Company Quick10K Filing
Quick10K
One Madison
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
8-K 2019-09-16 Regulation FD, Exhibits
8-K 2019-08-09 Earnings, Officers, Exhibits
8-K 2019-07-29 Regulation FD, Exhibits
8-K 2019-07-22 Regulation FD, Exhibits
8-K 2019-06-27 Regulation FD, Exhibits
8-K 2019-06-03 Other Events
8-K 2019-05-30 Enter Agreement, M&A, Off-BS Arrangement, Sale of Shares, Shareholder Rights, Accountant, Control, Amend Bylaw, Shell Status, Other Events, Exhibits
8-K 2019-05-30 Enter Agreement, M&A, Off-BS Arrangement, Sale of Shares, Shareholder Rights, Accountant, Control, Amend Bylaw, Shell Status, Other Events, Exhibits
8-K 2019-05-28 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2019-05-15 Regulation FD, Exhibits
8-K 2019-05-13 Enter Agreement, Sale of Shares, Other Events, Exhibits
8-K 2019-05-01 Other Events, Exhibits
8-K 2019-04-23 Regulation FD, Exhibits
8-K 2019-04-07 Officers, Other Events, Exhibits
8-K 2019-03-27 Enter Agreement, Other Events, Exhibits
8-K 2019-03-05 Regulation FD, Exhibits
8-K 2019-02-21 Regulation FD, Exhibits
8-K 2019-01-29 Regulation FD, Exhibits
8-K 2018-12-13 Regulation FD, Exhibits
8-K 2018-12-13 Enter Agreement, Sale of Shares, Exhibits
8-K 2018-09-13 Officers
8-K 2018-05-18 Officers
8-K 2018-02-21 Other Events, Exhibits
8-K 2018-01-22 Other Events, Exhibits
EBAY eBay 33,728
FLT FleetCor 25,218
CTRP Ctrip 2,190
EVOP EVO Payments 752
VEAC Vantage Energy Acquisition 678
TKKS TKK Symphony Acquisition 316
TPNL 3Pea 118
IPOA Social Capital Hedosophia 30
CCC Calgon Carbon 0
FPAC Far Point Acquisition 0
OMAD 2019-06-30
Note 1 - Nature of Operations
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Note 3 - Supplemental Balance Sheet Data
Note 4 - Acquisition
Note 5 - Long-Term Debt
Note 6 - Income Taxes
Note 7 - Commitments and Contingencies
Note 8 - Derivative Instruments
Note 9 - Fair Value Measurement
Note 10 - Shareholders' Equity
Note 11 - Stock-Based Compensation
Note 12 - Earnings/Loss per Share-
Note 13 - Related Party
Note 14 - Segment and Geographic Information
Note 15 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ceo302.htm
EX-31.2 cfo302.htm
EX-32.1 ceo906.htm
EX-32.2 cfo906.htm

One Madison Earnings 2019-06-30

OMAD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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

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

As of August 12, 2019, the registrant had 47,357,632 of its Class A common shares, $0.0001 par value per share, outstanding (which includes 6,847,837 Class A common shares that are subject to an earn-out provision as described in Part 1, Item 1 of this report) and 6,511,293 of its Class C common shares, $0.0001 par value per share, outstanding.



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






Index to Unaudited Condensed Consolidated Financial Statements
RANPAK HOLDINGS CORP.

                        1

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


 
Successor
 
 
Predecessor
 
June 3, 2019
through June 30,
2019
 
 
April 1, 2019
through June 2,
2019
 
January 1, 2019
through June 2,
2019
 
Three Months
Ended June 30,
2018
 
Six Months
Ended June 30,
2018
Net sales
$
16.3

 
 
$
40.3

 
$
106.4

 
$
65.2

 
$
126.8

Cost of sales
13.0

 
 
23.2

 
61.2

 
37.1

 
71.9

Selling, general and administrative
4.9

 
 
10.0

 
23.8

 
12.1

 
25.3

Transaction costs
0.3

 
 
7.0

 
7.4

 
0.2

 
0.2

Depreciation and amortization
3.0

 
 
7.1

 
17.7

 
10.6

 
21.6

Other operating expense, net
0.2

 
 
1.2

 
2.2

 
0.8

 
1.5

(Loss) income from operations
(5.1
)
 
 
(8.2
)
 
(5.9
)
 
4.4

 
6.3

Interest expense
8.0

 
 
12.1

 
20.2

 
7.8

 
14.9

Foreign currency gain
(0.8
)
 
 
(0.2
)
 
(2.2
)
 
(6.2
)
 
(3.3
)
(Loss) income before income taxes
(12.3
)
 
 
(20.1
)
 
(23.9
)
 
2.8

 
(5.3
)
Income tax (benefit) expense
(1.8
)
 
 
(4.3
)
 
(4.9
)
 
0.9

 
(0.4
)
Net (loss) income
(10.5
)
 
 
(15.8
)
 
(19.0
)
 
1.9

 
(4.9
)
 
 
 
 
 
 

 
 
 
 
Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
4.8

 
 
27.0

 
23.6

 
(8.8
)
 
(4.4
)
Comprehensive (loss) income
$
(5.7
)
 
 
$
11.2

 
$
4.6

 
$
(6.9
)
 
$
(9.3
)
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income per share—basic
 
 
 
 
 
 
 
 
 
 
and diluted
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income per share
 
 
 
$
(15,807.96
)
 
$
(19,195.40
)
 
$
1,859.17

 
$
(4,947.32
)
 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding
 
 
 
995

 
995

 
995

 
995

 
 
 
 
 
 
 
 
 
 
 
Two-class method
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per common stock, Class A and C-basic and diluted
$
(0.19
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of Class A and C common stock outstanding, basic and diluted
53,868,925

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
__________
See notes to unaudited condensed consolidated financial statements.

                        2

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

 
Successor
 
 
Predecessor
 
June 30, 2019
 
 
December 31, 2018
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
$
11.5

 
 
$
17.5

Receivables, net
28.2

 
 
31.5

Inventories, net
14.1

 
 
11.8

Income tax receivable
3.0

 
 
3.4

Prepaid expenses and other current assets
2.8

 
 
4.1

Total current assets
59.6

 
 
68.3

 
 
 
 
 
Property, plant and equipment, net
107.0

 
 
73.0

Goodwill
464.1

 
 
355.7

Intangible assets, net
448.1

 
 
293.7

Other assets
3.6

 
 
2.0

 
 
 
 
 
Total Assets
$
1,082.4

 
 
$
792.7

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
Accounts payable
$
11.2

 
 
$
12.3

Accrued liabilities and other
10.3

 
 
10.8

Current portion of long-term debt

 
 
4.4

Deferred machine fee revenue
2.7

 
 
0.3

Total current liabilities
24.2

 
 
27.8

 
 
 
 
 
Long-term debt
526.7

 
 
494.9

Deferred income taxes
112.9

 
 
69.8

Interest rate swap
5.0

 
 

Other liabilities
2.9

 
 
3.8

Total Liabilities
671.7

 
 
596.3

 
 
 
 
 
Commitments and contingencies — Note 7

 
 

Shareholders' Equity
 
 
 
 
Common Stock, $0.01 par; 1,000 shares authorized; 995 shares issued and outstanding at December 31, 2018

 
 

Class A common stock, $0.0001 par; 200,000,000 shares authorized, 47,357,632 issued and outstanding at June 30, 2019

 
 

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

 
 

Additional paid-in capital
428.3

 
 
291.4

Accumulated deficit
(22.4
)
 
 
(69.9
)
Treasury stock, zero shares, at June 30, 2019 and 5 shares, at cost, December 31, 2018

 
 
(1.5
)
Accumulated other comprehensive income (loss)
4.8

 
 
(23.6
)
Total Shareholders' Equity
410.7

 
 
196.4

 
 
 
 
 
Total Liabilities and Shareholders' Equity
$
1,082.4

 
 
$
792.7

__________
See notes to unaudited condensed consolidated financial statements.

                        3

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


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

$

11,250,000

$


$


$

$
16.9

$
(11.9
)
$

$
5.0

 
 
 
 
 
 
 
 
 
 
 
 
 
Forward Purchase Shares
15,000,000


 
 
 
 
 
 
 
 
 

Additional Shares Purchased
16,149,317


 
 
 
 
 
 
 
 
 

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

 
 
25,454,282


5,695,035


256.1

 
 
256.1

Shares Canceled
 
 
(3,854,664
)

 
 
 
 
(31.7
)
 
 
(31.7
)
Convert Class B
 
 
(7,395,336
)

6,663,953


731,383


60.8

 
 
60.8

Convert Public Shares
 
 
 
 
14,581,346


 
 
119.9

 
 
119.9

Convert Private Placement Warrants
 
 
 
 
658,051


84,875


6.1

 
 
6.1

Public Shares Redeemed
(2,770,967
)

 
 
 
 
 
 
 
 
 

Issue restricted stock units
 
 
 
 
 
 
 
 
0.2

 
 
0.2

Foreign currency translation
 
 
 
 
 
 
 
 
 
 
4.8

4.8

Net loss
 
 
 
 
 
 
 
 
 
(10.5
)
 
(10.5
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2019

$


$

47,357,632

$

6,511,293

$

$
428.3

$
(22.4
)
$
4.8

$
410.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 















__________
See notes to unaudited condensed consolidated financial statements.


                        4

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


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

$

 
$
291.4

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

Net loss
 
 
 
 
 
(6.8
)
 
 
 
 
 
(6.8
)
Foreign currency translation
 
 
 
 
 
 
 
 
 
4.5

 
4.5

Balance at March 31, 2018
995

$

 
291.4

 
(68.1
)
 
(1.5
)
 
(11.8
)
 
210.0

Net income
 
 
 
 
 
1.9

 
 
 
 
 
1.9

Foreign currency translation
 
 
 
 
 
 
 
 
 
(8.8
)
 
(8.8
)
Balance at June 30, 2018
995

$

 
291.4

 
(66.2
)
 
(1.5
)
 
(20.6
)
 
203.1

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2019
995

$

 
291.4

 
(69.9
)
 
(1.5
)
 
(23.6
)
 
196.4

Net loss
 
 
 
 
 
(3.2
)
 
 
 
 
 
(3.2
)
Foreign currency translation
 
 
 
 
 
 
 
 
 
(3.4
)
 
(3.4
)
Balance at March 31, 2019
995

$

 
291.4

 
(73.1
)
 
(1.5
)
 
(27.0
)
 
189.8

Net loss
 
 
 
 
 
(15.8
)
 
 
 
 
 
(15.8
)
Purchase of Ranpak Corp.
(995
)
 
 
(291.4
)
 
88.9

 
1.5

 
(47.1
)
 
(248.1
)
Foreign currency translation
 
 
 
 
 
 
 
 
 
74.1

 
74.1

Balance at June 3, 2019

$

 
$

 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 

__________
See notes to unaudited condensed consolidated financial statements.


                        5

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



 
Successor
 
 
Predecessor
 
June 3, 2019 through
June 30, 2019
 
 
January 1, 2019
through June 2, 2019
 
Six months ended
June 30, 2018
Cash Flows from Operating Activities
 
 
 
 
 
 
Net loss
$
(10.5
)
 
 
$
(19.0
)
 
$
(4.9
)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
 
 
 
 
 
 
Depreciation and amortization
4.7

 
 
26.6

 
32.2

Amortization of deferred financing costs
0.2

 
 
7.5

 
1.4

Loss on disposal of fixed assets

 
 
1.0

 
0.7

Deferred income taxes
(0.4
)
 
 
0.6

 
(2.4
)
Loss (gain) on derivative contract
5.4

 
 

 
(0.7
)
Currency gain on foreign denominated notes payable
(0.8
)
 
 
(2.4
)
 
(3.3
)
Restricted stock unit grants
0.2

 
 

 

Changes in operating assets and liabilities:
 
 
 
 
 
 
(Increase) decrease in receivables, net
(1.1
)
 
 
3.5

 
(1.5
)
Decrease (increase) in inventory
1.1

 
 
(1.3
)
 
0.1

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

 
0.6

Increase in other assets
(0.1
)
 
 
(1.3
)
 
(1.8
)
(Decrease) increase in accounts payable
(25.8
)
 
 
(2.8
)
 
1.0

Increase (decrease) in accrued liabilities
0.9

 
 
7.1

 
(1.6
)
Increase (decrease) in other liabilities
1.9

 
 
2.3

 
(0.1
)
Net cash (used in) provided by operating activities
(24.6
)
 
 
24.5

 
19.7

Cash Flows from Investing Activities
 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
 
Converter equipment
(2.5
)
 
 
(9.9
)
 
(15.0
)
Other fixed assets
(0.2
)
 
 
(0.6
)
 
(0.1
)
Total capital expenditures
(2.7
)
 
 
(10.5
)
 
(15.1
)
Cash paid for acquisitions
(944.8
)
 
 

 

Patent and trademark expenditures
(0.1
)
 
 
(0.3
)
 
(0.3
)
Net cash used in investing activities
(947.6
)
 
 
(10.8
)
 
(15.4
)
Cash Flows from Financing Activities
 
 
 
 
 
 
Proceeds from issuance of term loans and credit facility
539.0

 
 

 

Proceeds from sale of common stock
302.4

 
 

 

Redemption of stock
(158.3
)
 
 

 

Financing costs of debt facilities
(12.6
)
 
 

 

Payments on term loans and credit facility

 
 
(13.3
)
 
(2.6
)
Payment of promissory note
(4.0
)
 
 

 

Net cash provided by (used in) financing activities
666.5

 
 
(13.3
)
 
(2.6
)
Effect of Exchange Rate Changes on Cash
7.4

 
 
(7.7
)
 
(0.1
)
Net Increase (Decrease) in Cash and Cash Equivalents
(298.3
)
 
 
(7.3
)
 
1.6

Cash and Cash Equivalents, beginning of period
309.8

 
 
17.5

 
8.6

Cash and Cash Equivalents, end of period
$
11.5

 
 
$
10.2

 
$
10.2

__________
See notes to unaudited condensed consolidated financial statements.


                        6

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


Note 1 Nature of Operations

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

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

On June 3, 2019, the Company, consummated a business combination (the “Ranpak Business Combination”) pursuant to the Stock Purchase Agreement dated December 12, 2018 by and among the Company, Rack Holdings L.P., a Delaware limited partnership (“Seller”), and Rack Holdings, Inc., a Delaware corporation and a direct wholly owned subsidiary of Seller (“Rack Holdings”). The Company, through its wholly owned subsidiary, Ranger Packaging LLC (the “Acquiring Entity”), acquired all of the issued and outstanding equity interests of Rack Holdings from Seller, on the terms and subject to the conditions set forth in the Stock Purchase Agreement. Refer to Note 4 for further discussion of the Ranpak Business Combination. In connection with the Ranpak Business Combination, the Company domesticated to a Delaware corporation on May 31, 2019 and changed its name to Ranpak Holdings Corp.
 
Note 2 Basis of Presentation and Summary of Significant Accounting Policies
Unaudited Interim Financial Statements These unaudited condensed consolidated interim financial statements should be read in conjunction with Ranpak Holdings Corp.'s audited consolidated financial statements and accompanying notes for each of the three years ended December 31, 2018, 2017, and 2016 and Rack Holdings' audited consolidated financial statements and accompanying notes for each of the three years ended December 31, 2018, 2017, and 2016, which are included in the Company’s Form 10-K for the year ended December 31, 2018 and the Company’s Registration Statement on Form S-4, as amended (File No. 333-230030), respectively .
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with instructions to Form 10-Q and Rule 10-01 of Securities and Exchange Commission (“SEC”) Regulation S-X as they apply to interim financial information. Accordingly, the interim condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements, although the Company believes that the disclosures made are adequate to make the information not misleading.
The interim condensed consolidated financial statements are unaudited, but in the Company’s opinion include all adjustments that are necessary for a fair statement of operations for the periods presented. The interim financial results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.

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


                        7

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

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

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

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

                        8

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

the commissions currently being paid are immaterial to the Company’s financial statements. In addition, the Company expects that the changes in accounting for contingent milestone payments will have an effect on the future accounting treatment for the arrangements under the End of Line Automation Neopack Solutions S.A.S dba e3Neo (“e3Neo”) product line. The previous accounting guidance contained specific guidance related to the accounting for milestone payments including, if certain criteria were met, the ability to recognize all consideration related to the milestone once that milestone was achieved. The revenue ASUs do not contain guidance specific to milestone payments, thereby requiring potential milestone payments to be considered in accordance with the overall revenue recognition model. As a result, revenue from contingent milestone payments may be recognized earlier under the revenue ASUs than under the existing guidance, based on an assessment of the probability of achievement of the milestones and the likelihood of a significant reversal of such revenue at each reporting date. Revenue from the end of line automation (e3Neo) product line was less than 5% of total revenues in 2018 so the Company does not expect a material impact from any change in accounting for this product line. The Company is also evaluating any changes in balance sheet classification under ASC 606 and has not currently identified any changes. While the Company continues to assess the potential impacts of the new standard, including the areas described above, it cannot reasonably estimate the impact of the new standard on its consolidated financial statements and related notes.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early adoption is permitted. The Company is assessing the potential impact of the new standard on the consolidated financial statements and currently plans to adopt this guidance on January 1, 2020.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements in ASC Topic 820, Fair Value Measurement. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is assessing the potential impact of the new standard on the consolidated financial statements.
Note 3 Supplemental Balance Sheet Data
Accounts ReceivableThe allowance for doubtful accounts was as follows:
 
Successor
 
 
Predecessor
 
June 30, 2019
 
 
December 31,
2018
Allowance for doubtful accounts
$
(0.2
)
 
 
$
(0.2
)

InventoriesThe components of inventories were as follows at:
 
Successor
 
 
Predecessor
 
June 30,
2019
 
 
December 31,
2018
Inventories
 
 
 
 
Raw materials
$
9.1

 
 
$
4.1

Finished goods
5.4

 
 
8.0

Total inventories
14.5

 
 
12.1

Less reserve for obsolescence
(0.4
)
 
 
(0.3
)
Total inventories, net
$
14.1

 
 
$
11.8



                        9

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

Property, Plant and EquipmentDepreciation expense is recorded in cost of sales and depreciation and amortization in the unaudited condensed consolidated statements of operations and comprehensive loss was as follows:
 
Successor
 
 
Predecessor
 
June 3, 2019
through June 30,
2019
 
 
April 1, 2019
through June 2,
2019
 
January 1, 2019
through June 2,
2019
 
Three Months
Ended June 30,
2018
 
Six Months
Ended June 30,
2018
Depreciation expense included in cost of sales
$
1.7

 
 
$
3.4

 
$
8.9

 
$
5.3

 
$
10.6

Depreciation expense included in depreciation and amortization expense
0.1

 
 
0.3

 
0.7

 
0.2

 
0.6

Total Depreciation expense
$
1.8

 
 
$
3.7

 
$
9.6

 
$
5.5

 
$
11.2


Note 4 Acquisition
Ranpak Business Combination—On June 3, 2019, the Company consummated the acquisition of all outstanding and issued equity interests of Rack Holdings pursuant to the Stock Purchase Agreement for consideration of $798.9 million and 140.0 million ($160.8 million) in cash, (A) $341.5 million and 140.0 million of which was used by the Seller to repay outstanding indebtedness and unpaid transaction expenses as contemplated by the Stock Purchase Agreement and (B) the remainder of which was paid to Seller. The purchase price paid at Closing was estimated and will be subject to customary post-Closing adjustments which would include an adjustment for net working capital.

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

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

                        10

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

 
Amount
Total Consideration, net of cash acquired
$
944.9

 
 
Cash and cash equivalents
10.1

Accounts receivable
28.2

Inventories
15.1

Property, plant and equipment
105.5

Other assets
4.8

Intangible assets
450.9

Total identifiable assets acquired
614.6

Accounts payable
8.6

Accrued expenses
7.4

Other liabilities
3.8

Deferred tax liabilities
112.8

Net identifiable liabilities acquired
132.6

Goodwill
$
462.9


Intangible assets and property, plant and equipment balance comprise the following:
 
Preliminary
Fair Value
 
Remaining
Useful Lives
Trade Names/Trademarks
$
62.0

 
15 years
Patented/Unpatented Technology
192.3

 
10 years
Customer/Distributor Relationships
196.6

 
15 years
Total Preliminary Fair Value
$
450.9

 
 
 
 
 
 
Machinery and Equipment
$
94.8

 
5 years
Buildings and Improvements
6.6

 
15 years
Land
4.1

 
N/A
Total Preliminary Fair Value
$
105.5

 
 

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

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

Transaction costs incurred in the Ranpak Business Combination totaled $48.0 million. Of this amount, $12.6 million was classified as debt issuance costs, including $1.7 million presented as assets and $10.9 million presented as a reduction to debt within the condensed consolidated balance sheets. Transaction costs of $0.3 million were expensed in the Successor Period, $7.0 million was expensed in the Predecessor Period from April 1, 2019 through June 2, 2019 and $0.4 million was expensed in the

                        11

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

Predecessor Period from January 1, 2019 through March 31, 2019 within income from operations in the condensed consolidated statement of operations.
 
Amount
Deferred financing costs
$
12.6

Transaction costs
25.6

Payment of accrued transaction costs
9.8

Total
$
48.0

 
 
Debt issuance costs:
 
Presented as reduction to debt
$
10.9

Presented as asset
1.7

Total Debt issuance costs
$
12.6


The following information represents the unaudited supplemental pro forma results of the Company’s condensed consolidated statement of operations as if the Ranpak Business Combination occurred on January 1, 2018, for the three months and six months ended June 30, 2019 and 2018, after giving effect to certain adjustments, including depreciation and amortization of the assets acquired and liabilities assumed based on their estimated fair values and changes in interest expense resulting from changes in debt (in millions):
 
  
Three Months Ended June 30,
 
Six Months Ended June 30,
 
  
2019
2018
 
2019
2018
Net Sales
  
$
59.9

$
65.2

 
$
126.5

$
126.8

 
  
 
 
 
 
 
Net (loss) income
  
$
(6.1
)
$
1.8

 
$
(8.6
)
$
(4.9
)


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 (“e3NEO Purchase Agreement”) the Predecessor acquired all of the capital stock of Neopack Solutions S.A.S. dba e3NEO.
The e3NEO Purchase Agreement contained a contingent consideration arrangement that required the Company to pay e3NEO a “Next Generation Machine Payment”, which was computed by the Company based on certain criteria established in the e3NEO Purchase Agreement. The criteria included, but were not limited to, the design and development by e3NEO of a prototype of the “Next Generation Machine” as defined in the e3NEO Purchase Agreement. The maximum amount payable, $1.1 million, was recorded as contingent consideration, of which $0.8 million was paid in the six months ended June 30, 2018, and the remainder of the balance was paid prior to December 31, 2018.
Additionally, the e3NEO 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%). The earn-out payment, if and to the extent earned, shall be paid in accordance with the terms of the e3NEO Purchase Agreement. In order to be eligible to receive the Minimum Earn-Out Amount pursuant the e3NEO Purchase Agreement, e3NEO must have caused the business to receive purchase orders from customers and receive sign-off from such customers upon completion of a successful factory acceptance test, for at least twenty (20) Next Generation

                        12

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

Machines on or before December 31, 2019 subject to the reasonable approval of the Company. At June 30, 2019 and December 31, 2018, the Company determined the seller would likely be entitled to receive the Minimum Earn-Out Amount of $2.6 million payable in 2020, and as a result, has included the amount payable in other non-current liabilities on the consolidated balance sheet at June 30, 2019 and December 31, 2018.
Note 5 Long-Term Debt
Successor
In connection with the Closing of the Ranpak Business Combination, Ranger Pledgor LLC ("Holdings"), Ranger Packaging LLC (the "US Borrower") and Ranpak B.V (the "Dutch Borrower" and together with the US Borrower, the "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 ($159.2 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. As of June 30, 2019, no amounts are outstanding under the Revolving Facility.
At June 30, 2019 long-term debt consisted of the following:
First Lien Dollar Term Facility
$
378.2

First Lien Euro Term Facility (140 million Euro)
159.2

Revolving Facility

Total Debt
$
537.4

Less deferred financing costs, net
(10.7
)
Less current portion

Long-term debt
526.7


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, using the effective interest method, and recognized as a component of interest expense in the consolidated statements of operations and comprehensive loss.
Borrowings under the Facilities, at the Borrowers' option, bear interest at either (1) an adjusted eurocurrency rate or (2) a base rate, in each case plus an applicable margin. The applicable margin is 4.00% with respect to eurocurrency borrowings and 3.00% with respect to base rate borrowings (in each case, assuming a first lien net leverage ratio of greater than or equal to 5.00:1.00), subject to a leverage-based stepdown.
In connection with the debt financing, the Company, entered into a business combination contingent interest rate swap in a notional amount of $200.0 million to hedge part of the floating interest rate exposure under the Facilities. The fixed rate payable under the swap was 2.5634%. The interest rate swap became effective and was novated to the Company on the closing date in the amount of $4.7 million and will mature on June 3, 2022.
The Revolving Facility includes borrowing capacity available for standby letters of credit of up to $5 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.

                        13

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

The obligations of (i) the US 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 direct or indirect wholly-owned US organized restricted subsidiary of Holdings (together with Holdings, the “US Guarantors”) and (ii) the Dutch Borrower under the Facilities are unconditionally guaranteed by the US Borrower, the US Guarantors and each existing and subsequently acquired or organized direct or indirect wholly-owned Dutch organized restricted subsidiary of Holdings (the “Dutch Guarantors”, and together with the US Guarantors, the “Guarantors”), in each case, other than certain excluded subsidiaries. The Facilities are secured by (i) a first priority pledge of the equity interests of the Borrowers and of each direct, wholly-owned restricted subsidiary of any Borrower or any Guarantor and (ii) a first priority security interest in substantially all of the assets of the Borrowers and the Guarantors (in each case, subject to customary exceptions), provided that obligations of the US Borrower and US Guarantors under the Facilities were not secured by assets of the Dutch Borrower or any Dutch Guarantor.

The Facilities imposed 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 (ii) prepay, redeem or purchase other debt (iii) incur liens (iv) make loans, guarantees, acquisitions and other investments (v) incur additional indebtedness (vi) engage in sale and leaseback transactions (vii) amend or otherwise alter debt and other material agreements (viii) engage in mergers, acquisitions and asset sales (ix) engage in transactions with affiliates 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 was in compliance with all of its financial covenants as of June 30, 2019.
Predecessor
At December 31, 2018, long-term debt consisted of the following:
Predecessor
 
 
 
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


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, using the effective interest method, and recognized as a component of interest expense in the consolidated statements of operations and comprehensive loss. At the Closing of the Ranpak Business Combination, Rack Holdings' existing debt, which amounted to approximately $495.0 million, was repaid in full. At the date of the transaction, the remaining $6.3 million of deferred finance costs were written-off.
Amortization and accumulated amortization of deferred financing costs was as follows:
 
Successor
 
 
Predecessor
 
June 3, 2019
through June 30,
2019
 
 
April 1, 2019
through June 2,
2019
 
January 1, 2019
through June 2,
2019
 
Three Months
Ended June 30,
2018
 
Six Months
Ended June 30,
2018
Amortization of deferred financing costs
$
0.2

 
 
$
6.8

 
$
7.5

 
$
0.6

 
$
1.4



                        14

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

 
Successor
 
 
Predecessor
 
June 30, 2019
 
 
December 31, 2018
Accumulated amortization of deferred financing costs
$
0.2

 
 
$
15.5


Note 6 Income Taxes
For each interim reporting period, the Company makes an estimate of the effective tax rate it expects to be applicable for the full year for its operations. This estimated effective tax rate is used in providing for income taxes on a year-to-date basis. The Company’s effective tax rate was as following:
 
Successor
 
 
Predecessor
 
June 3, 2019
through June 30,
2019
 
 
April 1, 2019
through June 2,
2019
 
January 1, 2019
through June 2,
2019
 
Three Months
Ended June 30,
2018
 
Six Months
Ended June 30,
2018
Effective tax rate
14.7%
 
 
21.5%
 
20.5%
 
32.8%
 
7.7%


The fluctuation in the effective tax rate over the periods presented above was primarily attributable to a jurisdictional mix of income between periods. The effective tax rate differs from the U.S. federal statutory rate due primarily to benefits derived from the U.S. foreign derived intangible income deduction, tax credits available in the U.S., and income in foreign jurisdictions that are taxed at different rates than the U.S. statutory tax rate.
Pursuant to the Ranpak Business Combination discussed in detail in Note 4, the Company has preliminarily estimated the fair market value of assets and liabilities, including the impact on the deferred tax assets and liabilities in accordance with the guidance under ASC 805. The deferred tax assets and liabilities are provisional as the valuation analysis is not complete. The provisional deferred tax assets and liabilities will be adjusted accordingly with any changes to the fair market value of the underlying assets and liabilities. The provisional deferred tax assets and liabilities adjustment was a net increase in the deferred tax liability of $50.8 million.    
The Company files income tax returns in the United States and various foreign, state and local jurisdictions. With few exceptions, the Company is no longer subject to federal, foreign, and state and local income tax examination by tax authorities for years ended before 2013.

Note 7 Commitments and Contingencies
Profit Interests—Certain members of the Company’s management team were granted profit interests in the Seller, Rack Holdings' former parent company, that allow for them to share in the eventual profits at a future date after giving preference to preferred and common shareholders upon a liquidity event. The return on such profit interests is dependent upon the achievement of predefined internal rate of return targets, and is also subject to time vesting based on years of service. As of June 30, 2019, certain members of the Company's management team were paid approximately $2.8 million related to the profit interests agreement and the Company has determined recording these payments in neither the Successor Period nor Predecessor Period is appropriate. This conclusion is based on these expenses being related the Ranpak Business Combination which is a change-in-control event.

                        15

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

Note 8 - Derivative Instruments
The Company uses derivatives as part of the normal business operations to manage its exposure to fluctuations in interest rates associated with variable interest rate debt. The Company has established policies and procedures that govern the risk management of these exposures. The primary objective in managing these exposures is to decrease the volatility of cash flows affected by changes in interest rates.
Interest Rate Swap
On January 31, 2019, the Company entered into a business combination contingent interest rate swap in a notional amount of $200 million to hedge part of the floating interest rate exposure under the First Lien Dollar Term Facility. The interest rate swap became effective on the Closing of the Ranpak Business Combination and will terminate on the third anniversary of the Closing. The interest rate 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 pays a fixed rate of 2.5634% to the counterparty.

The Company does not apply hedge accounting to the interest rate derivative. Changes in fair value are recorded to interest expense. The fair value of the hedging instrument is a liability of $5.4 million consisting of a long-term liability of $5.0 million, a short-term liability of $0.4 million as of June 30, 2019 with corresponding charges recorded as a component of interest expense. The Company recognized a loss of $(5.4) million in interest expense in the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss for the period of June 3, 2019 through June 30, 2019. No gains or losses were recognized prior to June 3, 2019.
Note 9 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 June 30, 2019 and December 31, 2018. The carrying value of borrowings under the credit facilities approximates fair value due to the variable interest rates associated with those borrowings.
The following table provides the carrying amounts, estimated fair values and the respective fair value measurements of the Company's financial instruments as of June 30, 2019 and December 31, 2018:
Successor
 
 
 
 
 
 
 
 
 
 
 
 
Carrying
Amount
 
Fair
Value
 
Fair Value Measurements
As of June 30, 2019
 
 
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
$
526.7

 
$
526.7

 
$

 
$
526.7

 
$

Derivative liability
 
5.4

 
5.4

 

 
5.4

 

Earn-out contingent liability
 
2.6

 
2.6

 

 

 
2.6


                        16

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