Sylvamo (SLVM) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed financial statements and management's discussion and analysis for the reporting period Item 1. Financial Statements This section presents Sylvamo Corporation's unaudited condensed consolidated and combined financial statements for the three and nine months ended September 30, 2022 and 2021, including statements of operations, comprehensive income (loss), balance sheets, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items Condensed Consolidated and Combined Statements of Operations This section details the company's net sales, income from continuing operations, and net income (loss) for the specified periods Net Sales and Net Income (Loss) from Continuing Operations | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net Sales | $968 | $731 | $2,701 | $2,050 | | Net Income from Continuing Operations | $109 | $59 | $248 | $198 | | Net Income (Loss) | $57 | $92 | $24 | $269 | Basic and Diluted Earnings (Loss) Per Share | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS from Continuing Operations | $2.47 | $1.34 | $5.62 | $4.50 | | Diluted EPS from Continuing Operations | $2.44 | $1.34 | $5.58 | $4.50 | | Basic Net Earnings (Loss) | $1.29 | $2.09 | $0.54 | $6.10 | | Diluted Net Earnings (Loss) | $1.28 | $2.09 | $0.54 | $6.10 | Condensed Consolidated and Combined Statements of Comprehensive Income (Loss) This section presents the company's net income (loss) and other comprehensive income (loss) components, leading to total comprehensive income (loss) Comprehensive Income (Loss) | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net Income (Loss) | $57 | $92 | $24 | $269 | | Total Other Comprehensive Income (Loss), Net of Taxes | $(52) | $(104) | $48 | $(117) | | Comprehensive Income (Loss) | $5 | $(12) | $72 | $152 | Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates Key Balance Sheet Items | Metric | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | | :-------------------------- | :---------------------- | :---------------------- | | Total Current Assets | $1,409 | $1,108 | | Total Assets | $2,797 | $2,597 | | Total Current Liabilities | $1,029 | $758 | | Long-Term Debt | $1,200 | $1,357 | | Total Equity | $258 | $182 | Condensed Consolidated and Combined Statements of Cash Flows This section outlines the cash flows from operating, investing, and financing activities for the reporting periods Cash Flow Summary | Metric | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Cash Provided by Operating Activities | $296 | $379 | | Cash Provided by (Used for) Investment Activities | $(96) | $140 | | Cash Provided by (Used for) Financing Activities | $(182) | $(386) | | Change in Cash and Temporary Investments | $4 | $54 | | Cash and Temporary Investments, End of Period | $163 | $124 | Notes to Condensed Consolidated and Combined Financial Statements This section provides detailed explanations and disclosures supporting the condensed financial statements NOTE 1 BASIS OF PRESENTATION This note describes the foundational principles and significant events impacting the preparation of the financial statements - Sylvamo Corporation completed its spin-off from International Paper on October 1, 2021, becoming an independent public company trading on the NYSE under 'SLVM'[23] - Financial statements reflect combined historical results prior to spin-off and consolidated results post-spin-off, prepared in U.S. GAAP[23] - International Paper sold its remaining shares of Sylvamo stock on September 12, 2022, ceasing to be a related party[30] - The Company committed to sell its Russian operations in Q2 2022, presenting them as 'Discontinued operations, net of taxes'[32] - The sale of Russian operations was completed in October 2022 for $420 million ($390 million cash proceeds after fees)[34] NOTE 2 SIGNIFICANT ACCOUNTING POLICIES This note discusses the key accounting principles applied and any recent accounting standard updates - No material changes to significant accounting policies for the nine months ended September 30, 2022[35] - The company plans to apply ASU 2020-04 (Reference Rate Reform) for contract modifications due to changes in reference rates, not expecting a material impact[36][37] NOTE 3 REVENUE RECOGNITION This note details the company's external net sales broken down by product and business segment External Net Sales by Product and Segment | Segment | Product | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :------------ | :-------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Europe | Uncoated Papers | $103 | $62 | $305 | $184 | | | Market Pulp | $27 | $18 | $77 | $61 | | Latin America | Uncoated Papers | $249 | $187 | $673 | $520 | | | Market Pulp | — | $13 | — | $37 | | North America | Uncoated Papers | $569 | $429 | $1,582 | $1,194 | | | Market Pulp | $20 | $22 | $64 | $54 | | Total | | $968 | $731 | $2,701 | $2,050 | NOTE 4 EQUITY This note summarizes changes in total equity and outlines the company's shareholder rights agreement Changes in Total Equity | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Balance, June 30, 2022 / Dec 31, 2021 | $252 | $182 | | Stock-based employee compensation | $6 | $16 | | Dividends | $(5) | $(10) | | Comprehensive income (loss) | $5 | $72 | | Balance, September 30, 2022 | $258 | $258 | - The Board adopted a Rights Agreement on April 22, 2022, issuing one preferred share purchase right for each common share[43] - Rights become exercisable if any person acquires 10% or more of outstanding common shares (20% for passive investors)[43] - The Rights Agreement is designed to discourage potential acquisition proposals and expires on April 21, 2023, unless earlier redeemed or terminated[43][45] NOTE 5 OTHER COMPREHENSIVE INCOME This note presents the components of accumulated other comprehensive income (loss) Accumulated Other Comprehensive Income (Loss) (AOCI) | AOCI Component | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | | :-------------------------------------------- | :---------------------- | :---------------------- | | Defined Benefit Pension and Postretirement Adjustments | $(81) | $(80) | | Change in Cumulative Foreign Currency Translation Adjustments | $(1,698) | $(1,719) | | Net Gains and Losses on Cash Flow Hedging Derivatives | $26 | $(2) | | Total AOCI at End of Period | $(1,753) | $(1,801) | NOTE 6 EARNINGS PER SHARE This note provides the calculation of basic and diluted earnings per share from continuing operations Earnings Per Share from Continuing Operations | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income from continuing operations (Millions) | $109 | $59 | $248 | $198 | | Weighted average common shares outstanding (Millions) | 44.1 | 43.9 | 44.1 | 43.9 | | Effect of dilutive securities (Millions) | 0.5 | — | 0.4 | — | | Weighted average common shares outstanding - assuming dilution (Millions) | 44.6 | 43.9 | 44.5 | 43.9 | | Basic EPS from continuing operations | $2.47 | $1.34 | $5.62 | $4.50 | | Diluted EPS from continuing operations | $2.44 | $1.34 | $5.58 | $4.50 | NOTE 7 ACQUISITIONS This note details the company's agreement to acquire a paper mill in Sweden - In September 2022, the Company agreed to acquire Stora Enso's uncoated freesheet paper mill in Nymolla, Sweden, for €150 million (approximately $150 million)[51] - The acquisition is expected to close no later than Q1 2023, subject to regulatory approvals[51] - The mill has a capacity of approximately 500,000 short tons of uncoated freesheet and produces 85% of its energy from carbon-neutral, renewable biomass residuals[51] NOTE 8 DIVESTITURE AND IMPAIRMENT OF BUSINESS This note discusses the sale of Russian operations and related impairment charges - The Company committed to sell its Russian operations in Q2 2022, classifying them as 'Discontinued operations, net of taxes'[52] - The sale of Russian operations was completed in October 2022 for $420 million, resulting in approximately $390 million cash proceeds after fees[53] Income (Loss) Before Income Taxes from Russian Operations (Discontinued) | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net Sales | $205 | $177 | $518 | $480 | | Impairment of business | $78 | — | $302 | — | | Income (Loss) Before Income Taxes | $(44) | $42 | $(221) | $89 | | Discontinued Operations, Net of Taxes | $(52) | $33 | $(224) | $71 | - Impairment charges related to Russian operations: $68 million pre-tax ($57 million after taxes) in Q1 2022 for fixed assets, and $156 million ($156 million after taxes) in Q2 2022 and $78 million ($78 million after taxes) in Q3 2022 for cumulative foreign currency translation loss[56] NOTE 9 SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION This note provides additional details on accounts receivable, inventories, and interest expense Accounts and Notes Receivable, Net | Category | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | | :---------------------- | :---------------------- | :---------------------- | | Trade | $458 | $391 | | Notes and other | $24 | $11 | | Total | $482 | $402 | | Allowance for expected credit losses | $20 | $19 | Inventories | Category | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | | :---------------------- | :---------------------- | :---------------------- | | Raw materials | $35 | $37 | | Finished paper and pulp products | $215 | $164 | | Operating supplies | $74 | $69 | | Other | $14 | $9 | | Total | $338 | $279 | Interest (Income) Expense, Net | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :---------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Interest expense | $21 | $12 | $59 | $13 | | Interest income | $(2) | $(2) | $(5) | $(32) | | Capitalized interest cost | $(1) | — | $(2) | — | | Total | $18 | $10 | $52 | $(19) | NOTE 10 LEASES This note outlines the company's lease costs, assets, and liabilities - Total lease cost was $15 million for the three months and $45 million for the nine months ended September 30, 2022, compared to $11 million and $28 million for the same periods in 2021, respectively[63] Lease Assets and Liabilities | Category | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | | :---------------------- | :---------------------- | :---------------------- | | Operating lease assets | $39 | $40 | | Finance lease assets | $24 | $27 | | Total leased assets | $63 | $67 | | Current Operating Liabilities | $14 | $15 | | Current Finance Liabilities | $2 | $3 | | Noncurrent Operating Liabilities | $30 | $25 | | Noncurrent Finance Liabilities | $15 | $17 | | Total lease liabilities | $61 | $60 | NOTE 11 GOODWILL AND OTHER INTANGIBLES This note presents the carrying amounts of goodwill and identifiable intangible assets by segment Goodwill by Business Segment | Segment | Dec 31, 2021 (Millions) | Sep 30, 2022 (Millions) | | :------------ | :---------------------- | :---------------------- | | Europe | $10 | $9 | | Latin America | $112 | $115 | | North America | — | — | | Total | $122 | $124 | Identifiable Intangible Assets (Net) | Category | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | | :---------------------------- | :---------------------- | :---------------------- | | Customer relationships and lists | $7 | $8 | | Software | $1 | $1 | | Other | — | — | | Total | $8 | $9 | NOTE 12 INCOME TAXES This note details the income tax provision, effective tax rate, and a significant Brazil tax dispute Income Tax Provision and Effective Tax Rate | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Income tax provision | $38 | $19 | $97 | $73 | | Effective income tax rate | 26% | 24% | 28% | 27% | - The Company is involved in a Brazil Tax Dispute regarding the deductibility of goodwill amortization from a 2007 acquisition, with assessments totaling approximately $109 million in tax and $346 million in interest, penalties, and fees as of September 30, 2022[69] - Under a tax matters agreement, International Paper will pay 60% and Sylvamo 40% on up to $300 million of any assessment, with International Paper covering amounts over $300 million[71] NOTE 13 COMMITMENTS AND CONTINGENT LIABILITIES This note discusses environmental remediation liabilities and other legal proceedings - As of September 30, 2022, the Company recorded an estimated probable liability of $21 million for environmental remediation matters, entirely related to its former Russian operations[72] - Upon the sale of Russian operations on October 6, 2022, all associated environmental liabilities transferred with the business, and Sylvamo retained no liability[72] - The Company is involved in various other legal proceedings, including environmental, tax, and personal injury matters, but believes loss contingencies will not materially affect its financial position or liquidity[78] NOTE 14 LONG-TERM DEBT This note summarizes the company's long-term debt, credit facilities, and compliance with covenants Long-Term Debt Summary | Debt Type | Sep 30, 2022 (Millions) | Dec 31, 2021 (Millions) | | :------------------------ | :---------------------- | :---------------------- | | Term Loan F - due 2027 | $503 | $512 | | Term Loan B - due 2028 | $265 | $401 | | 7.00% Senior Notes - due 2029 | $443 | $443 | | Other | $18 | $20 | | Less: current portion | $(29) | $(19) | | Total | $1,200 | $1,357 | - The Company has a $450 million Revolving Credit Facility with no outstanding borrowings as of September 30, 2022[83] - Subsequent to September 30, 2022, the Company repaid the remaining outstanding balance of Term Loan B[89] - The Company established a $120 million accounts receivable finance facility (Securitization Program) on September 30, 2022, with no outstanding borrowings[86] - The Company is in compliance with its debt covenants as of September 30, 2022, which include a minimum consolidated interest charge coverage ratio and a maximum consolidated total leverage ratio[88] NOTE 15 PENSION AND POSTRETIREMENT BENEFIT PLANS This note explains the company's pension plans and related expenses post-spin-off - Following the spin-off, Sylvamo established and sponsored its own pension plans, with assets and obligations transferred from International Paper's plans[94] - Net periodic pension expense for all company-sponsored plans for the nine months ended September 30, 2022, was immaterial[94] NOTE 16 INCENTIVE PLANS This note describes the company's stock-based incentive compensation plan and related expenses - Sylvamo adopted the Sylvamo 2021 Incentive Compensation Plan post-spin-off, granting time-based and performance-based restricted stock units[97] - As of September 30, 2022, 3,199,605 shares remain available for future grants under the LTIP[97] Total Stock-Based Compensation Expense | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Total stock-based compensation expense | $5 | $3 | $16 | $10 | NOTE 17 FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC AREA This note provides a breakdown of net sales and operating profit by business segment - The Company operates in three business segments: Europe, Latin America, and North America, differentiated by common product and customer basis[99] Net Sales by Business Segment | Segment | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :------------ | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Europe | $130 | $85 | $382 | $263 | | Latin America | $270 | $200 | $734 | $557 | | North America | $589 | $447 | $1,646 | $1,255 | | Intersegment Sales | $(21) | $(1) | $(61) | $(25) | | Net Sales | $968 | $731 | $2,701 | $2,050 | Business Segment Operating Profit | Segment | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :------------ | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Europe | $19 | $(1) | $38 | $(5) | | Latin America | $58 | $44 | $156 | $131 | | North America | $98 | $52 | $226 | $91 | | Total Business Segment Operating Profit | $175 | $95 | $420 | $217 | NOTE 18 RELATED PARTY TRANSACTIONS This note details transactions with International Paper before it ceased being a related party - International Paper ceased being a related party on September 12, 2022, after selling its remaining Sylvamo stock[105] Net Transfers from Parent (International Paper) | Category | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :------------------------ | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | General financing activities | — | $(522) | — | $(601) | | Corporate allocations | — | $32 | — | $112 | | Stock-based compensation | — | $3 | — | $10 | | Total net transfers from Parent | — | $(487) | — | $(479) | - The Company incurred $21 million in expenses under the Transition Services Agreement for the nine months ended September 30, 2022, and ceased receiving services as of October 31, 2022[110] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Sylvamo's financial performance and condition, highlighting strong Q3 2022 earnings and cash flow from continuing operations, driven by price and mix gains, and discusses the impact of the Russian operations divestiture, the Nymolla mill acquisition, debt repayment, and an increased dividend, while outlining expectations for Q4 2022 THE SPIN-OFF This section provides context on Sylvamo Corporation's establishment as an independent public company following its spin-off - Sylvamo Corporation became an independent public company on October 1, 2021, after spinning off from International Paper[114] - Financial statements reflect combined historical results prior to the spin-off and consolidated results post-spin-off, prepared in U.S. GAAP[114] EXECUTIVE SUMMARY This section highlights key financial results for Q3 2022, strategic actions, and future outlook - Q3 2022 net income from continuing operations was $109 million ($2.44 per diluted share), and cash from continuing operations was $146 million[115] - Adjusted EBITDA for Q3 2022 was $216 million, with a margin of 22.3%, showing improvement from the prior quarter due to price and mix gains outpacing cost inflation[115][116] - The Company announced an agreement to acquire an uncoated freesheet mill in Nymolla, Sweden, for €150 million, expected to close by Q1 2023[116] - Subsequent to Q3, the sale of Russian operations was completed for $390 million cash proceeds, Term Loan B was repaid, and the quarterly dividend was increased to $0.25 per share[117] Divestiture of Russian Operations This section details the sale of Russian operations, including the sale price and related impairment charges - Management committed to selling Russian operations in Q2 2022, which were previously part of the Europe business segment[119] - The sale was completed in October 2022 for $420 million, yielding approximately $390 million in cash after foreign currency and transaction fees[121] - Impairment charges related to Russian operations totaled $68 million pre-tax in Q1 2022 for fixed assets, and $156 million and $78 million pre-tax in Q2 and Q3 2022, respectively, for cumulative foreign currency translation loss[119] RESULTS OF OPERATIONS This section analyzes the company's net sales, expenses, and net income from continuing operations for the reporting periods Net Sales and Net Income from Continuing Operations | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net Sales | $968 | $731 | $2,701 | $2,050 | | Net Income from Continuing Operations | $109 | $59 | $248 | $198 | - Net sales increased by $237 million (3 months) and $651 million (9 months) primarily due to higher average sales prices, offsetting increased input and operating costs[123][129] - Selling and administrative expenses increased by $34 million (3 months) and $85 million (9 months) due to increased net sales activity and costs related to the transition service agreement and spin-off[125][131] - Interest (income) expense, net, increased significantly due to long-term debt incurred post-spin-off, with $18 million net expense for 3 months and $52 million for 9 months ended Sep 30, 2022[126][132] - Income tax provision and effective tax rate for continuing operations increased due to the mix of earnings in different regions[127][133] BUSINESS SEGMENT RESULTS This section provides a detailed breakdown of operating profit and performance across the company's geographic business segments Business Segment Operating Profit | Segment | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :------------ | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Europe | $19 | $(1) | $38 | $(5) | | Latin America | $58 | $44 | $156 | $131 | | North America | $98 | $52 | $226 | $91 | | Total Business Segment Operating Profit | $175 | $95 | $420 | $217 | - Europe's operating profit increased by $20 million (3 months) and $43 million (9 months) due to higher sales prices and favorable product mix, despite increased input and operating costs[142][144] - Latin America's operating profit increased by $14 million (3 months) and $25 million (9 months), driven by increased sales prices and favorable product mix, offsetting higher operating and input costs[147][149] - North America's operating profit increased by $46 million (3 months) and $135 million (9 months), primarily due to increased sales prices and volume, partially offset by higher operating and input costs[153][155] Non-GAAP Financial Measures This section presents key non-GAAP financial metrics such as Adjusted EBITDA and Free Cash Flow Adjusted EBITDA and Margin | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Jun 30, 2022 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :------------------ | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Adjusted EBITDA | $216 | $189 | $551 | $322 | | Adjusted EBITDA Margin | 22.3% | 20.7% | 20.4% | 15.7% | Free Cash Flow | Metric | 3 Months Ended Sep 30, 2022 (Millions) | 3 Months Ended Sep 30, 2021 (Millions) | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Cash provided by operating activities from continuing operations | $146 | $137 | $276 | $292 | | Cash invested in capital projects | $(32) | $(20) | $(91) | $(47) | | Free Cash Flow | $114 | $117 | $185 | $245 | LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's ability to meet its financial obligations, cash flow, and capital expenditure plans - The Company expects to meet short-term and future cash requirements through operating cash flows, available cash balances, and third-party debt, relying on commercial and operational excellence to manage costs[163][164] - Cash provided by operating activities from continuing operations decreased to $276 million for the nine months ended September 30, 2022, from $292 million in the prior year, primarily due to changes in working capital[166] - Cash used for working capital components was $86 million for the nine months ended September 30, 2022, compared to $3 million in the prior year, mainly reflecting cash used for accounts receivable and inventories[167] Capital Spending by Business Segment | Segment | 9 Months Ended Sep 30, 2022 (Millions) | 9 Months Ended Sep 30, 2021 (Millions) | | :------------ | :------------------------------------- | :------------------------------------- | | Europe | $4 | $4 | | Latin America | $45 | $26 | | North America | $20 | $17 | | Corporate | $22 | — | | Total | $91 | $47 | - Cash used for financing activities for the nine months ended September 30, 2022, primarily reflects $175 million in debt principal payments, contrasting with the prior year's $1.52 billion special payment to International Paper[171] - The Board declared a quarterly dividend of $0.1125 per share for Q3 2022 and approved a share repurchase program of up to $150 million, though no shares were repurchased in Q3 2022[172][173] - Annual maintenance, regulatory, and reforestation capital expenditures are expected to be $140-$170 million for the next several years, with an additional $10 million for high-return projects in 2022[176] CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES This section highlights accounting policies requiring significant management judgment and estimates - No changes were made to critical accounting policies during the first nine months of 2022[179] - Key accounting policies requiring significant management judgment include impairment or disposal of long-lived assets and goodwill, and income taxes[178] FORWARD-LOOKING STATEMENTS This section outlines statements about future events and performance, along with associated risks and uncertainties - The report contains forward-looking statements regarding future events, performance, the Nymolla mill acquisition, and capital expenditures[180] - Actual results may differ materially due to various risks, including economic and political conditions (e.g., war in Ukraine), inflation, supply chain issues, regulatory approvals, and climate change[181] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the Company's exposure to market risk since December 31, 2021, referring to the 2021 Form 10-K for detailed disclosures - No material changes in the Company's exposure to market risk since December 31, 2021[183] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2022, concluding they were effective, and no material changes in internal control over financial reporting occurred during Q3 2022 - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022[184] - No material changes in internal control over financial reporting occurred during the third quarter of 2022[185] PART II. OTHER INFORMATION This section provides additional information beyond the financial statements, including legal proceedings, risk factors, and other disclosures Item 1. Legal Proceedings The Company is involved in various legal proceedings, including environmental and tax matters, but does not anticipate any individually or in aggregate to have a material adverse effect on its financial condition or results of operations, and environmental matters related to former Russian operations have been transferred with the sale - Sylvamo is not involved in any legal proceedings expected to result in a material adverse effect on its financial condition or results of operations[188] - Environmental matters on former Russian property, with an estimated $21 million liability as of September 30, 2022, transferred with the sale of Russian operations[72][189] Item 1A. Risk Factors This section updates the risk factors from the 2021 Form 10-K, specifically highlighting that the Rights Agreement adopted on April 22, 2022, could make it more difficult for a third party to acquire control of the Company, potentially affecting common stock price - The Rights Agreement, adopted April 22, 2022, could discourage acquisition proposals and delay or prevent a change in control, potentially impacting the common stock price[190] Item 5. Other Information On November 9, 2022, the Company amended its Credit Agreement, revising restricted payment limits tied to the Brazil Tax Dispute, increasing dividend and repurchase capacities under certain leverage ratios, allowing for the repurchase of up to $150 million of 2029 Senior Notes, and introducing conditions to eliminate restricted payment limitations by depositing funds for the Brazil Tax Dispute settlement, while also establishing ESG metrics for credit facility rates - The Credit Agreement was amended on November 9, 2022, to revise restricted payment limits, which were previously impacted by the Brazil Tax Dispute[192][193][194] - The revised limits allow for increased annual restricted payments: $60 million if the pro forma consolidated total leverage ratio is below 2.50:1.00 (but >= 2.00:1.00), and $90 million if below 2.00:1.00[194] - A new exception permits the Company to repurchase or redeem up to $150 million of the 2029 Senior Notes prior to the Brazil Tax Dispute resolution[195] - Limitations on restricted payments can be eliminated if the Company deposits $120 million (or $60 million with $225 million liquidity) into a controlled account for the Brazil Tax Dispute settlement[196] - The amendment also introduced environmental, social, and governance (ESG) metrics that will influence the fee on unused commitments and the applicable rate for Revolving Credit Facility borrowings[197] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including agreements related to the sale of Russian operations, corporate governance documents, the Rights Agreement, receivables financing agreements, and the recent Amendment No. 1 to the Credit Agreement - Key exhibits include the Agreement for the Sale and Purchase of Ordinary Shares of NPAO Sylvamo Corporation Rus, the Rights Agreement, and Amendment No. 1 to the Credit Agreement[199]