SYLVAMO CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated and combined financial statements and related notes included in "Financial Information" of this Quarterly Report on Form 10-Q (this "Form 10-Q") and the Company's 10-K for the three years endedDecember 31, 2021 , 2020 and 2019. In addition to historical consolidated combined financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those stated and implied in any forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Form 10-Q and in our 2021 10-K, particularly under the headings " Risk Factors " and " Forward-Looking Statements ."
THE SPIN-OFF
Prior to the spin-off onOctober 1, 2021 , we historically operated as part of International Paper and not as a standalone company. These condensed consolidated and combined financial statements reflect the combined historical results of operations and cash flows of the Company as historically managed within International Paper for the periods prior to the completion of the spin-off and reflect our consolidated financial position, results of operations and cash flows for the period after the completion of the spin-off. The condensed consolidated and combined financial statements have been prepared inU.S. dollars and in conformity withU.S. GAAP. We recommend that the accompanying condensed consolidated and combined financial statements be read in conjunction with the audited consolidated combined financial statements and the notes thereto included in our 2021 10-K. The accompanying condensed consolidated and combined financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for any interim period are not indicative of the results that might be achieved for a full year.
EXECUTIVE SUMMARY
In the second quarter of 2022, we increased earnings and generated strong cash from continuing operations. In May, we announced the decision to sell our Russian operations and the business is now classified as discontinued operations. Second quarter net income from continuing operations was$84 million ($1.89 per diluted share), compared with$55 million ($1.25 per diluted share) for the first quarter. Operating cash from continuing operations was$76 million in the second quarter compared to$54 million in the prior quarter. Adjusted EBITDA was$189 million in the second quarter, which represents a 30% increase of$43 million from first quarter adjusted EBITDA of$146 million . Additionally, our second quarter adjusted EBITDA margin of 20.7% represents a 290 basis point improvement from our adjusted EBITDA margin of 17.8% in the prior quarter. Free cash flow improved in the second quarter to$39 million compared to$32 million in the first quarter. Comparing our performance in the second quarter to the first quarter, we benefited from gains in pricing, and commercial and operational execution, all of which combined allowed us to outpace inflation and expand our margins. The improvement in price and mix reflected better price realization inEurope andNorth America that exceeded our forecasts. Demand for uncoated freesheet continued to strengthen inLatin America andNorth America as schools and offices reopened. Volumes remained strong and our production facilities ran full in all three regions. In addition, we initiated a dividend program during the quarter, which was paid in July, we paid down$48 million in long-term debt, and our Board of Directors authorized a share repurchase program of up to$150 million . Looking ahead to the third quarter of 2022, we remain committed to generating strong earnings and cash flow despite continuing cost inflation and supply chain and geo-political challenges. Global uncoated freesheet demand is expected to remain strong. Selling prices remain favorable and we expect to realize the benefits of price increases already communicated to our customers in all regions, which we expect will allow us to continue outpacing input and transportation cost inflation. Lastly, we will continue to pursue the sale of our Russian operations.
Divestiture of Russian Operations
During the second quarter of 2022, management committed to a plan to sell the Company's Russian operations, which were previously part of theEurope business segment. As a result, all current and historical operating results of the Russian operations are presented as "Discontinued operations, net of taxes." All historical assets and liabilities of the Russian operations are classified as current and long-term assets and liabilities of discontinued operations. We recorded a pre-tax charge of$68 million ($57 million after taxes) for the impairment of the Russian fixed assets during the first quarter of 2022 and a pre-tax charge of 24 --------------------------------------------------------------------------------$156 million ($156 million after taxes) during the second quarter of 2022 to reserve for the elimination of the cumulative foreign currency translation loss related to our Russian business. See Note 7 Divestiture and Impairment of Busines s for further details. Unless otherwise indicated, all financial information refers to continuing operations. Our operations inRussia include a paper mill in Svetogorsk,Russia , and long-term harvesting rights on 860,000 acres of government-owned forestland, and represented approximately 15% of our net sales and 10% of our long-lived assets for the year endedDecember 31, 2021 .
RESULTS OF OPERATIONS
The following summarizes our results of operations for the periods presented:
Three Months Ended Six Months Ended
June 30, June 30,
In millions 2022 2021 2022 2021
NET SALES $ 912 $ 695 $ 1,733 $ 1,319
COSTS AND EXPENSES
Cost of products sold (exclusive of depreciation,
amortization and cost of timber harvested shown
separately below) 562 408 1,108 828
Selling and administrative expenses 81 57 147 96
Depreciation, amortization and cost of timber
harvested 32 31 63 62
Distribution expenses 97 82 171 156
Taxes other than payroll and income taxes 6 6 12 13
Interest (income) expense, net 17 (29) 34 (29)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES 117 140 198 193
Income tax provision 33 39 59 54
NET INCOME FROM CONTINUING OPERATIONS 84 101 139 139
Discontinued operations, net of taxes (143) 14 (172) 38
NET INCOME (LOSS) $ (59) $ 115 $ (33) $ 177 Three Months Ended
Net Sales For the three months endedJune 30, 2022 , the Company reported net sales of$912 million , compared with$695 million for the three months endedJune 30, 2021 . The net sales increase was primarily driven by an increase in average sales prices of our products, reflecting our success in obtaining price increases from our customers in order to offset higher input costs. International net sales (based on the location of the seller and includingU.S. exports) totaled$363 million , or 40% of total sales for the three months endedJune 30, 2022 . This compares with international net sales of$276 million , or 40% of total sales for the three months endedJune 30, 2021 . Additional details on net sales are provided in the section titled " Business Segment Operating Results ."
Cost of Products Sold
Cost of products sold increased by
Selling and Administrative Expenses
The$24 million increase in selling and administrative expenses was the result of the increase in net sales activity and$8 million and$9 million of expense recognized in the three months endedJune 30, 2022 related to the transition service agreement and one-time costs associated with the spin-off, respectively. Additional details regarding the one-time costs associated with the spin-off are provided in " Non-GAAP Financial Measures ."
Interest (Income) Expense, net
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The increase in interest (income) expense, net was the result of the recognition
of $17 million of net interest expense primarily related to the long-term debt
we incurred in conjunction with our spin-off and the inclusion in 2021 of
pre-tax income of $28 million associated with the accrual of a foreign
value-added tax credit. Additional details regarding debt incurred are provided
in Note 13 Long-Term Debt to our unaudited condensed consolidated and
combined financial statements included elsewhere in this Form 10-Q.
Income Taxes
A net income tax provision of$33 million was recorded for the three months endedJune 30, 2022 . A net income tax provision of$39 million was recorded for the three months endedJune 30, 2021 . The effective income tax rate for continuing operations was 28% for the three months endedJune 30, 2022 compared to 27% for the three months endedJune 30, 2021 . The income tax provision and effective income tax rate for continuing operations increased for the three months endedJune 30, 2022 primarily due to the mix of earnings in theU.S. and various income tax rates in non-US jurisdictions.
Discontinued Operations
Income (loss) from discontinued operations for the second quarter of 2022 includes a pre-tax charge of$156 million ($156 million after taxes) to reserve for the elimination of the cumulative foreign currency translation loss related to our Russian operations. See Note 7 Divestiture and Impairment of Business to our unaudited condensed consolidated and combined financial statements included elsewhere in this Form 10-Q.
Six Months Ended
For the six months endedJune 30, 2022 , the Company reported net sales of$1.7 billion , compared with$1.3 billion for the six months endedJune 30, 2021 . The net sales increase was primarily driven by an increase in average sales prices of our products, reflecting our success in obtaining price increases from our customers in order to offset higher input and operating costs. International net sales (based on the location of the seller and includingU.S. exports) totaled$676 million , or 39% of total sales for the six months endedJune 30, 2022 . This compares with international net sales of$522 million , or 40% of total sales for the six months endedJune 30, 2021 . Additional details on net sales are provided in the section titled " Business Segment Operating Results ." Cost of Products Sold
Cost of products sold increased by
Selling and Administrative Expenses
The$51 million increase in selling and administrative expenses was the result of the increase in net sales activity and$16 million and$12 million of expense recognized in the six months endedJune 30, 2022 related to the transition service agreement and one-time costs associated with the spin-off, respectively. Additional details regarding the one-time costs associated with the spin-off are provided in " Non-GAAP Financial Measures ."
Interest (Income) Expense, net
The increase in interest (income) expense, net was the result of the recognition of$34 million of net interest expense primarily related to the long-term debt we incurred in conjunction with our spin-off and the inclusion in 2021 of pre-tax income of$28 million associated with the accrual of a foreign value-added tax credit. Additional details regarding debt incurred are provided in Note 13 Long-Term Debt to our unaudited condensed consolidated and combined financial statements included elsewhere in this Form 10-Q.
Income Taxes
A net income tax provision of$59 million was recorded for the six months endedJune 30, 2022 . A net income tax provision of$54 million was recorded for the six months endedJune 30, 2021 . The effective income tax rate was 30% for the six months endedJune 30, 2022 compared to 28% for the three months endedJune 30, 2021 . The income tax provision and effective 26 --------------------------------------------------------------------------------
income tax rate increased for the six months ended
Discontinued Operations
Income (loss) from discontinued operations for the six months endedJune 30, 2022 includes a pre-tax charge of$68 million ($57 million , net of taxes) for the impairment of our Russian fixed assets and a pre-tax charge of$156 million ($156 million after taxes) to reserve for the elimination of the cumulative foreign currency translation loss related to our Russian operations. See Note 7 Divestiture and Impairment of Business to our unaudited condensed consolidated and combined financial statements included elsewhere in this Form 10-Q. BUSINESS SEGMENT RESULTS Overview Management provides business segment operating profit, a non-GAAP financial measure, to supplement our GAAP financial information, and it should be considered in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Management believes that business segment operating profit provides investors and analysts useful insights into our operating performance. Business segment operating profit is reconciled to Income from continuing operations before income taxes, the most directly comparable GAAP measure. Business segment operating profit may be determined or calculated differently by other companies and therefore may not be comparable among companies.
The following table presents a comparison of Income from continuing operations before taxes to business segment operating profit:
Three Months Ended Six Months Ended
June 30, June 30,
In millions 2022 2021 2022 2021
Income From Continuing Operations Before
Income Taxes $ 117 $ 140 $ 198 $ 193
Interest (income) expense, net 17 (29) 34 (29)
Net special items expense (income) (b) 8 (42) 13 (42)
Business Segment Operating Profit (a) $ 142 $ 69 $ 245 $ 122
Europe $ 17 $ 4 $ 19 $ (3)
Latin America 59 44 98 86
North America 66 21 128 39
Business Segment Operating Profit (a) $ 142 $ 69 $ 245 $ 122
(a) We define business segment operating profit as our income from continuing
operations before income taxes calculated in accordance with GAAP, excluding net
interest (income) expense and net special items. We believe that business
segment operating profit is an important indicator of operating performance as
it is a measure reported to our management for purposes of making decisions
about allocating resources to our business segments and assessing the
performance of our business segments.
(b) Net special items represent income or expenses that are incurred
periodically, rather than on a regular basis. Net special items in the periods
presented primarily include one-time costs associated with the spin-off and the
accrual of a foreign value-added tax refund and related interest income in
Brazil .
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Three Months Ended
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Six Months Ended
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The following tables present net sales and operating profit, which is the
Company's measure of business segment profitability, for each of the Company's
business segments. See Note 16 Financial Information by Business Segment and
Geographic Area to our condensed consolidated and combined financial
statements included elsewhere in this Form 10-Q for more information on the
Company's business segments.
Europe
Three Months Ended Six Months Ended
June 30, June 30,
In millions 2022 2021 2022 2021
Net Sales $ 135 $ 94 $ 252 $ 178
Operating Profit $ 17 $ 4 $ 19 $ (3) Three Months Ended
For the three months endedJune 30, 2022 , ourEurope business segment net sales increased$41 million , compared to the same period in 2021, primarily due to a continued recovery from the negative demand impact of the COVID-19 pandemic, resulting in an increase in the market price for uncoated freesheet, pulp and coated paperboard.Europe operating profit for the three months endedJune 30, 2022 was$13 million higher than the same period in 2021, driven primarily by increased sales prices and more favorable product mix ($38 million ), along with slightly more favorable volume ($1 million ), which more than offset the impacts of higher input costs primarily for purchased pulp, chemicals and energy ($14 million ) and higher operating costs ($11 million ).
Six Months Ended
For the six months endedJune 30, 2022 , ourEurope business segment net sales increased$74 million , compared to the same period in 2021, primarily due to a continued recovery from the negative demand impact of the COVID-19 pandemic, resulting in an increase in the market price for uncoated freesheet, pulp and coated paperboard.Europe operating profit for the six months endedJune 30, 2022 was$22 million higher than the same period in 2021, driven primarily by increased sales prices and more favorable product mix ($62 million ) which more than offset the impacts of higher input costs primarily for purchased pulp, chemicals and energy ($24 million ) and higher operating costs ($17 million ).Latin America Three Months Ended Six Months Ended June 30, June 30, In millions 2022 2021 2022 2021 Net Sales$ 249 $ 189 $ 464 $ 357 Operating Profit$ 59 $ 44 $ 98 $ 86
Three Months Ended
For the three months endedJune 30, 2022 , ourLatin America business segment net sales increased$60 million , compared to the same period in 2021, primarily driven by an increase in the market price of uncoated freesheet and pulp for both export and domestic markets, reflecting continued recovery from the negative demand impact of the COVID-19 pandemic. Operating profit forLatin America for the three months endedJune 30, 2022 was$15 million higher than the same period in 2021, as the benefits of increased sales prices and more favorable product mix ($53 million ) more than offset higher operating costs ($12 million ) and higher input costs ($26 million ), primarily for purchased pulp, chemicals and energy.
Six Months Ended
For the six months endedJune 30, 2022 , ourLatin America business segment net sales increased$107 million , compared to the same period in 2021, primarily driven by an increase in the market price of uncoated freesheet and pulp for both export and domestic markets, reflecting continued recovery from the negative demand impact of the COVID-19 pandemic. 29 -------------------------------------------------------------------------------- Operating profit forLatin America for the six months endedJune 30, 2022 was$12 million higher than the same period in 2021, as the benefits of increased sales prices and more favorable product mix ($98 million ) more than offset higher operating costs ($32 million ) and higher input costs ($54 million ), primarily for purchased pulp, chemicals and energy.North America Three Months Ended Six Months Ended June 30, June 30, In millions 2022 2021 2022 2021 Net Sales$ 549 $ 426 $ 1,057 $ 808 Operating Profit$ 66 $ 21 $ 128 $ 39
Three Months Ended
For the three months endedJune 30, 2022 , ourNorth America business segment net sales increased$123 million , compared to the same period in 2021, primarily due to an increase in the market price for cutsize paper and rolls, reflecting continued demand recovery from the COVID-19 pandemic. Operating profit forNorth America for the three months endedJune 30, 2022 was$45 million higher than the same period in 2021, primarily due to increased sales price ($97 million ) and volume ($2 million ) across all grades of uncoated freesheet reflecting continued demand recovery from the COVID-19 pandemic, as well as lower outage costs ($2 million ). These changes were partially offset by higher operating costs ($7 million ) and increased input costs ($49 million ) primarily for purchased fiber, energy and chemicals, as well as higher distribution costs due to continued transportation cost increases.
Six Months Ended
For the six months endedJune 30, 2022 , ourNorth America business segment net sales increased$249 million , compared to the same period in 2021, primarily due to an increase in the market price for cutsize paper and rolls, reflecting continued demand recovery from the COVID-19 pandemic. Operating profit forNorth America for the six months endedJune 30, 2022 was$89 million higher than the same period in 2021, primarily due to increased sales price ($175 million ) and volume ($13 million ) across all grades of uncoated freesheet reflecting continued demand recovery from the COVID-19 pandemic. These changes were partially offset by higher planned maintenance outages ($1 million ), higher operating costs ($2 million ) and increased input costs ($96 million ) primarily for purchased fiber, energy and chemicals, as well as higher distribution costs due to continued transportation cost increases.
Non-GAAP Financial Measures
Management provides Adjusted EBITDA, a non-GAAP financial measure, to supplement
our GAAP financial information, and it should be considered in addition to, but
not instead of, the financial statements prepared in accordance with GAAP.
Management uses this measure in managing the operating performance of our
business and believes that Adjusted EBITDA provides investors and analysts
meaningful insights into our operating performance and is a relevant metric for
the third-party debt. Adjusted EBITDA is reconciled to Net income (loss), the
most directly comparable GAAP measure. Adjusted EBITDA may be determined or
calculated differently by other companies and therefore may not be comparable
among companies.
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Three Months Ended Six Months Ended
June 30, Three Months Ended June 30,
In millions 2022 2021 March 31, 2022 2022 2021
Net Income (Loss) $ (59) $ 115 $ 26 $ (33) $ 177
Less: Discontinued operations, net of
taxes (143) 14 (29) (172) 38
Net Income From Continuing Operations 84 101 55 139 139
Income tax provision 33 39 26 59 54
Interest (income) expense, net 17 (29) 17 34 (29)
Depreciation, amortization and cost of
timber harvested 32 31 31 63 62
Stock-based compensation 7 4 4 11 7
Transition service agreement expense 8 - 8 16 -
Net special items expense (income) (a) 8 (42) 5 13 (42)
Adjusted EBITDA (b) $ 189 $ 104 $ 146 $ 335 $ 191
Net Sales $ 912 $ 695 $ 821 $ 1,733 $ 1,319
Adjusted EBITDA Margin 20.7 % 15.0 % 17.8 % 19.3 % 14.5 %
(a) Net special items represent income or expenses that are incurred
periodically, rather than on a regular basis. Net special items in the periods
presented primarily include one-time costs associated with the spin-off and the
accrual of a foreign value-added tax refund and related interest income in
Brazil .
(b) We define Adjusted EBITDA (non-GAAP) as net income (loss) (GAAP) excluding
discontinued operations, net of tax plus the sum of income taxes, net interest
(income) expense, depreciation, amortization and cost of timber harvested,
transition service agreement expense, stock-based compensation, and, when
applicable for the periods reported, net special items.
Management utilizes the Free Cash Flow measure in connection with managing our
business and believes that Free Cash Flow is useful to investors as a liquidity
measure because it measures the amount of cash generated that is available,
after reinvesting in the business, to maintain a strong balance sheet and
service debt, and potentially return cash to shareowners in the future. It
should not be inferred that the entire Free Cash Flow amount is available for
discretionary expenditures. Free Cash Flow also enables investors to perform
meaningful comparisons between past and present periods. Free Cash Flow is a
non-GAAP measure and the most directly comparable GAAP measure is cash provided
by operating activities from continuing operations.
The following is a reconciliation of Cash provided by continuing operations to
Free Cash Flow:
Three Months Ended Six Months Ended
June 30, June 30,
In millions 2022 2021 2022 2021
Cash provided by operating activities from
continuing operations $ 76 $ 110 $ 130 $ 155 Adjustments:
Cash invested in capital projects (37) (14) (59) (27) Free Cash Flow$ 39 $ 96 $ 71 $ 128 The non-GAAP financial measures presented in this Form 10-Q as referenced above have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results calculated in accordance with GAAP. In addition, because not all companies utilize identical calculations, the Company's presentation of non-GAAP measures in this Form 10-Q may not be comparable to similarly titled measures disclosed by other companies, including companies in the same industry as the Company.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Historically, we have generated strong annual cash flow from operating activities. However, prior to our spin-off, we were a part of International Paper's operating structure. Following the completion of the spin-off onOctober 1, 2021 , our capital structure and sources of liquidity changed significantly from our historical capital structure. We no longer participate in cash management and funding arrangements with International Paper. Instead, our ability to fund the Company's cash needs depends on our ongoing ability to generate cash from operations and obtain financing on acceptable terms. Based upon our history of 31 -------------------------------------------------------------------------------- generating strong operating cash flow, we believe we will be able to meet our short-term liquidity needs. We believe we will meet known or reasonably likely future cash requirements through the combination of cash flows from operating activities, available cash balances and available borrowings through the issuance of third-party debt, as needed. A major factor in our liquidity and capital resource planning is our generation of operating cash flow, which is highly sensitive to changes in the pricing and demand for our products. While changes in key operating cash costs, such as raw materials, energy, mill outages and distribution expenses do have an effect on operating cash generation, we believe that our focus on commercial and operational excellence, as well as our ability to manage costs and working capital, will provide sufficient cash flow generation to meet our operational and capital spending needs. During the third quarter of 2021, we entered into a series of financing transactions under which we incurred$1.5 billion of debt in conjunction with our spin-off from International Paper, consisting of two term loan facilities, the 2029 Senior Notes and borrowings from our cash flow-based revolving credit facility. The aggregate amount outstanding on this debt as ofJune 30, 2022 , was$1.3 billion . See Note 13 Long-Term Debt to the condensed consolidated and combined financial statements for further discussion. The proceeds of the debt were used primarily to fund a special payment to International Paper and to pay related fees and expenses. The Company's cash flow-based revolving credit facility has a total borrowing capacity of$450 million , of which approximately$440 million was available as ofJune 30, 2022 . The terms of the agreements governing our debt contain customary limitations for the financing as well as other provisions. These provisions may also restrict our business and, in the event we cannot meet the terms of those provisions, may adversely impact our financial condition, results of operations or cash flows.
Operating Activities
Cash provided by operating activities from continuing operations totaled$130 million for the six months endedJune 30, 2022 , compared with cash provided by operating activities from continuing operations of$155 million for the six months endedJune 30, 2021 . The decrease in cash provided by operating activities in 2022 relates primarily to changes in working capital. Cash used for working capital components (accounts and notes receivable, inventories, accounts payable and accrued liabilities, and other) was$85 million for the six months endedJune 30, 2022 , compared with cash used for working capital components of$51 million for the six months endedJune 30, 2021 . The six months endedJune 30, 2022 working capital components primarily reflect$58 million ,$33 million , and$31 million in cash used for our accounts and notes receivable, inventories, and accounts payable and accrued liabilities balances, respectively, offset by$37 million of cash provided by our other operating activities. The six months endedJune 30, 2021 working capital components primarily reflect$26 million and$63 million of cash used for our accounts and notes receivable balance and other operating activities, respectively, offset by$5 million and$33 million of cash provided by our inventories and accounts payable and accrued liabilities balances, respectively.
Investment Activities
The total cash used for investing activities from continuing operations for the
six months ended
The following table shows capital spending by business segment, which represents the most significant portion of our investment activities.
Six Months Ended
June 30,
In millions 2022 2021
Europe $ 2 $ 4
Latin America 21 15
North America 13 8
Corporate 23 -
Total $ 59 $ 27
32-------------------------------------------------------------------------------- Capital spending primarily consists of purchases of machinery and equipment and reforestation costs related to our global mill operations. As a percentage of depreciation, amortization and cost of timber harvested, capital spending totaled 94% and 44% for the six months endedJune 30, 2022 and 2021, respectively.
Financing Activities
Cash used for financing activities from continuing operations for the six months endedJune 30, 2022 primarily reflects the payments of$20 million ,$55 million , and$7 million on our outstanding principal debt balances for the Revolving Credit Facility, Term Loan B, and Term Loan F, respectively. Cash used for financing activities from continuing operations for the six months endedJune 30, 2021 primarily represented transactions between us and International Paper. These transactions were considered to be effectively settled for cash at the time the transaction was recorded. The components of these transactions (or transfers) included (i) constructive cash transfers from us to International Paper, (ii) cash transfers from International Paper to fund our requirements for working capital commitments and (iii) an allocation of International Paper's corporate expenses. OnMay 18, 2022 , the Board declared a quarterly dividend of$0.1125 per share for the period ofJuly 1, 2022 toSeptember 30, 2022 . The dividend was paid onJuly 15, 2022 , to holders of record at the close of business onJune 17, 2022 . Also onMay 18, 2022 , the Board approved a share repurchase program under which the Company may purchase up to an aggregate amount of$150 million of shares of its common stock (the "Repurchase Program"). Pursuant to the Repurchase Program, the Company may repurchase in amounts, at prices and at such times as it deems appropriate, subject to market conditions and other considerations, including all applicable legal requirements. Repurchases may include purchases on the open market or privately negotiated transfers, under Rule 10b5-1 trading plans, under accelerated share repurchase programs, in tender offers and otherwise. The Repurchase Program does not obligate the Company to acquire any particular amount of shares of its common stock and may be modified or suspended at any time at the Company's discretion.
Contractual Obligations
Our 2021 10-K included disclosures of our contractual obligations and commitments as ofDecember 31, 2021 . Total purchase obligations related to discontinued operations as ofDecember 31, 2021 were$4 million . We continue to make the contractually required payments, and, therefore, the 2021 obligations and commitments described in our 2021 10-K have been reduced by the required payments. Capital Expenditures For the six months endedJune 30, 2022 , we have invested approximately$59 million , or 3.4% of net sales, in total capital expenditures. Over that period, we spent approximately$26 million , or 1.5% of net sales, in maintenance capital expenditures, and approximately$33 million , or 1.9% of net sales, in strategic capital expenditures and reforestation. Our annual maintenance, regulatory and reforestation capital expenditures are expected to be in the range of approximately$130 to$150 million per year for the next several years, which we believe will be sufficient to maintain our operations and productivity. In addition, we expect to spend approximately$20 million on high-return projects in 2022.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES
The preparation of financial statements in conformity withU.S. GAAP requires the Company to establish accounting policies and to make estimates that affect both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require subjective judgments about matters that are inherently uncertain. Accounting policies whose application may have a significant effect on the reported results of operations and financial position of the Company, and that can require judgments by management that affect their application, include the accounting for impairment or disposal of long-lived assets and goodwill, and income taxes.
The Company has included in the Form 10-K a discussion of these critical accounting policies, which are important to the portrayal of the Company's financial condition and results of operations and require management's judgments. The Company has not made any changes in these critical accounting policies during the first six months of 2022.
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--------------------------------------------------------------------------------FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains information that includes or is based upon forward-looking statements. Forward-looking statements forecast or state expectations concerning future events. These statements often can be identified by the fact that they do not relate strictly to historical or current facts. They typically use words such as "anticipate," "assume," "could," "estimate," "expect," "project," "intend," "plan," "believe," "should," "will" and other words and terms of similar meaning, or they are tied to future periods in connection with discussions of the Company's performance. Some examples of forward-looking statements include those relating to plans, expectations, and projections concerning our business and performance, our plans relating to our Russian operations, our future capital and other expenditures, our anticipated cash requirements and our ability to meet them and our future ability to generate sufficient cash flow. Forward-looking statements are not guarantees of future performance. Any or all forward-looking statements may turn out to be incorrect, and actual results could differ materially from those expressed or implied in forward-looking statements. Forward-looking statements are based on current expectations and the current economic environment. They can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors that are difficult to predict. Although it is not possible to identify all of these risks, uncertainties and other factors, the following factors, among others, could cause our actual results to differ from those in the forward-looking statements: the impact of continued changes in international conditions, including the war inUkraine , as well as sanctions and other actions that may be taken byRussia and in other jurisdictions in which we operate; deterioration of other economic and political conditions where we operate including continued inflation that increases our costs of operating and potential economic recession decreasing demand for our products; workforce, natural gas, fuel and transportation shortages experienced by us and our suppliers creating challenges for our and their operations to overcome, increasing supplier's prices charged us, and increasing our costs of operating; the failure to sell or otherwise exit our Russian operations on terms reflecting the value placed by us on such operations or at all; the inability to obtain the necessary regulatory approvals or to repatriate proceeds from a potential sale of our Russian operations; the pursuit byACR Group Paper Holdings LP ("ACR") of any of the potential plans or proposals identified in the Schedule 13D filed by ACR with respect to the Company onApril 21, 2022 ; an event occurs that causes the rights issued under the Rights Agreement adopted by the Company onApril 22, 2022 , to become exercisable; new COVID-19 variants arising that worsen the impact on our business of the pandemic and the measures implemented to contain it; climate change and physical and financial risks to us associated with fluctuating regional and global weather conditions or patterns; increases in our cost of and decreases in the availability to us of raw materials, energy and transportation; reduced truck, rail and ocean freight availability which could result in higher costs to us or poor service; information technology risks related to potential breaches of security which may result in the distribution of company, customer, employee and vendor information; extensive environmental laws and regulations, as well as tax and other laws, inthe United States and other countries in which we operate, which could result in substantial costs to us as a result of compliance with, violations of or liabilities under these laws; failure to attract and retain senior management and other key and skilled employees, particularly in the current tight labor market; the loss of our commercial agreements with International Paper; our limited operating history separate from International Paper, and we may not be able to operate profitably as a stand-alone company or achieve the expected benefits of our separation from International Paper; failure of our separation from International Paper to qualify as a tax-free transaction forU.S. federal income tax purposes; our substantial indebtedness and its impact on our ability to operate and satisfy our debt obligations; the limited trading history of our common stock; and the factors disclosed in Item 1A. Risk Factors in our annual report on Form 10-K for the year endedDecember 31, 2021 ("2021 10-K"), as such disclosures may be amended, supplemented or superseded from time to time by other reports that we file with theSecurities and Exchange Commission , including subsequent quarterly reports on Form 10-Q, annual reports on Form 10-K and current reports on Form 8-K.
We assume no obligation to update any forward-looking statements made in this quarterly report to reflect subsequent events or circumstances or actual outcomes.
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