Magnera Corp

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Executive Summary

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Business. The Company’s operations are organized into two operating segments: Americas and Rest of the World. The structure is designed to align us with our customers, provide improved service, drive future growth and to facilitate synergy realization. The Americas segment consists of sites in North America and South America that manufacture a wide range of products and components of personal care and consumer solution products and components of products including medical garments, wipes, dryer sheets, face masks, filtration, baby diapers and adult incontinence. The Rest of World segment consists of sites throughout Europe and China that manufacture a broad collection of personal care and consumer solution products and components of products including medical garments, wipes, face masks, cable wrap, filtration, baby diapers and adult incontinence.

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Raw Material Trends. Our primary raw materials are polymer resin and wood-based fibers and pulps. In addition, we use other materials in various manufacturing processes. While temporary industry-wide shortages of raw materials have occurred, we have historically been able to manage the supply chain disruption by working closely with our suppliers and customers. Changes in the price of raw materials are generally passed on to customers through contractual price mechanisms over time, during contract renewals, and other means.

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Outlook. The Company is affected by general economic and industrial growth, raw material availability, cost inflation, supply chain disruptions, 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 to our customers, improve manufacturing productivity and adapt to volume changes of our customers. Despite global macro-economic challenges in the short-term attributed to continued rising inflation, currency devaluation and general market softness, we continue to believe our underlying long-term demand fundamental in all divisions will remain strong as we focus on providing advantaged products in targeted markets. For fiscal 2025, we project post-merger free cash flow of $75-95 million including $85 million of capital spending. For the calculation of post-merger free cash flow and further information related to free cash flow as a non-GAAP financial measure, see “Liquidity and Capital Resources.”

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Recent Acquisition

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Our acquisition strategy is focused on improving our long-term financial performance, enhancing our market positions, and expanding our existing and complementary product lines. We seek to obtain businesses for attractive post-synergy multiples, creating value for our stockholders from synergy realization, leveraging the acquired products across our customer base, creating new platforms for future growth, and assuming best practices from the businesses we acquire. While the expected benefits on earnings are estimated at the commencement of each transaction, once the execution of the plan and integration occur, we are generally unable to accurately estimate or track what the ultimate effects have been due to system integrations and movements of activities to multiple facilities. As business combinations and restructuring plans have not allowed us to accurately separate realized synergies compared to what was initially identified, we estimate the synergy realization based on the overall segment profitability post-integration.

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Glatfelter

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On November 4, 2024, the Transaction was completed with GLT. The Transaction combined GLT’s sustainable solutions and product portfolio with Treasure’s portfolio of proprietary technologies and global scale. The Company is now a global leader in growing markets while serving some of the world’s largest brand owners. The Company expects to realize annual synergies of $55 million net of incremental standalone costs. See Note 3—Acquisition.

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Comparison of the Quarterly Period Ended December 28, 2024 (the “Quarter”) and the Quarterly Period Ended December 30, 2023 (the “Prior Quarter”)

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Business integration expenses consist of restructuring and impairment charges, acquisition/merger related costs, and other business optimization costs. Tables present dollars in millions.

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Consolidated Overview

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Net sales: The net sales increase included revenue from the Transaction, which occurred mid-Quarter on November 4 th, of $186 million and increased selling prices of $11 million, which were partially offset by a $14 million unfavorable impact from foreign currency changes.

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Operating income (loss): The operating loss increase included a $12 million inventory fair value step-up charge, a $9 million unfavorable impact from increased business integration costs, losses from the acquired GLT business of $4 million and a $4 million unfavorable impact from foreign currency changes partially offset by a $15 million favorable change from prior year hyperinflation in our Argentinian subsidiary and a favorable impact from price cost spread of $6 million.

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Americas

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Net sales: The net sales increase in the Americas segment included revenue from the Transaction of $70 million and increased selling prices of $12 million which were partially offset by a $13 million unfavorable impact from foreign currency changes.

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Operating income (loss): The operating loss increase included a $10 million unfavorable impact from increased business integration costs, a $5 million inventory fair value step-up charge and a $4 million unfavorable impact from foreign currency changes partially offset by a $15 million favorable change from prior year hyperinflation in our Argentinian subsidiary.

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Rest of World

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Net sales: The net sales increase in the Rest of World segment included revenue from the Transaction of $116 million.

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Operating income (loss): The operating loss increase included a $7 million inventory fair value step-up charge and losses from the acquired Glatfelter business partially offset by a favorable impact from price cost spread of $4 million.

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Other expense: The increase in other expense is due to a $15 million prepayment penalty charge for retiring debt concurrently with the Transaction as well as currency losses related to intercompany loans.

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Interest expense: The interest expense increase is primarily attributed to debt that was incurred concurrently with the closing of the Transaction.

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Changes in Comprehensive Income

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The $162 million decline in comprehensive income from the Prior Quarter is attributed to a $110 million unfavorable change in currency translation and a $52 million increased net loss. 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 in the Quarter was primarily attributed to locations utilizing the Euro and 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 quarter is primarily attributed to the change in the forward foreign exchange curves between measurement dates.

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Senior Secured Credit Facility

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We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. At the end of the Quarter, the Company had no outstanding balance on its asset-based revolving line of credit that matures in November 2029. The Company was in compliance with all covenants at the end of the Quarter.

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Cash Flows

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Net cash from operating activities decreased $31 million from the Prior YTD primarily related to $19 million of charges related to the Transaction and higher working capital.

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Net cash from investing activities increased $7 million from the Prior YTD primarily attributed to cash acquired in connection with the Transaction in the YTD compared to the settlement of short-term marketable securities in Prior YTD.

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Net cash from financing activities increased $42 million from Prior YTD primarily attributed to higher transfers from Berry prior to the Transaction.

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Free Cash Flow

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Our consolidated free cash flow for the YTD are summarized as follows:

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(1)Pre-merger cash flow includes pre-Transaction cash from operations and other cash payments burdened by the Transaction.

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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.

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Liquidity Outlook

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At December 28, 2024, our cash balance was $215 million, which was primarily located outside the U.S. We believe our existing U.S. based cash and cash flow from U.S. operations, together with available borrowings under our senior secured credit facilities, will be adequate to meet our short-term and long-term liquidity needs with the exception of funds needed to cover all long-term debt obligations, which we intend to refinance prior to maturity. 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.

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Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated financial position or results of operations, made in this Report on Form 10-Q are forward looking. We use words such as “anticipates”, “believes”, “expects”, “future”, “intends” and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from such expectations. The following discussion includes forward-looking statements all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or estimated in any such forward-looking statements:

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i. risks related to the military conflict between Russia and Ukraine and related sanctions and its impact on our production, sales, supply chain, cost of energy, and availability of energy due to natural gas supply issues into Europe;

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ii. disruptions of our global supply chain, including the availability of key raw materials and transportation for the delivery of critical inputs and of products to customers, and the increase in the costs of transporting materials and products;

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iii. risks associated with our ability to increase selling prices quickly or sufficiently enough to recover rapid cost inflation in our raw materials, energy, freight and other costs, and the potential reduction or loss of sales due to price increases;

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iv. variations in demand for our products, including the impact of unplanned market-related downtime, variations in product pricing, or product substitution;

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v. the impact of competition, changes in industry production capacity, including the construction of new facilities or new machines, the closing of facilities and incremental changes due to capital expenditures or productivity increases;

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vi. risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates;

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vii. our ability to develop new, high value-added products;

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viii. changes in the price or availability of raw materials we use, particularly woodpulp, pulp substitutes, synthetic pulp, other specialty fibers and abaca fiber;

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ix. changes in energy-related prices and commodity raw materials with an energy component;

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x. the impact of unplanned production interruption at our facilities or at any of our key suppliers;

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xi. disruptions in production and/or increased costs due to labor disputes;

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xii. the gain or loss of significant customers and/or on-going viability of such customers;

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xiii. the impact of war and terrorism;

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xiv. the impact of unfavorable outcomes of audits by various state, federal or international tax authorities or changes in pre-tax income and its impact on the valuation of deferred taxes; and

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xv. enactment of adverse state, federal or foreign tax or other legislation or changes in government legislation, policy or regulation.

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Introduction We manufacture a wide array of engineered materials and manage our company along three operating segments:

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•Airlaid Materials with sales of airlaid nonwoven fabric-like materials used in feminine hygiene products, adult incontinence products, tabletop, specialty wipes, home care products and other airlaid applications;

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•Composite Fibers with sales of single-serve tea and coffee filtration papers, wallcovering base materials, composite laminate papers, technical specialties including substrates for electrical applications, and metallized products; and

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•Spunlace with sales of premium quality spunlace nonwovens for critical cleaning, high-performance materials, personal care, hygiene and medical applications.

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The former Specialty Papers business’ results of operations and financial condition are reported as discontinued operations. Following is a discussion and analysis primarily of the financial results of operations and financial condition of our continuing operations.

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As previously announced on February 7, 2024, we entered into certain definitive agreements with Berry Global Group, Inc. (“Berry”) for Berry to spin-off and merge the majority of its Health, Hygiene and Specialties segment including its Global Nonwovens and Films business (“HHNF”) with Glatfelter (the “Merger”). The board of directors of both Berry and Glatfelter have unanimously approved the Merger. The Merger is expected to occur through a series of transactions, including a Reverse Morris Trust transaction such that HHNF will become a wholly owned subsidiary of Glatfelter. Upon completion of the Merger, Berry shareholders will hold 90% of the outstanding shares of Glatfelter and Glatfelter shareholders will continue to hold 10% of the outstanding shares of Glatfelter. The combined company’s Board of Directors will include 6 members chosen by Berry and 3 chosen from Glatfelter’s existing Board of Directors, with Curt Begle, the current president of the Health, Hygiene & Specialties Division of Berry, becoming the Chief Executive Officer.

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Previously, the Company reported the achievement of all required approvals and clearances under competition and foreign direct investment laws and Berry received a favorable private letter ruling from the U.S. Internal Revenue Service regarding the qualification of the spin-off and the merger as tax-free transactions under the Internal Revenue Code. On October 23, 2024 we obtained the shareholder approval for the merger and the transaction is expected to close on November 4, 2024. Prior to the completion of the Merger, Glatfelter and HHNF will continue to operate as independent companies.

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Nine Months ended September 30, 2024 versus the nine months ended September 30, 2023

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Overview For the first nine months of 2024, we reported a loss from continuing operations of $61.9 million, sor $1.37 per share compared with a loss of $69.5 million or $1.54 per share in the same period in 2023. The following table sets forth summarized consolidated results of operations:

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The reported results are in accordance with generally accepted accounting principles in the United States (“GAAP”) and reflect the impact of a number of significant items including strategic initiatives, turnaround strategy costs, debt refinancing, and CEO transition costs, among others. Our operating results for the nine months ended September 30, 2024 reflect: i) the impact of macroeconomic conditions and new sanctions related to wallcover resulting in lower sales volumes, as well as, lower production; ii) higher interest expense stemming from the debt refinancing in the first nine months of 2023; iii) costs incurred related to the merger with Berry’s HHNF business.

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In addition to the results reported in accordance with GAAP, we evaluate our performance using financial metrics not calculated in accordance with GAAP, including adjusted earnings and adjusted earnings before interest expense, interest income, income taxes, depreciation and amortization and share-based compensation (“Adjusted EBITDA”). On an adjusted earnings basis, a non-GAAP measure, we had an adjusted loss from continuing operations of $38.0 million, or $0.84 per share for the first nine months of 2024, compared with a loss of $36.7 million, or $0.81 per share, a year ago. Our Adjusted EBITDA, also a non-GAAP measure, was $74.0 million for the nine months ended September 30, 2024 as compared to $67.5 million for the same period in 2023. We disclose this information to allow investors to evaluate our performance exclusive of certain items that impact the comparability of results from period to period and we believe it is helpful in understanding underlying operating trends and cash flow generation.

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Adjusted earnings consists of net income determined in accordance with GAAP adjusted to exclude the impact of the following:

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Strategic initiatives. These adjustments primarily reflect professional and legal fees and other costs incurred which are directly related to evaluating and executing certain strategic initiatives including costs associated with the Berry HHNF merger.

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Turnaround Strategy costs. This adjustment reflects costs incurred in connection with the Company's Turnaround Strategy initiated in 2022 under its new chief executive officer to drive operational and financial improvement. These costs are primarily related to professional services fees and employee separation costs.

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Ober-Schmitten divestiture. These adjustments reflect employee separation costs and professional and other costs directly associated with the divestiture of the Ober-Schmitten, Germany facility.

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Debt refinancing costs. Represents charges to write-off unamortized debt issuance costs in connection with the extinguishment of the Company’s €220.0 million Term Loan and IKB loans, as well as the amendment to the Company's credit facility. These costs also include an early repayment penalty related to the extinguishment of the IKB loans.

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CEO transition costs. This adjustment reflects costs associated with the separation of our former CEO, including a non-cash pension settlement charge related to a lump-sum distribution made in Q1 2023 under the terms of his non-qualified pension plan agreement.

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COVID-19 ERC recovery. This adjustment reflects the benefit recognized from employee retention credits claimed under the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Act and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and professional services fees directly associated with claiming this benefit.

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Timberland sales and related costs. These adjustments exclude gains from the sales of timberlands as these items are not considered to be part of our core business, ongoing results of operations or cash flows. These adjustments are irregular in timing and amount and may benefit our operating results.

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These adjustments are each unique and not considered to be on-going in nature. The transactions are irregular in timing and amount and may significantly impact our operating performance. As such, these items may not be indicative of our past or future performance and therefore are excluded for comparability purposes.

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Adjusted earnings and adjusted EBITDA are considered measures not calculated in accordance with GAAP, and therefore are non-GAAP measures. The non-GAAP financial information should not be considered in isolation from, or as

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28 - a substitute for, measures of financial performance prepared in accordance with GAAP. The following table sets forth the reconciliation of net loss to adjusted earnings for the periods presented:

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(1)In Q3 2024, we recognized a $6.5 million gain, less applicable legal fees, related to the settlement of a legal dispute with a manufacturer for equipment supplied and installed at our former Specialty Papers business.

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(2)For 2024, primarily reflects consulting and legal fees associated with the pending Berry HHNF merger of $20.7 million, and personnel retention, to offset the risk of potential employee departures due to the pending transaction, of $1.8 million, a contract settlement of $0.4 million, and other costs of $0.1 million. For 2023, primarily reflects integration activities including consulting and legal fees of $1.2 million, the write-off of construction in process asset deemed unusable of $0.5 million, employee separation costs of $0.1 million, and other costs of $0.4 million.