Sylvamo (SLVM) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section details Sylvamo Corporation's unaudited condensed combined financial statements and management's analysis of its financial condition and operations Item 1. Financial Statements This section presents Sylvamo Corporation's unaudited condensed combined financial statements and notes for the periods ended September 30, 2021 and 2020 Condensed Combined Statement of Operations This statement shows significant year-over-year increases in net sales and net income for Q3 and nine months ended September 30, 2021 | Metric (In millions) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Sales | $908 | $738 | $2,530 | $2,213 | | Income Before Taxes | $120 | $63 | $360 | $130 | | Net Income (Loss) | $92 | $51 | $269 | $105 | Condensed Combined Statement of Comprehensive Income (Loss) This statement details comprehensive income (loss) components, showing a shift from income to loss in Q3 2021, primarily due to foreign currency translation adjustments | Metric (In millions) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income (Loss) | $92 | $51 | $269 | $105 | | Other Comprehensive Income (Loss), Net of Tax | $(104) | $(17) | $(117) | $(342) | | Comprehensive Income (Loss) | $(12) | $34 | $152 | $(237) | Condensed Combined Balance Sheet The balance sheet as of September 30, 2021, shows decreased total assets and increased long-term debt and current liabilities, largely due to spin-off financing | Metric (In millions) | Sep 30, 2021 | Dec 31, 2020 | | :------------------- | :----------- | :----------- | | Total Current Assets | $1,019 | $1,119 | | Total Assets | $2,737 | $2,911 | | Total Current Liabilities | $784 | $490 | | Long-Term Debt | $1,393 | $22 | | Total Parent Company Equity | $265 | $2,112 | | Total Liabilities and Parent Company Equity | $2,737 | $2,911 | Condensed Combined Statement of Cash Flows Cash flows for the nine months ended September 30, 2021, show increased operating cash and a significant shift in financing due to debt and parent payment | Metric (In millions) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------- | :-------------------------- | :-------------------------- | | Cash Provided by (Used For) Operating Activities | $379 | $225 | | Cash Provided by (Used For) Investment Activities | $140 | $(51) | | Cash Provided by (Used For) Financing Activities | $(386) | $(216) | | Change in Cash and Temporary Investments | $37 | $6 | | Cash and Temporary Investments, End of Period | $132 | $141 | Notes to Condensed Combined Financial Statements These notes provide detailed explanations and disclosures for the financial statements, covering policies, equity, debt, and contingencies related to the spin-off NOTE 1 BASIS OF PRESENTATION This note clarifies Sylvamo's spin-off from International Paper on October 1, 2021, and the carve-out basis of financial statement presentation - Sylvamo Corporation completed its spin-off from International Paper on October 1, 2021, becoming an independent public company trading on the NYSE under "SLVM". International Paper retained a 19.9% ownership interest[26] - The financial statements are prepared on a carve-out basis, including expense allocations from International Paper for shared functions, which may not reflect actual costs if Sylvamo had operated independently[27] - In Q3 2021, Sylvamo incurred $1.4 billion in long-term debt (term loans and senior notes) and borrowed $100 million from its revolving credit facility, primarily to fund a $1.52 billion special payment to International Paper in conjunction with the spin-off[33] NOTE 2 SIGNIFICANT ACCOUNTING POLICIES This note outlines key accounting policies including revenue recognition, inventory, leases, goodwill impairment, income taxes, and COVID-19 impacts - Revenue is recognized on a point-in-time basis when the customer takes title and assumes risks, with variable consideration (rebates, discounts) estimated based on contract terms and historical experience[39][40] - Goodwill is evaluated annually for impairment at the beginning of the fourth quarter, with interim assessments if events indicate potential impairment, using discounted future cash flows and market multiples[47][48] - The company calculates income tax provision using a separate-return method, recognizing deferred taxes for temporary differences and assessing valuation allowances based on projected separate-return results[53][55] - Demand for printing papers, the majority of net sales, saw a steady increase in the first nine months of 2021 after being significantly impacted by COVID-19, though supply chain costs and transportation remain constrained[36] NOTE 3 REVENUE RECOGNITION This note breaks down external net sales by product and region, showing overall growth, and details contract assets and liabilities | External Net Sales (In millions) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Europe | $257 | $214 | $725 | $666 | | Latin America | $200 | $150 | $557 | $434 | | North America | $451 | $374 | $1,248 | $1,113 | | Total | $908 | $738 | $2,530 | $2,213 | - Contract assets were $24 million (Sep 30, 2021) and $23 million (Dec 31, 2020), while contract liabilities were $8 million (Sep 30, 2021) and $11 million (Dec 31, 2020)[62][63] NOTE 4 EQUITY This note summarizes changes in Parent Company Equity and Accumulated Other Comprehensive Income (Loss), reflecting net transfers and a special payment to International Paper | Metric (In millions) | Balance, Jan 1, 2021 | Net Transfers to Parent | Special Payment to Parent | Comprehensive Income (Loss) | Balance, Sep 30, 2021 | | :------------------- | :------------------- | :---------------------- | :------------------------ | :-------------------------- | :-------------------- | | Parent Company Investment | $3,592 | $(449) | $(1,520) | $269 | $1,892 | | Accumulated Other Comprehensive Income (Loss) | $(1,480) | $(30) | — | $(117) | $(1,627) | | Total Parent Company Equity | $2,112 | $(479) | $(1,520) | $152 | $265 | NOTE 5 OTHER COMPREHENSIVE INCOME This note details Accumulated Other Comprehensive Income (Loss) components, showing negative impact from foreign currency translation and a pension plan transfer | AOCI Component (In millions) | Balance at Beginning of 9M 2021 | Pension Plan Transfer from Parent | Other Comprehensive Income (Loss) before Reclassifications (9M 2021) | Balance at End of 9M 2021 | | :--------------------------- | :------------------------------ | :-------------------------------- | :----------------------------------------------------------------- | :------------------------ | | Defined Benefit Pension and Postretirement Adjustments | $(48) | $(30) | — | $(78) | | Change in Cumulative Foreign Currency Translation Adjustments | $(1,433) | — | $(115) | $(1,548) | | Net Gains and Losses on Cash Flow Hedging Derivatives | $1 | — | $(2) | $(1) | | Total AOCI | $(1,480) | $(30) | $(117) | $(1,627) | NOTE 6 SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION This note provides detailed breakdowns of temporary investments, receivables, inventories, and accumulated depreciation for plants, properties, and equipment | Asset (In millions) | Sep 30, 2021 | Dec 31, 2020 | | :------------------ | :----------- | :----------- | | Temporary Investments | $7 | $36 | | Accounts and Notes Receivable, Net | $422 | $400 | | Allowance for Expected Credit Losses | $25 | $30 | | Inventories | $344 | $342 | - Accumulated depreciation for Plants, Properties and Equipment was $3.8 billion at both September 30, 2021, and December 31, 2020[71] NOTE 7 LEASES This note details the company's lease arrangements, showing increased total lease cost and associated ROU assets and liabilities for the periods presented - Total lease cost was $11 million for the three months ended September 30, 2021 (up from $6 million in 2020) and $30 million for the nine months ended September 30, 2021 (up from $23 million in 2020)[72] | Lease Metric (In millions) | Sep 30, 2021 | Dec 31, 2020 | | :------------------------- | :----------- | :----------- | | Operating lease assets | $43 | $46 | | Finance lease assets | $30 | $33 | | Total leased assets | $73 | $79 | | Total lease liabilities | $63 | $69 | NOTE 8 GOODWILL AND OTHER INTANGIBLES This note presents changes in goodwill allocated to segments and details identifiable intangible assets, showing a slight decrease in total goodwill due to currency translation | Goodwill (In millions) | Jan 1, 2021 | Currency Translation & Other | Sep 30, 2021 | | :------------------- | :---------- | :--------------------------- | :----------- | | Europe | $22 | $(1) | $21 | | Latin America | $121 | $(6) | $115 | | North America | $0 | $0 | $0 | | Total | $143 | $(7) | $136 | | Intangible Assets (In millions) | Gross Carrying Amount (Sep 30, 2021) | Accumulated Amortization (Sep 30, 2021) | Net Intangible Assets (Sep 30, 2021) | | :------------------------------ | :----------------------------------- | :-------------------------------------- | :----------------------------------- | | Customer relationships and lists | $57 | $(49) | $8 | | Software | $3 | $(2) | $1 | | Other | $4 | $(4) | $0 | | Total | $64 | $(55) | $9 | NOTE 9 INCOME TAXES This note details income tax provision and effective tax rates, and highlights significant Brazilian tax litigation concerning goodwill amortization with potential liabilities | Income Tax (In millions) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income Tax Provision | $28 | $12 | $91 | $25 | | Effective Income Tax Rate | 23.9% | 18.5% | 25.5% | 18.8% | - The Brazilian Federal Revenue Service has challenged the deductibility of goodwill amortization from a 2007 acquisition, with assessments totaling approximately $107 million in tax and $351 million in interest, penalties, and fees as of September 30, 2021[77] - Under a tax matters agreement, International Paper will pay 60% and Sylvamo 40% on up to $300 million of any assessment related to the Brazilian goodwill amortization matter, with International Paper covering amounts over $300 million[78][79] NOTE 10 COMMITMENTS AND CONTINGENT LIABILITIES This note outlines environmental remediation liabilities, including a $13 million probable liability for mercury contamination in Russia, and a significant Brazilian VAT refund receivable - The company has an estimated probable liability of $16 million for environmental remediation matters as of September 30, 2021, with $13 million specifically for mercury contamination remediation at its Svetogorsk, Russia mill[80][81] - The company recognized an additional $70 million receivable in Q2 2021 due to a broader Brazilian Federal Supreme Court ruling on state VAT exclusion from federal VAT calculations, bringing the total receivable to $81 million, with an ending balance of $48 million after offsets[83] NOTE 11 LONG-TERM DEBT This note details the $1.4 billion in long-term debt incurred by Sylvamo for its spin-off, consisting of term loans and senior notes, and outlines its $450 million revolving credit facility - In August and September 2021, Sylvamo incurred $1.4 billion in long-term debt, comprising Term Loan F, Term Loan B, and 7.00% Senior Notes due 2029, in conjunction with its spin-off[86][88] - The company has a five-year cash flow-based revolving credit facility with a total borrowing capacity of $450 million, of which $100 million was borrowed on September 29, 2021, and $30 million was repaid post-period end[87][135] - Floating rate debt of $1.1 billion is subject to interest rate risk, with a 100-basis point increase in market interest rates potentially increasing annual interest expense by approximately $9 million[209] NOTE 12 RETIREMENT AND POSTRETIREMENT BENEFIT PLANS This note describes the company's defined benefit pension plans, including direct plans and transferred plans from International Paper, detailing their funded status and net periodic pension expense - As of September 1, 2021, the Sylvamo U.S. defined benefit pension plan was 97% funded, with a projected benefit obligation of $272 million and assets of $263 million transferred from International Paper[96] - Net periodic pension expense (benefit) for direct plans was $(2) million for the three months ended September 30, 2021, and $(3) million for the nine months ended September 30, 2021[93] NOTE 13 INCENTIVE PLANS This note details stock-based compensation expense, including allocations from International Paper, and discloses subsequent restricted stock unit grants to employees post-spin-off | Stock-Based Compensation (In millions) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Stock-Based Compensation Expense | $3 | $4 | $10 | $11 | | Income Tax Benefit (Expense) | $1 | $1 | $3 | $2 | - Subsequent to September 30, 2021, Sylvamo granted 664,569 restricted stock units to employees, vesting over an average of 1.4 years[99] NOTE 14 FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC AREA This note provides a breakdown of net sales and operating profit by Sylvamo's three business segments: Europe, Latin America, and North America, highlighting their individual performance | Net Sales by Segment (In millions) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Europe | $262 | $220 | $743 | $682 | | Latin America | $200 | $150 | $557 | $434 | | North America | $447 | $375 | $1,255 | $1,114 | | Total Net Sales | $908 | $738 | $2,530 | $2,213 | | Operating Profit by Segment (In millions) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Europe | $40 | $16 | $82 | $62 | | Latin America | $44 | $17 | $131 | $46 | | North America | $53 | $29 | $93 | $25 | | Total Business Segment Operating Profit | $137 | $62 | $306 | $133 | NOTE 15 RELATED PARTY TRANSACTIONS This note details various related party transactions with International Paper, including sales, purchases, allocated corporate expenses, and balances, reflecting the carve-out nature of financials - The company was allocated $35 million and $120 million in general corporate expenses from International Paper for the three and nine months ended September 30, 2021, respectively[27][107] - Purchases from International Paper under offtake, fiber supply, and joint marketing agreements totaled $169 million for the three months and $438 million for the nine months ended September 30, 2021[109][110][111] | Related Party Balance (In millions) | Sep 30, 2021 | Dec 31, 2020 | | :---------------------------------- | :----------- | :----------- | | Related Party Receivable | $25 | $221 | | Related Party Payable | $110 | $25 | - Net transfers to Parent for the nine months ended September 30, 2021, were $(479) million, primarily due to general financing activities[114] NOTE 16 PRO FORMA EARNINGS PER SHARE This note presents pro forma basic and diluted earnings per share calculations, using common shares outstanding at the October 1, 2021, distribution date for prior periods | Pro Forma EPS (In millions, except per share data) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income | $92 | $51 | $269 | $105 | | Weighted-average common shares outstanding | 44.1 | 44.1 | 44.1 | 44.1 | | Pro forma earnings per share - basic and diluted | $2.09 | $1.16 | $6.10 | $2.38 | - As of the October 1, 2021 distribution date, Sylvamo had 44,104,986 common shares outstanding, used as the basis for pro forma EPS calculations for prior periods[117] NOTE 17 SUBSEQUENT EVENTS This note confirms that management evaluated subsequent events from September 30, 2021, up to the financial statement issuance date of November 12, 2021, with no material events reported - No material subsequent events were reported beyond the financial statement issuance date of November 12, 2021[120] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Sylvamo's financial condition, results of operations, and cash flows for the three and nine months ended September 30, 2021 The Spin-Off This section details the completion of Sylvamo's spin-off from International Paper on October 1, 2021, establishing it as an independent public company, and outlines associated costs - Sylvamo completed its spin-off from International Paper on October 1, 2021, with International Paper retaining a 19.9% ownership interest, and Sylvamo now trades on the NYSE under "SLVM"[123] - The company expects to incur approximately $103 million in expenses within the next 12 months, including $55 million in one-time expenses, related to the separation and establishment as a standalone entity[123] Overview This section describes Sylvamo's business as a major global producer of printing and writing papers, including uncoated freesheet, coated paperboard, and pulp - Sylvamo is a major global producer of printing and writing papers, specializing in uncoated freesheet for business and home use, and also produces coated paperboard and various types of pulp[124] - The company's products are sold under both private labels and company-owned brands such as Hammermill, Springhill, Chamex, Ballet, and SvetoCopy[124] Basis of Combination This section explains that the condensed combined financial statements are prepared on a carve-out basis from International Paper, including allocated corporate expenses and related party transactions - The condensed combined financial statements reflect Sylvamo's historical operations as part of International Paper, including allocated corporate expenses for shared functions, which may not be indicative of future standalone costs[125][127] - Related party transactions with International Paper, including cash pool arrangements, are reflected in the financial statements, but Sylvamo no longer participates in the centralized cash pooling as of September 30, 2021[128][130] Executive Summary This summary highlights Sylvamo's strong Q3 2021 earnings and cash flow, driven by price and mix improvements, recovering demand, and full capacity utilization, despite rising costs - Sylvamo generated $157 million in cash from operations and $135 million in free cash flow in Q3 2021, with year-to-date figures of $379 million and $325 million, respectively[134] - Price and mix improvements outpaced rising input costs in Q3 2021, driven by recovering global uncoated freesheet demand as schools and offices reopened, leading to full capacity utilization across all regions[136][137] - For Q4 2021, the company anticipates better price and mix and seasonally stronger volume, but expects unfavorable operations due to higher energy usage and increased input/distribution costs, along with higher maintenance outage expenses[138] Results of Operations This section provides a detailed analysis of Sylvamo's financial performance, including net sales, cost of products sold, distribution expenses, interest, and income taxes for the periods presented Three Months Ended September 30, 2021 Compared to 2020 For the three months ended September 30, 2021, net sales increased by 23.0% due to higher average sales prices, while cost of products sold and distribution expenses also rose - Net sales increased by 23.0% to $908 million in Q3 2021 from $738 million in Q3 2020, primarily due to higher average sales prices reflecting demand recovery[143] - Cost of products sold increased by $87 million (17.4%), and distribution expenses rose by $19 million (24.1%) due to increased sales activity and higher freight costs[144][145] - Interest (income) expense, net, increased significantly due to an $8 million Brazilian VAT charge and $2 million in net interest expense from new long-term debt[146] Nine Months Ended September 30, 2021 Compared to 2020 For the nine months ended September 30, 2021, net sales increased by 14.3% driven by higher sales volume and prices, with increased costs partially offset by improved net interest income - Net sales increased by 14.3% to $2.5 billion for the nine months ended September 30, 2021, from $2.2 billion in 2020, driven by a 306,000-ton increase in uncoated freesheet sales volume and higher average sales prices[148] - Cost of products sold increased by $75 million (4.8%), and distribution expenses rose by $41 million (17.4%), primarily due to increased sales activity and higher freight costs[149][150] - Net interest income increased due to $20 million from Brazilian VAT items, partially offset by $2 million in net interest expense from new long-term debt[151] Business Segment Results This section provides an overview of segment profitability using Total Operating Profit, a non-GAAP measure, and details the performance of the Europe, Latin America, and North America segments Overview Management utilizes Total Operating Profit, a non-GAAP financial measure, to assess the earnings performance of its business segments and allocate resources | Operating Profit (In millions) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income (Loss) Before Income Taxes | $120 | $63 | $360 | $130 | | Interest (income) expense, net | $10 | $(2) | $(19) | $(3) | | Business special items, net | $7 | $1 | $(35) | $6 | | Total Operating Profit | $137 | $62 | $306 | $133 | Europe Segment The Europe segment experienced increased net sales and operating profit for both periods, driven by market price recovery, increased sales volumes, and lower economic downtime - Europe net sales increased by 19% to $262 million in Q3 2021 (from $220 million in Q3 2020) and by 9% to $743 million for the nine months (from $682 million in 2020), driven by market price recovery for pulp, uncoated freesheet, and coated paperboard[159][160][163] - Europe operating profit increased by $24 million in Q3 2021 and $20 million for the nine months, primarily due to higher sales prices and volumes, and lower economic downtime, offsetting increased input costs and planned maintenance outages[161][164] Latin America Segment The Latin America segment showed strong growth in net sales and operating profit for both periods, primarily due to increased sales prices, favorable product mix, higher volumes, and reduced economic downtime - Latin America net sales increased by 33% to $200 million in Q3 2021 (from $150 million in Q3 2020) and by 28% to $557 million for the nine months (from $434 million in 2020), reflecting recovery and increased market prices for pulp and uncoated freesheet[166][167][170] - Latin America operating profit increased by $27 million in Q3 2021 and $85 million for the nine months, driven by increased sales prices and mix, higher volume, and less economic downtime, despite increased input costs[168][171] North America Segment The North America segment reported higher net sales and operating profit for both periods, attributed to increased market prices and volumes for uncoated freesheet, and lower planned maintenance outages - North America net sales increased by 19% to $447 million in Q3 2021 (from $375 million in Q3 2020) and by 13% to $1.255 billion for the nine months (from $1.114 billion in 2020), due to increased market prices and demand recovery for cutsize paper and rolls[173][174][177] - North America operating profit increased by $24 million in Q3 2021 and $68 million for the nine months, driven by higher sales price and volume, and lower planned maintenance outages, partially offset by increased input costs (wood, energy, chemicals)[175][179] Non-GAAP Financial Measures This section presents Adjusted EBITDA and Free Cash Flow as non-GAAP financial measures, providing reconciliations to GAAP net income (loss) and cash provided by operations | Adjusted EBITDA (In millions) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :---------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income (Loss) | $92 | $51 | $269 | $105 | | Income tax provision (benefit) | $28 | $12 | $91 | $25 | | Interest (income) expense, net | $10 | $(2) | $(19) | $(3) | | Depreciation, amortization and cost of timber harvested | $37 | $38 | $108 | $117 | | Non-Cash Items (Stock-based compensation) | $3 | $4 | $10 | $11 | | Special Items | $7 | $1 | $(35) | $6 | | Adjusted EBITDA | $177 | $104 | $424 | $261 | | Free Cash Flow (In millions) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--------------------------- | :-------------------------- | :-------------------------- | | Cash provided by operations | $379 | $225 | | Cash invested in capital projects | $(54) | $(59) | | Free Cash Flow | $325 | $166 | Liquidity and Capital Resources This section discusses Sylvamo's liquidity post-spin-off, emphasizing reliance on operating cash flow and new debt financing, detailing cash flows, contractual obligations, and capital expenditure plans Overview Post-spin-off, Sylvamo's liquidity relies on generating cash from operations and obtaining financing on acceptable terms, no longer participating in International Paper's centralized cash management - Sylvamo's ability to fund cash needs post-spin-off depends on generating cash from operations, available cash balances, and borrowings from third-party debt, no longer participating in International Paper's cash management[186] - The company incurred $1.4 billion in long-term debt and has a $450 million revolving credit facility (with $340 million available as of Sep 30, 2021) to support its liquidity[188] Operating Activities Cash provided by operating activities significantly increased for the nine months ended September 30, 2021, reflecting higher earnings and a net zero impact from working capital changes - Cash provided by operating activities increased to $379 million for the nine months ended September 30, 2021, from $225 million in 2020, driven by a significant increase in earnings[190] - Working capital components had a net zero impact on cash for the nine months ended September 30, 2021, compared to a $36 million increase in 2020, primarily reflecting increased sales[191][192] Investment Activities Cash inflow from investing activities increased for the nine months ended September 30, 2021, primarily due to cash pooling arrangements with International Paper, with consistent capital spending - Total cash inflow from investing activities increased for the nine months ended September 30, 2021, primarily due to cash pooling arrangements with International Paper[193] | Capital Spending by Segment (In millions) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------------- | :-------------------------- | :-------------------------- | | Europe | $11 | $12 | | Latin America | $26 | $36 | | North America | $17 | $11 | | Total | $54 | $59 | Financing Activities Cash used in financing activities for the nine months ended September 30, 2021, primarily reflects a $1.52 billion special payment to International Paper as part of the spin-off, along with debt issuance costs - Cash used in financing activities for the nine months ended September 30, 2021, primarily reflects a $1.52 billion special payment to International Paper and $24 million in debt issuance costs and discounts related to new debt[195] Contractual Obligations This section confirms the company's ongoing fulfillment of contractual obligations and notes a new $77 million related party payable for inventory purchased from International Paper post-separation - A $77 million related party payable was recorded for inventory purchased from International Paper on October 1, 2021, to be paid over the first six months of 2022[197] Capital Expenditures This section details historical capital spending, averaging $57 million for the nine months ended September 30, 2021 and 2020, and outlines future plans including $130-$150 million annually for maintenance - Average capital expenditures were approximately $57 million (2.1% of net sales) for the nine months ended September 30, 2021 and 2020, with $37 million for maintenance and $17 million for strategic capital and reforestation[198] - Annual maintenance, regulatory, and reforestation capital expenditures are expected to be $130-$150 million per year for the next several years[198] - A major capital expenditure of $220 million is anticipated over the next three years to replace recovery boilers at the Svetogorsk mill, with 80% expected in 2023-2024[199] Critical Accounting Policies and Significant Accounting Estimates This section reaffirms that critical accounting policies, including those for impairment of long-lived assets, goodwill, and income taxes, remain unchanged from the Form 10 - Critical accounting policies, such as impairment of long-lived assets and goodwill, and income taxes, have not changed during the first nine months of 2021[201][202] - The full impact of COVID-19 on accounting estimates is unknown and cannot be reasonably estimated, but appropriate estimates have been made based on available facts[203] Forward-Looking Statements This section provides a cautionary statement regarding forward-looking statements, emphasizing that actual results may differ materially due to various risks and uncertainties - Forward-looking statements are based on current information and management's beliefs, but actual results may differ materially due to inaccurate assumptions or known/unknown risks and uncertainties[205][206] - Key risks include the impact of COVID-19, inability to achieve spin-off benefits, failure to operate profitably as a standalone company, increased raw material/energy/transportation costs, and changes in international conditions[207] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section incorporates market risk disclosures from the company's Form 10, highlighting that the only material change in market risk exposure relates to interest rate risk from new debt - The only material change in market risk exposure since December 31, 2020, is interest rate risk related to the company's new debt[209] - As of September 30, 2021, Sylvamo had $1.1 billion in floating rate debt, and a 100-basis point increase in market interest rates would result in an approximate $9 million change to annual interest expense[209] Item 4. Controls and Procedures This section confirms management's conclusion on the effectiveness of disclosure controls and procedures as of September 30, 2021, with no material changes in internal control reported - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2021[210] - No material changes in internal control over financial reporting occurred in Q3 2021[211] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, and a comprehensive list of exhibits filed with the Form 10-Q Item 1. Legal Proceedings This section states that Sylvamo is not currently involved in any legal proceedings expected to have a material adverse effect on its financial condition or results of operations - Sylvamo is not currently involved in any legal proceedings that are expected to have a material adverse effect on its financial condition or results of operations[214] Item 1A. Risk Factors This section refers to the comprehensive risk factors outlined in the company's Form 10, confirming no material changes to these risks - No material changes to the risk factors from those described in the company's Form 10 have occurred[215] Item 6. Exhibits This section provides a comprehensive list of exhibits filed with the Form 10-Q, including various agreements related to the spin-off, corporate governance documents, and certifications - The exhibits include the Separation and Distribution Agreement, Amended and Restated Certificate of Incorporation and By-Laws, Indenture for Senior Notes, Credit Agreement, and various transition and commercial agreements with International Paper[216][217] - Certifications from the principal executive and financial officers (Sarbanes-Oxley Act Sections 302 and 906) are filed/furnished with the report[217][218] SIGNATURES This section contains the official signatures for the Form 10-Q filing - The Form 10-Q was signed by Kevin W. Ferguson, Vice-President and Controller of Sylvamo Corporation, on November 12, 2021[223]