Magnera Corp

Current report

Operational Risks

Current report

Global economic conditions, including inflation and supply chain disruptions, may negatively impact our business operations and financial results.

Current report

Challenging current and future global economic conditions, including inflation and supply chain disruptions may negatively impact our business operations and financial results. Current global economic challenges, including inflation and supply chain constraints may put pressure on our business.

Current report

When challenging economic conditions exist, our customers may delay, decrease or cancel purchases from us, and may also delay payment or fail to pay us altogether. Suppliers may have difficulty filling our orders and distributors may have difficulty getting our products to customers, which may affect our ability to meet customer demands, and result in a loss of business. Weakened global economic conditions may also result in unfavorable changes in our product prices, product mix and profit margins. Although we take measures to mitigate the impact of inflation, including through pricing actions and productivity programs, if these actions are not effective our cash flow, financial condition, and results of operations could be adversely impacted. In addition, there could be a time lag between recognizing the benefit of our mitigating actions and when the inflation occurs and there is no assurance that our mitigating measures will be able to fully mitigate the impact of inflation.

Current report

Political volatility may also contribute to the general economic conditions, changing fiscal policy and regulatory uncertainty in regions in which we operate. Future unrest and changing policies could result in an adverse impact to our financial condition. Political developments can also disrupt the markets we serve and the tax jurisdictions in which we operate and may affect our business, financial condition and results of operations.

Current report

Raw material and energy inflation or shortage of availability could harm our financial condition and results of operations.

Current report

Raw materials and energy are subject to price fluct uations and availability, due to external factors, such as regional and global conflict, weather-related events, or other supply chain constraints and challenges, which are beyond our control. Temporary industry-wide shortages of raw materials have occurred in the past, which can lead to increased raw material price volatility. Additionally, our suppliers could experience cost increases to produce raw material due to increases in carbon pricing. Historically, we have been able to manage the impact of higher costs by increasing our selling prices. However, raw material or energy inflation or our inability to timely pass-through increased costs to our customers may adversely affect our business, financial condition and results of operations.

Current report

Weather-related events could negatively impact our results of operations.

Current report

Weather-related events could adversely impact our business and the business of our customers, suppliers, and other business partners. Such events may have a physical impact on our facilities, inventory, suppliers, and equipment and any unplanned downtime at any of our facilities could result in unabsorbed costs that could negatively impact our results of operations for the period in which it experienced the downtime. Longer-term climate change patterns could alter future customer demand, impact supply chains and increase operating costs. However, any such changes are uncertain and we cannot predict the net impact from such events.

Current report

We may not be able to compete successfully and our customers may not continue to purchase our products.

Current report

We compete with multiple companies in each of our product lines on the basis of a number of considerations, including price, service, quality, product characteristics and delivery timeliness. Our competitors may have financial and other resources that are substantially greater than ours and making them better able than us to withstand higher costs. Competition and product preference changes could result in our products losing market share or having to reduce our prices, either of which could have a material adverse effect on our business, financial condition and results of operations. In addition, since we do not have long-term arrangements with many of our customers, these competitive factors could cause our customers to shift suppliers quickly.

Current report

We may pursue and execute acquisitions, mergers or divestitures, which could adversely affect our business.

Current report

As part of our growth strategy, we consider transactions that either complement or expand our existing business and create economic value. These transactions involve special risks, including the potential assumption of unanticipated liabilities and contingencies as well as difficulties in integrating acquired businesses or carving-out divested businesses, which may result in substantial costs, delays or other problems that could adversely affect our business, financial condition and results of operations. Furthermore, we may not realize all of the synergies we expect to achieve from our current strategic initiatives due to a variety of risks. If we are unable to achieve the benefits that we expect to achieve from our strategic initiatives, it could adversely affect our business, financial condition and results of operations.

Current report

In the event of a catastrophic loss of one of our key manufacturing facilities, our business would be adversely affected.

Current report

While we maintain insurance covering our facilities, including business interruption insurance, a catastrophic loss of the use of all or a portion of one of our key manufacturing facilities due to accident, labor issues, weather conditions, natural disaster, pandemic or otherwise, whether short- or long-term, could result in future losses.

Current report

Employee retention or labor cost inflation could disrupt our business.

Current report

Our relations with employees under collective bargaining agreements remain satisfactory and there have been no significant work stoppages or other labor disputes during the past four years. However, we may not be able to maintain constructive relationships with labor unions or trade councils and may not be able to successfully negotiate new collective bargaining agreements on satisfactory terms in the future.

Current report

Labor is subject to cost inflation, availability and workforce participation rates, all of which could be impacted by factors beyond our control. As a result, there can be no assurance we will be able to recruit, train, assimilate, motivate and retain employees in the future. The loss of a substantial number of these employees or a prolonged labor dispute could disrupt our business and result in future losses.

Current report

We depend on information technology systems and infrastructure to operate our business, and increased cybersecurity threats, system inadequacies, and failures could disrupt our operations, compromise customer, employee, vendor and other data which could negatively affect our business.

Current report

We rely on the efficient and uninterrupted operation of information technology systems and networks. These systems and networks are vulnerable to increased threats and more sophisticated computer crime, energy interruptions, telecommunications failures, breakdowns, natural disasters, terrorism, war, computer malware or other malicious intrusions.

Current report

We also maintain and have access to data and information that is subject to privacy and security laws, regulations, and customer controls. Despite our efforts to protect such information, breaches, or misplaced or lost data and programming damages could result in a negative impact on the business. While we have not had material system interruptions historically associated with these risks, there can be no assurance from future interruptions that could result in future losses.

Current report

Attempted cyber-attacks and other cyber incidents are occurring more frequently, are constantly evolving in nature, are becoming more sophisticated and disruptive to business operations, and are being made by groups and individuals with a wide range of motives and expertise. There can be no assurance that our security measures and controls will be effective against the risks we face from cyber-attacks, including from: computer hackers; foreign governments and cyber terrorists; malicious code (such as malware, viruses and ransomware); an intentional or unintentional personnel action; a natural disaster; a hardware or software corruption, failure or error; a telecommunications system failure; a service provider failure or error; or any one or more other causes of a security breach, failure or disruption. The increased prevalence and sophistication of Artificial Intelligence (AI) tools, such as AI-enabled malware, could increase the risks of cyber-attacks to our systems and to those of our third-party service providers.

Current report

Financial and Legal Risks

Current report

Goodwill and other intangibles represent a significant amount of our net worth, and a future write-off could result in lower reported net income and a reduction of our net worth.

Current report

We have a substantial amount of goodwill. Valuation impacts from market multiples, cost of capital, expected cash flows, or other external factors, may adversely affect our business and cause our goodwill to be impaired, resulting in a non-cash charge against results of operations to write off goodwill or indefinite lived intangible assets for the amount of impairment. If a future write-off is required, the charge could result in significant losses.

Current report

Transaction****integration and ITsystems may adversely affect our ability to accurately report financial results.

Current report

We have identified material weaknesses in our internal control over financial reporting related to the Transaction, including information technology general controls related to certain legacy Berry U.S. IT systems, which we continue to rely on through the integration period, level of observable control documentation, and theevaluation of the realizability of deferred tax assets. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting that presents a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis.

Current report

While we are implementing remediation measures, including migrating IT platforms, standardizing control procedures, and enhanced oversight, we cannot be certain that these measures will fully mitigate the risk or prevent potential errors in our financial statements. Any future misstatements or delays in financial reporting could adversely affect our results of operations, our ability to meet reporting deadlines, or investor confidence in our financial reporting.

Current report

Our international operations pose risks to our business that may not be present with our domestic operations.

Current report

We are subject to foreign exchange rate risk, both transactional and translational, which may negatively affect our financial performance. Exchange rates between transactional currencies may change rapidly due to a variety of factors. Translational foreign exchange exposures result from exchange rate fluctuations in the conversion of entity functional currencies to U.S. dollars, our reporting currency, and may affect the reported value of our assets and liabilities and our income and expenses. In particular, our translational exposure may be impacted by movements in the exchange rate of the euro, Argentine peso, or the Brazilian real against the U.S. dollar.

Current report

Foreign operations are also subject to certain risks that are unique to doing business in foreign countries including shipping delays and supply chain challenges, disruption of energy, new or increasing tariffs, changes in applicable laws, including assessments of income and non-income related taxes, reduced protection of intellectual property, inability to effectively repatriate cash to the U.S. effectively, and regulatory policies and various trade restrictions, including potential changes to export taxes or countervailing and anti-dumping duties for exported products from these countries. Any of these risks could disrupt our business and result in significant losses. We are also subject to the Foreign Corrupt Practices Act and other anti-bribery and anti-corruption laws that generally bar bribes or unreasonable gifts to foreign governments or officials. We have implemented safeguards, training and policies to discourage these practices by our employees and agents. However, our existing safeguards, training and policies to assure compliance and any future improvements may prove to be less than effective and our employees or agents may engage in conduct for which we might be held responsible. If employees violate our policies, we may be subject to regulatory sanctions. Violations of these laws or regulations could result in sanctions including fines, debarment from export privileges and penalties and could adversely affect our business, financial condition and results of operations.

Current report

Current and future environmental and other governmental requirements could adversely affect our financial condition and our ability to conduct our business.

Current report

While we have not been required historically to make significant capital expenditures in order to comply with applicable environmental laws and regulations, we cannot predict our future capital expenditure requirements because of continually changing compliance standards and environmental technology. Furthermore, violations or contaminated sites that we do not know about (including contamination caused by prior owners and operators of such sites or newly discovered information) could result in additional compliance or remediation costs or other liabilities.

Current report

In addition, federal, state, local, and foreign governments could enact laws or regulations concerning environmental matters, such as greenhouse gas emissions, that increase the cost of producing, or otherwise adversely affect the demand for, packaging products. Additionally, several governmental bodies in jurisdictions where we operate have introduced, or are contemplating introducing, regulatory change to address the potential impacts of climate change and global warming, which may have adverse impacts on our operations or financial results. We believe that any such laws promulgated to date have not had a material adverse effect on us, as we have historically been able to manage the impact of higher costs by increasing our selling prices. However, there can be no assurance that future legislation or regulation would not have a material adverse effect on us.

Current report

Changes in tax laws or changes in our geographic mix of earnings could have a material impact on our financial condition and results of operation.

Current report

We are subject to income and other taxes in the many jurisdictions in which we operate. Tax laws and regulations are complex and the determination of our global provision for income taxes and current and deferred tax assets and liabilities requires judgment and estimation. We are subject to routine examinations of our income tax returns, and tax authorities may disagree with our tax positions and assess additional tax. Our future income taxes could also be negatively impacted by our mix of earnings in the jurisdictions in which we operate being different than anticipated given differences in statutory tax rates. In addition, tax policy efforts to raise global corporate tax rates could adversely impact our tax rate and subsequent tax expense.

Current report

We may not be successful in protecting our intellectual property rights, including our unpatented proprietary know-how and trade secrets, or in avoiding claims that we infringed on the intellectual property rights of others.

Current report

In addition to relying on patent and trademark rights, we rely on unpatented proprietary know-how and trade secrets, and employ various methods, including confidentiality agreements with employees and consultants, customers and suppliers to protect our know-how and trade secrets. However, these methods and our patents and trademarks may not afford complete protection and there can be no assurance that others will not independently develop the know-how and trade secrets or develop better production methods than us. Further, we may not be able to deter current and former employees, contractors and other parties from breaching agreements and misappropriating proprietary information and it is possible that third parties may copy or otherwise obtain and use our information and proprietary technology without authorization or otherwise infringe on our intellectual property rights. Furthermore, no assurance can be given that we will not be subject to claims asserting the infringement of the intellectual property rights of third parties seeking damages, the payment of royalties or licensing fees and/or injunctions against the sale of our products. Any such litigation could be protracted and costly and could result in significant losses.

Current report

We may be subject to litigation and regulatory investigations and proceedings, including product liability claims, that could adversely affect our business operations and financial performance.

Current report

In the ordinary course of our business, we are involved in legal proceedings, including product liability claims, which may lead to financial or reputational damages. See Note 5. Commitments, Leases and Contingencies. We may also be subject to inquiries, inspections, investigations, and proceedings by relevant regulatory and other governmental agencies. Given our global footprint, we are exposed to more uncertainty regarding the regulatory environment. The timing of the final resolutions to lawsuits, regulatory inquiries, and governmental and other legal proceedings is typically uncertain, and any such proceedings or claims, regardless of merit, could be time consuming and expensive to defend and could divert management’s attention and resources. The possible outcomes of these proceedings could include adverse judgments, settlements, injunctions, fines, penalties, or other results adverse to us that could harm our business, financial condition, results of operations and reputation and result in significant losses. Even if we are successful in defending ourselves against these actions, the costs of such defense may be significant to us.

Previous report

Our business and financial performance may be adversely affected by a weak global economic environment or downturns in the target markets that we serve.

Previous report

Adverse global economic conditions could impact our target markets resulting in decreased demand for our products. Our results could be adversely affected if economic conditions weaken. Also, there may be periods during which demand for our products could be insufficient to enable us to operate our production facilities at full capacity and in an economical manner which may force us to curtail production by taking machine downtime.

Previous report

Approximately 46% of our net sales in 2023 was from shipments to customers in Europe, the demand for which is dependent on economic conditions in this region, or to the extent such customers do business outside of Europe, in other regions of the world. Uncertain economic conditions in this region may cause weakness in demand for our products, as well as volatility in our customers buying patterns.

Previous report

The cost of raw materials and energy used to manufacture our products could increase or the availability of certain raw materials could become constrained.

Previous report

Our business requires access to sufficient, and reasonably priced, quantities of wood pulps, different pulps, pulp substitutes, abaca fiber, polyester and various synthetic fibers, and certain other raw materials, as well as access to reliable and abundant supplies of water to support many of our production facilities. Therefore, volatility in the price of key raw materials can have a significant impact on our results of operations.

Previous report

Our Philippine production site purchases raw abaca fiber to produce abaca pulp, a key material used to manufacture material for single-serve coffee, tea, and technical specialty products at Composite Fibers’ facilities. At certain times, the supply of abaca fiber has been constrained or the quality diminished due to factors such as weather-related damage to the source crop, as well as decisions by landowners to produce alternative crops in lieu of those used to produce abaca fiber. These factors have contributed to volatility in fiber prices or limited available supply.

Previous report

Airlaid Materials requires access to sufficient quantities of fluff pulp, the supply of which is subject to availability of certain softwoods.

Previous report

The cost of many of our production materials, including petroleum-based chemicals and freight charges, are influenced by the cost of oil. Natural gas is the principal source of fuel for each of our facilities worldwide and prices have historically been more volatile than other fuels. Our manufacturing operations are energy-intensive and prices can fluctuate significantly based on demand.

Previous report

Government rules, regulations and policies have an impact on the cost of certain energy sources, particularly for our European operations. In Europe, we currently benefit from a number of government-sponsored programs related to, among others, green energy or renewable energy initiatives designed to mitigate the cost of electricity to larger industrial consumers of power. Any reduction in the extent of government sponsored incentives may adversely affect the cost ultimately borne by our operations.

Previous report

Although we have contractual arrangements with certain customers pursuant to which our product’s selling price is adjusted for changes in the cost of certain raw materials and energy, we may not be able to fully pass increased raw materials or energy costs on to all customers if the market will not bear the higher price or if existing supply agreements limit price increases. If price adjustments significantly trail increases in raw materials costs, our operating results could be adversely affected.

Previous report

Our turnaround strategy is time-consuming and expensive and could significantly disrupt our business.

Previous report

We initiated a significant turnaround strategy in late 2022 in an effort to optimize our portfolio, improve margins, reduce fixed costs, liberate cash, improve operational effectiveness and return Spunlace to profitability. These turnaround actions were, and will continue to be, initiated to deliver significantly improved financial performance. The nature of these activities involves topics that are complex and time-consuming in nature, and could significantly disrupt our business if we fail to execute them properly, which could ultimately result in financial impacts to the Company.

Previous report

The conflict between Russia and Ukraine has adversely affected, and may continue to adversely affect, our business, financial condition, and results of operations.

Previous report

Approximately $36 million and $40 million, or 2.6% and 2.7% of our net sales in 2023 and 2022, respectively, were earned from customers located in Russia and Ukraine. The geopolitical conditions resulting from the Russia/Ukraine military conflict, including government-imposed sanctions and the current macroeconomic climate in Russia and Ukraine, have adversely impacted both demand for our products and our ability to deliver products to this region, as well as, limited customers' access to financial resources and their ability to satisfy obligations to us. For example, as a direct result of the military conflict, economic sanctions, and the disruptions in the region’s financial systems, we have had a significant reduction in wallcover revenues and cash flows. We expect this reduction to continue for the foreseeable future and most directly impact our facility located in Dresden, Germany that produces wallcover base paper, a significant portion of which historically was sold into the Ukraine and Russian markets. As a result, during the first quarter of 2022, we recorded a $117.3 million non-cash asset impairment charge related to assets of our Dresden facility and an impairment of our Composite Fibers business' goodwill. In addition, we operate manufacturing sites elsewhere in Europe that have been adversely impacted as a result of the military conflict in Ukraine and related geopolitical events and sanctions.

Previous report

In the event that current geopolitical tensions fail to abate, or deteriorate further, or additional governmental sanctions are enacted against the Russian economy or its banking and monetary systems, we may face additional adverse consequences to our business and results of operations. Even if the conflict moderates or a resolution between Ukraine and Russia is reached, we expect that we will continue to experience ongoing adverse consequences to our business, financial condition, and results of operation resulting from the conflict for the foreseeable future, including and because certain of the economic and other sanctions imposed, or that may be imposed, against Russia may continue for a period of time after any resolution has been reached.

Previous report

Disruption of our global supply chain could adversely affect our business.

Previous report

Our ability to manufacture, sell and distribute products is critical to our operations. Our products contain raw materials that we source globally from suppliers. If there is a shortage of a key raw material in our supply chain, and a replacement cannot be readily sourced from an alternative supplier, the shortage may disrupt our production. Likewise, disruptions in the transportation and delivery of products - both from suppliers to our production facilities, and from our production facilities to our customers - may impact our ability to sell product and deliver goods to our customers on time and in full. In addition, the costs of transporting materials and products through our chain of sourcing and production may increase, and such increases could be significant. The failure of third parties on which we rely, including those third parties who supply our raw materials, packaging, capital equipment and other necessary operating materials, contract manufacturers, commercial transport, distributors, contractors, and external business partners, to meet their obligations to us, or significant disruptions in their ability to do so, may negatively impact our operations. Failure to take adequate steps to mitigate the likelihood or potential impact of such disruptions, or to effectively manage such disruptions if they occur, could adversely affect our business and results of operations, as well as require additional resources to restore our global supply chain. Any of these factors could have a material adverse impact on our results of operations and financial condition.

Previous report

Foreign currency exchange rate fluctuations could adversely affect our results of operations.

Previous report

A significant proportion of our net sales and earnings is generated from operations outside of the United States. In addition, we own and operate manufacturing facilities in Canada, Germany, France, Spain, the United Kingdom, and the Philippines. A significant portion of our business is transacted in currencies other than the U.S. dollar, including the euro, British pound, Canadian dollar, and Philippine peso, among others. Our euro denominated net sales exceed euro expenses by an estimated €170 million. With respect to the British pound, Canadian dollar, and Philippine peso, we have greater outflows than inflows of these currencies, although to a lesser degree than the euro. As a result, we are exposed to changes in currency exchange rates and such changes could be significant.

Previous report

Our ability to maintain our products' price competitiveness is reliant, in part, on the relative strength of the currency in which the product is denominated compared to the currency of the market into which it is sold and the functional currency of our competitors. Changes in the rate of exchange of foreign currencies in relation to the U.S. dollar, and other currencies, may adversely impact our results of operations and our ability to offer products in certain markets at acceptable prices.

Previous report

In the event of significant currency weakening in the countries into which our products are sold, demand for our products, pricing of our products, or a customer’s ability to satisfy obligations to us, could be adversely impacted.

Previous report

Our industry is highly competitive and increased competition could reduce our sales and profitability.

Previous report

The global markets in which we compete are served by a variety of competitors and a variety of substrates. As a result, our ability to compete is sensitive to, and may be adversely impacted by:

Previous report

•the entry of new competitors into the segments we serve;

Previous report

•the aggressiveness of our competitors’ pricing strategies, which could force us to decrease prices in order to maintain market share;

Previous report

•our failure to anticipate and respond to changing customer preferences; and

Previous report

•technological advances or changes that impact production or cost competitiveness of our products.

Previous report

The impact of any significant changes may result in our inability to effectively compete in the segments in which we operate, and as a result our sales and operating results would be adversely affected.

Previous report

We may not be able to develop new products acceptable to our existing or potential customers.

Previous report

Our business strategy is market focused and includes investments in developing new products to meet the changing needs of our customers, serve new customers and to maintain our market share. Our success will depend, in part, on our ability to develop and introduce new and enhanced products that keep pace with introductions by our competitors and changing customer preferences. If we fail to anticipate or respond adequately to these factors, we may lose opportunities for business with both current and potential customers. The success of our new product offerings will depend on several factors, including our ability to:

Previous report

•anticipate and properly identify our customers' needs and industry trends;

Previous report

•develop and commercialize new products and applications in a timely manner;

Previous report

•price our products competitively;

Previous report

•differentiate our products from our competitors' products; and

Previous report

•invest efficiently in research and development activities.

Previous report

Our inability to develop new products or new business opportunities could adversely impact our business and ultimately harm our profitability.

Previous report

We are subject to substantial costs and potential liability for environmental matters.

Previous report

We are subject to various environmental laws and regulations that govern our operations, including discharges into the environment, and the handling and disposal of hazardous substances and wastes. We are also subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances. To comply with environmental laws and regulations, we have incurred, and will continue to incur, substantial expenditures.

Previous report

We may incur obligations to remove or mitigate any adverse effects on the environment, such as air and water quality, resulting from production sites we operate or have operated. Potential obligations include costs for government oversight of the remediation activities, the restoration of natural resources, and/or personal injury and property damages.

Previous report

We generate a substantial portion of Airlaid Materials' and Spunlace's net sales from a few large customers and the loss of any one could have a material adverse effect on our results of operations.