What changed in Sylvamo Corp's 10-K — 2024 vs 2025

Item 1. Business - Environmental and Other Regulations - Environmental and Climate Change Regulation . Our business and business prospects could be materially adversely affected if we fail to attract and retain senior management and other key employees.

We are led by a strong senior management team that has extensive experience in the paper industry, and we rely upon an extensive and skilled workforce .

Our ability to successfully operate our business and our future growth depends, to a significant degree, on the ability to continue to attract and retain senior management with strong leadership experience and relevant knowledge and skills. There is no guarantee that we will be able to continue to attract and retain strong senior management.

Also, as our workforce at our mills ages and retires, we will lose operators and other members of our skilled workforce with 30+ years’ experience, and many of the employees replacing them will have much less tenure.

This is due to a large extent on workforce preferences; that is, employee interest in manufacturing jobs with shifts covering 24 hours, seven days per week, has declined, and employees also are more open now to voluntarily leaving their positions and having multiple employers over their career than has historically been the case in our industry.

Our training programs are tailored to accelerate training, but it is difficult to replace the number of years of experience our retiring operators and skilled workforce possessed.

Although the labor market generally is not as tight as it was in recent years, the market remains tight for labor having the specialized technical and trade skills and experience needed for manufacturing operations at our mill locations.

All of the se factors drive up our cost of labor and, further, there is no guarantee that we will be able to attract and retain t he skilled employees needed to successfully operate our business in the future.

Loss of the services of any members of our senior management team or other key or skilled employees, significant attrition in our workforce, retirements as our workforce ages or the failure to attract and retain qualified persons to serve in management and other positions, could have a material adverse effect on our business and business prospects.

A significant write-down of goodwill or other intangible assets could have a material adverse effect on our financial condition and results of operations. We review our goodwill balance for impairment at least once a year using the qualitative assessment and, when necessary, the quantitative goodwill impairment test allowed in accordance with current accounting standards.

Future changes in the cost of capital, expected cash flows, or other factors could cause our goodwill and other intangible assets to be impaired, resulting in a non-cash charge against results of operations to write down these assets for the amount of the impairment.

In addition, if we make changes in our business strategy or if external conditions adversely affect our business operations, we may be required to record an impairment charge for goodwill or intangibles, which would lead to decreased assets and reduced net operating results.

If a significant write down is required, the charge could have a material adverse effect on our results of operations. 23 Failure to achieve expected investment returns on pension plan assets, as well as changes in interest rates or plan demographics, could adversely impact our business, financial condition, results of operations and cash flows.

We sponsor various defined benefit pension plans. The assets of the pension plans are diversified in an attempt to mitigate the risk of a large loss.

Required funding for our domestic defined benefit pension plan is determined in accordance with guidelines set forth in the federal Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and foreign defined benefit pension plans are funded in accordance with local statutes or practice.

Additional contributions to enhance the funded status of the pension p lans can be made at our discretion. As of December 31, 2024, the Sylvamo U.K. pension plan was fully funded, and the Sylvamo United States pension plan was 96% funded.

We may need to make future contributions to reduce any underfunding and, with respect to the U.K. pension plan, we have agreed with U.K. regulators to contribute to the plan approximately $4 million per year through 2029 to enhance the plan’s self-sufficiency.

Th ere can be no assurance that the value of the pension plan assets, or the investment returns on those plan assets, will be sufficient to meet the future benefit obligations of such plans.

In addition, during periods of adverse market conditions and declining interest rates, we may be required to make additional cash contributions to the pension plans that could reduce our financial flexibility.

Changes in plan demographics, including an increase in the number of retirements or increases in life expectancy assumptions, may also increase the costs and funding requirements of the obligations related to the company’s pension plans.

Additionally, interpretations of or changes in laws applicable to our United States or U.K. pension plan could cause us to have to increase funding of the plan; for example, see the disclosure concerning our U.K. pension plan in “ — Our business is subject to a wide variety of other laws, regulations and other government requirements that may change in significant ways, and the cost of compliance with such requirements could have a material adverse effect on our business, financial condition, results of operations and cash flows. ” An increase in costs or funding requirements could adversely impact our business, financial condition, results of operations and cash flows.

We could experience disruptions in operations and increased labor costs due to labor disputes.

A portion of our workforce is represented by unions and operate under various collective bargaining agreements, including some of our employees that are represented by six unions in Brazil, three unions in France, four unions in Sweden, and a union with two branches representing the hourly employees at our mill in Ticonderoga, New York.

We must negotiate to renew or extend any union contracts near or upon their expiration. We may not be able to successfully negotiate new agreements without work stoppages or labor difficulties in the future or renegotiate them on favorable terms.

If we are unable to successfully or favorably renegotiate the terms of any of these agreements, or if we experience any extended interruption of operations at any of our facilities as a result of strikes or other work stoppages, this could have a material and adverse effect on our business, financial condition, results of operations and cash flows.

We may not achieve the expected benefits from strategic acquisitions, joint ventures, divestitures, capital investments and other corporate transactions that we may pursue. We may pursue strategic acquisitions, joint ventures, divestitures, capital investments and other corporate transactions, such as our acquisition in January 2023 of our paper mill in Nymölla, Sweden.

We may not achieve the expected benefits associated with any such transactions in which we engage. Failure to achieve the expected benefits of a transaction could require us to record an impairment charge for goodwill or fixed assets.

Among the benefits we would expect from potential acquisitions and joint ventures are synergies, cost savings, growth opportunities and access to new markets (or a combination thereof), and in the case of divestitures, the realization of proceeds from the sale of assets to purchasers who place higher strategic value on such assets than we do.

Corporate transactions of this nature which we may pursue involve a number of special risks, including our inability to realize our business goals with respect to such transactions as noted above, the focus of our management’s attention on these transactions and the integration of acquired businesses into our operations, the demands on our financial, operational and information technology systems resulting from acquired businesses, and the possibility that we may become responsible for substantial contingent or unanticipated legal liabilities as the result of acquisitions or other corporate transactions.

In addition, subject to certain exceptions for immaterial transfers, if any portion of the Brazil eucalyptus forest plantations owned by Sylvamo as of October 1, 2021 are directly or indirectly transferred, Sylvamo will be required to make a payment of $100 million to International Paper.

For these purposes, a transfer includes any sale, pledge or transfer of any legal or beneficial interest in the Brazil lands, including any grant of an option or other right or interest or entry into any contract that would result in a reduction or diminution of Sylvamo’s economic ownership in the 24 Brazil lands.

A change of control of Sylvamo would also result in the payment becoming due and payable.

As a result, we would not realize the full value of any transfer of the Brazil eucalyptus forest plantations, which may make any such transaction less attractive to us, and the provision requiring payment upon a change in control of Sylvamo would be a pricing consideration in any potential strategic transaction.

We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business, or to defend successfully against intellectual property infringement claims by third parties. We rely on a combination of contractual rights with third parties and copyright, trademark, patent and trade secret laws to establish and protect our intellectual property.

Although we endeavor to protect our rights, third parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect our copyrights, trademarks, patents, trade secrets and know-how or to determine their scope, validity or enforceability. This would represent a diversion of resources that may be significant and our efforts may not prove successful.

The inability to secure or protect our intellectual property assets could harm our reputation and have a material adverse effect on our business and our ability to compete with other companies in our industry. In addition, we have a license from HP Inc. for the right to produce and sell HP branded copy paper in almost all geographies globally.

If we were to lose such license, our production volumes could decline and our business, financial condition and results of operations could be materially adversely affected. In addition, we may be subject to claims by third parties for (i) patent, trademark or copyright infringement, (ii) breach of patent, trademark or copyright license usage rights or (iii) misappropriation of trade secrets.

Any such claims or resulting litigation could result in significant expense and liability for damages.

If we were found to have infringed or misappropriated a third-party patent or other intellectual property right, we could in some circumstances be enjoined from providing certain products or services to our customers or from utilizing and benefiting from certain patents, copyrights, trademarks, trade secrets or licenses.

Risk Factors – “We are subject to extensive environmental laws and regulations and could incur substantial costs as a result of compliance with, violations of or liabilities under these laws and regulations.” An environmental clean-up matter in Brazil, which has been ongoing since prior to our spin-off from International Paper, and which has not had, but could have, a material financial impact on us, is described in Note 13 Commitments and Contingent Liabilities to the Consolidated Financial Statements included in Item 8 in this Annual Report on 10-K.

In 2024 we spent approximately $2.5 million and over the course of 2025 and 2026, we expect to spend $14-$15 million on capital projects in the aggregate for our mills in the three regions where we operate to control environmental releases into the air and water and to assure environmentally sound management and disposal of waste.

Depending on how project timelines develop, we expect to spend about $6-$12 million of such amount in 2025. Multiple laws have been passed in various jurisdictions addressing climate change that apply to us and may have a material impact on us.

The Paris Agreement, an international treaty on climate change, went into effect in November 2016 and continues international efforts and voluntary commitments toward reducing greenhouse gas (“GHG”) emissions. Consistent with this objective, participating countries aim to balance GHG emissions generation and sequestration in the second half of this century or, in effect, achieve net zero global GHG emissions.

Although the United States has withdrawn from the Paris Agreement, our two mills in Europe and our three mills in Brazil are impacted by GHG reduction commitments made by member countries under the Paris Agreement. In the EU, there is a GHG Emissions Trading System ("EU ETS").

Our Saillat and Nymolla mills are under Phase IV of the EU ETS that established a trading period ending in 2030, during which the two mills may benefit from 5 free allocation of GHG emission allowances.

However, the mills’ continued participation is subject to various factors, including potential changes to the EU ETS system, and our Nymölla mill’s eligibility to participate will terminate on December 31, 2025, absent any governmental action that would allow continued participation.

The financial impact on us of such termination will depend in part on factors not within our control, including any governmental action ameliorating the impact of termination.

The Paris Agreement and EU ETS may have a material impact on us depending on, among other factors, how binding the GHG emissions reduction commitments made by Paris Agreement member countries are, how market prices for GHG emissions credits evolve under applicable rules over the coming years, and the extent to which our mills are subject to requirements of member countries imposed in connection with the Paris Agreement.

In the United States, the EPA manages regulations to: (i) control GHG emissions from mobile sources by adopting transportation fuel efficiency standards; (ii) control GHG emissions from new Electric Generating Units ("EGUs"); (iii) control emissions from new oil and gas processing operations; and (iv) require reporting of GHG emissions from sources of GHG emissions greater than 25,000 tons per year.

Several U.S. states have enacted or are considering legal measures to require the reduction of GHG emissions by companies and public utilities. These federal and state regulations have not had a material impact on us. We monitor proposed programs, but it is unclear what impacts, if any, future GHG rules would have on our operations.

Although not required by current regulations, we aim to reduce our Scope 1, 2 and 3 GHG emissions by 35% and define a pathway to net zero emissions by 2030 against a 2019 baseline, although we cannot provide assurance that we will be successful in these efforts.

Furthermore, governments may enact additional laws to protect the environment and address climate change, which could expose us to the costs of additional compliance and the risks of potential noncompliance. Environmental and climate change regulation continues to evolve in the various countries and U.S. states where we do business.

For example, some U.S. states in which we have manufacturing operations, including New York, are taking measures to reduce GHG emissions, such as by developing a cap-and-trade program.

While it is likely that governmental action and legislation regarding environmental protection and climate change (including GHG emissions) will continue or increase in the future, it is not possible to predict what additional laws relating to environmental protection and climate change may be implemented, which countries, U.S. states or other jurisdictions may adopt such laws, or the extent to which such laws may impact our business; nor is it possible to predict how existing or future laws will be administered or interpreted.

In addition to possible direct impacts, such as our costs of compliance and risk of penalties and corrective measures in the event of violations, future laws could impact us indirectly, such as causing us higher prices for transportation, energy and other inputs, as well as generating more protracted air permitting processes, and causing delays and higher costs to implement capital projects.

If and as regulators increase their focus on climate change and other sustainability issues, we have been, or may become, subject to new disclosure frameworks and regulations.

For example, the European Parliament adopted the Corporate Sustainability Reporting Directive (“CSRD”), and EU sustainability reporting standards are being developed by the European Financial Reporting Advisory Group, with such standards to be tailored to EU policies building on and contributing to international standardization initiatives.

Such reporting will apply not only to local operations in the EU, but under certain circumstances, to entire global companies that have EU operations. The CSRD will require us to begin reporting for European operations in 2026 and for the entire Company globally in 2029, with the option to voluntarily commence reporting for the entire Company earlier than 2029.

As another example, the State of California has adopted new climate change disclosure rules that will apply to us because we conduct business in California. Reporting by us under the rules will be required starting in 2026. The SEC announced proposed climate change disclosure rules in March 2021 that are the subject of litigation challenging them.

The SEC deferred their effectiveness as a result of such litigation, and the future status of such rules is uncertain, particularly in view of the new U.S. presidential administration. The SEC’s rules were initially proposed to become effective in 2026.

Compliance with the CSRD, the California rules and, if implemented, the SEC rules, has required and may continue to require us to incur costs and devote significant resources, time and attention by our management and other personnel.

While we expect to fully comply with all such rules as they apply to us, if we fail to comply, it would subject us to potential penalties and fines.

Other Regulation Regional, national, state and local regulations apply to us in Europe, Latin America and North America that regulate the licensing and inspection of our facilities, including, in the United States, compliance with the Occupational Safety and Health Act that sets health and safety standards to protect our employees from accidents, and Department of Labor regulations that set employment practice standards for workers.

We are subject to highly complex tax laws in various countries in Europe, Latin America and North America, most notably in the countries where we have significant operations – Brazil, France, Sweden and the United States – that if violated, could 6 result in significant fines, interest charges and costs associated with litigation.

In Brazil, our business is subject to various tax proceedings, including those discussed in Note 13 Commitments and Contingent Liabilities and Note 12 Income Taxes to the Consolidated Financial Statements included in Item 8 in this Annual Report on 10-K.

Our global operations subject us to complex and evolving privacy and information security laws and regulations such as the EU General Data Protection Regulation, Brazil's Lei Geral de Proteçāo de Dados Pessoais, the California Consumer Privacy Act of 2018 and the California Privacy Rights Act.