | (4.0 | ) | (8.6 | ) | (3.2 | ) | (2.4 | ) | 27.9 | ||||||
Add (9): | ||||||||||||||||||||||||||||
COS Depreciation & amortization | 24.8 | 21.3 | 3.5 | 16.4 | ||||||||||||||||||||||||
SG&A Depreciation & amortization | 34.8 | 43.2 | (8.4 | ) | (19.4 | ) | ||||||||||||||||||||||
Interest expense | 35.9 | 30.9 | 5.0 | 16.2 | ||||||||||||||||||||||||
Income tax (benefit) expense | — | (7.1 | ) | 7.1 | (100.0 | ) | ||||||||||||||||||||||
EBITDA | 84.5 | 79.7 | 4.8 | 6.0 | ||||||||||||||||||||||||
Adjustment (7) | ||||||||||||||||||||||||||||
Unrealized (gain) loss translation | (1.5 | ) | (4.2 | ) | 2.7 | (64.3 | ) | |||||||||||||||||||||
Contingent liability adjustment | (1.2 | ) | — | (1.2 | ) | n/a | ||||||||||||||||||||||
Constant currency adjustment at 1.15 | — | (1.1 | ) | 1.1 | (100.0 | ) | ||||||||||||||||||||||
Non-cash impairment losses | 2.5 | 1.8 | 0.7 | 38.9 | ||||||||||||||||||||||||
M&A, restructuring and severance | — | 7.5 | (7.5 | ) | (100.0 | ) | ||||||||||||||||||||||
PE sponsor costs | 1.3 | 1.6 | (0.3 | ) | (18.8 | ) | ||||||||||||||||||||||
Restricted stock unit expense | 1.7 | — | 1.7 | n/a | ||||||||||||||||||||||||
Other non-core and non-cash adjustments | — | (0.7 | ) | 0.7 | (100.0 | ) | ||||||||||||||||||||||
Adjusted EBITDA | $ | 87.3 | $ | 84.6 | $ | 2.7 | 3.2 |
|
| Successor |
|
| Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| June 3, 2019 – |
|
| January 1, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| December 31, 2019 |
|
| – June 2, 2019 |
|
| Year Ended December 31, 2019 |
| |||||||||||
|
| As reported |
|
| As reported |
|
| Combined |
|
| Adjustments(6) |
|
| Non-GAAP Pro Forma |
| |||||
Net revenue |
| $ | 163.1 |
|
| $ | 106.4 |
|
| $ | 269.5 |
|
| $ | 7.9 |
| (1) | $ | 277.4 |
|
Cost of goods sold |
|
| 97.4 |
|
|
| 61.2 |
|
|
| 158.6 |
|
|
| - |
| (2) |
| 158.6 |
|
Gross profit |
|
| 65.7 |
|
|
| 45.2 |
|
|
| 110.9 |
|
|
| 7.9 |
|
|
| 118.8 |
|
Selling, general and administrative expenses |
|
| 37.7 |
|
|
| 23.8 |
|
|
| 61.5 |
|
|
| (5.9 | ) |
|
| 55.6 |
|
Transaction costs |
|
| 0.3 |
|
|
| 7.4 |
|
|
| 7.7 |
|
|
| (7.7 | ) |
|
| - |
|
Depreciation and amortization expense |
|
| 17.2 |
|
|
| 17.7 |
|
|
| 34.9 |
|
|
| (0.1 | ) |
|
| 34.8 |
|
Other operating expense, net |
|
| 2.4 |
|
|
| 2.2 |
|
|
| 4.6 |
|
|
| 0.4 |
|
|
| 5.0 |
|
Income (loss) from operations |
|
| 8.1 |
|
|
| (5.9 | ) |
|
| 2.2 |
|
|
| 21.2 |
|
|
| 23.4 |
|
Interest expense |
|
| 27.3 |
|
|
| 20.2 |
|
|
| 47.5 |
|
|
| (11.6 | ) |
|
| 35.9 |
|
Foreign currency (gain) loss |
|
| 0.7 |
|
|
| (2.2 | ) |
|
| (1.5 | ) |
|
| - |
|
|
| (1.5 | ) |
Income (loss) before income tax expense (benefit) |
|
| (19.9 | ) |
|
| (23.9 | ) |
|
| (43.8 | ) |
|
| 32.8 |
|
|
| (11.0 | ) |
Income tax benefit |
|
| (2.7 | ) |
|
| (4.9 | ) |
|
| (7.6 | ) |
|
| 7.6 |
| (3) |
| - |
|
Net loss |
| $ | (17.2 | ) |
| $ | (19.0 | ) |
| $ | (36.2 | ) |
| $ | 25.2 |
|
|
| (11.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add(4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense - COS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 24.8 |
|
Depreciation and amortization expense - D&A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 34.8 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 35.9 |
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 84.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments(5): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1.5 | ) |
Non-cash impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2.5 |
|
Amortization of restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.7 |
|
Contingent liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1.2 | ) |
Other non-core and non-cash adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.3 |
|
AEBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 87.3 |
|
|
| Non-GAAP Pro Forma |
| |||||||||||||
|
| Year Ended December 31, |
|
|
|
|
|
|
|
|
| |||||
|
| 2020 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
Net revenue |
| $ | 298.9 |
|
| $ | 277.4 |
|
| $ | 21.5 |
|
|
| 7.8 |
|
Cost of goods sold |
|
| 175.9 |
|
|
| 158.6 |
|
|
| 17.3 |
|
|
| 10.9 |
|
Gross profit |
|
| 123.0 |
|
|
| 118.8 |
|
|
| 4.2 |
|
|
| 3.5 |
|
Selling, general and administrative expenses |
|
| 72.9 |
|
|
| 55.6 |
|
|
| 17.3 |
|
|
| 31.1 |
|
Transaction costs |
|
| 2.2 |
|
|
| - |
|
|
| 2.2 |
|
| ― |
| |
Depreciation and amortization expense |
|
| 31.7 |
|
|
| 34.8 |
|
|
| (3.1 | ) |
|
| (8.9 | ) |
Other operating expense, net |
|
| 4.7 |
|
|
| 5.0 |
|
|
| (0.3 | ) |
|
| (6.0 | ) |
Income from operations |
|
| 11.5 |
|
|
| 23.4 |
|
|
| (11.9 | ) |
|
| (50.9 | ) |
Interest expense |
|
| 30.1 |
|
|
| 35.9 |
|
|
| (5.8 | ) |
|
| (16.2 | ) |
Foreign currency (gain) loss |
|
| 6.2 |
|
|
| (1.5 | ) |
|
| 7.7 |
|
|
| (513.3 | ) |
Loss before income tax benefit |
|
| (24.8 | ) |
|
| (11.0 | ) |
|
| (13.8 | ) |
|
| 125.5 |
|
Income tax benefit |
|
| (1.4 | ) |
|
| - |
|
|
| (1.4 | ) |
| ― |
| |
Net loss |
|
| (23.4 | ) |
|
| (11.0 | ) |
|
| (12.4 | ) |
|
| 112.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add(4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense - COS |
|
| 31.1 |
|
|
| 24.8 |
|
|
| 6.3 |
|
|
| 25.4 |
|
Depreciation and amortization expense - D&A |
|
| 31.6 |
|
|
| 34.8 |
|
|
| (3.2 | ) |
|
| (9.2 | ) |
Interest expense |
|
| 30.1 |
|
|
| 35.9 |
|
|
| (5.8 | ) |
|
| (16.2 | ) |
Income tax benefit |
|
| (1.5 | ) |
|
| - |
|
|
| (1.5 | ) |
| ― |
| |
EBITDA |
|
| 67.9 |
|
|
| 84.5 |
|
|
| (16.6 | ) |
|
| (19.6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments(5): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss translation |
|
| 5.9 |
|
|
| (1.5 | ) |
|
| 7.4 |
|
|
| (493.3 | ) |
Constant currency |
|
| (0.3 | ) |
|
| - |
|
|
| (0.3 | ) |
| ― |
| |
Non-cash impairment losses |
|
| 2.5 |
|
|
| 2.5 |
|
|
| - |
|
|
| - |
|
M&A, restructuring, severance |
|
| 5.9 |
|
|
| - |
|
|
| 5.9 |
|
| ― |
| |
Amortization of restricted stock units |
|
| 7.2 |
|
|
| 1.7 |
|
|
| 5.5 |
|
|
| 323.5 |
|
Warrant Exchange and transaction costs |
|
| 2.2 |
|
|
| - |
|
|
| 2.2 |
|
| ― |
| |
Contingent liability adjustment |
|
| - |
|
|
| (1.2 | ) |
|
| 1.2 |
|
|
| (100.0 | ) |
Other non-core and non-cash adjustments |
|
| 2.4 |
|
|
| 1.3 |
|
|
| 1.1 |
|
|
| 84.6 |
|
AEBITDA |
| $ | 93.7 |
|
| $ | 87.3 |
|
| $ | 6.4 |
|
|
| 7.3 |
|
(see subsequent footnotes)
(1) | Adjust for percentage of completion revenue recognition change. |
(2) | Adjust for percentage of completion revenue recognition change for cost of sales. |
(3) | Adjust tax provision at 21.0% corporate rate for items adjusted above. |
(4) | Reconciliations of EBITDA and AEBITDA for each period presented are to net (loss) income, the nearest GAAP equivalent, and accordingly include the adjustments shown in the “Adj.” column to net (loss) income of each table. |
(5) | Adjustments are related to non-recurring costs such as: unrealized non-cash (gains) losses on translation of the Predecessor debt, private equity monitoring fees, non-cash (gain) loss on the disposal of machines, acquisition costs, severance and a revenue recognition adjustment related to e3neo acquisition. Certain costs related to being a public company, such as additional staff, legal and accounting costs that were not included in the Predecessor are also included in AEBITDA. |
(in thousands) | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | ||||||||
Net sales | $ | 3,785.4 | $ | (3,430.7 | ) | $ | 1,791.9 | ||||
Cost of sales | 2,170.7 | (1,938.1 | ) | 936.4 | |||||||
Gross Profit | 1,614.7 | (1,492.6 | ) | 855.5 | |||||||
Selling, general and administrative | 800.1 | (825.3 | ) | 396.9 | |||||||
Transaction costs | — | — | — | ||||||||
Depreciation and amortization | 365.4 | (450.7 | ) | 260.1 | |||||||
Other operating expense, net | 380.9 | (435.4 | ) | 67.4 | |||||||
Income (loss) from operations | 68.3 | 218.8 | 131.1 | ||||||||
Interest expense | 136.0 | (88.1 | ) | 54.2 | |||||||
Foreign currency (gain) loss | 5.0 | (2.8 | ) | — | |||||||
Loss before income taxes | (72.7 | ) | 309.7 | 76.9 | |||||||
Income tax (benefit) expense | 9.5 | 125.7 | 27.7 | ||||||||
Net (loss) income | $ | (82.2 | ) | $ | 184.0 | $ | 49.2 |
(6) | Effect of Euro constant currency adjustment to a rate of $1.15 U.S. Dollar to €1.00 as follows: |
|
| Year Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net revenue |
| $ | 0.7 |
|
| $ | 3.8 |
|
Cost of goods sold |
|
| 0.3 |
|
|
| 2.2 |
|
Gross profit |
|
| 0.4 |
|
|
| 1.6 |
|
Selling, general and administrative expenses |
|
| 0.4 |
|
|
| 0.8 |
|
Transaction costs |
|
| - |
|
|
| - |
|
Depreciation and amortization expense |
|
| 0.2 |
|
|
| 0.4 |
|
Other operating expense (income), net |
|
| - |
|
|
| 0.4 |
|
Income (loss) from operations |
|
| (0.2 | ) |
|
| - |
|
Interest expense |
|
| (0.1 | ) |
|
| 0.2 |
|
Foreign currency loss |
|
| 0.1 |
|
|
| - |
|
Loss before income tax benefit |
|
| (0.2 | ) |
|
| (0.2 | ) |
Income tax benefit |
|
| (0.2 | ) |
|
| - |
|
Net income (loss) |
| $ | (0.0 | ) |
| $ | (0.2 | ) |
Predecessor | |||||||||||||||||
Year Ended December 31, 2018 | % of net sales | Year Ended December 31, 2017 | % of net sales | Better/(Worse) Year Ended December 31, 2017 | |||||||||||||
Net sales | $ | 267.9 | $ | 244.1 | $ | 23.8 | 9.8 | ||||||||||
Cost of sales | 153.3 | 57.2 | 131.7 | 54.0 | 21.6 | 16.4 | |||||||||||
Gross Profit | 114.6 | 42.8 | 112.4 | 46.0 | 2.2 | 2.0 | |||||||||||
Selling, general and administrative | 53.2 | 19.8 | 46.3 | 19.0 | 6.9 | 15.0 | |||||||||||
Transaction costs | 3.3 | 1.2 | 0.4 | 0.1 | 2.9 | 827.1 | |||||||||||
Depreciation and amortization | 43.2 | 16.1 | 41.9 | 17.2 | 1.3 | 3.1 | |||||||||||
Other operating expense, net | 3.9 | 1.5 | (7.4 | ) | (3.0 | ) | 11.3 | (153.0 | ) | ||||||||
Income (loss) from operations | 11.0 | 4.1 | 31.2 | 12.8 | (20.2 | ) | (64.7 | ) | |||||||||
Interest expense | 30.9 | 11.6 | 30.7 | 12.6 | 0.2 | 0.7 | |||||||||||
Foreign currency (gain) loss | (4.2 | ) | (1.6 | ) | 14.2 | 5.8 | (18.4 | ) | (129.6 | ) | |||||||
Loss before income taxes | (15.7 | ) | (5.9 | ) | (13.7 | ) | (5.6 | ) | (2.0 | ) | 14.6 | ||||||
Income tax (benefit) expense | (7.1 | ) | (2.6 | ) | (41.4 | ) | (17.0 | ) | 34.3 | (82.8 | ) | ||||||
Net (loss) income | (8.6 | ) | (3.2 | ) | 27.7 | 11.3 | (36.3 | ) | (131.0 | ) | |||||||
Add (2): | |||||||||||||||||
COS Depreciation & amortization | 21.3 | 19.2 | 2.1 | 11.2 | |||||||||||||
SG&A Depreciation & amortization | 43.2 | 41.9 | 1.3 | 3.1 | |||||||||||||
Interest expense | 30.9 | 30.7 | 0.2 | 0.7 | |||||||||||||
Income tax (benefit) expense | (7.1 | ) | (41.4 | ) | 34.3 | (82.9 | ) | ||||||||||
EBITDA | 79.7 | 78.1 | 1.6 | 2.1 | |||||||||||||
Adjustment (1) | |||||||||||||||||
Unrealized (gain) loss translation | (4.2 | ) | 14.2 | (18.4 | ) | (129.6 | ) | ||||||||||
Constant currency adjustment at 1.15 | (1.1 | ) | 0.7 | (1.8 | ) | (246.8 | ) | ||||||||||
Non-cash impairment losses | 1.8 | 1.1 | 0.7 | 66.4 | |||||||||||||
M&A, restructuring and severance | 7.5 | 1.6 | 5.9 | 373.4 | |||||||||||||
PE sponsor costs | 1.6 | 2.0 | (0.4 | ) | (18.8 | ) | |||||||||||
Other non-core and non-cash adjustments | (0.7 | ) | (12.0 | ) | 11.3 | (94.2 | ) | ||||||||||
Adjusted EBITDA | $ | 84.6 | $ | 85.7 | $ | (1.1 | ) | (1.2 | ) |
Liquidity and Capital Resources
Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, capital expenditures, debt service, acquisitions, other commitments and contractual obligations. Ranpak evaluatesWe evaluate liquidity in terms of cash flows from operations and other sources and the sufficiency of such cash flows to fund itsour operating, investing, and financing activities.
We believe that itsour estimated cash from operations together with borrowing capacity under the revolving portion of the Facilities will provide Ranpakus with sufficient resources to cover itsour current requirements. Ranpak’sWe may also, from time to time, seek to access the equity markets, if appropriate. Our main liquidity needs relate to capital expenditures and expenses for the production and maintenance of protective packaging systems placed at end-user facilities, working capital, including the purchase of paper raw materials, and payments of principal and interest on Ranpak’sour outstanding debt. Ranpak expects itsWe expect our capital expenditures to increase as it continueswe continue to grow itsour business. Ranpak’sOur future capital requirements and the adequacy of available funds will depend on many factors, and if Ranpak iswe are unable to generateobtain needed additional funds, Ranpak willwe may have to reduce itsour operating costs or incur additional debt, which could impair itsour growth prospects and/or otherwise negatively impact itsour business.
We had $19.7$48.5 million in cash and cash equivalents as of December 31, 2019, $10.2 million at June 2, 20192020 and $17.5$19.7 million as of December 31, 2018. It also2019. Excluding deferred financing costs, we had $439.8 million in debt, $1.7 million of which was classified as short-term, as of December 31, 2020, compared to $428.2 million in debt, $1.6 million of which was classified as short-term, as of December 31, 2019, $487.6 million in debt, $4.0 million of which was classified as short-term as of June 2, 2019 and $506.5 million (including $4.4 million in short-term portion of long-term debt) as of December 31, 2018.2019. In December 2019, the Companywe closed a public offering of itsour Class A common stock generating net proceeds of approximately $107.7 million that was used to pay down long-term debt. At December 31, 2019, the Company2020, we did not have amounts outstanding under itsour $45.0 million revolving credit facility, and we had not madeno borrowings under such facility from December 31, 2019 through February 28, 2020.
Debt Profile
Ranpak’s previous credit facilities were repaid in connection with the consummation of the Ranpak Business Combination, and were replaced with the following facilities: (1)(i) a $378.2 million dollar-denominated first lien term facility (the “First Lien Dollar Term Facility”) and a €140.0 million euro-denominated first lien term facility (the “First Lien Euro Term Facility” and, together with the First Lien Dollar Term Facility, the “First Lien Term Facility”), and (2)(ii) a $45.0 million revolving facility (together, the “New Credit Facilities”). The material terms of the New Credit Facilities are summarized in Note 10, "
Debt Before the Ranpak Business Combination
Prior to the Ranpak Business Combination, the Company had two first lien credit facilities, a United States Dollar Tranche (“US$ Tranche”) and a Euro Tranche (“Euro Tranche”), a revolving credit facility and a second lien credit facility. The first lien credit facilities included: (1)(i) a seven-year Term Loan (US$ Tranche) facility in the amount of $233.4 million, (2)(ii) a seven-year Term Loan (Euro Tranche) facility in the amount of €157.0 million, and (3)(iii) a five-year $30.0 million revolving credit facility, of which the equivalent of $13.0 million may be denominated in Euros (collectively, the “Old Credit Facilities”). In March 2017, Ranpak raised $45 million of incremental First Lien (US$ Tranche) debt and used the proceeds to pay down a portion of the Second Lien (US$ Tranche), the results of which saved Ranpak 400 basis points on the applicable interest rate on $45 million of its outstanding debt. Borrowings under the US$ Tranche bore interest in an amount based on either the Adjusted Eurodollar rate (the greater of 1.00% or LIBOR) plus 3.25% or a Base Rate plus 2.75% (the higher of the Federal Funds effective rate plus ½ of 1%, prime, or the Adjusted Eurodollar rate plus 1%). Borrowings under the Euro Tranche bore interest in an amount based on the Adjusted EURIBOR rate (the
greater of 1.00% or EURIBOR) plus 3.25%. Interest on LIBOR and EURIBOR rate loans were payable at the end of the applicable interest periods.
Borrowings under the revolving credit facility bore interest in an amount based on either the base rate or Adjusted Eurodollar rate plus a variable margin that is dependent on the First Lien Net Leverage Ratio. The first lien credit facilities were secured by a first priority security interest in substantially all of the Company’s assets. Principal payments on the first lien term loan facilities were due quarterly and were based on 1% of the annual outstanding balances. Additionally, per the credit agreement, Ranpak was required to make additional annual pre-payments, based on consolidated excess cash flow calculation results.
The second lien credit facility was an eight-year US$ Tranche in the amount of $135.0 million. Borrowings under the US$ Tranche bore interest in an amount based on either the Adjusted Eurodollar rate (the greater of 1.00% or LIBOR) plus 7.25% or a base rate plus 6.25%. The second lien credit agreement was secured by a second priority security interest in substantially all of Ranpak’s assets and includes default provisions and contained a covenant similar to the first lien credit facility described above.
The Old Credit Facilities were repaid in full upon the consummation of the Ranpak Business Combination and replaced with the New Credit Facilities.
Debt After the Ranpak Business Combination
In connection with the stock purchase agreement related to the Ranpak Business Combination, One Madison obtained a debt commitment letter (as amended and restated, supplemented or otherwise modified, the "debt“debt commitment letter"letter”), pursuant to which the Goldman Sachs Lending Partners LLC and certain affiliated investment entities thereof (collectively, the "Lenders"“Lenders”) committed to provide senior secured credit facilities to, in part, (i) fund the Ranpak Business Combination, (ii) repay and terminate the existing indebtedness of Ranpak (the “debt refinancing”) and (iii) pay all fees, premiums, expenses and other transaction costs incurred in connection with the foregoing. The aggregate commitment of the senior secured credit facilities consists of a $289.2 million dollar-denominated first lien term facility and a €140.0 million euro-denominated first lien term facility (with the ability to reduce the dollar-denominated first lien term facility and correspondingly increase the euro-denominated first lien term facility in an amount of up to €60.0 million), a $45.0 million revolving facility (including the right to bring in additional lenders to provide commitments with respect to the revolving facility in an amount of up to $30.0 million and additional borrowing capacity available for letters of credit in an amount of up to $5.0 million), a $100.0 million first lien contingency term facility and a $100.0 million second lien contingency term facility. Upon the consummation of the Ranpak Business Combination, the New Credit Facilities became the direct obligations of certain subsidiaries of Ranpak (collectively, the "borrowers"“borrowers”) and were secured by substantially all of Ranpak’s assets.
Each of the First Lien Term Facility, and the first lien contingency term facility accrue interest at a rate of LIBOR plus 3.75% (assuming a first lien net leverage ratio of less than 5.00:1.00). The second lien contingency term facility accrues interest at a rate of LIBOR plus 7.50%. No amounts have been drawn on under the second lien contingency. The first lien term facility and first lien contingency term facility mature on the seventh anniversary of the date of the closing of the Ranpak Business Combination, June 3, 2026. The revolving facility matures on the fifth anniversary of the date of the Closing June 3, 2024. The second lien contingency term facility matures on the eighth anniversary of the date of the Closing, June 3, 2027 but was not available for us to borrow against at December 31, 2019.
The revolving facility includes borrowing capacity available for letters of credit of up to $5 million. Any issuance of letters of credit will reduce the amount available under the revolving facility.
In addition, the debt financing provides the borrowers with the option to increase commitments under the debt financing in an aggregate amount not to exceed the greater of $95 million and 100% of trailing-twelve months consolidated EBITDA, plus any voluntary prepayments of the debt financing (and, in the case of the revolving facility, to the extent such voluntary prepayments are accompanied by permanent commitment reductions under the revolving facility), plus unlimited amounts subject to the relevant net leverage ratio tests and certain other conditions.
The obligations of the borrowers under the debt financing and certain of their respective obligations under hedging arrangements and cash management arrangements are unconditionally guaranteed by the direct parent of each borrower and each existing and subsequently acquired or organized direct or indirect wholly-owned USU.S. or Dutch restricted subsidiary (collectively, the “guarantors”), in each case, other than certain excluded subsidiaries and subject to other customary limitations set forth in the definitive documentation with respect to the debt financing. The debt financing is secured by a security interest in substantially all of the assets of the borrowers and the guarantors (and including a pledge of the equity interests of each borrower and of each guarantor and of their respective direct, wholly-owned restricted subsidiaries), in each case subject to customary exceptions.
The revolving facility requires the borrowers to maintain a maximum first lien net leverage ratio 9.10:1.00 based on the amount of the initial first lien term loans under the debt financing actually borrowed on the closing date based on providing at least a 35% cushion to consolidated EBITDA for the most recent four fiscal quarter periods ending prior to the date of the closing. This “springing” financial covenant is tested on the last day of each fiscal quarter, but only if on such date the sum of (i) the principal amount of outstanding revolving loans under the revolving facility, (ii) drawings on letters of credit under the revolving facility and (iii) the face amount of non-cash collateralized letters of credit under the revolving facility in excess of an amount to be set forth in the definitive documentation with respect to the debt financing exceeds 35% of the total revolving commitments under the revolving facility.
The senior secured credit facilities also contain a number of customary negative covenants. Such covenants, among other things, will limit or restrict the ability of each of the borrowers, their restricted subsidiaries, and where applicable, the direct parent holding companies of the borrowers, to:
• | incur additional indebtedness, issue disqualified stock and make guarantees; |
• | incur liens on assets; |
• | engage in mergers or consolidations or fundamental changes; |
• | sell assets; |
• | pay dividends and distributions or repurchase capital stock; |
• | make investments, loans and advances, including acquisitions; |
• | amend organizational documents; |
• | enter into certain agreements that would restrict the ability to pay dividends; |
• | repay certain junior indebtedness; |
• | engage in transactions with affiliates; and |
• | in the case of the direct parent holding companies of the borrowers, engage in activities other than passively holding the equity interests in the borrowers. |
The aforementioned restrictions are subject to certain exceptions including (i) the ability to incur additional indebtedness, liens, investments, dividends and distributions, and prepayments of junior indebtedness subject, in each case, to compliance with certain financial metrics and certain other conditions and (ii) a number of other traditional exceptions that grant the borrowers continued flexibility to operate and develop their businesses. The senior secured credit facilities also contain certain customary representations and warranties, affirmative covenants and events of default.
Under the First Lien Term Facility agreement, our lower leverage ratio at December 31, 2020 requires us to pay our lenders an $8.2 million exit payment fee (the “Exit Payment”), which we expect to pay in the first quarter of 2021.
Amendment to First Lien Credit Facilities
On February 14, 2020, Ranger Packaging LLC, a Delaware limited liability company (“U.S. Borrower”), Ranpak B.V., a private limited liability company under the laws of the Netherlands (the “Dutch Borrower”; the U.S. Borrower and the Dutch Borrower, the “Borrowers”), Ranger Pledgor LLC, a Delaware limited liability company (“Holdings”), certain other subsidiaries of Holdings, certain lenders party to Amendment No. 1 (as defined below) and Goldman Sachs Lending Partners LLC (the “Administrative Agent”) entered into the Amendment No. 1 to First Lien Credit Agreement (“Amendment No. 1”) to amend the New Credit Facilities.
Among other things, the Amendment No. 1 amends the New Credit Facilities such that (x) the requirement of the Borrowers to
Borrower Assumption Agreement
On July 1, 2020, in the following order, (i) Rack Holdings Inc. merged with and into Ranger Packaging LLC, with Ranger Packaging LLC as the surviving entity of such merger and (ii) Ranger Packaging LLC merged with and into Ranpak Corp., with Ranpak Corp. as the surviving entity of such merger (clauses (i) and (ii) collectively, the “Reorganization”). Contemporaneously with the Reorganization, Ranger Packaging LLC, Ranpak Corp., Ranger Pledgor LLC, certain other subsidiaries of Ranger Pledgor LLC and Goldman Sachs Lending Partners LLC entered into the Borrower Assumption Agreement whereby, among other things, Ranpak Corp. assumed all obligations, liabilities and rights of Ranger Packaging LLC as the “U.S. Borrower” under the New Credit Facilities.
Cash Flows
The following table sets forth Ranpak’s summary cash flow information for the periods indicated:
|
| Successor |
|
|
| Predecessor |
| ||||||
|
| Year Ended December 31, |
|
| June 3, 2019 |
|
|
| January 1, 2019 |
| |||
|
| 2020 |
|
| – December 31, 2019 |
|
|
| – June 2, 2019 |
| |||
Net cash provided by operating activities |
| $ | 63.8 |
|
| $ | 9.6 |
|
|
| $ | 16.7 |
|
Net cash used in investing activities |
|
| (34.5 | ) |
|
| (657.1 | ) |
|
|
| (10.8 | ) |
Net cash provided by (used in) financing activities |
|
| (1.6 | ) |
|
| 665.4 |
|
|
|
| (14.4 | ) |
Effect of Exchange Rate Changes on Cash |
|
| 1.1 |
|
|
| 0.1 |
|
|
|
| 1.2 |
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| 28.8 |
|
|
| 18.0 |
|
|
|
| (7.3 | ) |
Cash and Cash Equivalents, beginning of period |
|
| 19.7 |
|
|
| 1.7 |
|
|
|
| 17.5 |
|
Cash and Cash Equivalents, end of period |
| $ | 48.5 |
|
| $ | 19.7 |
|
|
| $ | 10.2 |
|
Successor | Predecessor | ||||||||||||
June 3, 2019 through December 31, 2019 | January 1, 2019 through June 2, 2019 | For the Year Ended December 31, 2018 | |||||||||||
(in thousands) | |||||||||||||
Net cash (used in) provided by operating activities | $ | 9.6 | $ | 16.7 | $ | 42.0 | |||||||
Net cash used in investing activities | (657.1 | ) | (10.8 | ) | (25.3 | ) | |||||||
Net cash provided by (used in) financing activities | 665.4 | (14.4 | ) | (7.7 | ) | ||||||||
Effect of exchange rate changes on cash | 0.1 | 1.2 | (0.1 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents | 18.0 | (7.3 | ) | 8.9 | |||||||||
Cash and cash equivalents, beginning of period | 1.7 | 17.5 | 8.6 | ||||||||||
Cash and cash equivalents, end of period | $ | 19.7 | $ | 10.2 | $ | 17.5 |
Cash Flows Provided by Operating Activities
Net cash (used in) provided by operating activities was $9.6$63.8 million in 2020. Cash used in operating activities in the Successor Period due toof $9.6 million and cash earnings partially offsetprovided by a useoperating activities in the 1H 2019 Predecessor Period of working capital related to a seasonal increase in accounts receivable and the payment of accrued transaction costs, $16.7 million combined for $26.3 million in the 2019 Predecessor Periodcash provided by operating activities in 2019. The changes in operating cash flows are due to cash earnings and a decreasesincreases in the changes in working capital utilization during the period, and $42.0capital. The $8.2 million for the year ended December 31, 2018 due to cash earnings offset by an increaseExit Payment is included in accounts receivable.
Cash Flows Used in Investing Activities
Net cash used in investing activities was $(657.1)$34.5 million in 2020. Cash used in investing activities in the Successor Period of $657.1 million and $10.8 million in the 1H 2019 Predecessor Period combined for $667.9 million in cash used by investing activities in 2019. The changes are predominantly due to the acquisition of Rack Holdings incash used for the Ranpak Business Combination and capitalized cost relatingcapital expenditures related to the acquisition of parts and assembly ofour protective packaging systems, placed at end-user facilities. Netas well as cash used in investing activities of $(10.8) million and $(25.3) million in the 2019 Predecessor Period and year ended December 31, 2018, respectively, resulted from capitalized cost relating to thean acquisition of parts and assembly of protective packaging systems placed at end-user facilities. The systems remain the property of Ranpak, which is also responsible for their maintenance.
Cash Flows Provided by/(Used(Used in) by Financing Activities
Net cash used in financing activities was $1.6 million in 2020 and reflects payment of $(14.4)debt. Net cash provided by financing activities in the Successor Period of $665.4 million and $(7.7) millioncash used in financing activities in the 1H 2019 Predecessor Period and year ended December 31, 2018, respectively, wasof $14.4 million combined for $651.0 million in cash provided by financing activities in 2019, primarily related to the payment of debt.
Contractual Obligations and Other Commitments
Ranpak has leased production facilities in Reno, Nevada,Nevada; Kansas City, MissouriMissouri; and Raleigh, North Carolina in the United States and in Nyrany, Czech Republic, as well as several leased sales and administrative offices. The leases for the four leased production facilities expire in September 2020,2023, July 2020,2025, December 2024 and April 2026, respectively. Ranpak recognizes rent expense on a straight-line basis over the relevant lease period.
Ranpak has various contractual obligations and commercial commitments that are recorded as liabilities in its audited consolidated financial statements. Other items, such as purchase obligations and other executory contracts, are not recognized as liabilities, but are required to be disclosed. The table below presents Ranpak’s significant enforceable and legally binding obligations and future commitments as of December 31, 2019.2020.
|
|
|
|
|
| Payments due by Period |
| |||||||||||||
|
| Total |
|
| Less than 1 Year |
|
| 1-3 Years |
|
| 3-5 Years |
|
| More than 5 Years |
| |||||
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facilities(1) |
| $ | 439.8 |
|
| $ | 1.7 |
|
| $ | 3.4 |
|
| $ | 3.4 |
|
| $ | 431.3 |
|
Operating Leases |
|
| 8.5 |
|
|
| 2.8 |
|
|
| 3.7 |
|
|
| 1.8 |
|
|
| 0.2 |
|
Capital Lease Obligations |
|
| 0.3 |
|
|
| 0.2 |
|
|
| 0.1 |
|
|
| - |
|
|
| - |
|
Other non-current liabilities reflected on the registrant's balance sheet under GAAP(2) |
|
| 0.7 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.3 |
|
|
| 0.2 |
|
Total |
| $ | 449.3 |
|
| $ | 4.8 |
|
| $ | 7.3 |
|
| $ | 5.5 |
|
| $ | 431.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Consists of cash obligations under the First Lien Term Facility, which are described in more detail in Note 11, "Long-Term Debt" in the notes to our Consolidated Financial Statements. Interest payments on the First Lien Term Facility are calculated quarterly using variable interest rates based on market indices and, as a result, are not readily determinable for this analysis. |
| |||||||||||||||||||
(2) Asset retirement obligation. See Note 17, "Asset Retirement Obligation" in the notes to our Consolidated Financial Statements for further detail. |
|
(in thousands) | Total | Less than 1 Year | 1 to 3 Years | 3 to 5 Years | More than 5 Years | |||||||||||||||
Credit Facilities | $ | 420.4 | $ | 1.6 | $ | 3.2 | $ | 3.2 | $ | 412.4 | ||||||||||
Operating Leases | 7.1 | 1.8 | 2.9 | 1.6 | 0.8 | |||||||||||||||
Capital Lease Obligations | 0.3 | 0.2 | 0.1 | — | — | |||||||||||||||
Total | $ | 427.8 | $ | 3.6 | $ | 6.2 | $ | 4.8 | $ | 413.2 |
Ranpak does not have any other material contractually binding obligations to make cash payments. While Ranpak enters into agreements, generally annually, to fix the supplier price for the purchase of paper raw materials, none of these agreements provide for minimum purchase volumes.
Off-Balance Sheet Arrangements
Ranpak did not have any off-balance sheet arrangements as of December 31, 2019.
Critical Accounting Policies
The accounting principles followed by Ranpak and the methods of applying these principles are in accordance with U.S. GAAP, which often require the judgment of management in the selection and application of certain accounting principles and methods. Ranpak considers the following accounting policies to be critical to understanding its financial statements because the application of these policies requires significant judgment on the part of management, which could have a material impact on Ranpak’s financial statements. The following accounting policies include estimates that require management’s subjective or complex judgments about the effects of matters that are inherently uncertain. For information on Ranpak’s significant accounting policies, including the policies discussed below, see Note 2, "
Revenue Recognition
The Company sells its products to end usersend-users primarily through an established distributor network and direct sales to select end users.end-users. The Company’s protective packaging solutions fall into four broad categories: Void-Fill, Cushioning, Wrapping, and End-of-Line Automation. The Void-Fill protective systems convert paper to fill empty spaces in secondary packages and protect objects. The Cushioning protective systems convert paper into cushioning pads. The Wrapping protective systems create pads or paper mesh to securely wrap and protect fragile items as well as to line boxes and provide separation when shipping multiple objects.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net salesrevenue on the Consolidated Statements of Operations.
Charges for rebates and other allowances are recognized as a deduction from revenue on an accrual basis in the period in which the associated revenue is recorded. When we estimate our rebate accruals, we consider customer-specific contractual commitments including stated rebate rates and history of actual rebates paid. Our rebate accruals are reviewed at each reporting period and adjusted to reflect data available at that time. We adjust the accruals to reflect any differences between estimated and actual amounts. These adjustments impact the amount of net salesrevenue recognized by us in the period of adjustment. Charges for rebates and other allowances were approximately 11.3%10.9%, 11.3%, 9.5%, and 8.2%11.3% of salesrevenue in 2020, Successor period, the Predecessor period,Period and the years-ended 2018 and 2017,1H 2019 Predecessor Period, respectively. Refer to Note 4, "
The Company recognizes incremental costs to fulfill a contract as an asset if such incremental costs are expected to be recovered, relate directly to a contract or anticipated contract, and generate or enhance resources that will be used to satisfy performance obligations in the future.
The Company recognizes incremental costs to obtain a contract as an expense when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less. For example, the Company generally expenses sales commissions when incurred because the contract term is less than 1one year. These costs are recorded within sales and marketing expenses.
Goodwill and Identifiable Intangible Assets, Net
Identifiable intangible assets consist primarily of patents, customer/distributor relationships, and trademarks. We amortize finite lived identifiable assets over the shorter of their stated or statutory duration or their estimated useful lives, generally ranging from 10 to 15 years, on a straight-line basis and periodically review them for impairment. Trademarks are accounted for as indefinite-lived intangible assets and, accordingly, are not subject to amortization.
We use the acquisition method of accounting for all business combinations and do not amortize goodwill or intangible assets with indefinite useful lives. Goodwill and intangible assets with indefinite useful lives are tested for possible impairment annually during the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. See Note 9, “
Goodwill, Long-Lived and Identifiable Intangible Assets,Impairment of Long-livedLong-Lived Assets
See Note 9,5, “
Derivative Financial Instruments
We use interest rate swap contracts to manage interest rate exposures. Derivatives are recorded in the consolidated balance sheetsConsolidated Balance Sheets at fair value. Changes in the fair value of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income (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.
See Note 11, "
Income Taxes
The Company recognizes deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, Managementmanagement considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC Topic 740,Income Taxes (“ASC 740”) on the basis of a two-step process in which (1)(i) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2)(ii) for those tax positions that meet the more-likely than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Recently Issued and Adopted Accounting Pronouncements
For recently issued and adopted accounting pronouncements, see Note 2, "
ITEM 7A.
Interest Rate Risk
Changes in interest rates affect the amount of interest income Ranpak earnswe earn on cash, cash equivalents and short-term investments and the amount of interest expense Ranpak payswe pay on borrowings under the floating rate portions of Ranpak’sour credit facilities. As of December 31, 2019, Ranpak had term debtWe use fixed interest rate swap agreements to manage this exposure. These derivative instruments are reported at fair value in accrued expenses and other non-current liabilities. Changes in the amountfair value of $428.2 million, $1.6 millionderivatives are recorded each period in other comprehensive income. For derivatives not designated as hedges, the gain or loss is recognized in current earnings. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional value. The gain or loss on the interest rate swap is recorded in accumulated other comprehensive loss and subsequently reclassified into interest expense in the same period during which was short-term,the hedged transaction affects earnings. Refer to Note 11, “Long-Term Debt” and which boreNote 12, “Derivative Instruments” to the consolidated financial statements included elsewhere in this Report for additional information on our indebtedness and interest at floating base rates, plus a margin based on LIBOR or EURIBOR (in each case subject to a floor of 0.0%). As of December 31, 2019, the applicable LIBOR rate was 2.14% and the applicable EURIBOR rate was negative 0.467%. swap agreements
A hypothetical 100 basis point increase or decrease in the applicable base interest rates under Ranpak’sour credit facilities would have resulted in a $1.3$4.4 million increase or decrease in itsimpact on our cash interest expense for the year ended December 31, 2019. For additional information on Ranpak’s outstanding debt, see Note 5 to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Changes in Fair Value | Fair Value as of December 31, 2019 | ||||||||||||
Classification | Amount | Classification | Amount | Notional Amount | |||||||||
Pay-Fixed, Receive-Variable Interest Rate Swap | Interest Expense | $ | (6.4 | ) | Liability - Current | $ | 0.4 | $ | 250.0 | ||||
Liability - Non-current | $ | 4.6 | $ | — |
On July 27, 2017, the United Kingdom'sKingdom’s Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. It is expected that most, if not all, banks currently reporting information to set LIBOR will stop doing so at such time, which could either cause LIBOR publication to stop immediately or cause LIBOR'sLIBOR’s regulator to announce the discontinuation of its publication (and, during any such transition period, LIBOR may perform differently than in the past).
On November 30, 2020, ICE Benchmark Administration (“IBA”), the administrator of LIBOR, with the support of the United States Federal Reserve and the United Kingdom’s Financial Conduct Authority, announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021 for only the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors. While this announcement extends the transition period to June 2023, the United States Federal Reserve concurrently issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021
These reforms may also result in new methods of calculating LIBOR to be established, or alternative reference rates to be established. For example, in the U.S., a group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, called the Alternative Reference Rate Committee ("ARRC"(“ARRC”) and comprised of a diverse set of private sector entities, has identified the Secured Overnight Financing Rate (or "SOFR"(“SOFR”) as its preferred alternative rate for the U.S. LIBOR and the Federal Reserve Bank of New York has begun publishing SOFR daily, and central banks in several other jurisdictions have also announced plans for alternative reference rates for other currencies. The potential consequences of these changes cannot be fully predicted and could have an adverse impact on Ranpak’s interest payment obligations under the New Credit Facilities and related interest rate swaps.
Foreign Currency Exchange Rate Risk
We are exposed to foreign currency exchange risk related to itsour transactions and its subsidiaries’ balances that are denominated in currencies other than the U.S. dollar, Ranpak’sour functional currency. See “— “—Factors Affecting the Comparability of Ranpak’s Results of Operations —- Effect of Currency Fluctuations”Fluctuations” in Item 7 previously for more information about Ranpak’s foreign currency exchange rate exposure. Ranpak seeksWe seek to naturally hedge itsour foreign exchange transaction exposure by matching the transaction currencies for its our
cash inflows and outflows and maintaining access to credit in the principal currencies in which it conductswe conduct business. Ranpak doesCurrently, we do not currently hedge our foreign exchange transaction or translation exposure but may consider doing so in the future.
For the combined year ended December 31, 2019,2020, net salesrevenue denominated in currencies other than U.S. dollars amounted to $103.3$170.8 million or 54.8%57.3% of Ranpak'sour net salesrevenue for the year.period. Substantially all of this amount was denominated in Euro. A 10% increase or decrease in the value of the Euro to the U.S. dollar would have caused Ranpak’sour reported net salesrevenue for the combined year ended December 31, 20192020 to increase or decrease by approximately $9.4$17.1 million.
Commodity Price Risk
While Ranpak’sour business is significantly impacted by price fluctuations related to the purchase, production and sale of paper products, Ranpak iswe are not directly exposed to market price fluctuations in paper purchase or sale prices as it negotiateswe negotiate prices with suppliers on an annual basis and negotiatesnegotiate prices with distributors reflecting competitive market terms. Ranpak’sOur strategy has generally been to obtain competitive prices for itsour products and services and allow operating results to reflect market price movements dictated by supply and demand.
ITEM 8.
The following Consolidated Financial Statements and notesconsolidated financial statements are filed as part of this report.
Ranpak Holdings Corp.
Page | ||
53 | ||
54 | ||
54 | ||
55 | ||
56 | ||
57 | ||
Consolidated Statements of Cash Flows: | ||
58 | ||
Predecessor – for the Period January 1, 2019 through June 2, 2019 and Year Ended December 31, 2018 | 58 | |
59 | ||
Schedule II – Valuation and Qualifying Accounts and Reserves | ||
90 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Ranpak Holdings Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetsheets of Ranpak Holdings Corp. (formerly One Madison Corp.) and subsidiaries (the “Company”) as of December 31, 2020 and 2019 (Successor) and 2018 (Predecessor), and the related consolidated statements of operations and comprehensive income (loss), changes in shareholders’ equity, and cash flows, for the year ended December 31, 2020 (Successor), the period from June 3, 2019 to December 31, 2019 (Successor), the period from January 1, 2019 to June 2, 2019 (Predecessor), and the yearsyear ended December 31, 2018 and 2017 (Predecessor), and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019 (Successor) and 2018 (Predecessor), and the results of theirits operations and theirits cash flows for the year ended December 31, 2020 (Successor), the period from June 3, 2019 to December 31, 2019 (Successor), the period from January 1, 2019 to June 2, 2019 (Predecessor), and each of the yearsyear ended December 31, 2018 and 2017 (Predecessor), in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
March 17, 2020
We have served as the Company’s auditor since 2015.
Ranpak Holdings Corp.
Consolidated Statements of Operations
and Comprehensive Income (Loss)
(in millions, except share and per share data)
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, |
|
| June 3, 2019 |
|
|
| January 1, 2019 |
|
| Year Ended |
| ||||
|
| 2020 |
|
| – December 31, 2019 |
|
|
| – June 2, 2019 |
|
| December 31, 2018 |
| ||||
Paper revenue |
| $ | 250.7 |
|
| $ | 136.5 |
|
|
| $ | 88.8 |
|
| $ | 218.1 |
|
Machine lease revenue |
|
| 39.6 |
|
|
| 22.5 |
|
|
|
| 14.4 |
|
|
| 38.7 |
|
Other revenue |
|
| 7.9 |
|
|
| 4.1 |
|
|
|
| 3.2 |
|
|
| 11.1 |
|
Net revenue |
|
| 298.2 |
|
|
| 163.1 |
|
|
|
| 106.4 |
|
|
| 267.9 |
|
Cost of goods sold |
|
| 175.6 |
|
|
| 97.4 |
|
|
|
| 61.2 |
|
|
| 153.3 |
|
Gross profit |
|
| 122.6 |
|
|
| 65.7 |
|
|
|
| 45.2 |
|
|
| 114.6 |
|
Selling, general and administrative expenses |
|
| 72.5 |
|
|
| 37.7 |
|
|
|
| 23.8 |
|
|
| 53.2 |
|
Transaction costs |
|
| 2.2 |
|
|
| 0.3 |
|
|
|
| 7.4 |
|
|
| 3.3 |
|
Depreciation and amortization expense |
|
| 31.5 |
|
|
| 17.2 |
|
|
|
| 17.7 |
|
|
| 43.2 |
|
Other operating expense, net |
|
| 4.7 |
|
|
| 2.4 |
|
|
|
| 2.2 |
|
|
| 3.9 |
|
Income (loss) from operations |
|
| 11.7 |
|
|
| 8.1 |
|
|
|
| (5.9 | ) |
|
| 11.0 |
|
Interest expense |
|
| 30.2 |
|
|
| 27.3 |
|
|
|
| 20.2 |
|
|
| 30.9 |
|
Foreign currency (gain) loss |
|
| 6.1 |
|
|
| 0.7 |
|
|
|
| (2.2 | ) |
|
| (4.2 | ) |
Loss before income tax benefit |
|
| (24.6 | ) |
|
| (19.9 | ) |
|
|
| (23.9 | ) |
|
| (15.7 | ) |
Income tax benefit |
|
| (1.2 | ) |
|
| (2.7 | ) |
|
|
| (4.9 | ) |
|
| (7.1 | ) |
Net loss |
| $ | (23.4 | ) |
| $ | (17.2 | ) |
|
| $ | (19.0 | ) |
| $ | (8.6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
| ― |
|
| ― |
|
|
| $ | (19,195.40 | ) |
| $ | (8,697.61 | ) | ||
Weighted average number of shares outstanding |
| ― |
|
| ― |
|
|
|
| 995 |
|
|
| 995 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two-class method |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.32 | ) |
| $ | (0.31 | ) |
|
| ― |
|
| ― |
| ||
Diluted |
| $ | (0.32 | ) |
| $ | (0.31 | ) |
|
| ― |
|
| ― |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding - Class A and C |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 72,434,802 |
|
|
| 55,392,201 |
|
|
| ― |
|
| ― |
| ||
Diluted |
|
| 72,434,802 |
|
|
| 55,392,201 |
|
|
| ― |
|
| ― |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), before tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
| $ | 16.2 |
|
| $ | 1.7 |
|
|
| $ | (4.0 | ) |
| $ | (7.4 | ) |
Interest rate swap adjustments |
|
| (11.3 | ) |
|
| 1.4 |
|
|
|
| 0 |
|
|
| 0 |
|
Total other comprehensive income (loss), before tax |
|
| 4.9 |
|
|
| 3.1 |
|
|
|
| (4.0 | ) |
|
| (7.4 | ) |
Benefit from income taxes related to other comprehensive income (loss) |
|
| (2.4 | ) |
|
| (0.3 | ) |
|
|
| 0 |
|
|
| 0 |
|
Total other comprehensive income (loss), net of tax |
|
| 7.3 |
|
|
| 3.4 |
|
|
|
| (4.0 | ) |
|
| (7.4 | ) |
Comprehensive loss, net of tax |
| $ | (16.1 | ) |
| $ | (13.8 | ) |
|
| $ | (23.0 | ) |
| $ | (16.0 | ) |
Successor | Predecessor | |||||||||||||||
June 3, 2019 through December 31, 2019 | January 1, 2019 through June 2, 2019 | December 31, 2018 | December 31, 2017 | |||||||||||||
Paper revenue | $ | 136.5 | $ | 88.5 | $ | 218.1 | $ | 203.0 | ||||||||
Machine lease revenue | 22.5 | 14.7 | 38.7 | 34.4 | ||||||||||||
Other revenue | 4.1 | 3.2 | 11.1 | 6.7 | ||||||||||||
Net sales | 163.1 | 106.4 | 267.9 | 244.1 | ||||||||||||
Cost of sales | 97.4 | 61.2 | 153.3 | 131.7 | ||||||||||||
Gross Profit | 65.7 | 45.2 | 114.6 | 112.4 | ||||||||||||
Selling, general and administrative | 37.7 | 23.8 | 53.2 | 46.3 | ||||||||||||
Transaction costs | 0.3 | 7.4 | 3.3 | 0.4 | ||||||||||||
Depreciation and amortization | 17.2 | 17.7 | 43.2 | 41.9 | ||||||||||||
Other operating expense (income), net | 2.4 | 2.2 | 3.9 | (7.4 | ) | |||||||||||
Income (loss) from operations | 8.1 | (5.9 | ) | 11.0 | 31.2 | |||||||||||
Interest expense | 27.3 | 20.2 | 30.9 | 30.7 | ||||||||||||
Foreign currency (gain) loss | 0.7 | (2.2 | ) | (4.2 | ) | 14.2 | ||||||||||
Loss before income taxes | (19.9 | ) | (23.9 | ) | (15.7 | ) | (13.7 | ) | ||||||||
Income tax benefit | (2.7 | ) | (4.9 | ) | (7.1 | ) | (41.4 | ) | ||||||||
Net income (loss) | (17.2 | ) | (19.0 | ) | (8.6 | ) | 27.7 | |||||||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation adjustments | 1.7 | (4.0 | ) | (7.4 | ) | 21.5 | ||||||||||
Interest rate swap hedge adjustment | 1.7 | — | — | — | ||||||||||||
Comprehensive income (loss) | $ | (13.8 | ) | $ | (23.0 | ) | $ | (16.0 | ) | $ | 49.2 | |||||
Net income (loss) per share—basic and diluted | ||||||||||||||||
Net income (loss) per share | $ | (19,195.40 | ) | $ | (8,697.61 | ) | $ | 27,801.44 | ||||||||
Weighted-average shares outstanding | 995 | 995 | 995 | |||||||||||||
Two-class method | ||||||||||||||||
Net loss per common stock, Class A and C-basic and diluted | $ | (0.31 | ) | |||||||||||||
Weighted average number of Class A and C common stock outstanding, basic and diluted | 55,392,201 | |||||||||||||||
See notes to consolidated financial statements.
Ranpak Holdings Corp.
Consolidated Balance Sheets
(in millions, except share data)
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Assets |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 48.5 |
|
| $ | 19.7 |
|
Accounts receivable, net |
|
| 39.1 |
|
|
| 36.1 |
|
Inventories, net |
|
| 16.1 |
|
|
| 11.6 |
|
Income tax receivable |
|
| 0.1 |
|
|
| 1.5 |
|
Prepaid expenses and other current assets |
|
| 3.4 |
|
|
| 2.5 |
|
Total current assets |
|
| 107.2 |
|
|
| 71.4 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 124.4 |
|
|
| 122.5 |
|
Goodwill |
|
| 458.4 |
|
|
| 448.8 |
|
Intangible assets, net |
|
| 440.6 |
|
|
| 458.6 |
|
Other assets |
|
| 2.9 |
|
|
| 3.1 |
|
Total assets |
| $ | 1,133.5 |
|
| $ | 1,104.4 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 24.9 |
|
| $ | 12.3 |
|
Accrued liabilities and other |
|
| 30.7 |
|
|
| 15.5 |
|
Current portion of long-term debt |
|
| 0.5 |
|
|
| 1.6 |
|
Deferred machine fee revenue |
|
| 1.4 |
|
|
| 2.5 |
|
Total current liabilities |
|
| 57.5 |
|
|
| 31.9 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
| 432.7 |
|
|
| 418.8 |
|
Deferred tax liabilities |
|
| 109.6 |
|
|
| 115.0 |
|
Derivative instruments |
|
| 9.6 |
|
|
| 4.6 |
|
Other liabilities |
|
| 1.2 |
|
|
| 2.3 |
|
Total liabilities |
|
| 610.6 |
|
|
| 572.6 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies – Note 18 |
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
Class A common stock, $0.0001 par, 200,000,000 shares |
|
|
|
|
|
|
|
|
authorized at December 31, 2020 and 2019 |
|
|
|
|
|
|
|
|
Shares issued and outstanding: 69,005,059 and 64,293,741 |
|
|
|
|
|
|
|
|
at December 31, 2020 and 2019, respectively |
|
| 0 |
|
|
| 0 |
|
Class C common stock, $0.0001 par, 200,000,000 shares |
|
|
|
|
|
|
|
|
authorized at December 31, 2020 and 2019 |
|
|
|
|
|
|
|
|
Shares issued and outstanding: 6,511,293 at December 31, 2020 |
|
|
|
|
|
|
|
|
and December 31, 2019 |
|
| 0 |
|
|
| 0 |
|
Additional paid-in capital |
|
| 564.7 |
|
|
| 557.5 |
|
Accumulated deficit |
|
| (52.5 | ) |
|
| (29.1 | ) |
Accumulated other comprehensive income |
|
| 10.7 |
|
|
| 3.4 |
|
Total shareholders' equity |
|
| 522.9 |
|
|
| 531.8 |
|
Total liabilities and shareholders' equity |
| $ | 1,133.5 |
|
| $ | 1,104.4 |
|
Successor | Predecessor | |||||||
December 31, 2019 | December 31, 2018 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 19.7 | $ | 17.5 | ||||
Receivables, net of allowance for doubtful accounts of $0.2 in 2019 and 2018 | 36.1 | 31.5 | ||||||
Inventories, net of inventory reserves of $0.3 in 2019 and 2018 | 11.6 | 11.8 | ||||||
Income tax receivable | 1.5 | 3.4 | ||||||
Prepaid expenses and other current assets | 2.5 | 4.1 | ||||||
Total current assets | 71.4 | 68.3 | ||||||
Property, plant and equipment, net | 122.5 | 73.0 | ||||||
Goodwill | 448.8 | 355.7 | ||||||
Intangible assets, net | 458.6 | 293.7 | ||||||
Other assets | 3.1 | 2.0 | ||||||
Total Assets | $ | 1,104.4 | $ | 792.7 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 12.3 | $ | 12.3 | ||||
Accrued liabilities and other | 15.5 | 10.8 | ||||||
Current portion of long-term debt | 1.6 | 4.4 | ||||||
Deferred machine fee revenue | 2.5 | 0.3 | ||||||
Total current liabilities | 31.9 | 27.8 | ||||||
Long-term debt | 418.8 | 494.9 | ||||||
Deferred income taxes | 115.0 | 69.8 | ||||||
Derivative instruments | 4.6 | 0.2 | ||||||
Other liabilities | 2.3 | 3.6 | ||||||
Total Liabilities | 572.6 | 596.3 | ||||||
Commitments and Contingencies — Note 15 | ||||||||
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, 64,293,741 shares issued and outstanding at December 31, 2019 | — | — | ||||||
Class C common stock, $0.0001 par value, 200,000,000 shares authorized, 6,511,293 issued and outstanding at December 31, 2019 | — | — | ||||||
Additional paid-in capital | 557.5 | 291.4 | ||||||
Accumulated deficit | (29.1 | ) | (69.9 | ) | ||||
Treasury stock, zero shares, at December 31, 2019 and 5 shares, at cost, December 31, 2018 | — | (1.5 | ) | |||||
Accumulated other comprehensive income (loss) | 3.4 | (23.6 | ) | |||||
Total Shareholders' Equity | 531.8 | 196.4 | ||||||
Total Liabilities and Shareholders' Equity | $ | 1,104.4 | $ | 792.7 |
See notes to consolidated financial statements.
Ranpak Holdings Corp.
Consolidated Statements of Changes in Shareholders’ Equity
(in millions, except share data)
|
| Ordinary Shares |
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
| Class A |
|
| Class B |
|
| Class A |
|
| Class C |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Additional Paid-In Capital |
|
| Accumulated Earnings (Deficit) |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Total |
| ||||||||||||
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 3, 2019 |
|
| 2,770,967 |
|
| $ | - |
|
|
| 11,250,000 |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
| $ | 16.9 |
|
| $ | (11.9 | ) |
| $ | - |
|
| $ | 5.0 |
|
Forward purchase shares |
|
| 15,000,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
Additional shares purchased |
|
| 16,149,317 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
Conversion of forward purchase and additional shares |
|
| (31,149,317 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 25,454,282 |
|
|
| - |
|
|
| 5,695,035 |
|
|
| - |
|
|
| 267.0 |
|
|
| - |
|
|
| - |
|
|
| 267.0 |
|
Shares canceled |
|
| - |
|
|
| - |
|
|
| (3,854,664 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (33.0 | ) |
|
| - |
|
|
| - |
|
|
| (33.0 | ) |
Convert Class B |
|
| - |
|
|
| - |
|
|
| (7,395,336 | ) |
|
| - |
|
|
| 6,663,953 |
|
|
| - |
|
|
| 731,383 |
|
|
| - |
|
|
| 63.4 |
|
|
| - |
|
|
| - |
|
|
| 63.4 |
|
Convert public shares |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 14,581,346 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 125.0 |
|
|
| - |
|
|
| - |
|
|
| 125.0 |
|
Convert private placement warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 658,051 |
|
|
| - |
|
|
| 84,875 |
|
|
| - |
|
|
| 6.4 |
|
|
| - |
|
|
| - |
|
|
| 6.4 |
|
Public shares redeemed |
|
| (2,770,967 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
Issue Director shares |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,032 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0.1 |
|
|
| - |
|
|
| - |
|
|
| 0.1 |
|
Amortization of restricted stock units |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1.7 |
|
|
| - |
|
|
| - |
|
|
| 1.7 |
|
Stock offering |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 16,923,077 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 110.0 |
|
|
| - |
|
|
| - |
|
|
| 110.0 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (17.2 | ) |
|
| - |
|
|
| (17.2 | ) |
Other comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3.4 |
|
|
| 3.4 |
|
Balance at December 31, 2019 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 64,293,741 |
|
|
| - |
|
|
| 6,511,293 |
|
|
| - |
|
|
| 557.5 |
|
|
| (29.1 | ) |
|
| 3.4 |
|
|
| 531.8 |
|
Warrant exchange |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,422,564 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
Stock-based awards vested and distributed |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 202,723 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Issue Director shares |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 86,031 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Amortization of restricted stock units |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7.2 |
|
|
| - |
|
|
| - |
|
|
| 7.2 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (23.4 | ) |
|
| - |
|
|
| (23.4 | ) |
Other comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7.3 |
|
|
| 7.3 |
|
Balance at December 31, 2020 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| 69,005,059 |
|
| $ | - |
|
|
| 6,511,293 |
|
| $ | - |
|
| $ | 564.7 |
|
| $ | (52.5 | ) |
| $ | 10.7 |
|
| $ | 522.9 |
|
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 | — | 267.0 | — | — | 267.0 | |||||||||||||||||||||||
Shares Canceled | (3,854,664 | ) | — | (33.0 | ) | — | — | (33.0 | ) | |||||||||||||||||||||||||
Convert Class B | (7,395,336 | ) | — | 6,663,953 | — | 731,383 | 63.4 | — | — | 63.4 | ||||||||||||||||||||||||
Convert Public Shares | 14,581,346 | — | 125.0 | — | — | 125.0 | ||||||||||||||||||||||||||||
Convert Private Placement Warrants | 658,051 | — | 84,875 | — | 6.4 | — | — | 6.4 | ||||||||||||||||||||||||||
Issue Director Shares | 13,032 | — | 0.1 | — | — | 0.1 | ||||||||||||||||||||||||||||
Public Shares Redeemed | (2,770,967 | ) | — | — | — | — | — | |||||||||||||||||||||||||||
Issue restricted stock units | 1.7 | — | — | 1.7 | ||||||||||||||||||||||||||||||
Stock offering | 16,923,077 | — | 110.0 | — | — | 110.0 | ||||||||||||||||||||||||||||
Foreign currency translation | — | — | 1.7 | 1.7 | ||||||||||||||||||||||||||||||
Interest rate swap hedge | — | — | 1.7 | 1.7 | ||||||||||||||||||||||||||||||
Net loss | — | (17.2 | ) | — | (17.2 | ) | ||||||||||||||||||||||||||||
Balance at December 31, 2019 | — | $ | — | — | $ | — | 64,293,741 | $ | — | 6,511,293 | $ | — | $ | 557.5 | $ | (29.1 | ) | $ | 3.4 | $ | 531.8 |
See notes to consolidated financial statements.
56
Ranpak Holdings Corp.
Consolidated Statements of Changes in Shareholders’ Equity
(in millions, except share data)
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Shares |
|
| Amount |
|
| Additional Paid-In Capital |
|
| Accumulated Earnings (Deficit) |
|
| Treasury Stock |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Total |
| |||||||
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017 |
|
| 995 |
|
| $ | 0 |
|
| $ | 291.4 |
|
| $ | (61.3 | ) |
| $ | (1.5 | ) |
| $ | (16.2 | ) |
| $ | 212.4 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (8.6 | ) |
|
| - |
|
|
| - |
|
|
| (8.6 | ) |
Other comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (7.4 | ) |
|
| (7.4 | ) |
Balance at December 31, 2018 |
|
| 995 |
|
|
| 0 |
|
|
| 291.4 |
|
|
| (69.9 | ) |
|
| (1.5 | ) |
|
| (23.6 | ) |
| $ | 196.4 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (19.0 | ) |
|
| - |
|
|
| - |
|
|
| (19.0 | ) |
Other comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4.0 | ) |
|
| (4.0 | ) |
Purchase of Ranpak Corp. |
|
| (995 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
Balance at June 2, 2019 |
|
| 0 |
|
| $ | 0 |
|
| $ | 291.4 |
|
| $ | (88.9 | ) |
| $ | (1.5 | ) |
| $ | (27.6 | ) |
| $ | 173.4 |
|
Common Stock | ||||||||||||||||||||||||
Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Loss | Total Shareholders' Equity | ||||||||||||||||||
Balance at December 31, 2016 | 1,000 | — | 291.4 | $ | (89.0 | ) | $ | — | $ | (37.8 | ) | $ | 164.6 | |||||||||||
Net income | 27.7 | 27.7 | ||||||||||||||||||||||
Foreign currency translation | 21.5 | 21.5 | ||||||||||||||||||||||
Purchase of treasury stock | (5) | (1.5 | ) | (1.5 | ) | |||||||||||||||||||
Balance at December 31, 2017 | 995 | — | 291.4 | (61.3 | ) | (1.5 | ) | (16.3 | ) | 212.3 | ||||||||||||||
Net loss | (8.6 | ) | (8.6 | ) | ||||||||||||||||||||
Foreign currency translation | (7.4 | ) | (7.4 | ) | ||||||||||||||||||||
Balance at December 31, 2018 | 995 | — | 291.4 | (69.9 | ) | (1.5 | ) | (23.6 | ) | 196.4 | ||||||||||||||
Net loss | (19.0 | ) | (19.0 | ) | ||||||||||||||||||||
Foreign currency translation | (4.0 | ) | (4.0 | ) | ||||||||||||||||||||
Balance at June 2, 2019 | 995 | $ | — | $ | 291.4 | $ | (88.9 | ) | $ | (1.5 | ) | $ | (27.6 | ) | $ | 173.4 |
See notes to consolidated financial statements.
Ranpak Holdings Corp.
Consolidated Statements of Cash Flows
(in millions)
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, |
|
| June 3, 2019 |
|
|
| January 1, 2019 |
|
| Year Ended |
| ||||
|
| 2020 |
|
| – December 31, 2019 |
|
|
| – June 2, 2019 |
|
| December 31, 2018 |
| ||||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (23.4 | ) |
| $ | (17.2 | ) |
|
| $ | (19.0 | ) |
| $ | (8.6 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 62.7 |
|
|
| 31.7 |
|
|
|
| 26.6 |
|
|
| 64.5 |
|
Amortization of deferred financing costs |
|
| 1.6 |
|
|
| 3.2 |
|
|
|
| 7.5 |
|
|
| 2.6 |
|
Loss on disposal of fixed assets |
|
| 2.7 |
|
|
| 1.5 |
|
|
|
| 1.0 |
|
|
| 1.8 |
|
Deferred income taxes |
|
| (5.4 | ) |
|
| (8.0 | ) |
|
|
| (7.2 | ) |
|
| (14.0 | ) |
(Gain) loss on derivative contract |
|
| - |
|
|
| 6.8 |
|
|
|
| - |
|
|
| (0.6 | ) |
Amortization of initial value of hedging instrument |
|
| (1.7 | ) |
|
| - |
|
|
|
| - |
|
|
| - |
|
Currency (gain) loss on foreign denominated debt and notes payable |
|
| 6.0 |
|
|
| 0.7 |
|
|
|
| (2.4 | ) |
|
| (4.2 | ) |
Amortization of restricted stock units |
|
| 7.2 |
|
|
| 1.7 |
|
|
|
| - |
|
|
| - |
|
Contingent liability related to earn-out provision |
|
| - |
|
|
| (1.2 | ) |
|
|
| - |
|
|
| 2.6 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in receivables, net |
|
| 0.9 |
|
|
| (7.7 | ) |
|
|
| 1.8 |
|
|
| (2.0 | ) |
(Increase) decrease in inventory |
|
| (4.6 | ) |
|
| 4.5 |
|
|
|
| (1.3 | ) |
|
| 0.3 |
|
(Increase) decrease in prepaid expenses and other assets |
|
| (0.9 | ) |
|
| 0.1 |
|
|
|
| 2.7 |
|
|
| - |
|
Increase (decrease) in accounts payable |
|
| 10.3 |
|
|
| (13.5 | ) |
|
|
| (2.8 | ) |
|
| (1.2 | ) |
Increase (decrease) in accrued liabilities |
|
| 11.1 |
|
|
| 6.7 |
|
|
|
| 7.1 |
|
|
| - |
|
Change in other assets and liabilities |
|
| (2.7 | ) |
|
| 0.3 |
|
|
|
| 2.7 |
|
|
| 0.8 |
|
Net cash provided by operating activities |
|
| 63.8 |
|
|
| 9.6 |
|
|
|
| 16.7 |
|
|
| 42.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Converter equipment |
|
| (25.8 | ) |
|
| (16.5 | ) |
|
|
| (9.9 | ) |
|
| (21.8 | ) |
Other capital expenditures |
|
| (6.5 | ) |
|
| (2.7 | ) |
|
|
| (0.6 | ) |
|
| (3.0 | ) |
Total capital expenditures |
|
| (32.3 | ) |
|
| (19.2 | ) |
|
|
| (10.5 | ) |
|
| (24.8 | ) |
Cash paid for acquisitions |
|
| - |
|
|
| (945.6 | ) |
|
|
| - |
|
|
| - |
|
Assets acquired |
|
| (1.3 | ) |
|
| - |
|
|
|
| - |
|
|
| - |
|
Cash withdrawn from trust account |
|
| - |
|
|
| 308.1 |
|
|
|
| - |
|
|
| - |
|
Patent and trademark expenditures |
|
| (0.9 | ) |
|
| (0.4 | ) |
|
|
| (0.3 | ) |
|
| (0.5 | ) |
Net cash used in investing activities |
|
| (34.5 | ) |
|
| (657.1 | ) |
|
|
| (10.8 | ) |
|
| (25.3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of term loans and credit facility |
|
| - |
|
|
| 534.6 |
|
|
|
| - |
|
|
| - |
|
Proceeds from sale of common stock |
|
| - |
|
|
| 424.7 |
|
|
|
| - |
|
|
| - |
|
Shares subject to Redemption |
|
| - |
|
|
| (158.3 | ) |
|
|
| - |
|
|
| - |
|
Financing costs of debt facilities |
|
| - |
|
|
| (12.6 | ) |
|
|
| - |
|
|
| - |
|
Payments on term loans and credit facility |
|
| (1.6 | ) |
|
| (107.7 | ) |
|
|
| (14.4 | ) |
|
| (6.6 | ) |
Payments of promissory note |
|
| - |
|
|
| (4.0 | ) |
|
|
| - |
|
|
| - |
|
Payment of deferred registration costs |
|
| - |
|
|
| (11.3 | ) |
|
|
| - |
|
|
| - |
|
Contingent liability payment |
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| (1.1 | ) |
Net cash provided by (used in) financing activities |
|
| (1.6 | ) |
|
| 665.4 |
|
|
|
| (14.4 | ) |
|
| (7.7 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash |
|
| 1.1 |
|
|
| 0.1 |
|
|
|
| 1.2 |
|
|
| (0.1 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| 28.8 |
|
|
| 18.0 |
|
|
|
| (7.3 | ) |
|
| 8.9 |
|
Cash and Cash Equivalents, beginning of period |
|
| 19.7 |
|
|
| 1.7 |
|
|
|
| 17.5 |
|
|
| 8.6 |
|
Cash and Cash Equivalents, end of period |
| $ | 48.5 |
|
| $ | 19.7 |
|
|
| $ | 10.2 |
|
| $ | 17.5 |
|
Successor | Predecessor | ||||||||||||||||
June 3, 2019 through December 31, 2019 | January 1, 2019 through June 2, 2019 | December 31, 2018 | December 31, 2017 | ||||||||||||||
Cash Flows from Operating Activities | |||||||||||||||||
Net income (loss) | $ | (17.2 | ) | $ | (19.0 | ) | $ | (8.6 | ) | $ | 27.7 | ||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||||
Depreciation and amortization | 31.7 | 26.6 | 64.5 | 61.1 | |||||||||||||
Amortization of deferred financing costs | 3.2 | 7.5 | 2.6 | 4.5 | |||||||||||||
Loss on disposal of fixed assets | 1.5 | 1.0 | 1.8 | 1.1 | |||||||||||||
Deferred income taxes | (8.0 | ) | (7.2 | ) | (14.0 | ) | (52.2 | ) | |||||||||
Loss (gain) on derivative contract | 6.8 | — | (0.6 | ) | (2.7 | ) | |||||||||||
Currency (gain)/loss on foreign denominated debt and notes payable | 0.7 | (2.4 | ) | (4.2 | ) | 14.2 | |||||||||||
Amortization of restricted stock units | 1.7 | — | — | — | |||||||||||||
Contingent liability related to earn-out provision | (1.2 | ) | — | 2.6 | — | ||||||||||||
Changes in operating assets and liabilities: | |||||||||||||||||
(Increase) decrease in receivables, net | (7.6 | ) | 3.5 | (1.9 | ) | (9.0 | ) | ||||||||||
(Increase) decrease in inventory | 4.5 | (1.3 | ) | 0.3 | (4.8 | ) | |||||||||||
(Increase) decrease in prepaid expenses and other assets | (0.1 | ) | 2.7 | (0.5 | ) | 2.5 | |||||||||||
(Increase) decrease in other assets | 0.2 | (1.3 | ) | 0.5 | (1.2 | ) | |||||||||||
Increase (decrease) in accounts payable | (13.5 | ) | (2.8 | ) | (1.2 | ) | 2.6 | ||||||||||
Increase in accrued liabilities | 6.8 | 7.1 | — | 2.9 | |||||||||||||
Increase (decrease) in other liabilities | 0.1 | 2.3 | 0.7 | (0.5 | ) | ||||||||||||
Net cash provided by operating activities | 9.6 | 16.7 | 42.0 | 46.2 | |||||||||||||
Cash Flows from Investing Activities | |||||||||||||||||
Capital expenditures: | |||||||||||||||||
Converter equipment | (16.5 | ) | (9.9 | ) | (21.8 | ) | (22.8 | ) | |||||||||
Other capital expenditures | (2.7 | ) | (0.6 | ) | (3.0 | ) | (4.2 | ) | |||||||||
Total capital expenditures | (19.2 | ) | (10.5 | ) | (24.8 | ) | (27.0 | ) | |||||||||
Cash paid for acquisitions | (945.6 | ) | — | — | (1.6 | ) | |||||||||||
Cash withdrawn from trust account | 308.1 | — | — | — | |||||||||||||
Patent and trademark expenditures | (0.4 | ) | (0.3 | ) | (0.5 | ) | (0.5 | ) | |||||||||
Net cash used in investing activities | (657.1 | ) | (10.8 | ) | (25.3 | ) | (29.1 | ) | |||||||||
Cash Flows from Financing Activities | |||||||||||||||||
Proceeds from issuance of term loans and credit facility | 534.6 | — | — | 45.0 | |||||||||||||
Proceeds from sale of common stock | 424.7 | — | — | — | |||||||||||||
Shares subject to Redemption | (158.3 | ) | — | — | — | ||||||||||||
Financing costs of debt facilities | (12.6 | ) | — | — | (0.7 | ) | |||||||||||
Payments on term loans and credit facility | (107.7 | ) | (14.4 | ) | (6.6 | ) | (56.9 | ) | |||||||||
Payment of deferred registration costs | (11.3 | ) | — | — | — | ||||||||||||
Contingent liability payment | — | — | (1.1 | ) | — | ||||||||||||
Repurchase of common stock | — | — | — | (1.6 | ) | ||||||||||||
Payments of promissory note | (4.0 | ) | — | — | — | ||||||||||||
Net cash provided by (used in) financing activities | 665.4 | (14.4 | ) | (7.7 | ) | (14.2 | ) | ||||||||||
Effect of Exchange Rate Changes on Cash | 0.1 | /\=-] | 1.2 | (0.1 | ) | 0.4 | |||||||||||
Net (Decrease) Increase in Cash and Cash Equivalents | 18.0 | (7.3 | ) | 8.9 | 3.3 | ||||||||||||
Cash and Cash Equivalents, beginning of period | 1.7 | 17.5 | 8.6 | 5.3 | |||||||||||||
Cash and Cash Equivalents, end of period | $ | 19.7 | $ | 10.2 | $ | 17.5 | $ | 8.6 |
See notes to consolidated financial statements.
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
Note 1
— Nature of OperationsRanpak Holdings Corp. (formerly known as One Madison Corporation) is a leading provider of environmentally sustainable, systems-based, product protection solutions and end-of-line automation solutions for e-Commercee-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. Throughout this report, when we refer to "Ranpak," the "Company," "we," "our," or "us," we are referring to Ranpak Holdings Corp. and all of our subsidiaries, except where the context indicates otherwise.
One Madison Corporation ("(“One Madison"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"“NYSE”) under the symbols "OMAD.U"“OMAD.U”, "OMAD"“OMAD” and "OMAD.WS"“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"“Closing”) as described below, these shares and warrants that were converted as part of the transaction, began trading under the symbols "PACK"“PACK” and "PACK WS",“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 810, “Acquisition” 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.
Note 2
— Basis of Presentation and Summary of Significant Accounting PoliciesBasis of Presentation ——The accompanying consolidated financial statements are presentedhave been prepared in U.S dollars in conformityaccordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)GAAP and with instructions to Form 10-K and Rule 10-01 of Securities and Exchange Commission (“SEC”)the SEC Regulation S-X as they apply to annual financial information.
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 ofThe financial statements separate the Company’s presentation into two distinct periods. The periodperiods before the Closingclosing of the Ranpak Business Combination (labeled Predecessor Period) depicts the financial statements of Rack Holdings, and the period after the Closing (labeled Successor Period) depictsdepict the financial statements of the Company, includingPredecessor. All periods subsequent to June 3, 2019 after the consolidationconsummation of One Madison with Rack Holdings and applicationthe Ranpak Business Combination depict the financial statements of acquisition method of accounting.the Successor. As a result of the application of the acquisition method of accounting under the scope of ASC 805 as of the Closing,closing of the Ranpak Business Combination, the financial statements for the Predecessor Periodsperiods and for the Successor Periodperiods are presented on a different basis of accounting and are, therefore not comparable.
Principles of Consolidation
—The 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 and certain immaterial prior year amounts have been reclassified consistent with current year presentation. All amounts are in millions, exceptUse of Estimates
—The preparation of 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. These estimates include, among other items, assessing the collectability of receivables, asset retirement obligations, the use and recoverability of inventory, the estimation of fair value of financial instruments, the estimation of fair value of acquired assets and liabilities in a business combination and related purchase price allocation, assumptions used in the calculation of income taxes, useful lives and recoverability of tangible assets and goodwill and other intangible assets, costs for incentive compensation and accruals for59
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
commitments and contingencies. We review these estimates and assumptions periodically using historical experience and other factors and reflect the effects of any revisions in the Consolidated Financial Statementsconsolidated financial statements in the period we determine any revisions to be necessary. Actual results could differ from these estimates and such differences could be material.
Revenue Recognition
—The Company sells its products to end usersend-users primarily through an established distributor network and direct sales to select end users.end-users. The Company’s protective packaging solutions fall into four broad categories: Void-Fill, Cushioning, Wrapping, and End of
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net salesrevenue on the Consolidated Statements of Operations.
Charges for rebates and other allowances are recognized as a deduction from revenue on an accrual basis in the period in which the associated revenue is recorded. When we estimate our rebate accruals, we consider customer-specific contractual commitments including stated rebate rates and history of actual rebates paid. Our rebate accruals are reviewed at each reporting period and adjusted to reflect data available at that time. We adjust the accruals to reflect any differences between estimated and actual amounts. These adjustments impact the amount of net salesrevenue recognized by us in the period of adjustment. Charges for rebates and other allowances were approximately 10.9%, 11.3%, 11.3%, 9.5%, and 8.2%9.5% of salesrevenue in 2020, the Successor period,Period, the 1H 2019 Predecessor period,Period, and the years ended 2018, and 2017, respectively. Refer to Note 4, "
The Company recognizes incremental costs to fulfill a contract as an asset if such incremental costs are expected to be recovered, relate directly to a contract or anticipated contract, and generate or enhance resources that will be used to satisfy performance obligations in the future.
The Company recognizes incremental costs to obtain a contract as an expense when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less. For example, the Company generally expenses sales commissions when incurred because the contract term is less than 1one year. These costs are recorded within sales and marketingSG&A expenses.
Shipping and Handling Costs
—Costs incurred for the transfer and delivery of goods to customers are billed to customers and recorded as a component of cost of sales. Shipping andAdvertising Costs
—Advertising cost includes cost associated with trade shows. We expense advertising costs as incurred withinR&D Costs
—We expenseCash and Cash Equivalents
— Cash and cash equivalents include securities with original maturities of three months or less and cash inAccounts Receivable
—The Company provides credit in the normal course of business to its customers and does not require collateral. Trade receivables, less allowance for doubtful accounts, reflect the net realizable value of receivables and approximate fair60
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
value. The Company maintains an allowance against accounts receivable for the estimated probable losses on uncollectible accounts and sales returns and allowances. The valuation reserve is based upon historical loss experience, current economic conditions within the industries the Company serves as well as determination of the specific risk related to certain customers. Accounts receivable are charged off against the reserve when, in management’s estimation, further collection efforts would not result in a reasonable likelihood of receipt, or, if later, as proscribed by statutory regulations.
Inventories
—Inventories consist of unprocessed and finished paper and are stated at the lower of cost or net realizable value. Cost for all inventories is determined using the first-in, first-out method applied on a consistent basis. An allowance for excess or inactive inventory is recorded based upon an analysis that considers current inventory levels, historical usage patterns, estimates of future sales expectations and salvage value. Refer to Note 4 “Property, Plant, and Equipment—Property, plant, and equipment, including amounts under capital lease, are stated at cost less accumulated depreciation. Renewals and betterments that substantially extend the useful life of an asset are capitalized and depreciated. Leasehold improvements are depreciated over the lesser of the useful life of the asset or the applicable lease term.
Estimated Useful Lives | ||
Buildings and improvements | 2 | |
Machinery and equipment | 2 | |
Converting machines | 3 | |
Computer and office equipment | 2 | |
Assets under capital lease are included in machinery and equipment. Refer to Note 5 “Property, Plant, and Equipment, net”
Goodwill and Identifiable Intangible Assets, Net
Goodwill is not subject to amortization but is tested for impairment annually as of October 1, through a qualitative or quantitative assessment and when events and circumstances indicate that the estimated fair value of a reporting unit may no longer exceed its carrying value. If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
Identifiable intangible assets consist primarily of patents, customer/distributor relationships, trademarks, and trademarks.other intellectual property. We amortize finite lived identifiable assets over the shorter of their stated or statutory duration or their estimated useful lives, generally ranging from 10 to 15 years, on a straight-line basis and periodically review them for impairment. Trademarks are accounted for as indefinite-lived intangible assets and, accordingly, are not subject to amortization.
We use the acquisition method of accounting for all business combinations and do not amortize goodwill or intangible assets with indefinite useful lives. Goodwill and intangible assets with indefinite useful lives are tested for possible impairment annually during the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. See Note 9, “
Goodwill, Long-Lived and Identifiable Intangible Assets,Impairment of Long-livedLong-Lived Assets
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 that61
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
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 sheetsConsolidated Balance Sheets at fair value. Changes in the fair value of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income (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.
See Note 11, "
Foreign Currency
—The nature of business activities involves the management of various financial and market risks, including those related to changes in foreign currency exchange rates. The functional currency ofCommitments, Contingencies, and Contingencies, Litigation
Stock-Based CompensationShare-Based Incentive Compensation—The Company’s shareholders approved the Ranpak Holdings Corp. 2019 Omnibus Incentive Plan (the “2019 Plan”) at its Annual Meeting of Shareholders on February 20, 2019. The purpose of the 2019 Plan is to motivate and reward employees and other individuals to perform at their highest level and contribute significantly to the success of the Company. The 2019 Plan is an omnibus plan that may provide these incentives through grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, other cash-based awards and other stock-based awards to employees, directors, or consultants of the Company. See Note 16, “Stock Based Compensation,” of the Notes to the consolidated financial statements for further information on this plan.
We record share-basedstock-based compensation awards exchanged for employee services at fair value on the date of grant and record the expense for these awards in cost of sales and in selling, general and administrative expense,SG&A expenses, as applicable, on our Consolidated Statements of Operations over the requisite employee service period. Share-based incentiveStock-based compensation expense includes actual forfeitures incurred. For performance-based awards, the Company reassesses at each reporting date whether achievement of the performance condition is probable and accrues compensation expense if and when achievement of the performance condition is probable.
See Note 19, “Stock-Based Compensation” for further information on the 2019 Plan and stock-based compensation expense.
Employee Benefit Plans—The Company’s U.S. employees participate in a defined contribution plan and health and life insurance plans sponsored by the Company. A Company subsidiary, Ranpak B.V., participates in a multiemployer benefit plan – Corporate Pension Fund for Cardboard and Flexible Packaging Business (“the B.V. Plan”), – in the Netherlands, which provides retirement benefits to all Ranpak B.V. employees. As a participant in the multi-employer benefit plan, the Company recognizes as expense in each period for the required contributions to the multi-employer benefit plans.
Income Taxes
—The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.62
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
The Company recognizes deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, Managementmanagement considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we wouldwill be able to realize our deferred tax assets in the future in excess of their net recorded amount, we wouldwill make an adjustment to the deferred tax asset valuation allowance, which wouldwill reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1)(i) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2)(ii) for those tax positions that meet the more-likely than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
See Note 16, “Income Taxes” for further detail.
Comprehensive Income (Loss)—Comprehensive income (loss) includes net income (loss) and other comprehensive income (loss) amounts attributable to foreign currency translation adjustments and the effect of our interest rate swap hedge, net of tax, as applicable.
Net Earnings (Loss) per Common Share
See Note 18,21, “Earnings (Loss) per ShareEarnings/Loss Per share,” of the Notes to consolidated financial statements for further details.
Emerging Growth Company
—Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) exemptsSupplemental Cash Flow Information and Non-Cash Investing Activities
—Supplemental cash flow information
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, |
|
| June 3, 2019 – |
|
|
| January 1, 2019 |
|
| Year Ended |
| ||||
|
| 2020 |
|
| December 31, 2019 |
|
|
| – June 2, 2019 |
|
| December 31, 2018 |
| ||||
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 22.5 |
|
| $ | 15.8 |
|
|
| $ | 12.5 |
|
| $ | 29.0 |
|
Taxes paid |
|
| 3.7 |
|
|
| 4.3 |
|
|
|
| 4.0 |
|
|
| 7.6 |
|
Non-cash increase in asset retirement obligation |
| $ | 0.7 |
|
| $ | 0 |
|
|
| $ | 0 |
|
| $ | 0 |
|
Non-cash investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital leases |
| $ | 0.3 |
|
| $ | 0 |
|
|
| $ | 0 |
|
| $ | 0.2 |
|
Capital expenditures in accounts payable |
| $ | 2.4 |
|
| $ | 1.6 |
|
|
| $ | 2.1 |
|
| $ | 2.1 |
|
Successor | Predecessor | ||||||||||||||||
June 3, 2019 through December 31, 2019 | January 1, 2019 through June 2, 2019 | Twelve Months Ended December 31, 2018 | Twelve Months Ended December 31, 2017 | ||||||||||||||
Supplemental Cash Flow Information: | |||||||||||||||||
Interest Paid | $ | 15.8 | $ | 12.5 | $ | 29.0 | $ | 26.8 | |||||||||
Taxes Paid | $ | 4.3 | $ | 4.0 | $ | 7.6 | $ | 8.3 | |||||||||
Non-Cash Investing Activities: | |||||||||||||||||
Capital Leases | $ | — | $ | — | $ | 0.2 | $ | — |
63
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
Recently Adopted Accounting Standards
—InRecently Issued Accounting Standards
—In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842)In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends theIn December 2019, the FASB issued ASU No. 2019-12– Income Taxes (Topic 740): “ – Simplifying the Accounting for Income Taxes (“ASU 2019-12”).” The amendments in ASU simplifies2019-12 simplify the accounting for income taxes by removing certain exceptions regarding the incremental approach for intra-period tax allocations, deferred tax liabilities for equity method investments, and general methodology calculations when a year-to-date loss exceeds the anticipated loss. Additionally, ASU 2019-12 further simplifies accounting for income taxes by requiring certain franchise taxes to be accounted for as income-based tax or non-income-based tax, requiring evaluation of the general principlestax basis of goodwill in Topic 740. Thebusiness combinations, specifying the requirements and elections for allocating consolidated current and deferred tax expense to legal entities separately not subject to tax and requiring reflection of the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. ASU also clarifies and amends existing guidance to improve consistent application among reporting entities. This ASU2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within that reporting period; however,with early adoption is permitted. The various amendments can be applied on a retrospective, modified retrospective, or prospective basis, depending on the amendment. We are currentlyin the process of evaluating the impact of this standardnew guidance on our consolidated financial statements.statements and disclosures.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. These expedients and exceptions do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients and that are retained through the end of the hedging relationship. ASU 2020-04 is effective for all entities as of March 12, 2020 (the date of the issuance of ASU 2020-04) through December 31, 2022. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. We are evaluating the impact of ASU 2020-04 on our financial statements and disclosures.
64
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
Note 3 — Accounts Receivable, net— The components of accounts receivable, net were as follows:
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Accounts receivable |
| $ | 39.6 |
|
| $ | 36.3 |
|
Allowance for doubtful accounts |
|
| (0.5 | ) |
|
| (0.2 | ) |
Accounts receivable, net |
| $ | 39.1 |
|
| $ | 36.1 |
|
At December 31, 2020 and 2019, certain customers’ accounts receivable balances exceeded 10% of accounts receivable. At December 31, 2020, one customer accounted for approximately 12.9% of our accounts receivable balance. At December 31, 2019, a different customer accounted for 12.0% of our accounts receivable balance.
Note 4 — Inventories, net— The components of inventories, net was as follows:
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Raw materials |
| $ | 9.8 |
|
| $ | 7.2 |
|
Work-in-process |
|
| 0.5 |
|
|
|
|
|
Finished goods |
|
| 6.8 |
|
|
| 4.7 |
|
Total inventories |
|
| 17.1 |
|
|
| 11.9 |
|
Reserve for obsolescence |
|
| (1.0 | ) |
|
| (0.3 | ) |
Inventories, net |
| $ | 16.1 |
|
| $ | 11.6 |
|
Note 5 — Property, Plant and Equipment, net — The components of property, plant and equipment, net was as follows:
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Land |
| $ | 4.2 |
|
| $ | 4.1 |
|
Buildings and improvements |
|
| 8.7 |
|
|
| 8.1 |
|
Machinery and equipment |
|
| 15.3 |
|
|
| 13.0 |
|
Computer and office equipment |
|
| 10.7 |
|
|
| 6.7 |
|
Converting machines |
|
| 134.7 |
|
|
| 105.9 |
|
Total property, plant, and equipment |
|
| 173.6 |
|
|
| 137.8 |
|
Accumulated depreciation |
|
| (49.2 | ) |
|
| (15.3 | ) |
Property, plant, and equipment, net |
| $ | 124.4 |
|
| $ | 122.5 |
|
Our capital leases are included in machinery and equipment and depreciation of capital leases is recorded in depreciation and amortization expense. The cost and related accumulated depreciation of our capital leases are as follows:
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Cost |
| $ | 0.9 |
|
| $ | 0.6 |
|
Accumulated depreciation |
|
| (0.6 | ) |
|
| (0.1 | ) |
Net book value |
| $ | 0.3 |
|
| $ | 0.5 |
|
We did not capitalize any interest in any of the periods presented.
We are required to evaluate the recoverability of the carrying amount of our long-lived asset groups whenever events or changes in circumstances indicate the carrying amount of our asset groups may not be recoverable. Due to the negative macroeconomic effects of the COVID-19 pandemic across various industries, we performed an evaluation of our asset groups in the fourth quarter of 2020. The undiscounted cash flows to be generated from the use and eventual disposition of the asset groups were compared to the carrying value of the asset groups and it was determined that the carrying amounts of our asset groups were recoverable.
65
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
Depreciation expense recorded in cost of goods sold and depreciation and amortization expense in the Consolidated Statements of Operations and Comprehensive Income (Loss) was as follows:
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, |
|
| June 3, 2019 – |
|
|
| January 1, 2019 |
|
| Year Ended |
| ||||
Depreciation expense included in |
| 2020 |
|
| December 31, 2019 |
|
|
| – June 2, 2019 |
|
| December 31, 2018 |
| ||||
Cost of goods sold |
| $ | 31.1 |
|
| $ | 14.6 |
|
|
| $ | 8.9 |
|
| $ | 21.2 |
|
Depreciation and amortization expense |
|
| 2.9 |
|
|
| 0.8 |
|
|
|
| 0.7 |
|
|
| 1.6 |
|
Total depreciation expense |
| $ | 34.0 |
|
| $ | 15.4 |
|
|
| $ | 9.6 |
|
| $ | 22.8 |
|
Note 6 – Accrued Liabilities and Other — The components of accrued liabilities and other was as follows:
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Employee compensation |
| $ | 2.6 |
|
| $ | 3.6 |
|
Taxes |
|
| 3.5 |
|
|
| 2.4 |
|
Professional fees |
|
| 1.2 |
|
|
| 1.6 |
|
Bonus |
|
| 6.0 |
|
|
| 3.3 |
|
Interest |
|
| 1.9 |
|
|
| 2.2 |
|
Exit Payment |
|
| 8.2 |
|
|
| - |
|
Interest rate swap liability, current portion |
|
| 4.6 |
|
|
| 0.4 |
|
Other |
|
| 2.7 |
|
|
| 2.0 |
|
Accrued liabilities and other |
| $ | 30.7 |
|
| $ | 15.5 |
|
Note 7 — Segment and Geographic Information
In accordance with ASC 280,
Segment Reporting(“ASC 280”),We attribute revenue to individual countries based on the Company’s selling location. The Company’sOur products are primarily sold from North America and Europe. The following table presents a summary of total net sales fromrevenue to external customers and long-lived assets by geographic location:
|
| Successor |
|
|
| Predecessor |
| |||||||||||
|
|
| Year Ended December 31, |
|
| June 3, 2019 – |
|
|
| January 1, 2019 |
|
| Year Ended |
| ||||
|
|
| 2020 |
|
| December 31, 2019 |
|
|
| – June 2, 2019 |
|
| December 31, 2018 |
| ||||
North America |
|
| $ | 127.4 |
|
| $ | 81.8 |
|
|
| $ | 50.1 |
|
| $ | 131.4 |
|
Europe/Asia |
|
|
| 170.8 |
|
|
| 81.3 |
|
|
|
| 56.3 |
|
|
| 136.5 |
|
Net revenue |
|
| $ | 298.2 |
|
| $ | 163.1 |
|
|
| $ | 106.4 |
|
| $ | 267.9 |
|
Successor | Predecessor | ||||||||
December 31, 2019 | December 31, 2018 | ||||||||
Total long-lived assets | |||||||||
North America | $ | 62.4 | $ | 34.0 | |||||
Europe | 60.1 | 39.0 | |||||||
Total | $ | 122.5 | $ | 73.0 |
Successor | Predecessor | ||||||||||||
June 3, 2019 through December 31, 2019 | January 1, 2019 through June 2, 2019 | December 31, 2018 | |||||||||||
Net sales | |||||||||||||
North America | $ | 81.8 | $ | 50.1 | $ | 131.4 | |||||||
Europe | 81.3 | 56.3 | 136.5 | ||||||||||
Total | $ | 163.1 | $ | 106.4 | $ | 267.9 |
Our customers are not concentrated in any specific geographic region. During 2020 and the 1H 2019 Predecessor Period, no customers exceeded 10% of net revenue. During the Successor period, Predecessor period,Period and year ended December 31, 2018, one customer accounted for approximately 10.0%, 8.5%, and 10.8%, respectively, of total revenues, respectively.net revenue.
The following table presents our long-lived assets by geographic location:
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
North America |
| $ | 59.4 |
|
| $ | 62.4 |
|
Europe/Asia |
|
| 65.0 |
|
|
| 60.1 |
|
Total long-lived assets |
| $ | 124.4 |
|
| $ | 122.5 |
|
66
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
Note 4
Description of Revenue GeneratingRevenue-Generating Activities
Ranpak provides environmentally sustainable, system based, product protection solutions and end-of-line automation solutions for e-commerce and industrial supply chains. We employ a razor/razor-blade business model that is designed to generate recurring sales through our value-added paper consumables for use exclusively in our installed base of protective packaging systems. Through our proprietary protective packaging systems and value-added kraft paper consumables, we offer reliable, fast and effective environmentally sustainable products. Our extensive distributor network and direct sales allowsallow us to meet the needs of a variety of end-users from small businesses to global corporations. The industries we serve include leading e-commerce companies, as well as suppliers and sellers of automotive after-market parts, IT/electronics, machinery, home goods, industrial, warehouse/transportations services and healthcare. Our products provide our customers with cushioning, void-fill and wrapping solutions through our PadPak, FillPak®, WrapPack, Geami and ReadyRoll product offerings.
In 2017 we acquired Neopack, Solutions S.A.S.,e3neo, which provides highly-customized Automationautomation solutions under the brand name “Ranpak Automation.” Our Ranpak Automation product line is focused on designing, manufacturing, and selling highly automated, turn-key integrated box-sizing systems to high-volume end-users. We are in the process of expanding Ranpak Automation'sAutomation’s offering to grow the ongoing spare parts design and service business. The systems are designed to help minimize the use of in-the-box packaging for these end-users while fully automating their end of lineend-of-line operations.
Identify Contract with the Customer:
In paper consumables sales for both distributor agreements and direct agreements, the Company has determined the contract to be a combination of the master service agreement ("MSA"(“MSA”) and purchase order ("PO"(“PO”). The MSA contains general terms and conditions which govern the agreement, including general payment terms. Individual PO’s must be placed underneath the terms of the MSA to order specific paper products which Ranpak promises to deliver. The PO contains relevant details of the contract including the type of paper, quantity, unit price, total price, as well as payment terms and estimated delivery date. Under the MSA, multiple PO’s for one customer may be placed at or near the same time.
To provide automation solution goods and services, an agreement is documented and agreed to between Ranpak and the customer. This is in the form of a proposal contract for automation machines with separate proposals for related goods and services. Typically, machines have their own proposal, and other related goods and services such as preventative maintenance, and spare parts have a separate proposal with these goods and services all detailed. These written agreements outline the terms and conditions for respective transactions between Ranpak and their customers and represent contracts with enforceable rights. For each type of contract, there are various levels of termination provisions that each party has.
Ranpak recognizes revenue from each automation machine separately, on a contract by contract basis (i.e. by individual machine). Ranpak recognizes revenue on maintenance contracts and spare parts separately from their automation machine sales. Each contract represents its own unit of accounting. Ranpak uses an input method, based on percentage of completion of cost and effort incurred to recognize automation revenue.
Performance Obligations:
67
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in the context of the contract.
Transaction Price and Variable Consideration:
For all contracts that contain a form of variable consideration, Ranpak estimates at contract inception, and periodically throughout the term of the contract, what volume of goods and/or services the customer will purchase in a given period and determines how much consideration is payable to the customer or how much consideration Ranpak would be able to recover from the customer based on the structure of the type of variable consideration. In most cases the variable consideration in contracts with customers results in amounts payable to the customer by the Company. Ranpak adjusts the contract transaction price based on any changes in estimates each reporting period and performs an inception to date cumulative adjustment to the amount of revenue previously recognized.
Charges for rebates and other allowances are recognized as a deduction from revenue on an accrual basis in the period in which the associated revenue is recorded. When we estimate our rebate accruals, we consider customer-specific contractual commitments including stated rebate rates and history of actual rebates paid. Our rebate accruals are reviewed at each reporting period and adjusted to reflect data available at that time. We adjust the accruals to reflect any differences between estimated and actual amounts. These adjustments of transaction price impact the amount of net salesrevenue recognized by us in the period of adjustment.
The Company does not adjust consideration in contracts with customers for the effects of a significant financing component if the Company expects that the period between transfer of a good or service and payment for that good or service will be one year or less. This is expected to be the case for the majority of contracts.
Sales, value-added, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales on the Consolidated Statements of Operations and Comprehensive Income.
Allocation of Transaction Price:
Ranpak often offers rebates to customers in their contracts that are related to the amount of consumables purchased. We believe that this form of variable consideration should only be allocated to consumables because the entire amount of variable consideration relates to the customer’s purchase of and Ranpak'sRanpak’s efforts to provide consumables.
Transfer of Control:
Successor | Predecessor | ||||||||||||||||
June 3, 2019 through December 31, 2019 | January 1, 2019 through June 2, 2019 | December 31, 2018 | December 31, 2017 | ||||||||||||||
North America | $ | 70.8 | $ | 43.0 | $ | 112.4 | $ | 111.5 | |||||||||
Europe | 69.9 | 48.8 | 116.8 | 98.2 | |||||||||||||
Topic 606 Segment Revenue | 140.7 | 91.8 | 229.2 | 209.7 | |||||||||||||
Leasing Revenue | 22.4 | 14.6 | 38.7 | 34.4 | |||||||||||||
Total | $ | 163.1 | $ | 106.4 | $ | 267.9 | $ | 244.1 |
The time between when a performance obligation is satisfied and when billing and payment occur is closely aligned. aligned and performance obligations do not extend beyond one year. As the transfer of control of our products results in an unconditional right to receive consideration, we did 0t record contract assets as of December 31, 2020 and 2019.
Deferred revenue represents contractual amounts received from customers that exceedsexceed percentage of project completion that is in excess of costs incurred for automation equipment sales.sales, as well as prepayments for machine fees that are amortized over the next
68
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
quarter. Our enforceable contractual obligations amount to $2.5 million and $0.3 million as of December 31, 2019 and 2018, respectively, tend to be short term in nature with a durationhave durations of less than one year and are included in Current Liabilitiescurrent liabilities on the balance sheet.Consolidated Balance Sheets. Changes in deferred revenue were as follows:
|
| Year Ended December 31, |
|
| June 3, 2019 |
|
| January 1, 2019 |
| |||
|
| 2020 |
|
| – December 31, 2019 |
|
| – June 2, 2019 |
| |||
Beginning balance |
| $ | 2.5 |
|
| $ | 0.8 |
|
| $ | 0.3 |
|
Deferral of revenue |
|
| 2.3 |
|
|
| 0.4 |
|
|
| 0.8 |
|
Recognition of revenue |
|
| (2.3 | ) |
|
| (0.6 | ) |
|
| (0.3 | ) |
Purchase accounting adjustment |
|
| - |
|
|
| 1.9 |
|
|
| - |
|
Adjustment for returns |
|
| (1.1 | ) |
|
| - |
|
|
| - |
|
Ending balance |
| $ | 1.4 |
|
| $ | 2.5 |
|
| $ | 0.8 |
|
In addition to the disaggregation of revenue between paper, machine lease, and other revenue, we further disaggregate our revenue by segment geography to assist in evaluating the nature, timing, and uncertainty of revenue and cash flows that may be impacted by economic factors:
|
| Successor |
|
|
| Predecessor |
| |||||||||||
|
|
| Year Ended December 31, |
|
| June 3, 2019 – |
|
|
| January 1, 2019 |
|
| Year Ended |
| ||||
|
|
| 2020 |
|
| December 31, 2019 |
|
|
| – June 2, 2019 |
|
| December 31, 2018 |
| ||||
North America |
|
| $ | 110.9 |
|
| $ | 70.8 |
|
|
| $ | 43.0 |
|
| $ | 112.4 |
|
Europe/Asia |
|
|
| 147.7 |
|
|
| 69.9 |
|
|
|
| 48.8 |
|
|
| 116.8 |
|
Machine lease revenue |
|
|
| 39.6 |
|
|
| 22.4 |
|
|
|
| 14.6 |
|
|
| 38.7 |
|
Net revenue |
|
| $ | 298.2 |
|
| $ | 163.1 |
|
|
| $ | 106.4 |
|
| $ | 267.9 |
|
North America consists of the United States, Canada and Mexico; Europe/Asia consists of European, Asian (including China), Pacific Rim, South American and African countries.
Note 5
Goodwill and Indefinite-Lived Intangible Assets
We tested our goodwill reporting units and indefinite-lived intangible assets for impairment as of our annual testing date, October 1, in the fourth quarter of 2020. The tests were performed using a combination of the Discounted Cash Flow Method and the Guideline Public Company Method, as well as considerations of the Merger and Acquisition Method and the Adjusted Book Value Method. Upon completion of the tests, we concluded that the fair value of our goodwill reporting units and indefinite-lived intangible assets exceeded their carrying values and were not impaired.
The following table detailsshows our inventories, net:goodwill balances by operating segment that are aggregated into one reportable segment:
|
| North America |
|
| Europe |
|
| Total |
| |||
Balance at December 31, 2018 (Predecessor) |
| $ | 260.0 |
|
| $ | 95.7 |
|
| $ | 355.7 |
|
Currency translation |
|
| 0 |
|
|
| (2.5 | ) |
|
| (2.5 | ) |
Balance at June 2, 2019 (Predecessor) |
| $ | 260.0 |
|
| $ | 93.2 |
|
| $ | 353.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 3, 2019 (Successor) |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
Ranpak Business Combination |
|
| 342.3 |
|
|
| 104.9 |
|
|
| 447.2 |
|
Additions |
|
| 0.7 |
|
|
| 0 |
|
|
| 0.7 |
|
Currency translation |
|
| 0 |
|
|
| 0.9 |
|
|
| 0.9 |
|
Balance at December 31, 2019 |
|
| 343.0 |
|
|
| 105.8 |
|
|
| 448.8 |
|
Currency translation and other |
|
| (4.2 | ) |
|
| 13.8 |
|
|
| 9.6 |
|
Balance at December 31, 2020 |
| $ | 338.8 |
|
| $ | 119.6 |
|
| $ | 458.4 |
|
December 31, | |||||||||
Successor | Predecessor | ||||||||
(in millions) | 2019 | 2018 | |||||||
Raw materials | $ | 7.2 | $ | 4.1 | |||||
Finished goods | 4.7 | 8.0 | |||||||
Total inventories | 11.9 | 12.1 | |||||||
Less reserve for obsolescence | (0.3 | ) | (0.3 | ) | |||||
Total inventories, net | $ | 11.6 | $ | 11.8 |
69
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and Equipment, Netper share data)
Finite-Lived Intangible Assets, net
Finite-lived or amortizable intangible assets consist of patented and unpatented technology, customer/distributor relationships, and other intellectual property. In the second quarter of 2020, certain in-process R&D assets were placed in service and transferred into patented/unpatented technology to be amortized over a five-year life.
In October 2020, we acquired certain amortizable intangible assets, including patents and other intellectual property, from a European manufacturer in a €1.1 million (approximately $1.3 million) asset acquisition transaction. The estimated useful lives of these assets range from three to 15 years.
Impairment of Long-lived Assets
Due to the ongoing negative macroeconomic effects of the COVID-19 pandemic across various industries, we performed an evaluation of our long-lived asset groups in the fourth quarter of 2020. The undiscounted cash flows to be generated from the use and eventual disposition of the asset groups were compared to the carrying value of the asset groups and it was determined that the carrying amounts of our asset groups were recoverable and not impaired.
The following tables summarize our identifiable intangible assets, net with definite and indefinite useful lives:
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
| ||||||
Customer/distributor relationships |
| $ | 209.2 |
|
| $ | (22.2 | ) |
| $ | 187.0 |
|
| $ | 199.5 |
|
| $ | (7.9 | ) |
| $ | 191.6 |
|
Patented/unpatented technology |
|
| 169.2 |
|
|
| (23.7 | ) |
|
| 145.5 |
|
|
| 164.5 |
|
|
| (8.5 | ) |
|
| 156.0 |
|
Intellectual property |
|
| 0.4 |
|
|
| - |
|
|
| 0.4 |
|
|
| - |
|
|
| - |
|
|
| - |
|
In-process research and development |
|
| 1.6 |
|
|
| - |
|
|
| 1.6 |
|
|
| 5.0 |
|
|
| - |
|
|
| 5.0 |
|
Total definite-lived intangible assets |
|
| 380.4 |
|
|
| (45.9 | ) |
|
| 334.5 |
|
|
| 369.0 |
|
|
| (16.4 | ) |
|
| 352.6 |
|
Trademarks/tradenames with indefinite lives |
|
| 106.1 |
|
|
| - |
|
|
| 106.1 |
|
|
| 106.0 |
|
|
| - |
|
|
| 106.0 |
|
Identifiable intangible assets, net |
| $ | 486.5 |
|
| $ | (45.9 | ) |
| $ | 440.6 |
|
| $ | 475.0 |
|
| $ | (16.4 | ) |
| $ | 458.6 |
|
The following table detailsshows the remaining estimated amortization expense for our property, plantdefinite-lived intangible assets at December 31, 2020:
Year |
| Amount |
| |
2021 |
| $ | 29.5 |
|
2022 |
|
| 29.5 |
|
2023 |
|
| 29.5 |
|
2024 |
|
| 29.5 |
|
2025 |
|
| 28.9 |
|
Thereafter |
|
| 186.0 |
|
|
| $ | 332.9 |
|
Amortization expense was $28.7 million in 2020, $16.3 million in the Successor Period, $17.0 million in the 1H 2019 Predecessor Period, and equipment, net:
December 31, | ||||||||
Successor | Predecessor | |||||||
(in millions) | 2019 | 2018 | ||||||
Land | $ | 4.1 | $ | 3.9 | ||||
Buildings and improvements | 8.1 | 7.0 | ||||||
Machinery and equipment | 13.0 | 15.0 | ||||||
Other property and equipment | 6.7 | 8.7 | ||||||
Converting machines | 105.9 | 112.4 | ||||||
Property, plant and equipment | 137.8 | 147.0 | ||||||
Accumulated depreciation and amortization | (15.3 | ) | (74.0 | ) | ||||
Property, plant and equipment, net | $ | 122.5 | $ | 73.0 |
The following table detailsshows the remaining weighted-average useful life of our depreciation expense for property, plant and equipment:
Successor | Predecessor | |||||||||||||||
June 3, through December 31, | January 1, through June 2, | December 31, | ||||||||||||||
(in millions) | 2019 | 2019 | 2018 | 2017 | ||||||||||||
Cost of sales | $ | 14.6 | $ | 8.9 | $ | 21.2 | $ | 19.2 | ||||||||
Selling, general and administrative | 0.8 | 0.7 | 1.6 | 1.1 | ||||||||||||
Total depreciation | $ | 15.4 | $ | 9.6 | $ | 22.8 | $ | 20.3 |
Remaining Weighted-Average Useful Life | ||||
December 31, 2020 | December 31, 2019 | |||
Customer/distributor relationships | 13 years | 14 years | ||
Patented/unpatented technology | 10 years | 11 years | ||
Intellectual property | 6 years | — | ||
Total identifiable assets, net with definite lives | 12 years | 13 years |
Note 7
December 31, | |||||||||
Successor | Predecessor | ||||||||
(in millions) | 2019 | 2018 | |||||||
Employee compensation | $ | 3.6 | $ | 2.3 | |||||
Taxes | 2.4 | 1.1 | |||||||
Professional fees | 1.6 | 3.2 | |||||||
Bonus | 3.3 | 2.5 | |||||||
Interest | 2.2 | 0.3 | |||||||
Other | 2.4 | 1.4 | |||||||
Accrued Liabilities | $ | 15.5 | $ | 10.8 |
Ranpak Business Combination
—On June 3, 2019, the Company consummated the acquisition of all outstanding and issued equity interests of Rack Holdings, the Ranpak Business Combination, pursuant to the Stock Purchase Agreement for consideration of $794.9 million and €140.0 million ($160.8 million) in cash,70
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
Seller to repay outstanding indebtedness and unpaid transaction expenses as contemplated by the Stock Purchase Agreement and (B)(ii) 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 1, "Nature“Nature of Operations"” 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 December 31, 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 evaluateWe finalized the purchase accounting 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 recognizedassessment 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 |
| $ | 955.7 |
|
Cash and cash equivalents |
|
| 10.1 |
|
Accounts receivable |
|
| 28.2 |
|
Inventories |
|
| 16.1 |
|
Property, plant and equipment |
|
| 119.5 |
|
Other assets |
|
| 4.8 |
|
Intangible assets |
|
| 473.7 |
|
Total identifiable assets acquired |
|
| 652.4 |
|
Accounts payable |
|
| 8.6 |
|
Accrued expenses |
|
| 7.4 |
|
Other liabilities |
|
| 5.0 |
|
Deferred tax liabilities |
|
| 122.9 |
|
Net identifiable liabilities acquired |
|
| 143.9 |
|
Goodwill |
| $ | 447.2 |
|
Amount | |||
Total Consideration | $ | 955.7 | |
Cash and cash equivalents | 10.1 | ||
Accounts receivable | 28.2 | ||
Inventories | 16.1 | ||
Property, plant and equipment | 119.5 | ||
Other assets | 4.8 | ||
Intangible assets | 473.7 | ||
Total identifiable assets acquired | 652.4 | ||
Accounts payable | 8.6 | ||
Accrued expenses | 7.4 | ||
Other liabilities | 5.0 | ||
Deferred tax liabilities | 122.9 | ||
Net identifiable liabilities acquired | 143.9 | ||
Goodwill | $ | 447.2 |
Intangible assets and property, plant and equipment balancebalances comprise the following:
|
| Fair Value |
|
| Estimated Useful Lives | |
Patented/Unpatented Technology |
| $ | 164.1 |
|
| 10 years |
Customer/Distributor Relationships |
|
| 198.6 |
|
| 15 years |
In-Process Research & Development |
|
| 5.0 |
|
| N/A |
Trade Names/Trademarks |
|
| 106.0 |
|
| Indefinite |
Total Fair Value |
| $ | 473.7 |
|
|
|
|
|
|
|
|
|
|
Machinery and Equipment |
| $ | 17.6 |
|
| 5 years |
Converting Machines |
|
| 90.4 |
|
| 3 - 7 years |
Buildings and Improvements |
|
| 7.4 |
|
| 15 years |
Land |
|
| 4.1 |
|
| N/A |
Total Fair Value |
| $ | 119.5 |
|
|
|
Preliminary Fair Value | Remaining Useful Lives | |||||
Patented/Unpatented Technology | $ | 164.1 | 10 | |||
Customer/Distributor Relationships | 198.6 | 15 | ||||
In-Process Research & Development | 5.0 | 10 | (1) | |||
Trade Names/Trademarks | 106.0 | Indefinite | ||||
Total Preliminary Fair Value | $ | 473.7 | ||||
(1) Until In-Process Research & Development projects become viable, these assets have an indefinite life and are subject to impairment | ||||||
Machinery and Equipment | $ | 17.7 | 5 | |||
Converting machines | 90.4 | 3 - 7 | ||||
Buildings and Improvements | 7.4 | 15 | ||||
Land | 4.1 | N/A | ||||
Total Preliminary Fair Value | $ | 119.5 |
The preliminary fair values for the trade names/trademarks, patented/unpatented technology, and in-process R&D 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.
71
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
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.
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 customercustomers 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.Consolidated Balance Sheets. Transaction costs expensed in the Successor Period from June 3, 2019 through December 31, 2019 amounted to $0.3 million, with an additional $7.4 million expensed in the 1H Predecessor Period from January 1, 2019 through June 2, 2019 within income from operations in the condensed consolidated statementConsolidated Statements of operations.Operations.
|
| Amount |
| |
Deferred financing costs |
|
|
|
|
Presented as a reduction to debt |
| $ | 10.9 |
|
Presented as an asset |
|
| 1.7 |
|
Total deferred financing costs |
|
| 12.6 |
|
Transaction costs (including $11.3 million of IPO costs) |
|
| 25.6 |
|
Payment of accrued transaction costs |
|
| 9.8 |
|
Total Ranpak Business Combination transaction costs |
| $ | 48.0 |
|
Amount | |||
Deferred financing costs | $ | 12.6 | |
Transaction costs (including $11.3 million of IPO 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 unaudited information represents the supplemental pro forma results of the Company’s consolidated statementConsolidated Statements of operationsOperations as if the Ranpak Business Combination occurred on January 1, 2018, for the years ended and December 31, 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):
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Net revenue |
| $ | 273.6 |
|
| $ | 266.1 |
|
Net loss |
| $ | (9.7 | ) |
| $ | (3.9 | ) |
December 31, | |||||||
2019 | 2018 | ||||||
Net Sales | $ | 273.6 | $ | 266.1 | |||
Net (loss) income | $ | (9.7 | ) | $ | (3.9 | ) |
These pro forma results were based on estimates and assumptions, which the Company believes are reasonable. They are not the results that would have been realized had the Company been a combined company during the periods presented and are not necessarily indicative of consolidated results of operations in future periods. The pro forma results include adjustments primarily related to purchase accounting adjustments. Acquisition costs and other non-recurring charges incurred are included in the earliest period presented.
Neopack Acquisition
—On February 28, 2017, pursuant to the Share Purchase Agreement (“The e3NEOe3neo Purchase Agreement contained a contingent consideration arrangement that required the Company to pay e3NEOe3neo a “Next Generation Machine Payment”, which was computed by the Company based on certain criteria established in the e3NEOe3neo Purchase Agreement. The criteria included, but were not limited to, the design and development by e3NEOe3neo of a prototype of the “Next Generation Machine” as defined in the e3NEOe3neo Purchase Agreement. The maximum amount payable, $1.1 million, was recorded as contingent consideration, all of which was paid in 2018.
Additionally, the e3NEOe3neo Purchase Agreement contains an earn-out provision whereby the seller may be entitled to receive an earn-out payment in an amount up to the greater of (i) $2.6 million (the “Minimum Earn-Out Amount”), and (ii) the trailing twelve (12) month earnings before income taxes, depreciation and amortization of the business calculated as of December 31, 2020 multiplied by forty-eight percent (48%). In order to be eligible to receive the Minimum Earn-Out Amount pursuant to the purchase agreement, e3NEOe3neo must have caused the business to receive purchase orders from customers and receive sign-off from customers upon completion of a successful factory acceptance test related to certain next generation machines on or before December 31, 2019 subject to reasonable approval of the Company. The conditions of the earn-out were not achieved and the Company has agreed to a settlement arrangement with the former majority owner of e3NEO,e3neo, which arrangement is subject only to final administrative approvalwas approved by French authorities.authorities and finalized on April 21, 2020. The arrangement would provide, among other things,
72
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
provides for a payment to the earn-out counterparties in the amount of approximately $1.6 million and also provides the former majority owner of whiche3neo severance from the Company, including non-compete and consulting amounts under French law. Approximately $1.4 million was accrued at December 31, 2019 with2019. All amounts were paid by the remainder, $0.2 million, anticipated to be expensed during 2020.The arrangement would also provide the former majority owner of e3neo with certain additional amounts upon his severance from the company, including statutory severance, non-compete and consulting amounts under French law. These additional amounts will be expensed in 2020.
(in millions) | North America | Europe | Total | |||||||||
Gross carrying value at December 31, 2017 (Predecessor) | $ | 260.0 | $ | 100.3 | $ | 360.3 | ||||||
Currency translation | — | (4.6 | ) | (4.6 | ) | |||||||
Gross carrying value at December 31, 2018 (Predecessor) | 260.0 | 95.7 | 355.7 | |||||||||
Currency translation | — | (2.5 | ) | (2.5 | ) | |||||||
Gross carrying value at June 2, 2019 (Predecessor) | 260.0 | 93.2 | 353.2 | |||||||||
Fair value adjustment due to the Ranpak Business Combination | 342.3 | 104.9 | 447.2 | |||||||||
Additions to goodwill | 0.7 | — | 0.7 | |||||||||
Currency translation | — | 0.9 | 0.9 | |||||||||
Gross carrying value at December 31, 2019 (Successor) | $ | 343.0 | $ | 105.8 | $ | 448.8 |
Successor | Predecessor | |||||||||||||||||||||||
December 31, 2019 | December 31, 2018 | |||||||||||||||||||||||
(In millions) | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||
Customer/distributor relationships | $ | 199.5 | $ | (7.9 | ) | $ | 191.6 | $ | 259.1 | $ | (110.1 | ) | $ | 149.0 | ||||||||||
Patented/unpatented technology | 164.5 | (8.5 | ) | 156.0 | 153.0 | (64.5 | ) | 88.5 | ||||||||||||||||
In-process research and development | 5.0 | — | 5.0 | — | — | — | ||||||||||||||||||
Total intangible assets with definite lives | 369.0 | (16.4 | ) | 352.6 | 412.1 | (174.6 | ) | 237.5 | ||||||||||||||||
Trademarks/tradenames with indefinite lives | 106.0 | — | 106.0 | 56.2 | — | 56.2 | ||||||||||||||||||
Total identifiable intangible assets, net | $ | 475.1 | $ | (16.4 | ) | $ | 458.6 | $ | 468.3 | $ | (174.6 | ) | $ | 293.7 |
Note 8, "
(in millions) | ||||
Year | Amount | |||
2020 | $ | 28.0 | ||
2021 | 28.0 | |||
2022 | 28.0 | |||
2023 | 28.0 | |||
2024 | 28.0 | |||
Thereafter | 207.6 |
In connection with the Closing of the Ranpak Business Combination, Ranger Pledgor LLC ("Holdings"(“Holdings”), Ranger Packaging LLC (the "US Borrower"“U.S. Borrower”), and Ranpak B.VB.V. (the "Dutch Borrower"“Dutch Borrower” and together with the USU.S. Borrower, the "Borrowers"“Borrowers”), entered into a First Lien Credit Agreement that provided for senior secured credit facilities to, in part, (i) fund the business combination, (ii) repay and terminate the existing indebtedness of Rack Holdings, and (iii) pay all fees, premiums, expenses and other transaction costs incurred in connection with the foregoing. The aggregate principal amount of the senior secured credit facilities consists of a $378.2 million dollar-denominated first lien term facility (the “First Lien Dollar Term Facility”), a €140.0 million ($152.6 million equivalent) euro-denominated first lien term facility (the “First Lien Euro Term Facility” and, together with the First Lien Dollar Term Facility, the “First Lien Term Facility”) and a $45.0 million revolving facility (the “Revolving Facility” and together with the First Lien Term Facility, the “Facilities”). The First Lien Term Facility matures seven years after the closing date and the Revolving Facility matures five years after the Closing Date.closing date. In December 2019, the Company closed on a public offering of its Class A common stock generating net proceeds of approximately $107.7 million that was used to pay down the First Lien Dollar Term Facility. As of December 31, 2020 and December 31, 2019, 0 amounts arewere outstanding under the Revolving Facility.
Long-term debt consisted of the following (in millions):following:
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
First Lien Dollar Term Facility |
| $ | 270.9 |
|
| $ | 270.9 |
|
First Lien Euro Term Facility |
|
| 168.9 |
|
|
| 157.3 |
|
Deferred financing costs, net |
|
| (6.6 | ) |
|
| (7.8 | ) |
Total debt |
|
| 433.2 |
|
|
| 420.4 |
|
Less: current portion |
|
| (0.5 | ) |
|
| (1.6 | ) |
Long-term debt |
| $ | 432.7 |
|
| $ | 418.8 |
|
First Lien Dollar Term Facility | $ | 270.9 | ||
First Lien Euro Term Facility (139.7 million Euro) | 157.3 | |||
Revolving Facility | — | |||
Total Debt | 428.2 | |||
Less deferred financing costs, net | (7.8 | ) | ||
Less current portion | (1.6 | ) | ||
Long-term Debt | $ | 418.8 |
Maturities of debtthe First Lien Term Facility at December 31, 20192020 are as follows:
Year Ended |
| Amount |
| |
2021 |
| $ | 1.7 |
|
2022 |
|
| 1.7 |
|
2023 |
|
| 1.7 |
|
2024 |
|
| 1.7 |
|
2025 |
|
| 1.7 |
|
Thereafter |
|
| 431.3 |
|
Total |
| $ | 439.8 |
|
Year Ended December 31, | (in millions) | |||
2020 | $ | 1.6 | ||
2021 | 1.6 | |||
2022 | 1.6 | |||
2023 | 1.6 | |||
2024 | 1.6 | |||
Thereafter | 420.2 | |||
$ | 428.2 |
Borrowings under the Facilities, at the Borrowers'Borrowers’ option, bear interest at either (1)(i) an adjusted eurocurrency rate or (2)(ii) a base rate, in each case plus an applicable margin. The applicable margin is 3.75% with respect to eurocurrency borrowings and 2.75% with respect to base rate borrowings as of December 31, 2020 and December 31, 2019, (in each case, assuming a first lien net leverage ratio of less than 5.00:1.00), subject to a leverage-based stepupstep-up to an applicable margin equal to 400 basis points for eurocurrency borrowings. The interest rate atfor the First Lien Dollar Term Facility as of December 31, 2020 and December 31, 2019 was 5.46%.
The Revolving Facility includes borrowing capacity available for standby letters of credit of up to $5.0 million. Any issuance of letters of credit will reduce the amount available under the Revolving Facility.
The Facilities will provide the Borrowers with the option to increase commitments under the Facilities in an aggregate amount not to exceed the greater of $95.0 million and 100% of trailing-twelve months Consolidated EBITDA (as defined in the definitive documentation with respect to the Facilities), plus any voluntary prepayments of the debt financing (and, in the case of the Revolving Facility, to the extent such voluntary prepayments are accompanied by permanent commitment reductions under the Revolving Facility), plus unlimited amounts subject to the relevant net leverage ratio tests and certain other conditions.
73
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
The obligations of (i) the USU.S. Borrower under the Facilities and certain of its obligations under hedging arrangements and cash management arrangements are unconditionally guaranteed by Holdings and each existing and subsequently acquired or organized
The Facilities imposedimpose restrictions that require the Company to comply with or maintain certain financial tests and ratios. Such agreements restrict our ability to, among other things: (i) declare dividends or redeem or repurchase capital stock, including with respect to Class A common stock,stock; (ii) prepay, redeem or purchase other debt,debt; (iii) incur liens,liens; (iv) make loans, guarantees, acquisitions and other investments,investments; (v) incur additional indebtedness,indebtedness; (vi) engage in sale and leaseback transactions,transactions; (vii) amend or otherwise alter debt and other material agreements,agreements; (viii) engage in mergers, acquisitions and asset sales,sales; (ix) engage in transactions with affiliatesaffiliates; and (x) enter into arrangements that would prohibit us from granting liens or restrict our ability to pay dividends, make loans or transfer assets among our subsidiaries. The Company wasWe were in compliance with all of its financial covenants as of December 31, 2019.
On February 14, 2020, Ranger Packaging LLC, a Delaware limited liability company (“U.S. Borrower”), Ranpak B.V., (the “Dutch Borrower”; the U.S. Borrower and the Dutch Borrower, the “Borrowers”), Ranger Pledgor LLC, a Delaware limited
Among other things, the Amendment No. 1 amends the Credit Agreement such that (x)(i) the requirement of the Borrowers to apply
On July 1, 2020, we entered into a borrower assumption agreement (“Borrower Assumption Agreement”), which provided that, in the following order, (i) Rack Holdings Inc. merged with and into Ranger Packaging LLC, with Ranger Packaging LLC as the surviving entity of such merger and (ii) Ranger Packaging LLC merged with and into Ranpak Corp., with Ranpak Corp. as the surviving entity of such merger (clauses (i) and (ii) collectively, the “Reorganization”). Contemporaneously with the Reorganization, Ranger Packaging LLC, Ranpak Corp., Ranger Pledgor LLC, certain other subsidiaries of Ranger Pledgor LLC and Goldman Sachs Lending Partners LLC entered into the Borrower Assumption Agreement whereby, among other things, Ranpak Corp. assumed all obligations, liabilities and rights of Ranger Packaging LLC as the “U.S. Borrower” under the New Credit Facilities.
Under the First Lien Term Facility agreement, our lower leverage ratio at December 31, 2018,2020 requires us to pay our lenders an $8.2 million Exit Payment, which we will pay in the first quarter of 2021. This amount is included in interest expense, net and accrued liabilities.
Deferred financing costs represent costs incurred in connection with the issuance or amendment of the Company’s debt agreements. Deferred financing costs are amortized over the terms of the related debt and recognized as a component of interest expense in the Consolidated Statements of Operations and Comprehensive Income (Loss). Deferred financing costs related to our term loans are included in long-term debt consistedon the Consolidated Balance Sheets. Deferred financing costs related to our Revolving Facility are included in other assets. The following table presents deferred financing costs as of December 31, 2020 and 2019:
74
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Deferred financing costs |
| $ | 12.7 |
|
| $ | 10.7 |
|
Accumulated amortization |
|
| (4.9 | ) |
|
| (3.2 | ) |
Deferred financing costs, net |
| $ | 7.8 |
|
| $ | 7.5 |
|
As a result of the following (in millions):
December 31, | ||||
2018 | ||||
First Lien Term Loan B - United States Dollar based facility with interest based on one month adjusted Eurodollar plus margin. Interest rate was 5.77% at December 31, 2018 | $ | 253.6 | ||
First Lien Term Loan B - Euro based facility with interest based on one month adjusted EURIBOR plus margin. Interest rate was 4.25% at December 31, 2018 | 172.4 | |||
Second Lien US$ Tranche with interest based on one month adjusted Eurodollar plus margin. Interest rate was 9.71% at December 31, 2018 | 80.5 | |||
Total Debt | 506.5 | |||
Less deferred financing costs | (7.2 | ) | ||
Less current portion (First Lien) | (4.4 | ) | ||
Long-term Debt | $ | 494.9 |
Successor | Predecessor | ||||||||||||||||
June 3, 2019 through December 31, 2019 | January 1, 2019 through June 2, 2019 | December 31, 2018 | December 31, 2017 | ||||||||||||||
Amortization of deferred financing costs | $ | 3.2 | $ | 7.5 | $ | 2.6 | $ | 4.5 |
Successor | Predecessor | |||||||||||||
December 31, 2019 | December 31, 2018 | December 31, 2017 | ||||||||||||
Accumulated amortization of deferred financing costs | $ | 3.2 | $ | 15.5 | $ | 12.8 |
Note 11
We use derivatives as part of the normal business operations to manage itsour exposure to fluctuations in interest rates associated with variable interest rate debt. The Company has established policiesdebt 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.
On January 31, 2019, the Company entered into a business combination contingent interest rate swap in a notional amount of $200.0 million (the “January 2019 Swap”) to hedge part of the floating interest rate exposure under the First Lien Dollar Term Facility. The interest rate swapJanuary 2019 Swap became effective on the Closing of the Ranpak Business Combination and will terminate on the third anniversary of the Closing.Closing on June 3, 2022. The interest rate swapJanuary 2019 Swap economically converts a portion of the variable rate debt to fixed rate debt. The Company receives floating interest payments monthly based on one-month LIBOR and paid a fixed rate of
On September 25, 2019, the Company amended the existing interest rate swap for the notional amount of $200.0 millionJanuary 2019 Swap to extend its term to mature on June 1, 2023 and lower the rate to 2.31% (the “Amended January 2019 Swap”). We concurrently entered into an incremental $50.0 million notional swap with similar terms. As of December 31, 2019, our interest rate swap contracts have a combined notional of $250.0 millionat 1.5% and terminatematuring on June 1, 2023. The risk management objective in using interest rate swaps is to add stability to interest expense and to manage our exposure to interest rate movements. Beginning in2023 (the “September 2019 Swap”).
Additionally, on September 25, 2019, our interest rate swaps werewe designated as cash flow hedges.hedges the Amended January 2019 Swap and the September 2019 Swap and applied hedge accounting. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the contract agreements without exchange of the underlying notional amount. Realized gains or losses fromChanges in fair value are recorded in accumulated other comprehensive income and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.
On March 27, 2020, we entered into an interest rate swap that amended the Amended January 2019 Swap to a lower rate of 2.1% and extended the maturity to June 1, 2024 (the “Second Amended January 2019 Swap”). We designated the Second Amended January 2019 Swap as a cash flow hedge and applied hedge accounting.
A summary of our interest rate swaps are recordedis as follows:
Interest Rate Swap Agreements |
| Designation |
| Maturity Date |
| Rate |
|
| Notional Value |
|
| Debt Instrument Hedged |
| Percentage of Debt Instrument Outstanding |
| |||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2019 Swap |
| Cash flow hedge |
| June 1, 2023 |
| 1.50% |
|
| $ | 50.0 |
|
| First Lien Dollar Term Facility |
| 18% |
| ||
Second Amended January 2019 Swap |
| Cash flow hedge |
| June 1, 2024 |
| 2.09% |
|
|
| 200.0 |
|
| First Lien Dollar Term Facility |
| 74% |
| ||
|
|
|
|
|
|
|
|
|
| $ | 250.0 |
|
|
|
| 92% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2019 Swap |
| Cash flow hedge |
| June 1, 2023 |
| 1.50% |
|
| $ | 50.0 |
|
| First Lien Dollar Term Facility |
| 18% |
| ||
Amended January 2019 Swap |
| Cash flow hedge |
| June 1, 2023 |
| 2.31% |
|
|
| 200.0 |
|
| First Lien Dollar Term Facility |
| 74% |
| ||
|
|
|
|
|
|
|
|
|
| $ | 250.0 |
|
|
|
| 92% |
|
The Second Amended January 2019 Swap contains an insignificant financing element that is amortized over the term of the hedging relationship. We recognized a loss on the interest rate swaps of $2.2 million in earnings, as a component of interest expense net.
As of December 31, 2019, unrealized gains of $1.7 million were recorded to other comprehensive loss, and 0 was reclassified out of accumulated other comprehensive loss to interest expense as no payments were made to the swap counterparty. No amounts related to cash flow hedges were recognized in other comprehensive loss prior to September 25, 2019, as the Company had not previously designated its interest rate swaps as hedges. As of December 31, the Company does not2020, we anticipate having to reclassify any of the net hedging gains$4.6 million from accumulated other comprehensive lossincome into earnings during the next 12twelve months to offset the variability of the hedged items during this period.
75
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
The following table summarizes the total fair value of derivative assets and liabilities and the respective classification in the Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019. The Company had no derivative positions asnet amount of December 31, 2018:derivatives can be reconciled to the tabular disclosure of fair value in Note 14, “Fair Value Measurement”:
Interest Rate Swap Agreements |
| Balance Sheet Classification |
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Designated as cash flow hedges |
| Accrued liabilities and other |
| $ | 4.6 |
|
| $ | 0.4 |
|
Designated as cash flow hedges |
| Other liabilities |
|
| 9.6 |
|
|
| 4.6 |
|
|
|
|
| $ | 14.2 |
|
| $ | 5.0 |
|
Fair Value as of December 31, 2019 | ||||||||||||
(in millions) | Other Assets | Current Liabilities | Non-current Liabilities | |||||||||
Interest rate swaps not designated as accounting hedge | $ | — | $ | — | $ | — | ||||||
Interest rate swaps designated as accounting hedge | — | 0.4 | 4.6 | |||||||||
Total derivatives | $ | — | $ | 0.4 | $ | 4.6 |
The following table presents the effect of our derivative financial instruments on our consolidated statementConsolidated Statements of operations.Operations. The income effects of our derivative activities are reflected in Interestinterest expense. There were 0no gains or losses recorded prior to June 3, 2019 (the Predecessor Period):2019:
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, |
|
| June 3, 2019 – |
|
|
| January 1, 2019 |
|
| Year Ended |
| ||||
|
| 2020 |
|
| December 31, 2019 |
|
|
| – June 2, 2019 |
|
| December 31, 2018 |
| ||||
Total interest expense presented in the statement of operations |
| $ | 30.2 |
|
| $ | 27.3 |
|
|
| $ | 20.2 |
|
| $ | 30.9 |
|
Interest rate swap agreements designated as cash flow hedges |
|
| 2.2 |
|
|
| (0.1 | ) |
|
|
| 0 |
|
|
| 0 |
|
Interest rate swap agreements not designated as cash flow hedges |
| $ | 0 |
|
| $ | (6.5 | ) |
|
| $ | 0 |
|
| $ | 0 |
|
(in millions) | June 3, 2019 through December 31, 2019 | |||
Total interest expense presented in the statement of operations | $ | 27.3 | ||
Derivatives designated as hedging instruments: | ||||
Cash flow hedges- interest rate swaps | $ | (0.1 | ) | |
Derivatives not designated as hedging instruments: | ||||
Interest rate Swap | $ | (6.5 | ) |
Note 12
Accumulated other comprehensive income (loss) is a separate line within the Consolidated Statements of Changes in Shareholders’ Equity that reports our other comprehensive income (loss) that has not been reported as part of net income (loss). The components of accumulated other comprehensive income (loss) at December 31, 2020 and December 31, 2019 were as follows:
|
| December 31, 2020 |
| |||||||||
|
| Gross Balance |
|
| Tax Effect |
|
| Net Balance |
| |||
Foreign currency translation |
| $ | 17.9 |
|
| $ | 0 |
|
| $ | 17.9 |
|
Unrealized gain (loss) on interest rate swaps |
|
| (9.9 | ) |
|
| 2.7 |
|
|
| (7.2 | ) |
Total |
| $ | 8.0 |
|
| $ | 2.7 |
|
| $ | 10.7 |
|
|
| December 31, 2019 |
| |||||||||
|
| Gross Balance |
|
| Tax Effect |
|
| Net Balance |
| |||
Foreign currency translation |
| $ | 1.7 |
|
| $ | 0 |
|
| $ | 1.7 |
|
Unrealized gain (loss) on interest rate swaps |
|
| 1.4 |
|
|
| 0.3 |
|
|
| 1.7 |
|
Total |
| $ | 3.1 |
|
| $ | 0.3 |
|
| $ | 3.4 |
|
The following table presents the changes in accumulated other comprehensive income (loss) by component for 2020 and 2019:
|
| Year Ended December 31, 2020 |
| |||||||||
|
| Foreign currency translation |
|
| Unrealized gain (loss) on interest rate swaps |
|
| Total |
| |||
Beginning balance |
| $ | 1.7 |
|
| $ | 1.7 |
|
| $ | 3.4 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
before reclassifications |
|
| 16.2 |
|
|
| (8.8 | ) |
|
| 7.4 |
|
Amounts reclassified from accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
other comprehensive income (loss) |
|
| - |
|
|
| (0.1 | ) |
|
| (0.1 | ) |
Ending balance |
| $ | 17.9 |
|
| $ | (7.2 | ) |
| $ | 10.7 |
|
76
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
|
| Year Ended December 31, 2019 |
| |||||||||
|
| Foreign currency translation |
|
| Unrealized gain (loss) on interest rate swaps |
|
| Total |
| |||
Beginning balance |
| $ | 4.0 |
|
| $ | - |
|
| $ | 4.0 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
before reclassifications |
|
| (2.3 | ) |
|
| 1.8 |
|
|
| (0.5 | ) |
Amounts reclassified from accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
other comprehensive income (loss) |
|
| - |
|
|
| (0.1 | ) |
|
| (0.1 | ) |
Ending balance |
| $ | 1.7 |
|
| $ | 1.7 |
|
| $ | 3.4 |
|
The following tables present the reclassifications out of accumulated other comprehensive income (loss) for 2020 and 2019:
Year Ended December 31, 2020 |
|
|
|
|
|
|
Details about accumulated other comprehensive income (loss) |
| Reclassification |
|
| Affected line item on statement | |
Change in fair value of derivative swap agreements |
|
|
|
|
|
|
Interest rate swap agreements |
| $ | 2.5 |
|
| Interest expense, net |
Tax effect |
|
| (2.4 | ) |
| Income tax benefit |
Total reclassifications |
| $ | 0.1 |
|
| Net of tax |
|
|
|
|
|
|
|
Year Ended December 31, 2019 |
|
|
|
|
|
|
Details about accumulated other comprehensive income (loss) |
| Reclassification |
|
| Affected line item on statement | |
Change in fair value of derivative swap agreements |
|
|
|
|
|
|
Interest rate swap agreements |
| $ | 0.4 |
|
| Interest expense, net |
Tax effect |
|
| (0.3 | ) |
| Income tax expense (benefit) |
Total reclassifications |
| $ | 0.1 |
|
| Net of tax |
Note 14 — Fair Value Measurement
Financial instruments are required to be categorized within a valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value:
• | Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
• | Level 2 — Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings. |
• | Level 3 — Unobservable inputs that are supported by little or no market activities. |
The carrying values of cash and cash equivalents (primarily consisting of bank deposits), accounts receivable and accounts payable approximate their fair values due to the short-term nature of these instruments as of December 31, 20192020 and December 31, 2018.2019. The carrying value of borrowings under the credit facilities approximates fair value due to the variable interest rates associated with those borrowings.
77
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
The following table provides the carrying amounts, estimated fair values and the respective fair value measurements of the Company'sour financial instruments as of December 31, 20192020 and December 31, 2018:2019:
|
|
|
|
|
| Fair Value Measurements |
| |||||||||
|
| Carrying Amount |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current and long-term debt |
| $ | 439.8 |
|
| $ | - |
|
| $ | 439.8 |
|
| $ | - |
|
Interest rate swap agreements liability |
| $ | 14.2 |
|
| $ | - |
|
| $ | 14.2 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current and long-term debt |
| $ | 428.2 |
|
| $ | - |
|
| $ | 428.2 |
|
| $ | - |
|
Interest rate swap agreements liability |
| $ | 5.0 |
|
| $ | - |
|
| $ | 5.0 |
|
| $ | - |
|
Carrying | Fair | Fair Value Measurements | ||||||||||||||||||
As of December 31, 2019 | Amount | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Long-term debt | $ | 428.2 | $ | 428.2 | $ | — | $ | 428.2 | $ | — | ||||||||||
Derivative liability | $ | 5.0 | $ | 5.0 | $ | — | $ | 5.0 | $ | — |
Carrying | Fair | Fair Value Measurements | ||||||||||||||||||
As of December 31, 2018 | Amount | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Long-term debt | $ | 506.5 | $ | 506.5 | $ | — | $ | 506.5 | $ | — | ||||||||||
Earn-out contingent liability | $ | 2.6 | $ | 2.6 | $ | — | $ | — | $ | 2.6 |
The valuation techniques and inputs used for fair value measurements categorized within Level 2 include quoted comparable prices from market inputs. Generally, these fair value measures are model-based valuation techniques such as discounted cash flows or option pricing models using our own estimates and assumptions or those expected to be used by market participants. We determine our valuation policies and procedures and analyze changes in fair value measurements from period to period by using an industry standard market approach, in which prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities. No financial instruments were measured using unobservable inputs.
The fair value of outstanding long-term debt is based on prices and other relevant information generated by market transactions involving identical or comparable debt instruments, which represents a Level 2 measurement. Derivative positions are classified within Level 2 of the valuation hierarchy as they are valued using quoted market prices for similar assets and liabilities in active markets. These Level 2 derivatives are valued utilizing an income approach, which discounts future cash flow based upon current market expectations and adjusts for credit risk.
Note 13
Defined Contribution Plan
Multiemployer Benefit Plan
Note 14 16 — Income Taxes
On December 22, 2017, the United States (“U.S.”) government enacted comprehensive tax legislation commonly referred to asin the Tax Cuts and Jobs Act (the “Act”“TCJA”). The ActTCJA 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 CompanyWe recorded a net tax benefit of ($28.9)$28.9 million through the provision for income taxes for the years ended December 31,in 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 million was recorded on the opening balance sheet in accordance with purchase accounting.
The components of earnings before income tax expense (benefit) were as follows:
78
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, |
|
| June 3, 2019 – |
|
|
| January 1, 2019 |
|
| Year Ended |
| ||||
|
| 2020 |
|
| December 31, 2019 |
|
|
| – June 2, 2019 |
|
| December 31, 2018 |
| ||||
Domestic |
| $ | (26.8 | ) |
| $ | (16.4 | ) |
|
| $ | (18.6 | ) |
| $ | (4.0 | ) |
Foreign |
|
| 2.2 |
|
|
| (3.5 | ) |
|
|
| (5.3 | ) |
|
| (11.7 | ) |
Total |
| $ | (24.6 | ) |
| $ | (19.9 | ) |
|
| $ | (23.9 | ) |
| $ | (15.7 | ) |
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 | ||||||||||||
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 | ) |
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, |
|
| June 3, 2019 – |
|
|
| January 1, 2019 |
|
| Year Ended |
| ||||
|
| 2020 |
|
| December 31, 2019 |
|
|
| – June 2, 2019 |
|
| December 31, 2018 |
| ||||
Current tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | (0.5 | ) |
| $ | 1.4 |
|
|
| $ | 1.1 |
|
| $ | 2.8 |
|
State |
|
| 0.3 |
|
|
| 0.5 |
|
|
|
| 0.2 |
|
|
| 1.1 |
|
Foreign |
|
| 4.0 |
|
|
| 2.2 |
|
|
|
| 1.3 |
|
|
| 3.2 |
|
Total current tax expense |
|
| 3.8 |
|
|
| 4.1 |
|
|
|
| 2.6 |
|
|
| 7.0 |
|
Deferred tax expense (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| (3.8 | ) |
|
| (6.9 | ) |
|
|
| (4.4 | ) |
|
| (4.8 | ) |
State |
|
| (1.9 | ) |
|
| 0.8 |
|
|
|
| (0.9 | ) |
|
| (1.2 | ) |
Foreign |
|
| 0.7 |
|
|
| (0.7 | ) |
|
|
| (2.2 | ) |
|
| (8.0 | ) |
Total deferred tax expense (benefit) |
|
| (5.0 | ) |
|
| (6.8 | ) |
|
|
| (7.5 | ) |
|
| (14.1 | ) |
Total income tax expense (benefit) |
| $ | (1.2 | ) |
| $ | (2.7 | ) |
|
| $ | (4.9 | ) |
| $ | (7.1 | ) |
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 expense (benefit) expense are summarized as follows:
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, |
|
| June 3, 2019 – |
|
|
| January 1, 2019 |
|
| Year Ended |
| ||||
|
| 2020 |
|
| December 31, 2019 |
|
|
| – June 2, 2019 |
|
| December 31, 2018 |
| ||||
Income tax benefit at statutory rate |
| $ | (5.2 | ) |
| $ | (4.2 | ) |
|
| $ | (5.0 | ) |
| $ | (3.3 | ) |
U.S. State income taxes |
|
| (1.7 | ) |
|
| 1.2 |
|
|
|
| (0.7 | ) |
|
| (0.1 | ) |
Tax related to foreign activities |
|
| 0.4 |
|
|
| 2.3 |
|
|
|
| 0.5 |
|
|
| (2.4 | ) |
U.S. Federal tax credits |
|
| (0.4 | ) |
|
| (0.1 | ) |
|
|
| - |
|
|
| (0.4 | ) |
Foreign currency gains/(losses) |
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| 0.8 |
|
Return to provision adjustments |
|
| 0.5 |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
Remeasurement of deferred taxes |
|
| 3.8 |
|
|
| - |
|
|
|
| - |
|
|
| (0.2 | ) |
Transition tax related to the TCJA |
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| 0.2 |
|
U.S. Foreign income tax credits from amended tax returns |
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| (1.8 | ) |
Global intangible low-taxed income |
|
| 1.3 |
|
|
| 0.3 |
|
|
|
| - |
|
|
| 0.6 |
|
Foreign-derived intangible income deduction |
|
| (0.1 | ) |
|
| (0.6 | ) |
|
|
| (0.1 | ) |
|
| (0.5 | ) |
Non-deductible transaction costs |
|
| - |
|
|
| - |
|
|
|
| 0.6 |
|
|
| - |
|
Other, net |
|
| 0.2 |
|
|
| (1.4 | ) |
|
|
| (0.1 | ) |
|
| (0.1 | ) |
Income tax expense (benefit) |
| $ | (1.2 | ) |
| $ | (2.7 | ) |
|
| $ | (4.9 | ) |
| $ | (7.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
| 6.2 | % |
|
| 13.3 | % |
|
|
| 20.5 | % |
|
| 45.0 | % |
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 income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future.
Deferred tax assets (liabilities) consisted of the following:79
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Deferred tax assets |
|
|
|
|
|
|
|
|
Unrealized foreign currency exchange |
| $ | 1.8 |
|
| $ | 0.1 |
|
Stock awards |
|
| 1.5 |
|
|
| 0.4 |
|
Net operating losses and credits |
|
| 1.7 |
|
|
| 2.0 |
|
Non-deductible interest carryforward |
|
| 4.7 |
|
|
| 7.4 |
|
Other |
|
| 2.9 |
|
|
| 1.3 |
|
Total deferred tax assets |
|
| 12.6 |
|
|
| 11.2 |
|
Valuation allowance |
|
| (1.1 | ) |
|
| (1.3 | ) |
Deferred tax assets, net |
|
| 11.5 |
|
|
| 9.9 |
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Depreciation |
|
| (13.7 | ) |
|
| (14.4 | ) |
Amortization | �� |
| (107.6 | ) |
|
| (110.7 | ) |
Total deferred tax liabilities |
|
| (121.3 | ) |
|
| (125.1 | ) |
Deferred tax assets (liabilities), net before unrecognized tax benefits |
|
| (109.8 | ) |
|
| (115.2 | ) |
Deferred tax impact of unrecognized tax benefits |
|
| 0.2 |
|
|
| 0.2 |
|
Deferred tax assets (liabilities), net after unrecognized tax benefits |
| $ | (109.6 | ) |
| $ | (115.0 | ) |
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, 2020 and 2019, we had $1.6 million and December 31, 2018, the Company had, in millions, $2.0 and $2.5,million, respectively, in federal net operating loss carryforwards that will expire in 20302031 through 2036;2037; $0.3 million and $0.2 and $0.4,million, respectively, of tax benefits related to state net operating loss carryforwards, which expire in 20202021 through 2035;2036; and $4.0 million and $5.1 and $3.3,million, respectively, of foreign net operating loss carryforwards, a portion of which expire in 20222024 through 2024, however2025, with the majority of which areremainder 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,at December 31, 2020 and 2019 of $1.1 million and $1.3 and $0.6,million, respectively, of valuation allowance which was recorded through income tax expense.
In the United States,U.S., IRC Section 382 imposes a limitation on the utilization of net operating losses (NOL)(“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 CompanyWe performed a calculation of this limitation and determined the carryforwards will not be restricted or limited.
We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2019,2020 to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. As of December 31, 2019,2020, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $48.7$67.2 million. The Company doesWe do not anticipate the need to repatriate funds to the United StatesU.S. to satisfy domestic liquidity needs arising in the ordinary course of business.
We recorded a net deferred tax liability of $122.9 million in accordance with purchase accounting associated with the Ranpak Business Combination. Refer to Note 10, “Acquisition,” to the notes to our Consolidated Financial Statements for further detail.
We are subject to taxation in the United States (federal, state, local) and foreign jurisdictions. As of December 31, 2019,2020, tax years 20162017 through 20192020 are subject to examination by the tax authorities.
The components of our unrecognized tax benefits were as follows:
80
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, |
|
| June 3, 2019 – |
|
|
| January 1, 2019 |
|
| Year Ended |
| ||||
|
| 2020 |
|
| December 31, 2019 |
|
|
| – June 2, 2019 |
|
| December 31, 2018 |
| ||||
Unrecognized income tax benefits at the beginning of the period |
| $ | 1.4 |
|
| $ | 0.6 |
|
|
| $ | 0.6 |
|
| $ | 1.8 |
|
Increases related to prior year tax positions |
|
| - |
|
|
| 0.2 |
|
|
|
| - |
|
|
| - |
|
Decreases related to prior year tax positions |
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| (1.2 | ) |
Increases related to current year tax positions |
|
| 1.4 |
|
|
| 0.6 |
|
|
|
| - |
|
|
| 0.2 |
|
Foreign currency impact |
|
| 0.1 |
|
|
| - |
|
|
|
| - |
|
|
| (0.1 | ) |
Unrecognized income tax benefits at the end of the period |
| $ | 2.9 |
|
| $ | 1.4 |
|
|
| $ | 0.6 |
|
| $ | 0.6 |
|
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 |
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) into law. The CARES Act includes several significant business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOL”) and allow businesses and individuals to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years; suspend the excess business loss rules under section 461(l); accelerate refunds of previously generated corporate AMT credits; generally loosen the business interest limitation under section 163(j) from 30 percent to 50 percent (special partnership rules apply); and fix the “retail glitch” for qualified improvement property in the TCJA (TCJA, Public Law 115-97). ASC 740 requires that the tax effects of changes in tax laws or rates be recorded discretely as a component of the income tax provision related to continuing operations in the period of enactment. We recorded any applicable impact from the CARES Act in the first quarter of 2020.
Note 15 17 — Asset Retirement Obligation
Asset retirement obligations as a result of required land remediation or reclamation activities are recorded in other non-current liabilities in the Consolidated Balance Sheets. Accretion expense is immaterial. Changes in the asset retirement obligation during 2020 was as follows:
|
| Year Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Beginning balance |
| $ | 0.7 |
|
| $ | 0 |
|
Purchase accounting |
|
| 0 |
|
|
| 0.7 |
|
Additions and adjustments |
|
| 0 |
|
|
| 0 |
|
Ending balance |
| $ | 0.7 |
|
| $ | 0.7 |
|
Note 18 — Commitments and Contingencies
Litigation
We are subject to legal proceedings and claims that arise in the ordinary course of itsour business. Management evaluates each claim and provides for potential loss when the claim is probable to be paid and reasonably estimable. While adverse decisions in certain of these litigation matters, claims and administrative proceedings could have a material effect on a particular period’s results of operations, subject to the uncertainties inherent in estimating future costs for contingent liabilities, management believes that any future accruals with respect to these currently known contingencies would not have a material effect on the financial condition, liquidity or cash flows of the Company. There are no amounts required to be reflected in these consolidated financial statements related to contingencies for the periods presented2020 and the years ended December 31, 20192019.
81
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and 2018.
Leases
Certain office and warehouse facilities, transportation vehicles and data processing equipment are leased. Total rental expense relating tofor these leases was approximately$2.1 million, $1.0 million, $0.7 million, and $1.6 million and $1.4 million forin 2020, the Successor period,Period, the 1H 2019 Predecessor period,Period, and years ended December 31, 2018, and 2017, respectively. Minimum lease payments required under non-cancelable operating leases at December 31, 2019,2020, with terms in excess of one year, for the next five years and thereafter are as follows:
Year Ended |
| Amount |
| |
2021 |
| $ | 2.8 |
|
2022 |
|
| 2.3 |
|
2023 |
|
| 1.4 |
|
2024 |
|
| 1.0 |
|
2025 |
|
| 0.8 |
|
Thereafter |
|
| 0.2 |
|
Total |
| $ | 8.5 |
|
Years Ended December 31, | (in millions) | |||
2020 | $ | 1.8 | ||
2021 | 1.5 | |||
2022 | 1.4 | |||
2023 | 0.8 | |||
2024 | 0.8 | |||
Thereafter | 0.8 |
Environmental Matters
Our operations are subject to extensive and changing U.S. federal, state and local laws and regulations, as well as the laws of other countries that establish health and environmental quality standards. These standards, among others, relate to air and water pollutants and the management and disposal of hazardous substances and wastes. The Company isWe are exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such pollutants, substances or wastes. There are no amounts required to be reflected in these consolidated financial statements related to environmental contingencies.
Management believes the Company is in compliance, in all material respects, with environmental laws and regulations and maintains insurance coverage to mitigate exposure to environmental liabilities. Management does not believe any environmental matters will have a material adverse effect on the Company’s future consolidated results of operations, financial position or cash flow.
Guarantees
We issue bank guarantees from time to time for various purposes that arise out of the normal course of business. These amounts are immaterial for all periods presented.
Note 16
We expense the fair value of grants of various stock-based compensation programs over the vesting period of the awards. Stock compensation expense is recorded in selling, general, and administrative expenses in the Consolidated Statements of Operations. Awards granted are recognized as compensation expense based on the grant date fair value, estimated in accordance with FASB Accounting Standards Codification (ASC) TopicASC 718,
The table below summarizes certain data for the Company’sour stock-based compensation plans:
|
| Successor |
|
|
| Predecessor |
| ||||||
|
| Year Ended December 31, |
|
| June 3, 2019 – |
|
|
| January 1, 2019 |
| |||
|
| 2020 |
|
| December 31, 2019 |
|
|
| – June 2, 2019 |
| |||
Stock-based compensation expense |
| $ | 7.2 |
|
| $ | 1.7 |
|
|
| $ | 0 |
|
Tax (expense) benefit for stock-based compensation |
|
| 1.5 |
|
|
| 0.3 |
|
|
|
| 0 |
|
Fair value of vested awards |
| $ | 8.7 |
|
| $ | 2.0 |
|
|
| $ | 0 |
|
June 3, 2019 through December 31, 2019 | |||
Compensation expense for all stock based compensation plans | $ | 1.7 | |
Tax (expense) benefits for stock-based compensation | 0.3 | ||
Fair value of vested awards | $ | 2.0 |
Our shareholders approved the Ranpak Holdings Corp. 2019 Omnibus Incentive Plan (the “2019 Plan”) at itsthe Annual Meeting of Shareholders on February 20, 2019. The purpose of the 2019 Plan is to motivate and reward employees and other individuals to perform at their highest level and contribute significantly to the success of the Company. The 2019 Plan is an omnibus plan that may provide these incentives through grantgrants of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSU” or
82
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
“RSUs”), performance awards, other cash-based awards and other stock-based awards (collectively, the “Awards”) to employees, directors, or consultants of the Company.
As of December 31, 2019, a maximum2020, the pool of 4,118,055 shares may be issued under the 2019 Plan. As of December 31, 2019, 1,043,183 equity awards have been granted, 559,884 equity awards have been canceled, and 0 equity awards vested underin the 2019 Plan leaving 3,634,756 shares available for future awards under the 2019 Plan. Shares issued are new shares which have been authorized and designated for award under the 2019 Plan.is summarized as follows:
2019 Plan | Quantity | |||
Maximum allowed for issuance | 4,118,055 | |||
Awards granted | (2,345,415 | ) | ||
Awards forfeited | 743,576 | |||
Available for future awards | 2,516,216 | |||
Awards vested | 301,274 |
Restricted Stock Units— —Restricted stock unitsRSUs represent a right to receive one share of the Company’sour common stock that is both nontransferable and forfeitable unless and until certain conditions are satisfied. Certain restricted stock unitsRSUs vest ratably over a three or two-year period while others vest over a one-year period. The fair value of restricted stock unitsRSUs is determined on the grant date and is amortized over the vesting period on a straight-lineratable basis.
Restricted Stock Units | Shares | Weighted Average Grant Date Fair Value | ||||
Restricted at June 3, 2019 | — | $ | — | |||
Granted | 500,707 | 9.32 | ||||
Vested | — | — | ||||
Forfeited | (17,408 | ) | 9.77 | |||
Outstanding at December 31, 2019 | 483,299 | $ | 9.30 |
Performance-Based Restricted Stock Units
—Performance-based restricted stock unitsActivity of restricted stock units that may be earned under the 2019 Plan. The Company did not attain the minimum performance level for the period ended December 31, 2019our RSUs and
Performance-Based Restricted Stock Units | Shares | Weighted Average Grant Date Fair Value | ||||
Restricted at June 3, 2019 | — | $ | — | |||
Granted | 542,476 | 9.49 | ||||
Forfeited | (542,476 | ) | 9.49 | |||
Outstanding at December 31, 2019 | — | $ | — |
|
| RSUs |
|
| PRSUs |
| ||||||||||
|
| Quantity |
|
| Weighted Average Grant Date Fair Value |
|
| Quantity |
|
| Weighted Average Grant Date Fair Value |
| ||||
Restricted at December 31, 2019 |
|
| 483,299 |
|
| $ | 9.30 |
|
|
| 0 |
|
| $ | 0 |
|
Granted |
|
| 506,940 |
|
|
| 8.08 |
|
|
| 667,196 |
|
|
| 8.09 |
|
Vested |
|
| (253,392 | ) |
|
| 8.74 |
|
|
| 0 |
|
|
| 0 |
|
Forfeited |
|
| (66,992 | ) |
|
| 9.14 |
|
|
| (116,700 | ) |
|
| 8.07 |
|
Outstanding at December 31, 2020 |
|
| 669,855 |
|
| $ | 8.60 |
|
|
| 550,496 |
|
| $ | 8.09 |
|
Director Stock Units
—Members of theDirector Stock Units |
| Quantity |
|
| Weighted Average Grant Date Fair Value |
| ||
Balance at December 31, 2019 |
|
| 0 |
|
| $ | 0 |
|
Granted |
|
| 115,064 |
|
|
| 7.55 |
|
Vested |
|
| (34,850 | ) |
|
| 7.71 |
|
Balance at December 31, 2020 |
|
| 80,214 |
|
| $ | 7.48 |
|
Unrecognized compensation cost and weighted average periods remaining for the periods below.non-vested Awards as of December 31, 2020 and 2019 are as follows:
83
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Unrecognized compensation cost |
|
|
|
|
|
|
|
|
RSUs |
| $ | 1.7 |
|
| $ | 2.9 |
|
PRSUs |
| $ | 1.6 |
|
| $ | - |
|
Weighted average remaining period |
|
|
|
|
|
|
|
|
RSUs |
| 0.7 years |
|
| 1.0 years |
| ||
PRSUs |
| 1.5 years |
|
| — |
|
Director Stock Units | Shares | Weighted Average Grant Date Fair Value | ||||
Balance at June 3, 2019 | — | $ | — | |||
Granted | 13,032 | 5.75 | ||||
Vested | (13,032 | ) | 5.75 | |||
Balance at December 31, 2019 | — | $ | — |
Note 17
Capital Stock—
Common Shares—Each holder of Class A Common Stock ("(“Class A"A”) is entitled to one vote for each Class A share held of record. Holders of shares of Class C Common Stock ("(“Class C"C”) have no such voting rights and, as such, shall not have the right to receive notice of, attend at or vote on any matters on which stockholders generally are entitled to vote. Class C shares have a right of conversion that upon sale or other transfer convert to Class A shares.
Upon the closing of the Ranpak Business Combination, 3,854,664 of Class B shares were canceled and 7,395,336 of Class B shares were converted to 6,663,953 of Class A shares and 731,383 of Class C shares. Certain of the Class B shares were subject to forfeiture conditions that carried over to the Class A shares. At December 31, 2019,2020, Ranpak had 6,847,836 Class A and Class C shares outstanding subject to forfeiture unless certain provisions are met as described below. These shares will not participate in cash dividends or other cash distributions payable prior to the date the conditions have been satisfied. Upon satisfaction, shareholders will be entitled to all cash dividends and other cash distributions from the closing of the Ranpak Business Combination. As of December 31, 2019,2020, there were no such cash dividends or other cash distributions potentially payable upon these conditions.
157,500 shares of Class A common stock will be surrendered for no consideration unless, prior to the fifth anniversary of the Ranpak Business Combination, either (A)(i) the closing price of our Class A common stock equals or exceeds $12.25 per share (in each case as adjusted for share splits, dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 consecutive trading day period or (B)(ii) the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all ordinary shareholders having the right to exchange their common stock for consideration in cash, securities or other property which equals or exceeds $12.25 per share (in each case as adjusted for share splits, dividends, reorganizations, recapitalizations and the like).
2,940,336 shares of Class A common stock will be surrendered for no consideration unless, prior to the tenth anniversary of the Ranpak Business Combination, (A)(i) the closing price of the Company’s Class A common stock equals or exceeds $15.00 per share (in each case as adjusted for share splits, dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 consecutive trading day period or (B)(ii) the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all or substantially all of its shareholders having the right to exchange their shares or the Company otherwise undergoes a change of control.
A total of 3,750,000 shares of Class A and Class C common stock will be surrendered for no consideration unless, prior to the tenth anniversary of the closing of the Ranpak Business Combination, (A)(i) the closing price of the Company’s Class A shares equals or exceeds $12.50 per share (in each case as adjusted for share splits, dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 consecutive trading day period or (B)(ii) the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all or substantially all of its shareholders having the right to exchange their shares or the Company otherwise undergoes a change of control.
In January and February 2021, our stock performed above these trading thresholds and exceeded the consecutive trading day durations. Therefore, all Class A and Class C shares will no longer be subject to the aforementioned surrender conditions.
84
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
Preferred Shares—The Company'sCompany’s charter authorizes 1,000,000 shares of preferred stock and provides that shares of preferred stock may be issued from time to time in one or more series. The boardBoard of directorsDirectors is authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special rights and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. The boardBoard of directorsDirectors is able, without stockholder approval, to issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the common stock and could have anti-takeover effects. As of December 31, 2019,2020, the Company had 0 preferred stock outstanding.
Warrants — On January 22, 2018, the Company consummated its IPOAugust 6, 2020, we commenced (i) an offer to each holder of 30,000,000 units, each consisting of one Class A ordinary shareour outstanding public warrants, forward purchase warrants, and one half of one warrant to purchase one Class A ordinary share, i.e., 15,000,000 warrants in total (the “public warrants”).
Registration Rights—
Follow-On Offering — On December 13, 2019, the Company closed on a public offering of 16,923,077 shares of its Class A common stock at an offering price of $6.50 per share, generating gross proceeds of approximately $110.0 million and $107.7($107.7 million net of expenses.expenses). These shares were registered pursuant to the Form S-3 declared effective on July 31, 2019. The proceeds from this offering were used to pay down outstanding debt.
Outstanding Shares—
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||
|
| Class A |
|
| Class C |
|
| Total Common |
|
| Class A |
|
| Class C |
|
| Total Common |
| ||||||
Shares outstanding not subject to an earn-out agreement |
|
| 62,888,606 |
|
|
| 5,779,910 |
|
|
| 68,668,516 |
|
|
| 58,177,288 |
|
|
| 5,779,910 |
|
|
| 63,957,198 |
|
Shares subject to $15.00 earn-out |
|
| 2,940,336 |
|
|
| - |
|
|
| 2,940,336 |
|
|
| 2,940,336 |
|
|
| - |
|
|
| 2,940,336 |
|
Shares subject to $12.50 earn-out |
|
| 3,018,617 |
|
|
| 731,383 |
|
|
| 3,750,000 |
|
|
| 3,018,617 |
|
|
| 731,383 |
|
|
| 3,750,000 |
|
Shares subject to $12.25 earn-out |
|
| 157,500 |
|
|
| - |
|
|
| 157,500 |
|
|
| 157,500 |
|
|
| - |
|
|
| 157,500 |
|
Total |
|
| 69,005,059 |
|
|
| 6,511,293 |
|
|
| 75,516,352 |
|
|
| 64,293,741 |
|
|
| 6,511,293 |
|
|
| 70,805,034 |
|
Successor | Predecessor | ||||||||
December 31, 2019 | December 31, 2018 | ||||||||
Class A | Class C | Total Common | Common | ||||||
Shares outstanding not subject to an earn-out agreement | 58,177,288 | 5,779,910 | 63,957,198 | 995 | |||||
Shares subject to a $15.00 earn-out | 2,940,336 | — | 2,940,336 | — | |||||
Shares subject to a $12.50 earn-out | 3,018,617 | 731,383 | 3,750,000 | — | |||||
Shares subject to a $12.25 earn-out | 157,500 | — | 157,500 | — | |||||
Total | 64,293,741 | 6,511,293 | 70,805,034 | 995 |
As previously noted, in January and February 2021, our stock performed above these trading thresholds and exceeded the consecutive trading day durations. Therefore, all Class A and Class C shares will no longer be subject to these earn-out conditions.
Translation adjustment—
Translation adjustments recorded areSuccessor | Predecessor | ||||||||||||||||
June 3, 2019 through December 31, 2019 | January 1, 2019 through June 2, 2019 | December 31, 2018 | December 31, 2017 | ||||||||||||||
Translation adjustment | $ | 1.7 | $ | (4.0 | ) | $ | (7.4 | ) | $ | 21.5 |
Note 18—Earnings/Loss21 — Earnings (Loss) per share
Basic earnings (loss) per share ("EPS"(“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities.
85
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
Diluted EPS gives effect to the potential dilution, if any, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, using the more dilutive of the two-class method or if-converted method. Diluted EPS excludes potential shares of common stock if their effect is anti-dilutive. If there is a net loss in any period, basic and diluted EPS are computed in the same manner.
The two-class method determines net income (loss) per common share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common shareholders for the period to be allocated between different classes of common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The Company appliedWe apply the two-class method for EPS when computing net income (loss) per Class A and Class C common shares.
The Predecessor had one class of shares outstanding. As of December 31, 2019, the Company has not issued any instruments that were considered to be participating securities. The Successor’s weighted average shares of Class A and Class C common stock have been combined in the denominator of basic and diluted earnings (loss) per share because they have equivalent economic rights. The following tables set forth the computation of the Company's (loss) earningsour loss per share:
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, |
|
| June 3, 2019 – |
|
|
| January 1, 2019 |
|
| Year Ended |
| ||||
|
| 2020 |
|
| December 31, 2019 |
|
|
| – June 2, 2019 |
|
| December 31, 2018 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (23.4 | ) |
| $ | (17.2 | ) |
|
| $ | (19.0 | ) |
| $ | (8.6 | ) |
Net loss attributable to common stockholders for basic and diluted EPS |
| $ | (23.4 | ) |
| $ | (17.2 | ) |
|
| $ | (19.0 | ) |
| $ | (8.6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
| 72,434,802 |
|
|
| 55,392,201 |
|
|
|
| 995 |
|
|
| 995 |
|
Dilutive effect of assumed vesting of RSUs and PRSUs |
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
Diluted weighted average common shares outstanding |
|
| 72,434,802 |
|
|
| 55,392,201 |
|
|
|
| 995 |
|
|
| 995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share attributable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.32 | ) |
| $ | (0.31 | ) |
|
| $ | (19,195.40 | ) |
| $ | (8,697.61 | ) |
Diluted |
| $ | (0.32 | ) |
| $ | (0.31 | ) |
|
| $ | (19,195.40 | ) |
| $ | (8,697.61 | ) |
Successor | Predecessor | ||||||||||||||||
(Expressed in millions, except per share amounts) | June 3, 2019 through December 31, 2019 | January 1, 2019 through June 2, 2019 | Twelve Months Ended December 31, 2018 | Twelve Months Ended December 31, 2017 | |||||||||||||
Net income (loss) | $ | (17.2 | ) | $ | (19.0 | ) | $ | (8.6 | ) | $ | 27.7 | ||||||
Income allocated to participating preferred shares | — | — | — | — | |||||||||||||
Net income (loss) attributable to common stockholders for basic and diluted EPS | $ | (17.2 | ) | $ | (19.0 | ) | $ | (8.6 | ) | $ | 27.7 | ||||||
Basic weighted average common shares outstanding | 55,392,201 | 995 | 995 | 995 | |||||||||||||
Denominator adjustments for diluted EPS: | |||||||||||||||||
Assumed exercise of warrants | — | — | — | — | |||||||||||||
Assumed vesting of RSUs | — | — | — | — | |||||||||||||
Dilutive weighted average common shares outstanding | 55,392,201 | 995 | 995 | 995 | |||||||||||||
Earnings (loss) per share attributable to common stockholders: | |||||||||||||||||
Basic | $ | (0.31 | ) | $ | (19,195.40 | ) | $ | (8,697.61 | ) | $ | 27,801.44 | ||||||
Diluted | $ | (0.31 | ) | $ | (19,195.40 | ) | $ | (8,697.61 | ) | $ | 27,801.44 |
The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive or because milestones were not yet achieved for awards contingent on the achievement of performance milestones:
|
| Year Ended December 31, |
|
| June 3, 2019 – |
| ||
|
| 2020 |
|
| December 31, 2019 |
| ||
Warrants on common stock |
|
| - |
|
|
| 20,108,741 |
|
RSUs and PRSUs |
|
| 1,040,464 |
|
|
| 496,331 |
|
Total antidilutive securities |
|
| 1,040,464 |
|
|
| 20,605,072 |
|
Note 19
Shared Services Agreement
On June 3, 2019, upon the closing of Ranpak’s business combination with One Madison Corporation, Ranpak entered into a shared services agreement (the “Shared Services Agreement”) with One Madison Group LLC (the “Sponsor”), pursuant to which the Sponsor may provide, or cause to be provided, to certain services to Ranpak. The Shared Services Agreement provides for a broad array of potential services, including administrative and “back office” or corporate-type services and requires Ranpak to indemnify the Sponsor in connection with the services provided by the Sponsor to Ranpak. Total fees under the agreement amounted to approximately $0.5 million and $0.4 million in 2019.
Advisory Relationship
A director of the Company, prior to being elected as a director, served in an advisory role to Rhône Capital IV L.P., the former majority shareholder of Rack Holdings, Inc., on the sale of Rack Holdings, Inc. The director was compensated for the advisory role through an increase to his indirect equity interest in Rack Holdings, Inc., and reported to Ranpak that the compensation was not significant (less than $50 thousand).
86
Ranpak Holdings Corp.
Notes to Consolidated Financial Statements
(in millions, except share and per share data)
Registration Rights Agreement
As a result of the Ranpak Business Combination, Ranpak is a party to a registration rights agreement with certain security holders. The agreement requires Ranpak to maintain an effective resale shelf registration statement for the benefit of such security holders until they are permitted by law to freely sell their securities without registration or no longer hold Ranpak securities.
Subscription Agreements and Reallocation Agreement
One Madison Corporation entered into a subscription agreement, pursuant to which, as amended, certain shareholders, including our Chairman & CEO,Chief Executive Officer (“CEO”), another of our directors, our chief financial officer and members of his immediate family, and one of our significant shareholders may be required to surrender to Ranpak certain of their shares (referred to as founder shares) if the closing price of the Class A common stock (or any successor class of listed common shares) equals or exceeds $12.50 per share (as adjusted for share splits, dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 consecutive trading day period or Ranpak completes a liquidation, merger, share exchange or other similar transaction that results in all of its common shareholders having the right to exchange their common equity for consideration in cash, securities or other property which equals or exceeds $12.50 per share (as adjusted for share splits, dividends, reorganizations, recapitalizations and the like) in the five year period following the consummation of the Ranpak Business Combination (the “Earnout”).
One Madison Corporation also entered into a reallocation agreement with certain investors, including our Chairman & CEO, another of our directors, our chief financial officer and members of his immediate family, and one of our significant shareholders, who provided equity financing for the Ranpak Business Combination under the forward purchase agreements and the subscription agreements, pursuant to which the shares subject to the Earnout and the rights to acquire 5,000,000 warrants to purchase Class A shares arising under the forward purchase agreements were reallocated among all equity financing investors pro rata based on the aggregate amount of equity financing provided by such equity financing investors under the forward purchase agreements and the subscription agreements. The Class B ordinary shares owned by each party to the reallocation agreement following the reallocation are subject to the provisions in the forward purchase agreement relating to Class B ordinary shares, including with respect to the voting of, transfer and forfeiture and waiver of redemption rights with respect to such Class B ordinary shares, or, for the parties to the reallocation agreement that are not party to a forward purchase agreement, the provisions substantially similar to such forward purchase agreement provisions that are set forth on an exhibit to the reallocation agreement.
Stock Purchase Agreement
Ranpak is subject to certain continuing obligations to indemnify the former directors and officers of Rack Holdings Inc. for certain costs, damages and liabilities pursuant to the Stock Purchase Agreement dated December 12, 2018, pursuant to which One Madison Corporation purchased Rack Holdings Inc.
Monitoring Fee Arrangement
Rack Holdings had a monitoring fee agreement, with RhoneRhône Capital IV L.P. ("Rhone"), a related party, which required Rack Holdings to pay to Rhone 1% of projected annual earnings before interest, taxes and depreciation and amortization in advance of each semi-annual period, adjusted retroactively up or down, plus reimbursement of other expenses. As of June 3, 2019, upon the Closing of the Ranpak Business Combination and change in control, this monitoring fee was eliminated. Monitoring fee and reimbursement expenses are immaterial but are included in selling, general and administrative expense in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for all predecessor periods presented, and 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 | |||||||||||||
Monitoring fee & reimbursement expenses | $ | — | $ | 0.6 | $ | 1.1 | $ | 1.3 |
2019 | |||||||||||||||||||||
Predecessor | Successor | ||||||||||||||||||||
First Quarter | Second Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||||
(In millions, except per share amounts) | Jan - Mar | Apr - Jun 2nd | Jun 3rd - Jun 30th | Jul - Sep | Oct - Dec | ||||||||||||||||
Net sales | $ | 66.1 | $ | 40.3 | $ | 16.3 | $ | 69.1 | $ | 77.7 | |||||||||||
Cost of sales | 37.9 | 23.2 | 13.0 | 39.6 | 44.9 | ||||||||||||||||
Gross profit | 28.2 | 17.1 | 3.3 | 29.5 | 32.8 | ||||||||||||||||
Net income (loss) from operations | 2.2 | (8.2 | ) | (5.1 | ) | 1.0 | 12.1 | ||||||||||||||
Interest expense | 8.1 | 12.1 | 8.0 | 9.5 | 9.8 | ||||||||||||||||
Net loss | (3.2 | ) | (15.8 | ) | (12.4 | ) | (1.6 | ) | (3.2 | ) | |||||||||||
Comprehensive income (loss) | $ | (6.6 | ) | $ | (16.4 | ) | $ | (7.6 | ) | $ | (12.7 | ) | $ | 6.5 | |||||||
Net loss per share | $ | (3,186.93 | ) | $ | (15,807.96 | ) | |||||||||||||||
Net loss per common share, Class A and C, Basic and Diluted - Two-class method | $ | (0.23 | ) | $ | (0.03 | ) | $ | (0.06 | ) |
2018 | |||||||||||||||||
(In millions, except per share amounts) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
Net sales | $ | 61.6 | $ | 65.2 | $ | 65.1 | $ | 76.0 | |||||||||
Cost of sales | 34.8 | 37.1 | 37.7 | 43.6 | |||||||||||||
Gross profit | 26.8 | 28.1 | 27.4 | 32.4 | |||||||||||||
Net income from operations | 1.9 | 4.4 | 1.9 | 2.8 | |||||||||||||
Interest expense | 7.1 | 7.8 | 8.0 | 8.1 | |||||||||||||
Net income (loss) | (6.8 | ) | 1.9 | 0.3 | (4.0 | ) | |||||||||||
Comprehensive loss | $ | (2.3 | ) | $ | (6.9 | ) | $ | (0.8 | ) | $ | (6.0 | ) | |||||
Net income (loss) per share | $ | (6,806.49 | ) | $ | 1,859.17 | $ | 279.43 | $ | (4,029.72 | ) |
Note 23 — Quarterly Financial Data (Unaudited)
Pursuant to the Ranpak Business Combination. These Successor Period errors resulted in multiple misstatements inNovember 2020 Amendments, we elect to provide disclosure consistent with the Unaudited Condensed Consolidated Statement of Cash Flows including $3.4 million of net cash provided by financing activitiesrecent amendments to Regulation S-K, Item 302(a), which amend and $7.9 million of effects of exchange ratestreamline the requirement to disclose quarterly financial data to circumstances when there are one or more retrospective changes on cash. We also misclassified (1) $308.1 million, relatingthat pertain to the cash withdrawn from trust account, between net cash used in investing activities and beginning cash and (2) $11.3 million, relating to One Madison Corporation’s deferred initial public offering underwriting fees, between net cash used in operating activities and net cash from financing activities. Ending cash balance for both the second and third quarter remain unchanged. Goodwill was also misstated by $10.0 million. The foreign currency gain line item in the Unaudited Condensedour Consolidated Statements of Operations and Comprehensive Income (Loss) was misstated by $2.5 million. We have no material retrospective changes to our Consolidated Statements of Operations and the Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity was also misstated as a result of the errors identified as noted in the below table. The Company has corrected the errors in this Form 10-K and will prospectively correct the comparable Q2 and Q3 2019 unaudited condensed consolidated interim financial statementsComprehensive Income (Loss) that will be presented in the Q2 and Q3 2020 unaudited condensed consolidated interim Form 10-Q filings, respectively.
Predecessor Period (January 1, 2019 through June 2, 2019) | |||||||||
As previously reported in Q2 and Q3 Form 10-Qs | Adjustment | As Restated | |||||||
Unaudited Condensed Consolidated Statement of Cash Flows (January 1, 2019 through June 2, 2019) | |||||||||
Deferred income taxes | $ | 0.6 | $ | (7.8 | ) | $ | (7.2 | ) | |
Net cash (used in) provided by operating activities | $ | 24.5 | $ | (7.8 | ) | $ | 16.7 | ||
Payments on term loans and credit facility | $ | (13.3 | ) | $ | (1.1 | ) | $ | (14.4 | ) |
Net cash provided by (used in) financing activities | $ | (13.3 | ) | $ | (1.1 | ) | $ | (14.4 | ) |
Effect of Exchange Rate Changes on Cash | $ | (7.7 | ) | $ | 8.9 | $ | 1.2 | ||
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (from January 1, 2019 through June 2, 2019) | |||||||||
Foreign currency translation adjustments | $ | 23.6 | $ | (27.6 | ) | $ | (4.0 | ) | |
Comprehensive income (loss) | $ | 4.6 | $ | (27.6 | ) | $ | (23.0 | ) | |
Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity - Predecessor (at June 2, 2019) | |||||||||
Additional Paid In Capital | $ | — | $ | 291.4 | $ | 291.4 | |||
Accumulated Deficit | $ | — | $ | (88.9 | ) | $ | (88.9 | ) | |
Treasury Stock | $ | — | $ | (1.5 | ) | $ | (1.5 | ) | |
Accumulated Other Comprehensive Loss | $ | — | $ | (27.6 | ) | $ | (27.6 | ) | |
Total Shareholders’ Equity | $ | — | $ | 173.4 | $ | 173.4 |
Predecessor Period (April 1, 2019 through June 2, 2019) | |||||||||
As previously reported in Q2 Form 10-Q of 2019 | Adjustment | As Restated | |||||||
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (from April 1, 2019 through June 2, 2019) | |||||||||
Foreign currency translation adjustments | $ | 27.0 | $ | (27.6 | ) | $ | (0.6 | ) | |
Comprehensive income (loss) | $ | 11.2 | $ | (27.6 | ) | $ | (16.4 | ) |
Successor Period (June 3, 2019 through June 30 2019) | |||||||||
As previously reported in Q2 Form 10-Q of 2019 | Adjustment | As Restated | |||||||
Unaudited Condensed Consolidated Statement of Cash Flows | |||||||||
Net loss | $ | (10.5 | ) | $ | (1.9 | ) | $ | (12.4 | ) |
(Decrease) increase in accounts payable | $ | (25.8 | ) | $ | 11.3 | $ | (14.5 | ) | |
Increase (decrease) accrued liabilities | $ | 0.9 | $ | (0.6 | ) | $ | 0.3 | ||
Currency gain on foreign denominated notes payable | $ | (0.8 | ) | $ | 2.5 | $ | 1.7 | ||
Net cash (used in) provided by operating activities | $ | (24.6 | ) | $ | 11.3 | $ | (13.3 | ) | |
Cash withdrawn from trust account | $ | — | $ | 308.1 | $ | 308.1 | |||
Net cash used in investing activities | $ | (947.6 | ) | $ | 308.1 | $ | (639.5 | ) | |
Proceeds from issuance of term loans and credit facility | $ | 539.0 | $ | (4.4 | ) | $ | 534.6 | ||
Proceeds from sale of common stock | $ | 302.4 | $ | 12.3 | $ | 314.7 | |||
Payments of deferred registration costs | $ | — | $ | (11.3 | ) | $ | (11.3 | ) | |
Net cash provided by (used in) financing activities | $ | 666.5 | $ | (3.4 | ) | $ | 663.1 | ||
Effect of Exchange Rate Changes on Cash | $ | 7.4 | $ | (7.9 | ) | $ | (0.5 | ) | |
Net increase (decrease) in cash and cash equivalents | $ | (298.3 | ) | $ | 308.1 | $ | 9.8 | ||
Cash and Cash Equivalents, beginning of period | $ | 309.8 | $ | (308.1 | ) | $ | 1.7 | ||
Unaudited Condensed Consolidated Balance Sheet (at June 30, 2019) | |||||||||
Goodwill | $ | 464.1 | $ | 10.0 | $ | 474.1 | |||
Total assets | $ | 1,082.4 | $ | 10.0 | $ | 1,092.4 | |||
Accrued liabilities and other | $ | 10.3 | $ | (0.6 | ) | $ | 9.7 | ||
Total current liabilities | $ | 24.2 | $ | (0.6 | ) | $ | 23.6 | ||
Total Liabilities | $ | 671.7 | $ | (0.6 | ) | $ | 671.6 | ||
Additional Paid In Capital | $ | 428.3 | $ | 15.0 | $ | 443.3 | |||
Accumulated other comprehensive (loss) | $ | 4.8 | $ | (2.5 | ) | $ | 2.3 | ||
Accumulated deficit | $ | (22.4 | ) | $ | (1.9 | ) | $ | (24.3 | ) |
Total Shareholders’ Equity | $ | 410.7 | $ | 10.6 | $ | 421.3 | |||
Total Liabilities and Shareholders' Equity | $ | 1,082.4 | $ | 10.0 | $ | 1,092.4 | |||
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (from June 3, 2019 through June 30, 2019) | |||||||||
Foreign currency (gain) loss | $ | (0.8 | ) | $ | 2.5 | $ | 1.7 | ||
Loss before income taxes | $ | (12.3 | ) | $ | (2.5 | ) | $ | (14.8 | ) |
Income tax benefit | $ | (1.8 | ) | $ | (0.6 | ) | $ | (2.4 | ) |
Net income (loss) | $ | (10.5 | ) | $ | (1.9 | ) | $ | (12.4 | ) |
Comprehensive income (loss) | $ | (5.7 | ) | $ | (1.9 | ) | $ | (7.6 | ) |
Net income (loss) per share | $ | (0.19 | ) | $ | (0.04 | ) | $ | (0.23 | ) |
Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity - Successor (at June 30, 2019) | |||||||||
Additional Paid In Capital | $ | 428.3 | $ | 15.0 | $ | 443.3 | |||
Accumulated other comprehensive (loss) | $ | 4.8 | $ | (2.5 | ) | $ | 2.3 | ||
Accumulated deficit | $ | (22.4 | ) | $ | (1.9 | ) | $ | (24.3 | ) |
Total Shareholders’ Equity | $ | 410.7 | $ | 10.6 | $ | 421.3 |
Successor Period (June 3, 2019 through September 30, 2019) | |||||||||
As previously reported in Q3 Form 10-Q of 2019 | Adjustment | As Restated | |||||||
Unaudited Condensed Consolidated Statement of Cash Flows | |||||||||
Net loss | $ | (12.0 | ) | $ | (1.9 | ) | $ | (13.9 | ) |
Increase (decrease) in accounts payable | $ | (25.4 | ) | $ | 11.3 | $ | (14.1 | ) | |
Increase (decrease) accrued liabilities | $ | 2.9 | $ | (0.6 | ) | $ | 2.3 | ||
Currency gain on foreign denominated notes payable | $ | (3.3 | ) | $ | 2.5 | $ | (0.8 | ) | |
Net cash (used in) provided by operating activities | $ | (11.6 | ) | $ | 11.3 | $ | (0.3 | ) | |
Cash withdrawn from trust account | $ | — | $ | 308.1 | $ | 308.1 | |||
Net cash (used in) provided by investing activities | $ | (956.3 | ) | $ | 308.1 | $ | (648.2 | ) | |
Proceeds from issuance of term loans and credit facility | $ | 539.0 | $ | (4.4 | ) | $ | 534.6 | ||
Proceeds from sale of common stock | $ | 302.4 | $ | 12.3 | $ | 314.7 | |||
Payments of deferred registration costs | $ | — | $ | (11.3 | ) | $ | (11.3 | ) | |
Net cash provided by (used in) financing activities | $ | 666.5 | $ | (3.4 | ) | $ | 663.1 | ||
Effect of Exchange Rate Changes on Cash | $ | 5.2 | $ | (7.9 | ) | $ | (2.7 | ) | |
Net increase (decrease) in cash and cash equivalents | $ | (296.2 | ) | $ | 308.1 | $ | 11.9 | ||
Cash and Cash Equivalents, beginning of period | $ | 309.8 | $ | (308.1 | ) | $ | 1.7 | ||
Unaudited Condensed Consolidated Balance Sheet (at September 30, 2019) | |||||||||
Goodwill | $ | 411.6 | $ | 10.0 | $ | 421.6 | |||
Total assets | $ | 1,065.5 | $ | 10.0 | $ | 1,075.5 | |||
Accrued liabilities and other | $ | 12.1 | $ | (0.6 | ) | $ | 11.5 | ||
Total current liabilities | $ | 31.3 | $ | (0.6 | ) | $ | 30.7 | ||
Total Liabilities | $ | 665.9 | $ | (0.6 | ) | $ | 665.3 | ||
Additional Paid In Capital | $ | 429.8 | $ | 15.0 | $ | 444.8 | |||
Accumulated other comprehensive (loss) | $ | (6.3 | ) | $ | (2.5 | ) | $ | (8.8 | ) |
Accumulated deficit | $ | (23.9 | ) | $ | (1.9 | ) | $ | (25.8 | ) |
Total Shareholders’ Equity | $ | 399.6 | $ | 10.6 | $ | 410.2 | |||
Total Liabilities and Shareholders' Equity | $ | 1,065.5 | $ | 10.0 | $ | 1,075.5 | |||
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (from June 3, 2019 through September 30, 2019) | |||||||||
Foreign currency (gain) loss | $ | (4.1 | ) | $ | 2.5 | $ | (1.6 | ) | |
Loss before income taxes | $ | (17.5 | ) | $ | (2.5 | ) | $ | (20.0 | ) |
Income tax (benefit) expense | $ | (5.5 | ) | $ | (0.6 | ) | $ | (6.1 | ) |
Net income (loss) | $ | (12.0 | ) | $ | (1.9 | ) | $ | (13.9 | ) |
Comprehensive income (loss) | $ | (18.3 | ) | $ | (1.9 | ) | $ | (20.2 | ) |
Net income (loss) per share | $ | (0.22 | ) | $ | (0.04 | ) | $ | (0.26 | ) |
Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity - Successor (at September 30, 2019) | |||||||||
Additional Paid In Capital | $ | 429.8 | $ | 15.0 | $ | 444.8 | |||
Accumulated other comprehensive (loss) | $ | (6.3 | ) | $ | (2.5 | ) | $ | (8.8 | ) |
Accumulated deficit | $ | (23.9 | ) | $ | (1.9 | ) | $ | (25.8 | ) |
Total Shareholders’ Equity | $ | 399.6 | $ | 10.6 | $ | 410.2 |
ITEM 9.
None.
ITEM 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, are controlsas that term is defined in Rules 13a-15(e) and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under15d-15(e) of the Exchange Act is recorded, processed, summarizedAct. In designing and reported withinevaluating the time periods specified in the SEC’s rules and forms. Disclosuredisclosure controls and procedures, include, without limitation,our management recognizes that any controls and procedures, no matter how well designed to ensure that information required to be disclosed in company reports filed or submittedand operated, can provide only reasonable, and not absolute, assurance of achieving the desired control objectives of such controls and procedures. Our management, under the Exchange Act is accumulatedsupervision and communicated to management, includingwith the participation of our Chief Executive OfficerCEO (our principal executive officer) and Chief Financial Officer to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Overover Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as(as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under) for us. Under the Exchange Act. As discussed elsewhere in this Annual Report on Form 10-K,supervision and with the Company completedparticipation of our CEO and CFO, management assessed the Ranpak Business Combination on June 3, 2019. Prior to the Ranpak Business Combination, One Madison Corporation was a publicly-traded, blank check company and the Ranpak business was parteffectiveness of a private, Delaware limited partnership. As a result, the design of public company internal control over financial reporting for the Company post-Ranpak Business Combination has required and will continue to require significant time and resources from our management and other personnel. Therefore, management was unable, without deploying an unreasonable level of resources, to conduct an assessment of the Company’s internal control over financial reporting as of December 31, 2019. Therefore,2020 based on criteria specified in Internal Control – Integrated Framework (2013) issued by the Company is excluding management’s report on internal control over financial reporting pursuant to Section 215.02Committee of Sponsoring Organizations of the SEC’s Regulation S-K ComplianceTreadway Commission (“COSO”). Based on our assessment, management, including our CEO and Disclosure Interpretations.
Remediation of Previously Reported Material Weaknesses
As previously reported in the course of preparing our financial statements as of andAnnual Report on Form 10-K for the year ended December 31, 2019 (the “2019 10-K”), our management identified certain deficiencies inconcluded that our internal control over financial reporting that management believes to beand our disclosure controls and procedures were ineffective as of December 31, 2019 as a result of the following material weaknesses. Aweaknesses:
• | Control Environment – we had insufficient internal resources with appropriate knowledge and expertise to design, implement, document, and operate effective internal controls around our financial reporting process; |
• | Risk Assessment – we did not have an effective risk assessment process that defined clear financial reporting objectives that identified and evaluated risks of misstatement due to errors over certain financial reporting processes or developed internal controls to mitigate those risks; and |
• | Control Activities – the Ranpak Business Combination was a complex business acquisition transaction. The complexity of this transaction combined with insufficient levels of staff with public company and applicable U.S. GAAP expertise contributed to errors to previously issued financial statements contained in the Quarterly Reports on Form 10-Q for the periods ending as of June 30, 2019 and September 30, 2019, as further described in Note 21 to the consolidated financial statements contained in the 2019 10-K. As a consequence of the ineffective control environment and risk assessment components, we did not design, implement, and maintain effective control activities at the transaction level over the Ranpak Business Combination to mitigate the risk of material misstatement in financial reporting, which impacted our financial reporting processes and related control activities in the application of U.S. GAAP, as it related to the accounting for the Ranpak Business Combination. |
To remediate the material weakness is a deficiency, or a combination of deficiencies, inweaknesses described above and enhance our internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.
Changes in Internal Control over Financial Reporting
Except for the identification of the material weaknessesas described above under “Remediation of Previously Reported Material Weaknesses,” there were no changes during the quarter ended December 31, 2019, in our internal control over financial reporting during 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
None.
PART III
ITEM 10.
The information required by this item is set forth under the headings “Corporate Governance,” “Directors,” “Executive Officers,” “Security Ownership of Certain Beneficial Owners and Management,” and “Delinquent Section 16(a) Reports,” in the Company’s definitive proxy statement for its 20202021 Annual Meeting of Shareholders (the “Proxy Statement”) to be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.
ITEM 11.
The information required by this item is set forth under the headings “Corporate Governance” and “Executive Compensation” in the Proxy Statement and is incorporated herein by reference.
ITEM 12.
The information required by this item is set forth under the headings “Certain Relationships and Related Person Transactions” and “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement and is incorporated herein by reference.
ITEM 13.
The information required by this item is set forth under the headings “Corporate Governance” and “Certain Relationships and Related Person Transactions” in the Proxy Statement and is incorporated herein by reference.
ITEM 14.
The information required by this item is set forth under the proposal “Ratification of Selection of Independent Registered Public Accounting Firm” in the Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Annual Report on Form 10-K.
1) | Consolidated Financial |
2) | Schedule II – Valuation and Qualifying Accounts and Reserves for |
3) | Exhibits – The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this |
Ranpak Holdings Corp.
Schedule II – Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2020, 2019, 2018
(in millions)
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| Charged to Cost |
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| |
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| Beginning Balance |
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| and Expenses |
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| Deductions |
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| Ending Balance |
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Allowance for Doubtful Accounts: |
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Year ended December 31, 2020 |
| $ | 0.2 |
|
| $ | 0.3 |
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| $ | - |
|
| $ | 0.5 |
|
Year ended December 31, 2019 |
|
| 0.2 |
|
|
| 0.1 |
|
|
| (0.1 | ) |
|
| 0.2 |
|
Year ended December 31, 2018 |
| $ | 0.1 |
|
| $ | 0.1 |
|
| $ | - |
|
| $ | 0.2 |
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Inventory Obsolescence Reserve: |
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Year ended December 31, 2020 |
| $ | 0.3 |
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| $ | 0.8 |
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| $ | (0.1 | ) |
| $ | 1.0 |
|
Year ended December 31, 2019 |
|
| 0.3 |
|
|
| 0.2 |
|
|
| (0.2 | ) |
|
| 0.3 |
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Year ended December 31, 2018 |
| $ | 0.2 |
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| $ | 0.1 |
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| $ | - |
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| $ | 0.3 |
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Valuation Allowance for Net Deferred Tax Assets: |
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Year ended December 31, 2020 |
| $ | 1.3 |
|
| $ | 0.2 |
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| $ | (0.4 | ) |
| $ | 1.1 |
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Year ended December 31, 2019 |
|
| 0.6 |
|
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| 0.7 |
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| - |
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| 1.3 |
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Year ended December 31, 2018 |
| $ | 0.4 |
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| $ | 0.2 |
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| $ | - |
|
| $ | 0.6 |
|
ITEM 16. FormFORM 10-K SummarySUMMARY
None.
EXHIBIT INDEX
The following is a list of all exhibits filed as part of this Report, including those incorporated herein by reference.
Exhibit No. | Description | |
2.1 | ||
2.2 | ||
2.3 | ||
3.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
4.3 | ||
4.4 | ||
4.5* | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7 | ||
10.8 | ||
Exhibit No. | Description | |
10.9 | ||
10.10 | ||
10.11 | ||
10.12 | ||
10.13 | ||
10.14 | ||
21.1* | ||
23.1* | Consent of Independent Registered Public Accounting Firm – Deloitte & Touche LLP | |
24.1* | ||
31.1* | ||
31.2* | ||
32* | ||
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document* | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
101.DEF | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |
104* | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* | Filed herewith |
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d)15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Ranpak Holdings Corp. | ||||
Date: | March | By: | /s/ | |
William Drew | ||||
Senior Vice President and Chief |
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Omar M. Asali and Trent M. Meyerhoefer,William Drew, and each of them
Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name | Title | Date | ||
/s/ Omar M. Asali | Chairman and Chief Executive Officer | March | ||
Omar M. Asali | (principal executive officer) | |||
/s/ | Senior Vice President and Chief Financial Officer | March | ||
William Drew | (principal financial and accounting officer) | |||
/s/ Thomas F. Corley | Director | March | ||
Thomas F. Corley | ||||
/s/ Pamela El | Director | March 4, 2021 | ||
Pamela El | ||||
/s/ Michael Gliedman | Director | March | ||
Michael Gliedman | ||||
/s/ Michael A. Jones | Director | March | ||
Michael A. Jones | ||||
/s/ Robert C. King | Director | March | ||
Robert C. King | ||||
/s/ Steve Kovach | Director | March | ||
Steve Kovach | ||||
/s/ Salil Seshadri | Director | March | ||
Salil Seshadri | ||||
/s/ Alicia Tranen | Director | March | ||
Alicia Tranen | ||||
/s/ Kurt Zumwalt | Director | March | ||
Kurt Zumwalt |
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