Sylvamo (SLVM) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This part presents the company's unaudited Q1 2023 financial statements and management's operational analysis Financial Statements Contains the unaudited condensed consolidated financial statements for the three months ended March 31, 2023 Condensed Consolidated Statements of Operations Reports a significant year-over-year increase in net sales and net income for the first quarter of 2023 Q1 2023 vs Q1 2022 Statement of Operations Highlights | Metric | Q1 2023 (in millions) | Q1 2022 (in millions) | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $959 | $821 | +16.8% | | Income from Continuing Operations Before Income Taxes | $141 | $81 | +74.1% | | Net Income from Continuing Operations | $97 | $55 | +76.4% | | Net Income (Loss) | $97 | $26 | +273.1% | | Diluted EPS from Continuing Operations | $2.25 | $1.25 | +80.0% | | Diluted Net EPS (Loss) | $2.25 | $0.59 | +281.4% | Condensed Consolidated Balance Sheets Shows an increase in total assets and equity as of March 31, 2023, compared to year-end 2022 Balance Sheet Summary | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and temporary investments | $191 | $360 | | Inventories | $506 | $364 | | Total Current Assets | $1,209 | $1,243 | | Total Assets | $2,798 | $2,710 | | Long-Term Debt | $954 | $1,003 | | Total Liabilities | $2,008 | $2,032 | | Total Equity | $790 | $678 | Condensed Consolidated Statements of Cash Flows Details cash flows from operations, investing, and financing, highlighting a major acquisition's impact Cash Flow Summary (Three Months Ended March 31) | Metric (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Cash Provided by Operating Activities | $63 | $92 | | Cash Provided by (Used for) Investment Activities | $(228) | $(19) | | Cash Provided by (Used for) Financing Activities | $(8) | $(39) | | Change in Cash and Temporary Investments | $(169) | $3 | - The acquisition of a business for $167 million was the primary driver of the significant increase in cash used for investment activities in Q1 2023[20] Note 7: Acquisitions Details the acquisition of the Nymölla mill in Sweden, including its financial contribution in Q1 2023 - The company acquired the Nymölla mill in Sweden for €157 million (approx. $167 million) on January 2, 2023[38] - The acquired business contributed $100 million in Net Sales and $8 million in Income from continuing operations before income taxes in Q1 2023[41] - The preliminary purchase price allocation assigned $118 million to Plants, properties and equipment, $67 million to Inventory, and $63 million to Accounts receivable[40] Note 8: Divestiture and Impairment of Business Outlines the completion of the Russian operations sale and its presentation as discontinued operations - The sale of Russian operations was completed in October 2022 for $420 million, with net cash proceeds of $385 million[47] - For Q1 2022, discontinued operations from the Russian business resulted in a net loss of $29 million, which included a $68 million pre-tax impairment charge on fixed assets[46][49] Note 17: Financial Information by Business Segment Provides a breakdown of net sales and operating profit by the Europe, Latin America, and North America segments Net Sales by Business Segment (Three Months Ended March 31) | Segment (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Europe | $248 | $117 | | Latin America | $222 | $215 | | North America | $505 | $508 | | Total Net Sales | $959 | $821 | Business Segment Operating Profit (Three Months Ended March 31) | Segment (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Europe | $23 | $2 | | Latin America | $46 | $39 | | North America | $97 | $62 | | Total Operating Profit | $166 | $103 | Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes Q1 2023 financial results, segment performance, liquidity, and provides an outlook for Q2 2023 Q1 2023 Key Performance Metrics | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Income from Continuing Operations | $97 million | $55 million | | Diluted EPS from Continuing Operations | $2.25 | $1.25 | | Net Sales | $959 million | $821 million | | Adjusted EBITDA | $208 million | $146 million | | Adjusted EBITDA Margin | 22% | 18% | | Free Cash Flow | $2 million | $32 million | - Performance in Q1 2023 was driven by price and mix improvements that outpaced higher input and transportation costs across all regions[101] - The company repurchased $360 million of its outstanding notes to eliminate a covenant limiting shareholder returns, replacing the debt with a new term loan and short-term debt[101] - For Q2 2023, the company expects unfavorable price/mix due to pulp and European paper price decreases, but improved volume[102] Business Segment Results Details the performance drivers for each geographic segment, highlighting sales and profit growth in Q1 2023 - Europe: Net sales increased by $131 million, with $100 million from the Nymölla acquisition[111][112] - Latin America: Operating profit grew by $7 million as the benefit of increased sales prices and favorable mix ($34 million) outweighed lower volumes and higher input costs[114] - North America: Operating profit increased by $35 million, primarily due to strong pricing and mix ($70 million) and lower outage costs ($8 million)[116] Liquidity and Capital Resources Discusses cash generation, capital expenditures, and significant financing activities during the first quarter - Cash from continuing operations was $63 million for Q1 2023, compared to $48 million for Q1 2022[125] - Capital spending in Q1 2023 was $61 million, a significant increase from $16 million in Q1 2022[128] - Financing activities included issuing a new $300 million Term Loan A and drawing on the Revolving Credit Facility to fund a $360 million tender offer for existing senior notes[129] Quantitative and Qualitative Disclosures About Market Risk Confirms no material changes in market risk exposure since the previous fiscal year-end - There have been no material changes in the Company's exposure to market risk since December 31, 2022[141] Controls and Procedures Confirms the effectiveness of disclosure controls, excluding the recently acquired Nymölla mill - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2023[142] - The evaluation of internal control over financial reporting excluded the Nymölla mill, which was acquired in January 2023[143] PART II. OTHER INFORMATION Covers legal proceedings, risk factors, equity repurchases, and filed exhibits Legal Proceedings States no material legal proceedings are ongoing, referencing notes on specific tax and environmental matters - The company is not involved in any legal proceedings that are expected to have a material adverse effect on its financial condition or results of operations[146] - Reference is made to Note 12 for details on the Brazil Tax Dispute and Note 13 for environmental matters[146][147] Risk Factors Indicates no material changes to risk factors disclosed in the 2022 Annual Report on Form 10-K - There have been no material changes to the risk factors described in the 2022 Form 10-K[148] Purchases of Equity Securities by the Issuer and Affiliated Purchasers Details the company's share repurchase activities during the first quarter of 2023 Share Repurchases in Q1 2023 | Period | Total Shares Purchased | Average Price Paid | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | Jan 2023 | 201,985 | $49.53 | 201,896 | | Feb 2023 | 489 | $47.53 | — | | Mar 2023 | 87,691 | $49.33 | — | | Total | 290,165 | | 201,896 | - The company repurchased $10 million of shares during the three months ended March 31, 2023, under its $150 million Repurchase Program[150] Exhibits Lists all exhibits filed with the Form 10-Q, including governance and financial documents