# Magnera Corp (MAGN) FY 2025 MD&A Verbatim Item 7 Management's Discussion and Analysis from Magnera Corp's 10-K for fiscal year 2025. SEC filing source: https://www.sec.gov/Archives/edgar/data/41719/000004171925000110/form10k.htm Accession: 0000041719-25-000110 Filing date: 2025-11-25 Report date: 2025-09-27 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/MAGN/ All MD&A years: /company/MAGN/mda/ Previous year: /company/MAGN/mda/fy2023/ (FY 2023) Item 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Outlook The Company is affected by general economic and industrial growth, raw material availability, cost inflation, supply chain disruptions, new and changing tariffs and general industrial production. Our business has both geographic and end market diversity, which reduces the effect of any one of these factors on our overall performance. Our results are affected by our ability to pass through raw material and other cost changes, including tariffs, to our customers, improve manufacturing productivity and adapt to volume changes of our customers. During fiscal 2025, the Company announced capacity rationalizations (Project CORE) in order to deliver future cost savings and optimize equipment utilization. In total, over the next two years, these actions are projected to cost approximately $20 million with the operations savings intended to counter general economic softness. Despite global macro-economic challenges and uncertainties attributed to inflation, changing tariff policies and general market softness, we continue to believe our underlying long-term demand fundamental in all segments will remain strong as we focus on providing advantaged products in targeted markets. For fiscal year 2026 ("fiscal 2026"), we project cash from operations between $170 to $190 million and free cash flow between $90 to $110 million. Projected fiscal 2026 free cash flow assumes $80 million of capital spending. For the definition of free cash flow and further information related to free cash flow as a non-GAAP financial measure, see “Liquidity and Capital Resources.” Discussion of Results of Operations for Fiscal 2025 Compared to Fiscal 2024 Business integration expenses consist of restructuring and impairment charges, divestiture-related costs, and other business optimization costs. Tables present dollars in millions. A discussion and analysis regarding our results of operations for fiscal year 2024 compared to fiscal year 2023 can be found on Form 8-K/A, filed with the SEC on January 31, 2025. [[GREPCENT_TABLE]] [["Consolidated Overview","Fiscal Year"],["","2025","","2024","","$ Change","","% Change"],["Net sales","$","3,204","","","$","2,187","","","$","1,017","","","","47","%"],["Operating income (loss)","$","5","","","$","(141)","","","$","146","","","","104","%"]] [[/GREPCENT_TABLE]] Net sales:  The net sales increase included revenue from the Transaction of $1,145 million partially offset by decreased selling prices of $45 million primarily due to the pass-through of lower raw material costs, a $32 million unfavorable impact from foreign currency changes and a 2% organic volume decline, that was attributed to general market softness in Europe and competitive pressures from imports in South America. Operating income (loss): The operating income improvement is primarily attributed to the $171 million goodwill impairment charge in fiscal 2024, the elimination of $18 million in corporate expense allocations, an $11 million favorable change from prior year hyperinflation in Argentina, and operating income from GLT, partially offset by a $16 million inventory fair value step-up charge related to the Transaction, a $25 million unfavorable impact from increased business integration costs, a $12 million increase in stock compensation expense, and an unfavorable impact from volume declines. 8 [[GREPCENT_TABLE]] [["Other expense (income), net","Fiscal Year"],["","2025","","2024","","$ Change","","% Change"],["Other expense (income), net","$","30","","","$","(9)","","","$","39","","","","433","%"]] [[/GREPCENT_TABLE]] The Other expense (income) increase is due to a $15 million prepayment penalty charge for retiring debt concurrently with the Transaction, $8 million of non-cash charges associated with pre-Transaction tax liabilities, and a $12 million unfavorable change in currency charges related to intercompany loans. [[GREPCENT_TABLE]] [["Interest expense, net","Fiscal Year"],["","2025","","2024","","$ Change","","% Change"],["Interest expense, net","$","141","","","$","3","","","$","138","","","","4,600","%"]] [[/GREPCENT_TABLE]] The Interest expense increase is due to increased borrowings from the Transaction. [[GREPCENT_TABLE]] [["Comprehensive income (loss)","Fiscal Year"],["","2025","","2024","","$ Change","","% Change"],["Comprehensive income (loss)","$","(186)","","","$","(151)","","","$","(35)","","","","(23)","%"]] [[/GREPCENT_TABLE]] The decrease is primarily attributed to a $30 million unfavorable change in currency translation combined with a $5 million decline in net income.  Currency translation changes are primarily related to non-U.S. subsidiaries with a functional currency other than the U.S. dollar whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates.  The change in currency translation was primarily attributed to locations utilizing the euro or Brazilian real as their functional currency. As part of its overall risk management, the Company uses derivative instruments to reduce foreign currency exposure to translation of certain foreign operations.  The Company records changes to the fair value of these instruments in Accumulated other comprehensive loss.  The change in fair value of these instruments in the year is primarily attributed to the change in the forward foreign currency exchange curves between measurement dates. Segment Overview [[GREPCENT_TABLE]] [["Americas","Fiscal Year"],["","2025","","2024","","$ Change","","% Change"],["Net sales","$","1,833","","","$","1,493","","","$","340","","","","23","%"],["Adjusted EBITDA","$","241","","","$","223","","","$","18","","","","8","%"]] [[/GREPCENT_TABLE]] Net sales: The net sales increase included revenue from the Transaction of $440 million partially offset by decreased selling prices of $35 million primarily due to the pass-through of lower raw material costs, a $36 million unfavorable impact from foreign currency changes and a 2% organic volume decline that was primarily attributed to competitive pressures from imports in South America. Adjusted EBITDA: The EBITDA increase included EBITDA from the Transaction of $40 million partially offset by unfavorable price cost spread of $14 million and a $7 million unfavorable impact from currency changes. [[GREPCENT_TABLE]] [["Rest of World","Fiscal Year"],["","2025","","2024","","$ Change","","% Change"],["Net sales","$","1,371","","","$","694","","","$","677","","","","98","%"],["Adjusted EBITDA","$","113","","","$","59","","","$","54","","","","92","%"]] [[/GREPCENT_TABLE]] Net sales: The net sales increase included revenue from the Transaction of $705 million partially offset by decreased selling prices of $10 million due to the pass-through of lower raw materials, as well as a 3% organic volume decline that was primarily attributed to general market softness in Europe. Adjusted EBITDA: The EBITDA increase included EBITDA from the Transaction of $45 million and favorable price cost spread of 11 million. Liquidity and Capital Resources We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct our business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances.  At the end of the fiscal 2025, the Company had no outstanding balance on its asset-based revolving line of credit that matures in November 2029 and the Company was in compliance with all covenants. 9 Cash Flows from Operating Activities Net cash from operating activities declined $89 million, primarily related to a decline in net income prior to non-cash activities.  Cash Flows from Investing Activities Net cash from investing activities improved $31 million, primarily attributed to cash acquired in connection with the Transaction and settlement of net investment hedges in fiscal 2025 compared to the settlement of short-term marketable securities in fiscal 2024. Cash Flows from Financing Activities Net cash used in financing activities improved $88 million attributed to higher transfers from Berry prior to the Transaction partially offset by repayments of long-term debt in fiscal 2025 and debt fees related to the Transaction.    Free Cash Flow Our consolidated free cash flow for the fiscal 2025 are summarized as follows: [[GREPCENT_TABLE]] [["","","September 27, 2025"],["Cash flow from operating activities","$","103"],["Pre-Transaction free cash flow from operating activities(1)","","90"],["Additions to property, plant and equipment, net","","(67",")"],["Free cash flow","$","126"]] [[/GREPCENT_TABLE]] (1)    Pre-merger cash flow includes pre-Transaction cash from operations and other cash payments burdened by the Transaction. We use free cash flow metrics as a supplemental measure of liquidity as it assists us in assessing our ability to fund growth through generation of cash.  Free cash flow metrics may be calculated differently by other companies, including other companies in our industry or peer group, limiting its usefulness on a comparative basis.  Free cash flow metrics are not a financial measure presented in accordance with GAAP and should not be considered as an alternative to any other measure determined in accordance with GAAP. Liquidity Outlook At the end of fiscal 2025, our cash balance was $305 million, of which approximately 86% was located outside the U.S. We believe our existing and future U.S.-based cash and cash flow from U.S. operations will be adequate to meet our short-term and long-term liquidity needs.  The Company has the ability to repatriate the cash located outside the U.S. to the extent not needed to meet operational and capital needs without significant restrictions.  Our unremitted foreign earnings were $336 million at the end of fiscal 2025.  The computation of the deferred tax liability associated with unremitted earnings is not practicable. Critical Accounting Policies and Estimates We disclose those accounting policies that we consider to be significant in determining the amounts to be utilized for communicating our Consolidated and Combined Balance Sheets, Results of Operations and Cash Flows in the first note to our Consolidated and Combined Financial Statements included elsewhere herein. Our discussion and analysis of our financial condition and results of operations are based on our Consolidated and Combined Financial Statements, which have been prepared in accordance with GAAP.  The preparation of financial statements in conformity with these principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates under different assumptions or conditions. Goodwill.  We complete a quantitative test to evaluate impairment of goodwill in order to determine if the carrying value of any reporting unit exceeded its fair value.  This test is completed on the first day of the fourth fiscal quarter.  We utilize a discounted cash flow analysis (income approach) in combination with a comparative company market approach to determine the fair value of each reporting unit. Using the quantitative approach, the Company makes various estimates and assumptions in determining the estimated fair value of each reporting unit. Management judgment is involved in estimating these variables and they include uncertainties since they are forecasting future events. Changes in those assumptions or estimates with respect to a reporting unit or its prospects, which may result from a change in market conditions, market trends, interest rates or other factors outside of our control, or significant underperformance relative to future operating results could result in an impairment charge in the future or may require a more frequent assessment.   Discounted cash flow models are reliant on various assumptions, including projected business results, growth factors such as revenue and EBITDA margin, and weighted-average cost of capital, which ranges between 11% and 13.0%. See Note 1. Basis of Presentation and Summary of Significant Accounting Policies. 10 The Company's fair value and carrying value of reporting units are as follows: [[GREPCENT_TABLE]] [["","Fair Value June 29, 2025","","Carrying Value June 29, 2025","","Cushion June 29, 2025"],["Americas","$","2,130","","","$","1,996","","","$","134"],["Rest of World","","890","","","","825","","","","65"]] [[/GREPCENT_TABLE]] Future declines in our expected operating performance or sustained periods of lower valuation market multiples could result in impairment charges in the future or may require a more frequent assessment.